What’s happening to stock markets, economy & your portfolio?

I recently read Rohit Chauhan’s post titledFacing Despair.For those who don’t know him, Rohit is a very capable Indian value investor with a decent track record. Many issues covered his post are also going through my mind. So I thought it would be a good idea to refer to it as a starting point.
In previous post, I mentioned that it made sense to choose companies having an inherent ability to suffer (but not die), instead of those which ‘may’become multibaggers (but have very high mortality rates) when building the core of one’s portfolio. You can read more about our logic here.
What got me thinking is that it actually seems true that days of high growth may be over. A 3% to 5% growth rate may have become the new normal. So all calculations assuming economy growing in excess of 9% and investments returning CAGRs of more than 15% need to be redone to arrive at more sensible investment decisions. After all, its all about ‘not making mistakes‘ in the market. This may sound too pessimistic. But this time around, problems are not in external environment alone. This time around many of these problems lie within.
And the last line of Rohit’s post is quite an eye opener. “I have a day job to support my family. I will not starve even if my portfolio goes to zero”. This statement shows that our portfolio related decision making depends a lot on how we and our families manage to fund their expenses. If you fund it through stock markets, i.e. trading etc, then your decision making may be different from mine. Just like Rohit, even I have a day job and I will not starve if my stock portfolio goes down to zero. I have taken care of the downside, if you ask about my overall wealth. As far as my stock portfolio’s upside is concerned, it will take care of itself. I have a time horizon which is longer than most people. And I am ready to wait out this storm. I am not going to lose my sleep over this. I will rather use this time to keep accumulating good stocks, great stocks and stocks of companies which are here to stay till the time when Indian economy starts looking up again.
I may be totally wrong in assuming that things may not turn around anytime soon. But that is the risk of using assumptions.
Note 1 – If you have read till here, you must have noticed that this post is using the term ‘I’ instead of ‘We.’ This post is written by Dev. The other Stable Investor (Shubhang) does not completely subscribe to this view and has recently started dabbling in short term trades. And for record, he has been making a lot of money in his trades (shorts). 🙂 He still maintains a long term portfolio. Just a disclosure to keep the readers in loop.
Note 2 – Some personal commitments have led to reduction in site & FB page’s update frequency. Hope to change it soon.

If you are a Infosys shareholder, then you should read this…

Disclosures: No positions in Infosys.

Sometime back, Infosys came out with its Annual Report. And since I had no positions in the company, materially speaking I am not affected by it. But since Infosys has a lot of negative sentiment going around it, I was curious too see what management had say about it.

infosys future
What does the future hold for this company?

So out of curiosity, I went through company’s annual report (link). And there was something in the report, which caught our eyes.

Nothing to worry.

With all negatives news surrounding the company, I felt something different. Now, ‘felt’ can be a dangerous word in stock markets. So please beware. I may be getting emotional with this one. So, you take your own call and decide for yourself. All the underlined words in rest of this post show that I might be getting a little irrational and emotional after reading things in the said document (i.e. Annual Report), which is prepared by people who are incentivized to sugarcoat and show us a good picture of the company 😉

So this is what I felt…

Everyone thinks that Infosys is down and out. Almost everyone I had a chat with felt that it was founders decision of playing passing-the-parcel with CEOs position, that was the main reason behind company’s downfall. Many question Infosys’s conservative attitude too. And to be frank, I don’t really understand what really went wrong with the company. Was it one of these reasons or a combination of all of them? I don’t know.

But while going through company’s Annual Report, I really liked a few things which current CEO, Shibulal had to say…

Changes are tough and they take time to show results. The company seems to be making changes which are hurting it in the short term. But these may put company on a better growth trajectory in the long term. Company’s management is being honest that they too are anxious about Infy’s current status.

The CEO went on to say that they ‘are listening and learning’ from their good and bad choices. And, situations like these ‘do cause the rare moment of self-doubt.’
Now, how many CEOs are ready to admit such a thing?

I liked the honest and tell-all approach which Infosys is following. And with all the cash that company has accumulated (Rs 24,000 Crores plus at the time of writing), I feel that it may only be a matter of time before something interesting might take place. It may be something related to their Transformation 3.0 or something totally different. This is just my view or rather a gut feeling.

If you do understand this sector well, I would appreciate if you could give some inputs on the issue for benefit of the readers.

Waiting to hear from you guys…