Sentiment Cracking-How to react??
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Fundamental
Forum Discription: Discuss the operations and finances of any of your companies.Make the other participants aware on the investment opportunities available in a stock on PE free cash flow etc
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=1214
Printed Date: 19/Apr/2025 at 3:20am
Topic: Sentiment Cracking-How to react??
Posted By: Vivek Sukhani
Subject: Sentiment Cracking-How to react??
Date Posted: 14/Sep/2007 at 11:36am
| With respect to the discussion going on with respect to Nucleus and the way members have expressed that the recent performance is owing simply to the sentiment that gripped the entire sector, I thought it fine to start a thread specifically dedicated to market sentiment. Many a times we are caught in too much of a positive sentiment and the blue strikes from nowhere. I remember at the peak of the fanatic sugar stock rally a year back, ethanol was such a buzz word....a few years back the same thing was with carbon credits.....I beleive the greatest skill which determines men from boys is the ability to say ENOUGH IS ENOUGH....picking right stocks is llike entering the chakravyuh but the real winner is one who gets out at the right moment....if one is unable to get out, he will become a Abhimanyu , brave but dead......thats also suggestive of many a people's career in stock markets. I know many people who began very well but got got badly trapped in their last purchase. One of my acquaintance made a big money with sugar stocks but is hugely trapped now with Shree Renuka Sugar and Bajaj Hindusthan....two of my friends are saddled with a good quantity of Infosy and one of them has also piled up TCS and owing to that their portfolio performance has been horrendous. I beleive when you start to see vertical built up on charts, its time to bid adieu. True, you may miss on certain super multi baggers but then its also true you wont have a big bag of losers otherwise. Sentiment is a very whimsical thing....by the time you realise the wind and tide has turned against you you find the sail's gone and all you are lefty with is agony. Its fine to see you lose while others are losing as well but when you see others win and you are losing at that moment, the anguish that grips you at moments is unbearable. You start wondering why are people dumping the stock, why no one is buying, why so much negative talks when the performance has not been as bad as they are making out to be. Its one thing talking about it and totally another bearing that phase.....although I have never got into this sentiment mess because I generally make an entry when no one is talking about such stocks and I have never had the luxury of being in the hot theme at any point of time but still my little portfolio is more than 9 times than what it was in 2001-2002 lows and that is inspite of the fact that i have pulled good deal for fixed income investments.....I beleive the biggest threat to a person portfolio emanates from being in a theme where is nothing to win and everything to lose.....people are betting big time on infrastructure, they are betting big time on cement and steel, on media on telecom, on retail saying this is the potential market size and this is the business model and stuff like that.....now in such a case, whats to win????? One must always bear in mind business performance and stock market performance never go hand in hand, the market either follows the performance or leads the business performance.......but then they are supposed to meet back the business performance. IT has done quite well in the period from 2001-2002, especially the biggies but the stock market performance has been pathetic....things dont fall hard and rise hard everytime. Sentiment when good evaporates the margin of safety from the stock. Ask yourself the question everytime, what if what you suppose will not happen?????? This may translate into being pessimist but always remember that a pessimist either gets correct or gets a positive surprise, for he doesnt expect any good to come out!!!!! |
Replies:
Posted By: omshivaya
Date Posted: 15/Sep/2007 at 12:16pm
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Very good points Vivek jee. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: kulman
Date Posted: 15/Sep/2007 at 12:24pm
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Vivek bhai....as usual you've spoken your heart out. But just a thought from the book you love....
Investing isn't about beating others at their game. It's about controlling yourself at your own game.---Jason Zweig (excerpted from his commentary on chapter 8 of The Intelliegent Investor)
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Vivek Sukhani
Date Posted: 15/Sep/2007 at 12:38pm
| Easier said than done......its easy for a robinson crusoe but difficult for vivek sukhani although I have always tried to distance myself from the sentiment based investing yet when it comes to measuring returns its tough to detach yourself from the indices even though you may have stocks with prctically a beta of 0..... |
Posted By: basant
Date Posted: 15/Sep/2007 at 12:49pm
Correct statement but it works like a double edged sword sometimes you come out of the battlefiled quite early and that is aproblem also.
It takes one Infosys, one pantaloon, one Unitech to make a life. Never give up a position easily.Looking at numbers is only historic, sentiment is temporary we have to become business analysts to peek into the future.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Vivek Sukhani
Date Posted: 15/Sep/2007 at 1:11pm
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Dont know Sir, but to me such things appear more as an accident.....may be I dont know as I am inexperienced person and have many things to learn....as far as getting out early is concerned , at least I will have the life for the next battle.......
There are many a things which I have to learn......sentiment is one this which cant be easily measured but one must try to avoid the anguish for only the one who faces it realises the pain. One must always try to balance himself out betwen cash and stocks
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Posted By: basant
Date Posted: 15/Sep/2007 at 1:14pm
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Best way to analyse sentiment is watch CNBC and see what the technical Tau's are saying. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 15/Sep/2007 at 1:26pm
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.....may be I dont know as I am inexperienced person and have many things to learn....
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I had read somewhere that to realise these things is the first step towards success.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: smartcat
Date Posted: 15/Sep/2007 at 1:39pm
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If sentiments are cracking and if fundamentals are good, then you won't find better opportunity to add on to your holdings.
Unfortunately, it looks people assumed that fundamentals are good for the sugar sector. Only time will tell whether market sentiment/concerns regarding Rupee appreciation and software companies are valid or not.
If people talk about me for generations and generations, I would like to be brave (and dead) like Abhimanyu!
Harshad Mehta and Ketan Parekh come to my mind.
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Posted By: Vivek Sukhani
Date Posted: 15/Sep/2007 at 1:47pm
| hahahaha....if i can take the liberty of furthering your observation on TAUs, listen and watch the nautankilal to make the best among the good choices...........we do need a revolution and these people like nautankilal must be given a royal treatment which the people of kolkata know best to do-public lynching.........they will be all cash at the bottom of the market and all stocks at the top of the market...........and to top it all, they will be so confident as if they can chart out the future of the stock by looking at the danda lakeer as if the palmist does by looking at the lines on the palm. TA works well if you are looking very neutrally but the CNBC's analysts are all traders themselves so they get screwed up in all their observation. I beleive the best money is not made by following the trend but by abandoning an overheated trend at the most opportune time, either ways. And thats where gauging sentiment comes in very very handy. For then its all instinct, nothing else. It was really painful for me to abandon Infy at 2037 after having doubled my investment in about a year's time and my dad was really annoyed with me but then I was starting to feel very very uncomfortable with that. I also abandoned larsen at 1700 odd levels ( a part though) and again abandoned at 2356 and will again abandon it for somehow I am not comfortable holding on to it....too much talking going on to give me any sense of comfort. |
Posted By: Vivek Sukhani
Date Posted: 15/Sep/2007 at 2:33pm
| Smartcat Sir, may I ask you 1 thing.......what will be your advise to a person who has bought a particular stock at say 500 and now if thats 350. Will you just tell him that if fundamentals are good you just go on adding them.....unfortunately, people dont have unlimited funds to invest and hence cherrypicking entry points for averaging are very crucial. And unfortunately again, it takes a little bit longer to discover that the fundamentals you were sitting upon is a damp squib and by the time it generally is too late. Dont get me wrong, but backing up on fundamentals is not as easy.....and unless you are capable of asking yourself very very tough questions, do not back fundamentals too much. The exercise to follow is to discover if the peak was the result of a sentiment or on some fundamental basis and if you can discover very objectively if it was due to a frenzy dont rush to back the fundamental just yet for what runs ahead of the fundamentals a bit too much also falls behind its fundamentals for a much longer while than what the investors in them commonly imagine. |
Posted By: smartcat
Date Posted: 15/Sep/2007 at 4:04pm
My comments to this person would be "Ha Ha Sucker! How does it feel to be left behind holding the dead bird?" But if it was my stock that fell down from 500 to 350, my reaction would be quite different.
Generally, I have an idea about how much percentage a particular stock/particular sector should have in my portfolio. For example - if software weightage in my portfolio falls by 15% to 8%, I would add less to other stocks and add more to the software pack, till the weightage is at a comfortable levels (say 10%).
For somebody who is earning a monthly income via salary/business, funds are truly unlimited. It will just take time to get the money and invest in the stocks, which is a good thing. Because one doesn't end up buying a big chunk at 350 levels.
This is not very different from your strategy of hoping that stock price of your dividend yielding profit generating company does not go up, while you are still buying them.
Let me turn it around - what if fundamentals are truly great? In FY09, after the tax/Rupee stuff has settled, what if the software pack starts pumping out 50% CAGR earnings for the next 3 years?
This is all about risks and rewards. Since Om is in software field, and since 100% of my income is in USD, let's just say "we have a sixth sense" on how things will be in the future.
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Posted By: Vivek Sukhani
Date Posted: 16/Sep/2007 at 12:54pm
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Funds are truly unlimited?????? What does it mean??????
Smartcat sir, a good yielding stock seldom falls like ninepins during a crash. True, there may be exceptions like Varun but that company has a different issue altogether. But with stocks which dont carry much of a yield, the bottom may be quite inconceivable. Yield mongers provide a bottom as they start pumping in case the stocks fall huge and thereby form a bottom but with stocks which simply rely upon some business model and growth potential etc., in case the sentiment deteriorates no bottom is bottom for them. Sentiment very rarely impacts yielding stocks for those who get into them are absolute ruthless people who understand nothing but dividends. Now when such people enter the stock they are there for long term simply because dividend mongers cant trade daily as dividends are received after a year's period in most of the cases. Capital gains to us is a very accidental income, something which rarely bothers us for even if i sell for a gain chances are I will reinvest a major part back into another high yielding stock of the moment.....so for me the only thing is delta dividend with every transaction..... and somehow by the grace of Lord Almighty, I have very rarely got nervous or had my sentiment cracked because of the stock price's crash.....
Coming to fundamentals being good or bad, its all about P/E assignment, and nothing else and P/E assignment is also a very vague thing....no God in this world has said a PEG of 1 is fair and a stock cannot stay above or below a PEG of 1.....most of the companies I am into are growing wonderfully well and will also do well in the coming years but market doesnt take note of it.....AND THIS TO ME IS AN OPPORTUNITY. Also by being opposite of the market I will never get mired in the sentiment stuff, for I am never with the sentiment so even if it cracks, it wont matter to me.....
The moot reason why I initiated this discussion was how to tackle the menace of sentiment crack.....the worst symptom of the sentiment crack happens when the 52 week high starts to look the all time high for the future. At that moment how to play the game....by making a very big average so as to bring the acquisition cost down so that you can book out on any intermittent rally or to just make a paw by paw entry....?????
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Posted By: Mohan
Date Posted: 16/Sep/2007 at 11:17pm
Vivekbhai, I am guessing his discussion has been initiated by you for academic purposes since you would never face such a situation based on your style of investing ie. dividend yields, as shared by you (points in bold above ) ie. lower the market prices dip, the more juicy the yields on your target stock gets assuming that the fundamentals remaining constant. Thus it is in your interest for the sentiment to crack. A desirable situation and certainly not a menace . I am not sure if you are providing and answer or asking a question. Hamari es duvidha ko suljahiye. Thanks ------------- Be fearful when others are greedy and be greedy when others are fearful. |
Posted By: Vivek Sukhani
Date Posted: 16/Sep/2007 at 11:41am
| Well, it was in the context of some of my bummies who have got badly trapped in IT stocks now. A friend of mine has accumulated many tickets of Infosys all the way from 2300 to 2000 and is now quite desperate to book out...he is tracking rupee dollar as a housewife tracks the retail price of potato. A relative of mine is similarly trapped in sugar stocks.....so given the way they ask how low can it go, I wanted to start this thread.....its true, for me the only things that matter is dividends and nothing else. |
Posted By: kulman
Date Posted: 16/Sep/2007 at 11:48am
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.......he is tracking rupee dollar as a housewife tracks the retail price of potato.... ----------------------------------------------------------------------
Hmm...
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Mohan
Date Posted: 17/Sep/2007 at 12:08pm
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What is the solution for them ? Thats a tough call to make. In my previous life a a mungerilal I have had similar experiences too. I had gotten stuck in stocks where everyday I saw them going down and I prayed and hoped that somehow they would go up to my buying price so that I could exit and not book a loss. Every day I got sinking feeling in my stomach when I saw the stock quotes and saw it lower. ( My rational though told me that I had made a mistake and I should get out, while my heart wished for a miracle to save me) Needless to say, I did not get out earlier when I still could as a result of which I lost a large portion of my capital, not to mention opportunity cost. If I would have taken the hard decision to sell earlier, my capital would not have diminished as much. Moral of the story for me has been " Never average down " " When in doubt, get out " Once again, Just sharing my experience. ------------- Be fearful when others are greedy and be greedy when others are fearful. |
Posted By: smartcat
Date Posted: 17/Sep/2007 at 12:14pm
Ask your bummies not get bummed out. The Big Three of the software pack are trading at a trailing P/E of around 20 (not 200, like in year 2000). These are companies that generate Rs. 4,000 crores of net profit each year, and show an increase each year, inspite of things going wrong.
That holds true only for some of the commodity plays, not the software pack (atleast not the big ones). They won't swing from a net profit of Rs. 4,000 crores to a net loss of Rs. 1,000 crore ever. There might be P/E contraction, that's all.
Like all situations, including a change in the market sentiments, you can do three things - BUY, SELL or HOLD.
- If you believe that sentiments are poor, hold the software stocks without any changes. Sensex weightage to software stocks is at 20%. As long as your weightage is less than 20%, you might actually outperform the benchmark.
- If you think that Mr. Market is right, book a loss and sell the stocks. This carries a risk of your portfolio underperforming the benchmark if the river changes direction.
- Be a contrarian and buy the software pack. By 2009, you would have accumulated enough software stocks at a price that others would kill for.
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Posted By: Vivek Sukhani
Date Posted: 17/Sep/2007 at 12:32pm
| Hey Smartcat, I admire the solutions you bring about.....but a simple question......Buy, sell or hold when a change in sentiment is there, is not the possible option. You cannot buy as the funds dry up faster than one imagines. So, now the solution thats there for my bummy is either to book out or repent as others are making a killing in commodity plays as well. I have advised him that if he cant handle this anymore he cn book out and get into ONGC. He was similarly trapped in Dish as well and I had to make him short so that he could minimise his losses. there is one thing which I have realised dear, dont fight the sentiment to show your bravery for it requires a great deal of courage to abandon the trend and to do bottom hunting rely on hard core financial management principles and not vague vague concepts. No God has said that a P/e of 20 is fair for a company. Also, it never pays to have a heartburn issues here...if one is uncomfortable, he should book out. A loss here and there is not the end of the world.....and you can always make up for that loss. |
Posted By: smartcat
Date Posted: 17/Sep/2007 at 12:40pm
Your bummy seems to be a big bum - always ending up buying stocks at their tops.
Mohan - Just a wild guess, but wasn't this sometime in 2000? Do you see any differences between 2000 and 2007?
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Posted By: Vivek Sukhani
Date Posted: 17/Sep/2007 at 12:46pm
| Well his issue is his accumulation style....he made some very decent killing but somehow the way he plays his shots will always have you you heart in your mouth.......he appears very confident when he enters and displays a lot of conviction till he doesnt get nervous and whenever he gets nervous he gets big time nervous......and this behaviour is typical of many traders who think of themselves a kin of buffett and lynch and what have you. |
Posted By: Mohan
Date Posted: 17/Sep/2007 at 1:13pm
--------------------------------------------------------------------------------------------- The Kargill episode was the last straw for me in the market. I was long, leveraged and broker closed out my positions when markets dipped . I got out of the market, penniless. Actually, kicked out would be more appropriate. Started investing again thru mutual funds in March of Last year. Differences between 2000 and 2007 is that now I am investing and not trading. Not qualified to comment on markets. I must say, I am still tempted to trade. Requires a lot of will power not to. ------------- Be fearful when others are greedy and be greedy when others are fearful. |
Posted By: Vivek Sukhani
Date Posted: 17/Sep/2007 at 1:55pm
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What to do if the people you entrust your money with trade and not investor so you will become a pseudo trader or a pseudo investor, whatever you may say.......hahahaha
however, thats how most MF investors have started their career as and this is what I call loss of confidence. One of my friends used to locate which is the best MF for her and I used to tease her by asking the time she devotes on locating a good , if be used in locating a good company she will be better off.....but you can trade directly into stock if and only if you have the confidence.
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