Value Investing

I read in a recent article in Bloomberg that the markets have become schizophrenic or something to that effect. The more negative the news the more likelihood of a full on risk-on trade. This is because the more the negatives the more the likelihood of another round of monetary infusion.

So China slows down, then it is great news. We can hope for more easing there. If Indian IIP slows then even better. RBI might finally get off its high horse and start easing! German data comes in worse than expected? That would be the best thing that happened to the markets because finally Merkel might stop preaching austerity to the rest of Europe and do something about growth instead! Do you see the common thread of logic in all this? Notice that Govt need not even act for the markets to rally. Just the belief that they can act or will act is sufficient. Isn't this the most beautifully perverted logic you have ever seen?

If only we could think like this in all other things in life! If only my bosses start thinking like that! I make losses in trading and they should increase my exposure limits because, sometime, even I will make profits! Come to think of it, this could be the basic philosophy behind Value Investing. Buy a company when it is doing very badly and when its price is really beaten down as long as it has a Board which has a propensity to act. Notice that it is not important that the Board's action needs to succeed for the investment to make any money. It just needs to look like it is taking some decisive action to turn things around. That should be enough to make the investment successful.

So now that I have discovered one of the important reasons for the success of Value Investing I can go on to worry about my Nifty position. I am long and will now cut my long position and go short if Nifty futures trades below 4933