Every market opens up newer investment opportunities. There will always be businesses that nobody wants to own. Or at least, only a few people would seek to venture into them. Businesses that are shunned often drift in valuations, until they reach extremely attractive levels. Then, an event or news or policy causes a sharp reversion to mean.
Usually, the reversion to mean happens so swiftly that it catches everyone unawares. The duty of a contrarian investor is to spot such reversion opportunities and ensure that he invests early enough to catch them right. There is no other way to catch such opportunities.
This sharp reversion is happening in telecom, pharma and PSBs. It only reaffirms the long-held belief that you can’t predict. You can only prepare.
It may well be time to prepare for future reversions in sectoral valuations, thematic fortunes, and cyclical preferences. The markets will continue to see dynamic churn going forward and one must keep his investing ahead of the times.
“Large amounts of money aren’t made by buying what everybody likes. They’re made by buying what everybody underestimates.” – Howard Marks