2016 the year in review

If I could, I would love to remember 2016 second by second, but with a limited memory capacity I can afford only the highlights. A very important year with some very valuable lessons. Let's go through some of them

There never will be a perfect world

Forget perfect, the world is only getting more & more volatile and unpredictable ... more imperfect. So stop waiting for that perfect day. Do what you want to do .. do it today. If you want to go somewhere, learn something, do something .. do it today. If you want to invest in stock markets (many friends keep asking me when is the right time to start), start today.

Bulls make money, bears make money but pigs always get slaughtered

Many people who were left out of the stock market were extremely burnt up about people making easy money in stock market. They were really happy when the stock market crashed and jumped in to catch the missed bus. What happened after that is what is called "pigs always get slaughtered". Stock market suffered major crashes throughout the year causing great pain and suffering to loyal stock market investors & traders but what happened with the pigs is that when they got the opportunity to enter the stock market, they had no clue where to put their money. Most ended up with wrong investments at wrong prices. The bulls & bears knew exactly where to put the money, but had little left. Still they recovered with the market. What we learn? Be with the market, not outside hoping for it to crash one day. Don't celebrate misery of others or try to take advantage of it. Never run out of cash reserves.

life goes on

People of Syria must have thought that the war is never going to end, but it did after almost 6 years it did. People thought that Brexit would shake the world out of order, but practically nothing happened. demonetisation came out of nowhere in India. What followed was several days, weeks and months of chaos & confusion and yet life goes on.

truth triumphs eventually

the obama's & clinton's of the world learnt it the hard way. Their fake speeches on values & integrity didn't work with public this time as they were shown the middle finger and thrown out of power for their criminal, corrupt and mentally insane actions and mindless abuse of power.& position. The world instantly became a much better place when hillary lost the presidential election to Trump this year not once but thrice (count, recount, electoral)!

don't ignore the small one's

Julian Assange changed the direction of US presidential elections. Zika virus from mosquitoes shook Brazil. Syria won the Aleppo battle against half the world's most advanced armies. 100 & 10 Rs note survived while the 500 & 1000 Rs notes perished. Small IPO's created spectacular wealth while the Reliance, HDFC, L&T struggled to close the year in green.

change volatility is the only constant
yes the markets fell, but before you could catch the fall they spiked back up. yes the markets spiked but before you could book out, they fell again. This is the new normal and you will have to adopt to it to survive & thrive. Learn to live in the now .. don't plan your year in advance, you have no clue what's coming. The only thing you can bank upon is that nothing will be permanent so always keep your next moves ready.

In short

Believe everything, trust no one.  (Agent Mulder, X files)

making money in disruptive times

Most fundamental investors are against active portfolio management and rightfully so. Conventional wisdom says that we must reject 99% of stock ideas, build a concentrated portfolio, more decisions we take, more mistakes we will make, etc etc. These rules are ok for mature and developed economies where things are largely stable at the macro and micro level, but does it apply to a market like India? I don't think so.
India went through a long phase of stagnation but recent political change at the center has brought in a progressive and reformist government that is changing things in this country on a daily basis and for good. While most good businesses are capable of surviving policy changes, they will not necessarily be the best ones to put your money to work. We are talking about disruption and not just changes here. While good businesses will survive disruption we need to choose investments that will thrive and prosper in this disruptive environment and not just survive. Many companies will disappear and many will rise in this environment and some of them will become the good & stable businesses of tomorrow rewarding early investors and stock pickers multi-fold in the process. Stable businesses will on the other hand give you stable returns. But stable returns in a disruptive environment is at best under-performance .. hardly any fun.

How to make money in disruptive times?
Simple. Break the rules. Experiment. One such recent event in India was demonetization. One announcement and a country of 1.2 Billion changed in a day. With such a disruptive change can the investment themes pre and post demonetization remain the same? The stock market went into a tailspin post the announcement. Several so called stable businesses that were once long time favorites of investment gurus came crumbling down. At the same time several new investment ideas have emerged that are rising straight up non-stop in this market. Off-course many of them are new businesses, have untested management and little history to rely on. But this is a brave new country, change will not happen if we stick with the old. Change will happen if we embrace the new. Some will fail but many will also make it big. The big one's will continue to be big but real money will be made by investing in small companies that will make it big.

So what changes with demonetization?
Recently I have added 25 new companies in my portfolio and within a month my portfolio is back to near peak level pre-demonetization. A substantial part of these gains come from my new investments in a really short time. Compare this to passive investment portfolios which are down anywhere between 8-30%. So what are the changes? I have listed them down at a high level in terms of investment themes. These also take into account few more major events like Trump victory, GST & rise in oil prices post more collaborative approach between OPEC members, etc

Inclusions:

• Digital Payment/Fin Tech/e-gov
• Banks (new age banks with no NPA problems)
• Organized retail/e-commerce
• GST & Mkt consolidation
• Budget'17 & Housing for all/Smart City
• Rural development & inclusion
• Specialty Chemical Manufacturing
• 24 hours power & electrification
• Defense modernization/FDI
• Road, Infra, in-land water transport development

Exclusions: 

• Real Estate 
• Oil price dependent industries (paints, plastic, airline, etc)
• Jewelry & Luxury items
• Discretionary consumer goods
• Media
• Telecom
• Old technology/cash dependent/land bank companies 
• Tata group
• Gold/Cash/Fixed Deposits/Hard Assets/Black Money

What will be the next change?
Next is FED rate hike. Lot of changes are going to come from Europe in 2017. Besides we have budget 2017 and the biggest change will come from Middle East & African countries like Syria & Libya in 2017. Fortunately many of them are not directly related to India but there will be impact on India too. So be ready ..

** not interested in theory ... want some stock names ... i tweet them regularly @vikiitd .. usual disclaimers apply .. primarily do your own research :)