Monday, December 19, 2011

Bottom fishing – Myth and Reality

In last couple of weeks, there has been too much talk from “experts” appearing on TV channels or print media or net about investing at bottom of the markets or whether bottom is formed or how far is that level and so on. In equity investing, Bottom fishing refers to buying the cheapest stocks in valuation terms at lowest levels. Let us look at some of the common myths in this regard followed by my views on each one of them. I am sure you are coming across lots of these advices and grand mythical statements now a days.

Myth # 1 – Investors can start buying at current levels and add on dips.

Views: This is such a cliché statement for whatever it means. We analyse it here in slightly more detail, as to what our beloved “expert” is saying.
-          If this is addressed to an investor who is new to equities, do you really think a novice will muster courage to step into such volatile equity markets. God forbid, if Johnie steps in and Sensex tanks 1000 points next day and there goes his stock, will Johnie be able to get sleep? Contrast it with bank FDs where Johnie is getting 10% assured return. So, this piece of advice makes no sense to our Johnie.
-          If this is addressed to an existing equity investor, Johnie is already invested and licking his wounds because his portfolio is in red by x%. In all probability, he might not be holding large cash balance to invest further. Even if Johnie is holding some cash, there is a second thought in his mind whether to put this as well in markets or deploy in safer options. This piece of advice makes no sense to this existing investor either.
-          If this is addressed to an experienced investor who can analyse stocks indepth, is this advice necessary? Either way, such an investor will assess the situation and decide the best course suiting the personal investment style.

Myth # 2 – We have strong support at 4,540.

Views: Again this and its like are some of the most rubbish statements one can come across in a bear market. When there is a concentrated bout of selling or basket selling by a large institution or FII there is no respite. Who cares for this mumbo jumbo levels of 4,540 or 4,440 or any other number given by some analyst. In some of the previous bear markets, I recall by the time analysts were giving a support level, it was getting broken such was the ferocity of the fall.

Myth # 3 – You cannot time the bottom.

Views: If our expert is referring to bottom level of Nifty or Sensex while making this statement, it should not unduly concern a discerning stock-picker investor. Please undertsand that different investors are interested in buying different stocks and all stocks do not bottom out at the same time in terms of price. To cite an example, if one is interested in a popular stock like HUL, it is making lifetime high when Nifty is at 2-year low.

Myth # 4 – Downside is limited to not more than 5%. There will be a V or U shaped recovery.

Views: Whether some astrologer or Santa Claus has given all these prophecies. And how can you decide the precise alphabet of recovery when range of growth in economy varies by the week, fiscal deficit is out of hand, more subsidy driven social programmes are on drafting table, currency fundamentals are out of place, Eurozone topshots themselves are not sure of resolution of debt crisis.

Myth # 5 – This time it’s different (This is not 2008).

Views: In markets, ticker is all. Buy-hold-sell decisions have to be made around that. So how can one market fall be more calibrated or more disciplined compared to another fall. But human being is such a rationalizing creature that any event or action can be justified with some reason when none is actually applicable in view of macro uncertainty factors I mentioned in Myth # 4.  

To conclude, don’t be misled by the noise around. Nobody knows how long this correction will continue price-wise or time-wise. Specific stock selection is what matters. As usual, keep grabbing the good opportunities provided you have the staying power and patience. It is times like these that separate the men from boys.

All the best!


  1. Awesome post...

    Time to show courage to ur convictions :)

  2. ha ha...enjoyed it

  3. @ ....,
    @ Rathin,
    @ Anon

    Thanks to all of you for your appreciative words.