Tuesday, 4 November, 2008

Mistakes of a well-known expert (And lessons for us!)

Mistakes of a well-known expert (And lessons for us!)

Read this portion of an interview. If you have the time, you can read the whole interview using the link given below:

The excerpt given below pertains to Mr. Sandip Sabharwal, one of the best-known and highly respected fund managers in India.


"I had turned very bearish on the markets last year in October-November. At that time, we had increased the cash allocation in our funds to over 20%.

However, the Indian markets continued to rally even as most other markets were correcting. By January 2008, we took a call that the markets will rally a bit more before correcting and deployed our cash in the markets. Just after that, the markets started correcting sharply.

Besides, most of our funds had a reasonable mix of mid-cap stocks, which corrected much more sharply during the initial phase of the market fall.

Frankly, I had expected a 30% kind of fall from the top, and not the 60% that we have actually seen.

As a strategy, nine months ago, we shifted our portfolio to companies with strong cash flows and those that do not need to raise capital in the immediate future for their growth. The companies in our portfolios are still growing strongly and we believe will outperform the markets as the situation stabilizes."

The full interview:

My take:

If a guy like Sandip Sabharwal can make two crucial (and extremely costly) mistakes and still succeed, so can we. His mistakes, as evident from the above interview excerpt:

  • He became bearish in October / November 2007 & increased cash levels but changed his view and deployed cash in January 2008
  • Later he expected a 30% kind of fall from the peak levels, and not the 60% plus fall that we have actually seen. (Obviously, this means that he has once again invested heavily at around 14000-15000 levels on the sensex, only to take a severe beating - just like the rest of us)!

We all still have some hope, I guess!

Moral of the story:

As all value investing gurus keep emphasising, nobody can predict short term movements of stock prices.

We just have to be disciplined enough to

  • look at margin of safety
  • invest for the long term
  • keep booking profits periodically
  • keep reviewing our portfolio regularly (though obviously not daily/weekly)
  • stick to our asset allocation plans and
  • execute all our noble intentions meticulously

Happy investing!



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