What game are you playing?

4 March 2025

Morgan Housel draws attention to a very important aspect in his book ‘Psychology of Money’. He advises you to be cautious about not being influenced and drawn into the chaos of somebody playing a different game altogether than what you are playing. The principle is so simple but so grossly overlooked. It is very dangerous when long term investors start taking cues from short term calls given on channels by trade pundits. Equally dangerous is when short term investors start deriving guidance from long term ‘price targets’ given by Research reports of analysts (who generally move in herds of ‘consensus calls’). This is more important right now when markets are volatile.

·       As expected, the tide has turned (https://www.linkedin.com/pulse/tide-turning-ishan-mehta-jlksf/) and the direction of market has changed. While large caps had always been in value zone and have become attractive, Mid/small caps still broadly are still relatively expensive.  Further, the variability in fall of mid/small has been very divergent. Now that correction has started, it has become even more imperative to not get drawn into something which has mildly corrected based on a ‘gut feeling’ that markets have fallen ‘a lot’.  Loose statements will fly around that its time to load up.

·       As suggested by Howard marks, anybody with common sense will come to same ‘First level thinking conclusion’ – it seems to be time to buy. Only ‘Second level thought’ process will be able to give answers to ‘what to buy’ and ‘when to buy’. Value investing requires specific target price levels which you need to strictly adhere to rather than just having a gut feel about markets. Its very important to be guided by a professional investor who has a hang of individual stock valuations vis-à-vis the earnings potential and pick specific stocks based on ‘well -researched’ advise.

·       If you have done the hard part of sitting out of the market last year due to obscene valuations, now comes the even tougher part of being prudent about where you start nibbling into selectively.  If you do not have access to somebody with solid research, just trust that brilliant active fund manager (you know who) who has been sensible enough to build cash levels in their equity fund and keep equity weights down in that hybrid fund during the ‘fools gold rush’ last year. Let him deploy on your behalf whatever he feels has entered value zone. There is no shame in leaving the tough part to professionals with nuanced analysis of hard data.