SIMHAVALOKANA 2024: WHAT MR. MARKET TAUGHT

Step into the shoes of an investor to understand the thrills (and surprises) a roaring bull market churns out

- Swanand Kelkar

A LIABILITY

In a roaring bull market, having an investment memory can be a handicap. In two decades as a professional investor, one has lived through business and economic cycles, shenanigans of unscrupulous promoters or companies that have held promise but never delivered. I evaluated MakeMyTrip (MMYT) early in the year when the price was around $45 per share. I had assessed the company a few times over the past decade but had opted not to invest. What bothered me was that for over a decade, MMYT had reported negative EBITDA (earnings before interest, taxes, depreciation, and amortization) for all years except two. Irrational competition or weak consumer spending had proved to be the spanners in the works. In my internal note, under the head 'credit where it is due', I acknowledged the turnaround in operating performance but assigned more weightage to my memory of weak, inconsistent profits. A 25-year-old, without the baggage of the past, might have approached this differently. The stock is up over 130% for the year and when I narrated the story of this 'miss' to a friend, he sardonically replied: "Dumbledores don't make money in bull markets."

PAY ATTENTION TO CHANGING INDUSTRY STRUCTURE

Over the last few years, many industries in India have consolidated; from cement, airlines to telecom. If one is early to catch on to this change, there is multi-year money to be made by investing in the survivors and share-gainers. The causes for consolidation can be varied - operating losses for inefficient players, weak balance sheets or regulatory changes - but the resultant pricing power and improvement in return ratios are generally received warmly by investors. On the other hand, just because an industry is a duopoly does not guarantee handsome returns. Ask Boeing and Airbus. (See chart)

MEAN REVERSION IS NEVER AUTOMATIC