Events of the last month provide significant lessons. We have been introspecting on what we could have done differently – and there will be a time to share that with you.
However, I want to share a few other observations with you today which are topical before the event passes and memories fade.
1. The only way to protect yourself from “tail risks” is through Asset Allocation.
Read MoreA salute to our doctors, nurses, police forces and sanitation workers who are at the forefront of this battle. A salute also to the Indian state – we are always criticized by the West, but we show our best when our backs our against the wall. And we have done a far better job than the developed world so far.
I am writing to share a few thoughts
1. Be careful how you interpret the news you are reading
Read MoreWe have witnessed a black swan event. We need to wait out the storm. We will not panic and sell unless we believe the fundamental 3-5 year prospects of a company have been significantly challenged. Selling now – just because there is short term uncertainty – will crystallize a temporary loss and make it permanent.
Read MoreIt has been a really tough month for all of us. Portfolios will be down about ~25-30% in a month. This is a speed of decline which I have never encountered as a Fund Manager.
Solidarity believes that following a disciplined process will result in good outcomes over the medium term, even if we get the occasional bad break that we are experiencing at present.
Read MoreMarkets have been on a continuous sell-off mode since then. A draw down of 20% from peak in a year is not an uncommon occurrence. However, we have all been surprised because we have not experienced it for a while. And, unlike other corrections, we have all been surprised at the speed of the decline as it has come in less than 3 weeks.
Read MoreWe had shared an earlier blog, ‘Why Mid-Sized Banks are strategically disadvantaged’ as they are forced to take on more risk in a business where success needs to be rooted in conservatism.
The collapse of Yes Bank will further widen the competitive gap between the leaders (SBI/HDFC/ICICI/Axis/Kotak) and the others.
Read MoreThe Corona Virus has given the markets a scare with the benchmark indices ending ~7% lower last week. The large number of cases in Italy has understandably made participants nervous whether this is another normal correction or the start of something deeper and bigger.
I am writing to share with you our perspectives.
Read MoreA question that remained unaddressed in the last Q letter to Partners was “Why do we not own any Mid-sized Banks?”
Banks can be attractive businesses to own as they enjoy natural growth tail winds of growth while delivering 15-18% ROE. However, over the last decade, only 3 Banks (representing < 15% of Industry Assets) have delivered over 15% PAT growth or above 15% ROE consistently.
Read MoreWe see two roles for “Debt” in any portfolio
The starting point for Investors must always be Asset Allocation. In some earlier letters, we have written to you recommending you should hold some Gold/Gold Equivalents in one’s portfolio – as Insurance to guard against the “unknown unknowns” of excessive money printing and even as diversification into another Asset Class that is not correlated with Equities.
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