A new financial year has begun. It is time to take stock of an eventful year that just ended. Our cautious stance was broadly helpful. Taking exposure to gold was not a popular choice at the beginning of the last financial year. But, it has turned out to be one of the best calls in a difficult year.
Unpopular choices need not always turn out to be right. They could test us very badly. In the past, this has happened several times when we were too early on a theme and built our investment position too quickly. The wait for our investment hypothesis to play out could be excruciatingly boring. But, on gold, the last year was extremely kind to us. This year, we could need to make many more unpopular choices in our investing. The reason to seek out what is unpopular has more to do with the extreme weakness seen in what is popular. When the market loses faith very quickly in something, it seeks to find out new ideas and themes elsewhere. The immediate hunting ground would become the prevailing unpopular ideas and themes. That is how we discovered the defence and railway themes in 2022.
In 2023, we could see market attention shift towards other unpopular themes. But, the story of 2023-24 could be how immensely popular themes of the past lose ground very rapidly. The smallcap theme could well see capitulation in valuations as sentiment tests the resolve of the retail investors. Midcap as a theme has become dormant and shows no imminent signs of revival. This could trigger tired bulls towards an exit from midcaps. Thematic investing will probably see new themes replace old ones as is the repetitive trend.
The retail investor has to be extremely cautious now about avoiding mistakes. Most retail investors get caught in a theme when it is losing its momentum. Buying a theme when it is past its prime is an oft-repeated mistake of retail investors. Investors got stuck in quality stocks doing exactly that in 2021-22. The most important thing for a retail investor is to walk out of past mistakes and avoid repeating the same mistakes in another theme.
Thinking afresh, taking stock of opportunities and avoiding distractions must be every investor’s priority. Seeking out contrarian ideas, looking where nobody is looking and being very strict with valuations should be every investor’s to-do strategy in 2023-24. While politics, El Niño and inflation will trouble the world, investing must be very precise and patient.
The ideas of tomorrow are very much going to be within our reach in 2023-24. It is our duty to clasp them on time and capture them in our portfolios.
