VALUES OF LONG TERM INVESTING

I have been getting innumerable queries from anxious investors stating that they have entered such and such stock at so and so price and the prices have now declined. What to do now? Most of their queries pertain to strong companies like Noida Toll, SPEL, JP Associates, Adlab Films, West Coast Paper Mills, Parsvnath, Omaxe Ltd. etc. etc. The list is endless.
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I may state as under :

i) Most of the investors have apparently joined the bandwagon when the market started rising from Sept. 2003 onwards. It has been practically a bull market.

ii) They have not seen an extended bear market. The present fall in the market has eroded the value of most investments by over 60% (Omaxe from Rs.600 to Rs.200, JP from 500 to 200, Noida from 80 to 30 etc.). I personally do not categorise the present position as an extended Bear Market, per-se. There are various international cues operating over which the investors are getting panicky.

iii) I have seen astronomical bull markets followed by extended bear markets in 1991-1992-93-94, 1996-97, Oct. 2001 to Sept. 2003 (Post 9/11 attack on U.S.). I would quote a few examples.

iv) During Harshad Mehta boom almost every share was rising astronomically without any valuation or reasoning. During 1999-2000 I.T. shares commanded very huge valuations, again without any reasoning. During this period, I know people who had purchased Pentamedia Graphics (then called Pentafour Software) at 2500.00 levels and they held on for whatever reasons known to them. In the bear market that followed, the stock went into hibernation, never to get up.

However, fundamentally strong companies may show extremely low valuations but over a longer time frame they tend to pick up. I am quoting below a few examples :

In the extended bear market post Oct. 2001 to say Aug. 2003 at some point of time the following stocks were quoting almost at their lows :

Tata Steel : Around 70.00, Bharti Airtel : around 33, SBI around 150, Reliance around 240-250 to name a few. But die hard fans of long term investing who believe in fundamental prospects held on. Look at the results.

v) In my fundamental analysis, lesson No. 4, I had stated that one should learn to accept bear markets or accept to book losses. I know many good portfolio managers who do this and even fund houses churn portfolios, at times booking losses. However, if you holding on to a fundamentally strong stock which has fallen down like anything, we can consider averaging out at the bottom. Noida Toll is a good case under consideration. Many persons known to me have started picking up Noida Toll at 35-38 levels for holding of at least one year.

Therefore, Friends, have patience. The temporary blip may pass on and we can look for better times ahead.

Always have a positive view on the market.

Kashiwala

p.s. : I shall be shortly posting Lesson No. 5 of Fundamental Analysis, how and why the stock prices move and what are the symptoms to watch out for.