Don't fight the trend

Don't fight the trend and don't try to get perfect in your timing. However, you do need to get your timing approximately right. And you absolutely need to get the direction of your trend right. If you are on the right side of the trend then it is unlikely that you will lose. Modi got the nation's trend bang on and the Cong tried to force fit its view of the nation on its election campaign and we all know by now what the result is. BJP - All Time High and Cong - All Time Low. The Cong strategy of subsidies and doles did not help it any of the assembly elections post 2011 - UP, Rajasthan, Gujarat, MP and Delhi are those that come to mind. Cong's Stop Loss kept getting hit but they refused to exit their position and kept holding on to it. The BJP in contrast read the country's mood right, which had changed from 2011 onwards post the Anna - Arvind movement. They adapted their strategy. For eg in  Delhi  when they changed their CM candidate at the last moment and refused to indulge in horse trading to form a govt it was a new way of doing politics. They hit small SLs in order to capture the big trend. They took small volatilities in their stride and made their strategy anti-fragile. They benefited handsomely from the great big shift made by the indian voter. 

Same goes for life and trading or investing. Take the small SLs and keep your eye on getting the big trend right. Now various market commentators have gone all out around election time and said we are at the cusp of the mother of all bull markets. We don't know that and we will only know that in hindsight. But what we do know for sure that we are in a new uptrend after the market broke through the 2008 and 2010 highs after a 6 year consolidation and that is Bullish. No question about it. 

How far will it go? What is the right time to get in (if you havent already) and what to buy? Depends on your risk appetite and approach. However, be aware that there is nothing called a passive investment strategy. Also investment doest mean certainty or guarantee of returns. If you are SIPing every month that is also active but a different level of activity. And all forms of investment / trading / HFT etc. are different forms of speculation (which comes from the latin word speculates, which means to look at or observe) . For e.g. when you talk to an investor, listen carefully to their choice of words .He/She will say - We are taking a bet on this sector/entrepreneur/product/service etc. If this is not speculation - what else is it? Contrast that when you speak to a trader - A good trader will be focused on managing his risk. Now tell me who is investing and who is gambling? And ironically in most media articles and those by value investing gurus , there is a clear sense of bias against trader or short term investors. And its cleat most of these value guys have never ever read a book on technicals or tried to devise a proper trading strategy. And then they propound that having a an open mind is very important.

Anyways that was a bit of digression. Having seen both sides of the divide - I can only point those with an open mind to learn, to please read the latest paper by Cliff Assnes (CIO of the $105 Bn firm AQR Capital) titled Fact Fiction and Momentum Investing which is backed by clear numbers. Momemtum (or so called traders) beat value (so called investors) in terms of returns and risk. However, no one style works all the time and that a combination of value and momentum has the best risk return profile, In other words you need both in your portfolio. Also if one were to look at the returns of George Soros vs Warren Buffett, then Soros' returns beat Buffett by a mile. The reason why Buffett has more money today is that Soros gave away a lot of his money in the 1990s. And btw, Buffett beats the market by constructing a low beta portfolio and juicing it up with leverage of about 1.6x. (Buffet’s Alpha). And don’t miss the green line. It belongs to John Bogle.

The above graph is from http://hedgefund.blogspot.in/2010/11/portfolio-manager.html

So coming back to where to invest: take cues from the market. Pick a good business, management and a stock that is performing well. Some value/fundamental guys tell me they don’t have the time to spend on managing their portfolio on weekly basis. Spend little bit less time on twitter and Facebook and more time on your portfolio. Spending time doesn't necessarily mean trading in and out. Educate yourself on technicals which are useful also for long term investing. And more importantly back test theories and strategies. Don’t take anyone's word for it. I write the above not to look down on value/fundamental guys - I was and still am one of them - but I have also incorporated technicals and that has helped me immensely in terms of execution. I write it so that they add execution tools to their analytical tools. Knowledge of technicals will immensely improve your execution skills.

So what will most likely outperform over the nest 1-2 years: Good quality stocks in banking, oil and gas, auto, agri. IT and Pharma will no longer have the tailwind of a very weak currency but will do well as the US recovers. The broader market should also do well. However, it is not going to be a straight line up. There will be periods of doubts as the market shifts it attention to macro nos, rbi policy, cabinet formation and global macros. This is healthy because bull markets need a wall of worry to climb. If there is no one out there in the market who is taking the other side then its likely to be a top. 

In terms of levels 6600-6700 is going to be the first level of support for the nifty and the a more longer term and stronger support is at 6300-6400 - which was the previous top and resistance. If it breaks the second level, I would take a re-look at my strategy.

So go long. But if you are wrong, have your stop loss and exit strategy in place and go back with a Modi-fied one. I have mine... Do you have yours?