Dear Teddies,

One of the fascinating things about the stock market is its volatility and we had lots of it in the last quarter. Local issues, international catastrophes, tension in the Middle East all aided to the volatility. In times like these investors get a chance to pick up their favorite stocks at 30% lower to what they were available a couple of months back. I am talking of the good solid consumer names whereas for the infrastructure, construction and real-estate companies there is always sense in avoiding them unless they come down to levels close to single digit PE multiples high dividend yield with a 25%-30% RoE.

Many at TED did pick up the good companies when things were uncertain as is evident by the constant posts that kept coming in the Portfolio Check up section. As Warren Buffett says that the trick to being rich in the market is to be greedy when others are fearful and be fearful when others are greedy. The problem lies in identifying the lines of greed and fear but who says money making was ever easy?

The beauty with consumer stocks is that they make you feel wealthy even when the markets go down. Jim Rogers mentions that even if you make 50% for two years in a row and lose 50% in the third year you will perform worse off then a Bank FD. I wonder how many money managers and investors think about this while investing.

The negative side about consumer stocks is that you can’t get a quick double unless you have a company where there is scope for a PE expansion. Someone asked me about the Correct PE for a stock like Page Industries and my reply was “Predicting the correct PE of a stock is like predicting how long a man will live. You can say whether he is old or young but one can never pinpoint if he is too old to die today, same with PE”.

This is TED Report Card for March 2011.

Regards,

 Basant