Archive

August 2016

Browsing

 

 

 

 

 

 

 

 

After Reading this blog you will never need to Agrue if Trends are Important or no. Since i have started my Retail Advisory, I have been asked many times that if I use fundamental or Technical Analysis for Investing. My Answer has always been, i use history, i learn from history about what has worked for last 50 years around the world in the Game of Investing. As Warren Buffet says ” What i have learned from History is that people don’t learn from History, and they repeat their Mistake”.

Start My FREE TRIAL

Today i want to Share a Secret, and that Secret is about Trends. I have seen a lot of technical guys cursing the fundamental ones and vice versa. I believe the only Goal we have is to create wealth with taking calculated risk using any Fundamental, Technical or Quantitative Analysis.

Read Our Blog Being Right Or Making Money

The first Step in learning to pick stock market winners is for you to examine leading winners of the past to learn all the characteristics of the most successful Stocks. We did a Research of the Biggest Winners of any 3 year period from 1994-2016 and we got amazing Insights from it.

Today i am going to Write Five Things you Need to Know About Trends

1) Only Concentrate on Medium Term Trends – When Charles Dow (Father of Technical Analysis) was writing his Theory 118 years ago he had written about 3 Trends i.e.

Primary Trend (Main Trend)- 9-24 Months
Secondary Trend (Reaction)- 3 Months+
Minor Trend- Less than a Month
Charles Dow had written that Minor Trends are “RANDOM IN NATURE AND CANNOT BE PREDICTED’, but today i see 99% traders who want to get rich quick do Intraday and Intradweek trading which is absolutely useless and i can Guarantee you that they will never create wealth doing that. Atul Suri (Right Hand of Rakesh Jhunjhunwala) in his “Trading for a Living” conclave said that Intraday Trading is For fools and he only Invest in Trends for Long term

2) Trend Last Long Enough to Make Money – The Pharma Index went up 7x from 2009 and 2014 without correcting even once more than 13%. The Dow Jones Went up 4x from 2400 to 9300 between 1991 and 1998 without even correcting once for more than 9%. I can give you 1000 Examples like this but i have made my point.

dow-jones-stallion-asset

3) The Difficult Part is Sitting Tight – I am a Big Fan of Jesse Livermore and he said “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this:  It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”. This is the most difficult part of Investing is being patient in your winning positions and believe me i took me years to learn patience. You have to be very patient with your winners and Extremely Impatient with your Looser. Jesse livermore said “The market does not beat them. They beat themselves, because though they have brains they cannot sit tight”

4) Fundamental not supporting Trends – Paul Tudor Jones (hedge Fund) has caught every stock market crash and has compounded money faster than warren buffet said “The concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?”. Paul Tudor Jones is a trend follower and buys whats rising and sells what Falling. This is where we at stallion Asset Differ, we only like companies which are rising but have improving fundamentals, i cant buy a company with deteriorating fundamentals and rising prices.

5) Trends Change – Ed Sekyota of Trading Tribe says “The elements of good trading are: 1, cutting losses. 2, cutting losses. And 3, cutting losses. If you can follow these three rules, you may have a chance.” The Best trend Traders have absolutely no regret in losing money, they are extremely unemotional. Sanjoy Bhattacharyya who is one of the marqee investors on Dalal Street who Ramdeo Agarwal consults before buying or selling a stock said in Gurus of Chaos that “If i am loosing more than 15%, i exit my Investment”.

Conclusion – I am in a CFA, CMT and i understand both fundamental and Technical. We at Stallion asset are into long term investing, but trends are extremely important especially in the last stage. Fundamentals might be good for the first 100 or 150 percent of a move, but the last 6 months of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic. There is no training, classroom or otherwise, that can prepare for trading the last wave of a move, whether it’s the end of a bull market or the end of a bear market, you just have to ride the wave and keep a trailing stop loss. To Create Wealth we have to only catch 1-2 bubbles and believe me your life will change.

Start My FREE TRIAL

“Tell Me where i am going to die so i wont go there” – Charlie Munger

Stallion Asset is in the business of creating Wealth for its client and that’s my only goal. Today’s Blog Is not about Creating wealth, but about what Not to do. We have a clear Avoid in One sector and we believe you should stay away from it.

The Sector i am speaking about is Pharma. Pharma companies are priced as defensive but actually there are many risks especially from US FDA. We cannot buy Pharma and go off to sleep anymore. The risk premiums for these companies should only increase and take these stocks 20-30% lower from Current level.

START YOUR FREE TRIAL

I am going to Highlight the technical part of the report in this Blog. Here is the Weekly Chart of CNX Pharma Index Below.

 

pharma-index

There are Two Factors that i base my Thesis on i.e. Technical and Psychology.

Technical –

The Pharma Index was a laggard in previous bull market of 2003-2007 where the nifty went up 6x from 1000 to 6300 but the Pharma Index went up only 3 times in that bull market. After the 2008 crash the Pharma Index Bottomed Out in 2009 at 2000 levels and was the first index to breakout in 2009 breakout out above its 2008 high. The Pharma Index Went up 7 times between 2009-2014 to reach a level 14000. The Most important thing was that the Index didn’t even correct once more than 13% in 6 years showing how Strong Trends are.

In 2015 Pharma Index corrected 19% showing clear Indication that the sector Bull Market is over. Pharma Index started its bull market in 2009 at around 2000 level has returned 38% CAGR in last 6 years to 14020 levels. The Sector is clearly overbought by Investors.

I Have seen no two consecutive bull markets have the same sector go up since inception of sensex in 1979. The Same thesis is of the research on 100 years of US market has been given in journal of Finance by a Professor of Yale. So in the next bull market we expect pharma to significantly underperform.

I have been a Buy Side for most of my professional life, and i understand there is no thing as certain in markets, we are dealing with probabilities.We think there is a large probability of that the Pharma game is over.

Psychology- Meaning of Defensive – Defensive means stable company during various phases of business cycle. Well i have no visibility of earnings anymore as 1-2 mistakes can erode my portfolio by 30-40%. I don’t know what a pharma company would look like 3-5-7 years from today. People are treating it as defensive stock when its clearly not.

Conclusion – Levels around 12091-12205 seems to be extremely strong resistance points. If we estimate a 50% retracement of the whole upmove, our target for the Index would be around 8000 levels which is 30% lower than what we are today. I cant say if those targets will come or no as i don’t like to predict the market. What i can say for sure is that there are many Fundamental, Technical and Psychological reasons for Pharma to Underperform.

Also Read Our Blog The Most Important Thing.

START YOUR FREE TRIAL

Disclosure – I have zero Exposure to Pharma Companies

Stallion Asset is Registered with SEBI under Research Analyst act 2014(INH000002582). Please Use this Report For educational purpose only. We wont be responsible for an loses faced by the User.

 Today I want to Share a Secret with you. Lately Markets have been in a strong up move and a lot of people ask me as to what i think about the direction of the market. To be honest, there are only a few people who i know who can predict the market but the best traders React rather than Predict. The Best Investors manage risk by taking a few chips off the table and entering again when valuations look reasonable.

 At Stallion Asset Office we don’t have a television. I read 4 Newspapers everyday between 6.30 am to 8.30am but i never see LIVE television. (I see videos of Buy Side Individuals online later). In Markets you have-to do the right thing and television forces you to do the Wrong, its not their fault, its ours. We human get influenced by Activity, Momentum and Figure of Authority.

 

The Reason of this Blog is not to criticize television but to tell you that in the short term and the long term data suggest that there is only one Independent factor that you should track very Carefully but i guarantee you that you don’t track it yet . Believe me after reading this blog, it will change the way you think.Thesis – Most emerging markets move in tandem as all emerging markets are looking west for equity capital. You might have heard on media “FII are selling, it’s time to rush to the exit door” or “FII’s are waiting on the sidelines to see governments action, stay invested”-remarks such as these abound in the Indian Stock Market and are a reflection of the influence that foreign institutional investors have. These overseas investors are far from a homogeneous bunch and are a mix of foreign pension funds, insurance companies, mutual funds, hedge funds, exchange traded funds and so on. But they loom over the equity trading landscape in India through their holding of almost 24 per cent of the country’s market capitalization. More than a third of the daily turnover in the cash market and one-fifth of derivative turnover on the National Stock Exchange stems from FII transactions. Most of the reversal points in stock market in recent years have been accompanied by heavy buying or selling by this investor group. It has, therefore, become important for investors to understand the factors that drive the FII fund flows into our country to gauge the direction of the equity market. Lately a lot of FII investments coming into India are ETF’s. Vanguard FTSE emerging market ETF and ishares MSCI emerging market index funds are the largest players in emerging markets. These funds are liquidity driven and have a mandate for passively invest by taking only systematic risks. You will be surprised seeing 24 year history of MSCI India and MSCI EEM as both markets move in exactly the same direction. Does Indian inflation have an impact? NO. Do Interest rates have an impact? No. Did ex finance minister P.Chidambaram fuel nifty rally from 1000 to 6200? NO. ITS ONLY GLOBAL FLOW OF FUNDS which affect prices and non-domestic factors. 24 years of history has proven that the even in years of low technology in 1990, global markets very much interlinked.

 Here we use a sample of MSCI Emerging market and MSCI India to explain the hypothesis.What is MSCI Emerging market Index(MSCI EEM)?
 The MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries*. With 836 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country

msci

 

Below is the 22 Year Chart of MSCI India & MSCI EEM in USD Terms.

msci-eem

 

Shocked? Surprised? Impressed?

This is not a 2-3 Month Chart but a 24 year Chart of MSCI EEM and MSCI India. We in India worry so much about Rainfall, IIP and other things but actually its Global market which matter the most.

The correlation between MSCI India and Emerging market for the last 10 years is 82.2% and MSCI Emerging market explains about 72% of total variation in MSCI India Returns. This gives a high degree of conviction that Fund-flow into emerging market effect returns to a large degree.

msci-correlation
Lately the Correlation has decreased a little in last 1 year as China’s Weight is 25% and the Shanghai Composite has been Very very volatile.Conclusion – The Nifty (USD) pattern has been similar to that to the MSCI EEM for last 24 years since 1992 (after FII investments were allowed). Lately there is some distortion due to china as its weight is 25% but even after that the Standard deviation of 12 month moving correlation average is 21% in last 10 years.
We at Stallion Asset Believe the Market are a Factor of Flow of funds and domestic factors have little Influence on it. Domestic Factors have huge influence on the Sectors that will do well. We are Stallion use a lot of evidence based analysis because we strive to be the best advisory company in the Country. We love doing things which are not written in books, not told in the media but we know them well. I hope you liked this secret and will track MSCI EEM from today.
Social media & sharing icons powered by UltimatelySocial