In every market context, you will always see some themes fall out of favour. This usually happens after a wave of euphoria. Investors wait for the good times to come back and gradually lose patience. When this happens, investors realize that euphoria is not going to come back anytime soon. This realization makes them more decisive. They start exiting investments, with the intention of coming back whenever they see positive evidence. The presence of alternatives also encourages investors to walk out of a theme that is on the decline. Nobody wants to stay in a declining theme and wait for the decline to end.
Investors know that the lag between the end of a decline and the beginning of a rise could be much longer than they can wait for. Nobody wants to wait. Investors would rather move to another space where ready-made options are visible. But, this lack of patience in the majority also offers a great space for the patient minority.
Investors with the risk appetite and patience to buy a falling theme tend to get the most value out of that theme when it returns to its best performance. The point to be noted is that the wait is not in our control. We could be missing out on better opportunities, and we may see our patience tested during the waiting period. Despite all the negatives, it is still the best time to pick a theme when it is falling continuously.
While fundamentals tend to keep changing, the market will always revisit its judgement and revise its opinions. An investor with the right conviction will be able to participate in a falling theme, buy enough of it during the phase of despondency, and wait long enough to get the most out of a revival phase.
What we need to do now is pick the right space among the fallen themes, bet on the right ideas and be willing to wait. This wait would be completely worth the effort.
