Priced to perfection

The investors are always more obsessed with knowing who is buying a stock than who is selling. The natural inclination is to follow buyer behaviour.

Bull markets bring this more sharply into focus as large deals start taking place between large investors. Sellers of bigger parcels seek to exit stocks and buyers find it easier to buy such parcels than to labour in the markets to buy enough.

Naturally, scarcity premiums come into the pricing of such parcels. We are now experiencing a sellers market. While it will take a long while to judge who was the smarter one in the transaction, some pointers are clear.

Domestic mutual funds are buying and foreign investors like PE funds are selling. Clearly, there is a flight of foreign money out of Indian equities and last week’s sale figure of Rs.3425 cr only reinforces the prevalent trend.

Domestic investors must also develop a sellers perspective before they go ahead and buy a stock. Knowing why somebody sells a stock is just as important as knowing why he buys a stock. At prevailing higher valuations, knowing both perspectives will bring the right balance into one’s investing. Choices will be measured and rightly priced. Getting the purchase price right ensures that the investment enjoys adequate margin of safety.

“It amazes me how people are often more willing to act based on little or no data than to use data that is a challenge to assemble” – Robert J. Shiller 

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