Buy What You See
In this section, the reader is introduced to the benefits and drawbacks of employing this concept. The author talks about his own experiences using this method to find winning stocks. For example:- Jockey products which are manufactured by Page Industries.
This section is chock-full of historical evidence demonstrating how much more an investor could have achieved by implementing this strategy. In the long run, shareholder return is determined solely by ROE (Return On Equity).
Macro Numbers – How Much to Analyze?
Basant focuses on the study of macro numbers and their relevance to how they are debated in the media and among investors. He discusses why macro events, with the exception of a few, have a limited shelf life and how a long-term equity investor should deal with these events.
The global liquidity tap of quantitative easing initiated by the dollar printing exercise of the U.S Federal Reserve and categorized as QE1, QE2, and now QE3 provides good information on how newly printed dollars would go on to affect the different asset classes.
He also points out that the annual budget is one such event where people waste a lot of time analyzing it, as all budget provisions are industry wide events and don’t affect one specific company over another.
Budgets have limited shelf life and good companies do well even with bad budgets whereas bad companies struggle to deliver even with good budgets. For example:- A trader in Surat would do nothing differently just because a macro number has come in a certain way but the passive owner of a much larger and efficient business like Tata Consultancy Services will be tearing their hair trying to forecast the actual impact of these numbers.
Any event that affects all the players of an industry should in most cases be ignored.
One needs to understand that Indian markets are driven predominantly by inflow from foreign investors as the local retail participation is quite low. As India is a predominantly current account deficit country these foreign inflows are needed to get over the external deficit issue.
