2022 - A Year in Review

 

We are again at that time of the year when people don their thinking hats and reflect on the year gone by. As an investor, I find it very important to reduce my regular investment work and go back and think about what went right and what could be improved upon.

This last week, I actually was inspired by the “Think Week” ritual that Bill Gates used to have. Unlike Gates, I did not go off to a reclusive lake-side retreat all by myself. But I did reduce a lot of my regular work and went back to my pen and diary (sometimes OneNote journal) to look back and also to look forward.

2022 - The year gone by:

Some of the memorable events during the year which we will probably remember for some time were:

• Start of the Russia-Ukraine war.
• As per the IMF projections, India surpassed the UK to become the fifth-largest economy.
• The world population reached 8 billion on November 15, with India being the largest contributor to the milestone, according to the United Nations (UN). India added 177 million to the final score.
• After a legal battle, Elon Musk finally bought Twitter for $44 billion.
• Sri Lanka had a major economic crisis precipitated by Covid.
• Former Tata Sons Chairman Cyrus Mistry passed away in a car crash in Palghar.
• Rahul Bajaj, the chairman emeritus of the Indian conglomerate Bajaj Group, passed away. He was awarded the third-highest civilian award in India, the Padma Bhushan, in 2001.
• Passing away of Queen Elizabeth II, the longest-serving British monarch.
• Covid continued to rear its head from time to time and now is seeing an increase in some countries like China, which has done a 360-degree turnaround from a zero-Covid policy to a completely open policy in a matter of days.

Investing in 2022

This year was gruelling. Stocks went up and then came back time and again. So much so that most of them were flat by the year's end. Making money was difficult. Sometimes, when you do a retrospective analysis, it is difficult to figure out how tough it was, because you tend to ignore the intermediate drawdowns thinking you would have held on during them. Also, some feel that since you have “good quality” stocks, it is better to hold on to them, because they eventually come back up. This may not be always true, at least in the timeframe you are looking at. Sometimes, stocks of even great companies take years and even decades to reach their previous highs. One must always be cognizant of the opportunity cost of alternatives while investing.

2023 - What lies in store?

India is looking to be on a relatively strong wicket. After nearly a decade, banks have cleaned up their balance sheets and overall credit growth is picking up. The credit growth of banks is at a 10-year high of 17.5%.

With just one more full budget before the 2024 elections, the expectation of a growth-led budget is high. Strong investment capex and social policies leading to incremental buying power for the masses augur well for consumer-facing companies. Government capex is at an 18-year high at 2.5% of GDP in 1HFY23. The PLI scheme-led investment is leading private capex. Just the trio of Tata, Ambani and Adani groups are planning an investment of $215bn in the next 5 yrs.

The really big investments are happening in the transition sectors: green energy, EV, 5G and tech/digital. This tailwind is being supported by the realignment of global supply chains – China+1, friendshoring etc.

We are likely to see a peaking of inflation and stabilisation of interest rates, but inflation will not cool off easily. The big components of inflation in India have historically been oil and food. How oil prices behave is anybody’s guess but food inflation is not likely to come down much going by history. In addition, with China back in the global economy, there is expected to be significant demand for oil, metals and other commodities. Chinese markets have probably already bottomed out since we discussed this during the middle of the year.

What should we do?

Markets are likely to remain choppy atleast in H1FY24. Domestic consumption and capex-oriented plays are likely to perform better. Sectors like engineering, capital goods, infrastructure, real estate and autos are likely to remain at the forefront.

Select IT and pharma companies can be identified and added slowly into the portfolio.

It is likely to continue to be a buy-on-dips kind of market for the next 2-3 yrs. It is better to continue sipping into the portfolio stocks or adding capital to your portfolio every month.

Now is not the time to be afraid. It is the time to ignore the noise and silently accumulate.

Year End Investor Session - Recording

Last evening, I had a short session to discuss the current market situation and what we expect for 2023.

Here is the recording:

Curiosity@Intelsense

 

Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week.

This week I want to talk about CBDC.   CBDC is short for Central Bank Digital Currency. It is, as the name suggests, a digital form of currency issued by the central bank RBI. It is distinct from UPI, IMPS, NEFT and RTGS as these are not currencies but payment and money transfer mechanisms. In these payment mechanisms, money gets transferred from one bank account to another. While in CBDC that RBI has recently launched as a pilot, money will move from one digital (e.g. mobile) wallet to another digital wallet without going through the banks of either of the two transacting parties. In a sense, it is like giving cash in your wallet to a friend. Neither of your banks gets to know but money has moved from one person to the other.   The idea of CBDC or e₹-R is to make it a digital form of cash and it will be available in the same denominations as cash and it will be first distributed through banks.   Users will be able to transact with e₹-R through a digital wallet offered by the banks and stored on mobile phones and devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. As per the RBI, “The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks”.   There are some benefits to e₹-R. It drastically reduces the cost of banknote printing and circulation. It also reduces the cost of transfers and remittances by cutting down on multiple intermediaries. Another important feature is that as it is issued directly by RBI, it will be a liability on the central bank’s balance sheet and not earn any interest for the end user.   The way it is currently structured, as an end-user, I find it indistinguishable from the systems we currently use. To me, it looks a lot like a solution in search of a problem. Maybe I am ignorant, or some use case will appear in the future that will make this a grand success, but for now, I can’t find a single compelling reason why I would prefer using e₹-R over the existing system already in place. I will keep tabs on this and keep updating you from time to time as and when something progresses.

Thought of the Week:

“What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” ~ Herbert Simon   We need to be very very selective about how we filter information. Putting here a chat with a friend who is himself an extremely accomplished and disciplined investor. The idea is to use humans and AI to curate and suggest what you want to read, listen to or watch. Secondly, we need to be ruthless about protecting our time and attention. I used to feel very guilty about leaving a book or movie midway. Now I don’t care. If the subject does not intrigue me, then I am out.

How to filter your inputs

Video of the Week: How Amancio Ortega Created the Zara Empire

How Amancio Ortega Created the Zara Empire

Insights@Intelsense

Performance of Quiver Smallcase since inception (May 2021)

QUIVER smallcase is a market-cap agnostic, trend-following system with a short-to-medium term horizon. Min investment: 5 lakhs Fees: 2% per year. 1/12th of 2% of the fees is deducted every month. It works out to approx INR 840-850 per month. Link to subscribe: https://intelsense.smallcase.com/smallcase/INSMO_0005

Curioity@Intelsense

 

Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week.

If you have been reading my blog for a while, you will know that I love writing. It helps me collate and clarify my thoughts. I usually write for an audience of one - myself. Paul Graham, one of the best essayists now, writes about why we need to write in this brilliant article. He also ties in the fact that unless you read well, it will be difficult to write well.   The reason it would matter is that writing is not just a way to convey ideas, but also a way to have them.   A good writer doesn’t just think, and then write down what he thought, as a sort of transcript. A good writer will almost always discover new things in the process of writing. And there is, as far as I know, no substitute for this kind of discovery. Talking about your ideas with other people is a good way to develop them. But even after doing this, you’ll find you still discover new things when you sit down to write. There is a kind of thinking that can only be done by writing.   If you need to solve a complicated, ill-defined problem, it will almost always help to write about it. Which in turn means that someone who’s not good at writing will almost always be at a disadvantage in solving such problems.   Another brilliant collation I read this week is from Anil Tulsiram who takes wonderfully detailed notes of brilliant insights from Alix Pasquet III. Another problem with this is that an action in the past environment that could have be a mistake could be a total success in a different environment. So be careful, you want to learn from your mistakes, you want to be careful from learning too much for your mistakes. You know, no lesson is better than wrong lesson. You want to have a mistake evaluation process. And the key suggestion I would make there is to involve others, is to get feedback from others that will keep you intellectually honest. One thing to remember, by the way, is great investors all go through periods of mistakes.

Thought of the Week

I’m only rich because I know when I’m wrong. I have basically survived by recognising my mistakes. ~ George Soros   The main idea in both this thought and the insights from Alix Pasquet is that we need to be able to analyse our past actions for our mistakes. But while doing that we need to be watchful to understand the reason for the mistake and not just look at the outcome. At a different time, under a different circumstance, the outcome may be very different. The idea is to be able to put the odds of success in our favour if we do a particular activity repeatedly.

Video of the Week: Indian Debt and Equity markets: Aligning India’s future together

Indian Debt and Equity markets: Aligning India’s future together

Insights@Intelsense

Quiver continues to perform well. To subscribe: https://intelsense.smallcase.com/smallcase/INSMO_0005 Minimum investment: 5 lakhs Fees: 2% of capital per year. 1/12th of 2% gets deducted every month. Ex: For a capital of Rs 5 lakh, it works to around Rs 835-840 per month.