How to Ride Alongside India's Best Fund Managers
- In this issue:
- » Super investors can help you get rich in the markets
- » RBI vs government
- » FDI inflows into India was flat in 2016
- » Roundup of global markets
Peter Lynch is widely regarded as one of the greatest fund managers of all time, if not the greatest.
From 1977 to 1990, he managed the Magellan Fund at Fidelity Investments. The fund's 29.2% CAGR over this period was more than double the S&P 500 index. This stupendous record made Magellan the world's best-performing mutual fund.
Today I want to tell you how you can copy Lynch and his winning approach.
Invest in what you know
If you are an expert in a certain field - and most people are or at least have the potential to become one - consider investing in related stocks. For example, a doctor might have a good idea about various drugs. He would know - better than most - the pharma companies that are doing well. The same is true for all other industries.
Keep your eyes and ears open
Most people can spot good investments in their day-to-day lives before the market pros. Next time you visit a shopping mall, look out for popular products. Then find out if the company making the product is listed.
Keep your ears open about what consumers are saying. Are they excited and happy with the product? Spotting a company like Titan in this way wouldn't have been difficult.
Did you know Titan is up about 150 times over the last fifteen years? That's almost 40% CAGR! That's right. A company that has made crorepatis out of many of its shareholders was literally right in front of everyone's eyes the whole time.
Don't predict what might happen to the economy or the market
If Peter Lynch were a mutual fund manager in India, he probably wouldn't be too worried about demonetisation, monsoons, the tug of war between the RBI and the government, the direction of interest rates, India's fiscal and current account deficits, farm loan waivers, Donald Trump, Brexit, etc.
Not that these aren't important. They are. But it's useless to try to predict their impact. Instead, he would invest in companies, and not in the stock market. Consider doing the same.
Do your homework
Fundamentals matter. Never invest without doing the necessary research. Investing without research is like playing a game of cards without looking at them. Understand the business and the industry thoroughly.
Follow the story
Lynch believed that the company's 'story' - the reason you put money in a stock - should be very simple. So simple a child could understand it. The simplicity will help you 'follow the story'. If the media reports bad news about the company, you will understand the situation and the long-term impact better than most people. And this will give you an edge.
There's a lot more of course. But I just wanted to cover the basics of Lynch's approach today.
But you may want to know more. I understand. I could fill many pages about Lynch and his masterful stock picking approach. Perhaps I will someday.
But today I have something better to share.
Did you know we have fund managers right here in India who are just as worthy of imitation as Peter Lynch? About forty of them, in fact.
Over the last few months, my colleagues Rohan Pinto and Kunal Thanvi have spent a lot of time and energy seeking them out. They painstakingly uncovered their strategies, their investing philosophies, their stock picks, and their investment returns.
After a rigorous search across the length and breadth of India, they shortlisted the best of the best (if you can consider forty a short list!). But they didn't stop there. They developed a proprietary filtering tool, kodicms's Smart Money ScoreTM, to narrow down the stocks these gurus are investing in to the creme de la creme.
Their goal is simple. Catch these super investors early in action. Use the smart money tool to filter out the best stocks they are buying. And if the stock has sufficient upside, recommend it. This way you can ride alongside an Indian Peter Lynch.
In fact, Rohan and Kunal recently recommended their very first stock using this approach. The super investor in question - Ashish Kacholia of Lucky Securities - has increased his stake in this company over the last two quarters.
Now, I can't name the stock here. But I know this company is a market leader in its industry. Its fundamentals are strong. It's growing fast. It has paid down its debt. It's run by a competent promoter who holds about a 60% stake. He understands his business very well, and has 'soul' in the game.
There's a lot of upside too. And right now, you can get instant access to full information about this extremely promising business.
03:20 Chart of the Day
The RBI's status quo in the latest Monetary Policy review seems to have disappointed many. Especially the government. A rate cut may have underscored the government's claims of revival in the economy. But unlike the new GDP and IIP data, the RBI's monetary policy did nothing to support the claims.
The RBI, instead, made it amply clear that economy needs revival of private investment, restore better health of banks and removal of infrastructural bottlenecks. Without these, the rate cut would hardly stoke growth.
Also, while the RBI has lowered its inflation expectations, it maintains a hawkish stance. Understandably so, given the overhang of the GST.
The key warning from the RBI came on the overleveraged corporate sector and stressed banking sector. Both together may delay the revival in private investment demand. And without the resolution of bad loans, the RBI's job is hardly complete.
Which Way Will Inflation Go?
FDI inflows to India remained almost flat at $44.5 billion in 2016 as compared to 2015. India though improved its position to 9th in terms of FDI inflows to countries in 2016. Overall, FDI flows declined amidst global uncertainty. The only anomaly was UK which received an astonishing $254 billion in 2016 as compared to $33 billion in 2015.
India is slowly but surely developing as one of the most favorable destinations for FDI investment. Certain initiatives taken by the government to ease FDI flows has also helped. The government has eased FDI norms in 9 sectors including rail infrastructure, defence, pharmaceuticals, civil aviation and single brand retailing.
The government has also increased FDI investment in asset reconstruction companies (ARCs) to 100% from 49% earlier. Apart from encouraging FDI inflows, this move was initiated to tackle the growing NPA problem in the banking sector.
In her recent The 5 Minute WrapUp Premium, my colleague Madhu had explained the importance of FDI inflow to achieve high GDP growth rate. Investment from the government and private sector need the boost of foreign capital and intellectual know how to help GDP growth rate reach the inflection point.
One more encouraging factor here is that the FDI inflow trend in India has a striking resemblance to that of China in the early 90's. Assuming that India is to embark on a similar investment phase in both infrastructure and industries attracting such FDI is inevitable. Not only will it reduce the pressure banks and financial institutions for long term funding. It will also allow companies to focus on their growth plans rather than constantly worry about funding requirements.
Global financial markets ended the week on a flat note with an upward boost from Chinese share markets, which were up 1.7%. While the US markets ended the week marginally higher by 0.3%, major European indices like German Dax and London's FTSE 100 share markets ended the week on a flat note with a negative bias.
In the news from global financial markets, as per the IMF, a lack of clarity about the size of an expected US fiscal stimulus and China's rapid domestic credit growth are among risks that cloud Asia's economic outlook.
The above comments come days after ratings agency Moody's reported that China's structural reforms will not be enough to arrest its rising debt. It also said that another credit rating downgrade for the country is possible if the country doesn't get its ballooning credit in check.
Moody's Investors Service has recently downgraded China's sovereign ratings by one notch to A1. The agency expects the financial strength of the world's second-largest economy to erode in coming years as growth falters and debt continues to rise.
Many economists are of the view that central bank stimulus measures are masking the deeper problems of industrial overcapacity and high levels of corporate debt in China.
One of the major developments happened last week was Saudi Arabia, Egypt, the United Arab Emirates and Bahrain cutting their ties with Qatar. The nations accused Qatar of meddling in their internal affairs and backing terrorism.
Many are of the view that the above tensions will lead to supply disruptions and therefore affect crude oil prices.
All eyes are now set to see if Qatar, a member of the Organization of the Petroleum Exporting Countries (OPEC), decides to disrupt the production cutback deal.
One shall note that at a meeting last week in Vienna, OPEC and some non-OPEC producers agreed to extend supply cuts of 1.8 million barrels per day until the end of the first quarter of 2018.
If Qatar opts out of this deal, it would lead to a fall in crude oil prices. More so, it can also compel other producers to get off the deal. If this happens to be the case, there will be a rise in crude oil supplies which will weigh on crude oil prices.
The European Central Bank (ECB) kept interest rates unchanged in its monetary policy meet.
The decision comes as ECB President Mario Draghi and his fellow governing council members are yet to be convinced that the recent rebound in inflation in the Eurozone is durable because wage growth remains sluggish.
What was remarkable was the bank did not mention the possibility of further interest rate cuts. This indicated that the ECB is aiming to end its ultra-easy monetary policy.
The ECB has been pouring money into the Eurozone to boost inflation from a near-deflationary level.
In other news, as per the 2017 Global Retail Development Index (GRDI), India has surpassed China to secure the top position among 30 developing countries on ease of doing business.
The GRDI cited India's rapidly expanding economy, relaxation of FDI rules and a consumption boom as the key drivers for the above reported progress.
The GRDI ranks the top 30 developing countries for retail investment worldwide and analyses 25 macroeconomic and retail-specific variables.
Back home, Indian stock markets continued their positive momentum and hovered around record highs at the during the week. Disappointing GDP data was offset by expectations of a good monsoon and the impending GST implementation. Consumer Durables rallied during the week as they expect to benefit the most from GST implementation. Pharma stocks continued to see a recovery after they took a beating for many weeks. The BSE Healthcare index closed the week up by 2.5%. The Indian stock market ended the week on a flat note with a negative bias.
Performance During the Week Ended 10th June, 2017
"Only when the tide goes out do you discover who's been swimming naked." - Warren BuffettThis edition of The 5 Minute WrapUp is authored by Rahul Shah (Research Analyst).
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