Talking heads with investor peers these days inevitably leads to talking politics. The conversation dwells mostly on number crunching, second guessing alliances and trend reading. Investors sound more like political analysts these days and actually spend more time talking about politics than investing. What do investors have to do with dwelling on the nitty gritty of politics? Does it really help investors improve their investment outcomes? History tells us an entirely different story. In 2004, investors misread the election result and crashed the market after the NDA was noted out. The markets again misread the electoral verdict in 2009 and caused a knee-jerk 2110 point sensex gain in one single session on May 18.2009. When the markets misread political trends, investors inevitably miss the bus and come up with a knee-jerk reaction. This time will probably be no different.
Timidity prompted by past failures causes investors to miss the most important bull markets.
A slowing economy will test the business resilience of companies. This stress test will bring out earnings performance from companies that factor in the worst business environment. The learnings of companies in these troubled phases cannot be quantified in numbers. Companies become cost efficient, savings driven and bring out their best in the circumstances. While these numbers may not look attractive on the surface , these are the harbingers of spectacular showing in better times. The learnings of tough times stay long with businesses and they generate returns to shareholders long after the tough times end. The results may look as if the companies barely maintained earnings when growth slowed. What this actually means is that the companies actually managed to lower costs significantly. Tough times don’t last, Tough companies do. The times of toughening is when the best investment ideas sell cheap. The seed of multi-baggers ought to be sown in these tough times. They will grow over time as the tough times are put behind. You will agree that companies that toughen themselves up in the worst phase will certainly start seeing better times. A smart investor must see better times coming when the others are still seeing the worst play out
Look for turnaround signals. A few good ones will hit pay dirt.