I am not able to believe my eyes since the past few days. The financial markets are jumping higher than high school cheerleaders. My thakela phatela marela financial portfolio is showing signs that it might survive the g**nd faadu massacre that has been relentelessly hitting the markets in the past few months. Technology is starting to look like a bull market again. But. But. But. A dear friend tells me this is nothing but a dead cat bounce. He is a perpetual bear. Always gloomy, negative and ready to douse any flame that shows hints of hope. He is a single falsetto in a room full of baritones (quote plagiarized). He gives you so much dukh. I wonder why they didn't name him Dukhiya. When the entire world starts to dance gleefully, Dukhiya's pessimism rears its ugly head and provides statistics like "from 1968 to 1982 markets were essentially flat". So investing at that time would essentially make you a pauper (considering inflation etc.). Then your shiny happy party suddenly comes to an end. You start thinking if god-dammed Dukhiya is really right. Should you stop the party and get back to work?
I say bullshit. This is a bull (not a bull-shit) market. The world will keep marching forward. You are not going back to the stone ages or hunt for food or steal women to procreate (although in the last case the world is still in the stone ages, but thats besides the point). Keep the party rolling. Let the birds soar, let the lions roar. Open your expensive champagnes, your vintage wines, your single malts, your saambhar masalas and your dhokla packets. I know Dukhikya is silently ridiculing and casting multiple narkutis on this parade, but for today there is no place for him here. Rock on bulls!
Here is the transcript that prompted this post. Dukhiya's name changed to protect his identity.
Dukhiya (4/17/2008 10:40:02 AM): just saw your offline msg.
Dukhiya (4/17/2008 10:40:18 AM): they call it a dead cat bounce. not a bull mkt rally
Dukhiya (4/17/2008 10:40:25 AM): as usual. i'm a bear
Pulkit Desai (4/17/2008 10:43:17 AM): oh please, your bear is going to get destroyed
Pulkit Desai (4/17/2008 10:43:30 AM): you will be left with its rough hard fur
Pulkit Desai (4/17/2008 10:43:32 AM):
Dukhiya (4/17/2008 10:44:05 AM): sure. we will see. do you know from 1966 - 1982 the market was essentially flat. unless you picked every bottom and top in that duartion
Pulkit Desai (4/17/2008 10:44:22 AM): holy shit
Pulkit Desai (4/17/2008 10:44:33 AM): you gotta be kidding me
Pulkit Desai (4/17/2008 10:44:40 AM): which indicator are you referring to?
Dukhiya (4/17/2008 10:44:47 AM): S&P 500
Dukhiya (4/17/2008 10:45:31 AM): You have small bull and bear markets, but the market could not get out of high valuations (P/E) for a long time
Pulkit Desai (4/17/2008 10:45:45 AM): you are talking about 50 years ago
Pulkit Desai (4/17/2008 10:45:49 AM): lot of changes since then
Pulkit Desai (4/17/2008 10:45:57 AM): more productivity, efficiency etc
Dukhiya (4/17/2008 10:46:20 AM): i'm sure people said the same in 1966 compared to 1900s
Dukhiya (4/17/2008 10:46:57 AM): sure there is more global connectivity; but VALUATIONS ARE THE IRON LAW OF FINANCE
Pulkit Desai (4/17/2008 10:47:19 AM): who is to say what valuations are sustainable or not
Dukhiya (4/17/2008 10:47:38 AM): the market obviously.
Pulkit Desai (4/17/2008 10:48:44 AM): the world can't retreat, it has only one way to go. you talk aout 1966 but if you bought in 1966 , 20 years down the line the market has grown gazzilion times. what about that
Dukhiya (4/17/2008 10:49:34 AM): i'm not sure of people's patience, but I know that I can't be patient for 15 years. You need to be a robot to see yourself earning less than a CD for 15 years
Pulkit Desai (4/17/2008 10:49:58 AM): what were CD rates from 1966 to 1982
Dukhiya (4/17/2008 10:50:12 AM): on average about 6 -7%
Dukhiya (4/17/2008 10:50:59 AM): I don't think i will be excited when the market is just 15% below its ALL TIME HIGH.
Dukhiya (4/17/2008 10:51:15 AM): sure the market can go up. I don't know.
Pulkit Desai (4/17/2008 10:51:25 AM): I am totally vested
Pulkit Desai (4/17/2008 10:51:29 AM): invested I mean
Pulkit Desai (4/17/2008 10:51:35 AM): classic bull bear struggle
Pulkit Desai (4/17/2008 10:51:43 AM): until now I have not done well
Pulkit Desai (4/17/2008 10:51:56 AM): but next 5 years we'll see.
Dukhiya (4/17/2008 10:52:19 AM): I'm 50% vested, but only 15 -20% in equities
Dukhiya (4/17/2008 10:52:54 AM): I am less of a risk taker as you know, I rather don't make much, but I dont want to lose much.
Pulkit Desai (4/17/2008 10:53:22 AM): we agree to disagree
Pulkit Desai (4/17/2008 10:53:23 AM):
Dukhiya (4/17/2008 10:53:30 AM):
Pulkit Desai (4/17/2008 10:53:37 AM): if we had this discussion in 2001 I would have won
Pulkit Desai (4/17/2008 10:53:40 AM): today you seem to be winning
Dukhiya (4/17/2008 10:53:47 AM): here is one more thing: you lose 50% you have to make 100% to break-even. think abt it.
Pulkit Desai (4/17/2008 10:54:08 AM): thats just a matter of perception, if you stick with the good guys you will do well
Pulkit Desai (4/17/2008 10:54:16 AM): challenge is finding the good guys
Dukhiya (4/17/2008 10:54:56 AM): which is always the case. so you buy the market when it is cheap; not when it is fairly-valued or overvalued. that is a safer way to play it
Pulkit Desai (4/17/2008 10:55:27 AM): so now is it cheap or overvalued?
Dukhiya (4/17/2008 10:57:40 AM): range of fair-value, between 14 - 25 P/E. How you calculate P/E is another long topic of discussion, but suffice it to say that corporate profits are near all-time high which is you 'E' portion, and if there is anything called as mean-reversion these profits will come down and drag the stock prices if history is a guide
Dukhiya (4/17/2008 10:58:03 AM): market is about fairly valued at 17 - 19 times earnings
Pulkit Desai (4/17/2008 10:58:25 AM): yep, profits is everything
Pulkit Desai (4/17/2008 10:58:44 AM): this earnings season there have been mixed results, so no clear indicator
Dukhiya (4/17/2008 10:59:05 AM): AGAIN, Remember in 1991, the last housing crisis more than 1000 depository institutes FAILED; we aint seen nothing yet
Pulkit Desai (4/17/2008 10:59:47 AM): markets get more and more efficient with every fall
Pulkit Desai (4/17/2008 11:00:00 AM): people correct their models, their assumptions
Dukhiya (4/17/2008 11:00:03 AM): I dont know this qtr or next qtr; i do know that corporate profits will fall as a % of GDP and markets wont like it at some point in time
Pulkit Desai (4/17/2008 11:00:35 AM): so basically you are saying the world will go back to primitive ages
Dukhiya (4/17/2008 11:01:45 AM): no. i'm saying that markets are fairly valued; it is NOT WORTH THE RISK OF INVESTING IN STOCKS when things are going good.
Dukhiya (4/17/2008 11:02:03 AM): you buy when nobody wants stocks, not when everyone wants it
Pulkit Desai (4/17/2008 11:02:19 AM): that can be a double edged sword, kinda like sigmatel
Pulkit Desai (4/17/2008 11:02:32 AM): so now, the huge banks citibank etc have falled more than 50%
Dukhiya (4/17/2008 11:02:38 AM): that is why you buy the market, a good diversified set of busineess
Dukhiya (4/17/2008 11:02:40 AM): not one stock
Pulkit Desai (4/17/2008 11:03:12 AM): amen.
Pulkit Desai (4/17/2008 11:03:19 AM): essentially what you are telling me is buy low sell high
Pulkit Desai (4/17/2008 11:03:34 AM): amen.
Dukhiya (4/17/2008 11:03:45 AM): again, the writedowns have just started. it will be another year before we know about the total writedown
Dukhiya (4/17/2008 11:04:06 AM): to say that we have discounted writedowns which people dont know how much is coming is wishful thinking
Pulkit Desai (4/17/2008 11:04:26 AM): true but you think it is going to get the banks into a net loss? over the years these banks have amassed hundreds of billions of dollars, what is 20-30 billion dollar loss for them?
Dukhiya (4/17/2008 11:06:03 AM): yes, with acknowledging that you can't pick the bottom,but when corporate profits have fallen, yes that is the time to buy. You may not be at the bottom but your returns will definitely be better than buy-hold at fair value crap.
Pulkit Desai (4/17/2008 11:07:21 AM): that I agree, getting in at drops but in the big picture of 20-30 year horizons the dips seem insignificant. to each his own, if you can hold for a longer time you should be in the market , if you can't then you shouldnt
Dukhiya (4/17/2008 11:07:52 AM): well, if they had so much money why are they begging sovereign wealth funds for money. the terms are ridiculous, if the stocks go down further, the SWFs have negotiated a deal where they get a lower price reinstated meaning higher yields. why would these banks be so desperate if they had money
Pulkit Desai (4/17/2008 11:08:34 AM): they don't want to cash out on their "other" investments, its a credit/liquidity crisis, but you don't sell everything when you don't have enough bank balance
Dukhiya (4/17/2008 11:08:41 AM): it is easier said that done. that is why i gave the 1966-1982 example
Pulkit Desai (4/17/2008 11:09:20 AM): for e.g. they are digging oil rigs in nigeria, shit load of money if they find oil , but just because they have liquidity issues doesn't mean they should stop progress
Pulkit Desai (4/17/2008 11:09:52 AM): and isn't is surprising that sovereign funds are falling head over heels to bail out these "troubled" banks
Dukhiya (4/17/2008 11:10:01 AM): sure. you have a point. they are pretty diversified. too big to fail. but if you have to weather the storm for a couple of years, at get into huge amount of debts, not sure how long it will be before you finish paying up
Pulkit Desai (4/17/2008 11:11:53 AM): anyway, good discussions.
Pulkit Desai (4/17/2008 11:11:58 AM): let the fight continue
Dukhiya (4/17/2008 11:12:31 AM): It will be interesting to see when you will be a 'bear' and I will be a 'bull'. maybe when S&P hits 1200
Pulkit Desai (4/17/2008 11:13:48 AM): dude,if markets fall so low, you are talking poverty, layoffs, high crime rates, shit hitting the ceiling. At that point you'll have to worry more about protecting your family and gold more than buying stocks
Pulkit Desai (4/17/2008 11:14:41 AM): and you and I would be out of jobs
Pulkit Desai (4/17/2008 11:15:14 AM): your brawn power will be more valued than your brain power
Pulkit Desai (4/17/2008 11:15:19 AM): essentially going back to stone ages
Dukhiya (4/17/2008 11:24:43 AM): the market hit 1100 in 2002; i am not in stone age
Dukhiya (4/17/2008 11:25:28 AM): the market fell by 80% in the depression and still didn't go into stone age
Pulkit Desai (4/17/2008 11:26:03 AM): depression was a horrible time to grow up, people growing up in depression have terrible memories
Pulkit Desai (4/17/2008 11:26:30 AM): pictures of squalor spring up when they think about the great depression, long lines, random corruption etc was common
Dukhiya (4/17/2008 11:27:41 AM): the tech bubble in 2001-2002 was pretty depressing too; ask me i worked thru that time. Markets/economy correct; all I'm saying is I'll wait for the correction. a 15% drop is not a correction
Pulkit Desai (4/17/2008 11:29:47 AM): did you buy after 2002 ?
Dukhiya (4/17/2008 11:34:12 AM): i bought a bunch of stocks in 2002; the mistake I made was I sold too early as I was still my first stab; i did mistakes buying in early 2001. bought sun for $10 and broadcom for $40
Dukhiya (4/17/2008 11:34:42 AM): after my mistakes, i learnt abt value investing and bought depressed stocks in 2002.
Pulkit Desai (4/17/2008 11:35:11 AM): so that turned you into a bear I guess, and of course that Maudlin cult
Dukhiya (4/17/2008 11:35:43 AM): I think I believe that the way to success is to not lose much.
Dukhiya (4/17/2008 11:35:59 AM): but take risks only when you are paid for it.
Pulkit Desai (4/17/2008 11:36:06 AM): that so so boring
Pulkit Desai (4/17/2008 11:36:07 AM):
Dukhiya (4/17/2008 11:36:14 AM): yeah. I'm OLD MAN
Pulkit Desai (4/17/2008 11:36:28 AM): today google announces
Pulkit Desai (4/17/2008 11:36:34 AM): I think its going to drop after that
Dukhiya (4/17/2008 11:36:35 AM): that is good. I don't want people to think like me.
Dukhiya (4/17/2008 11:37:13 AM): i heard abt the ad rev drop. they kind of masked it saying it was internal report and can be wrong... some bs like that
Pulkit Desai (4/17/2008 11:37:26 AM): heh e
Pulkit Desai (4/17/2008 11:37:34 AM): dude if google drops, industry drops
Pulkit Desai (4/17/2008 11:37:35 AM): apple drops
Dukhiya (4/17/2008 11:37:44 AM): yeah. i've noticed.
Pulkit Desai (4/17/2008 11:37:46 AM): and now I just got vested my first installment and I so want it to go up
Dukhiya (4/17/2008 11:37:56 AM): i hope that internal report was WRONG.
Dukhiya (4/17/2008 11:39:04 AM): dude. if history (read sgtl) is a guide, you are a great market timer
Pulkit Desai (4/17/2008 11:39:38 AM): you know how much I wrote down in personal losses this time finally after dumping off sgtl
Pulkit Desai (4/17/2008 11:39:50 AM): any guesses?
Dukhiya (4/17/2008 11:40:12 AM): you are a sharp guy man. you will come back. you are in a blue-chip now. not sgtl.
Dukhiya (4/17/2008 11:40:46 AM): if i've to bet msft vs aapl over the next decade; my money would be on aapl.
Dukhiya (4/17/2008 11:46:47 AM): u can right down over a 3 -5 year period right?
Dukhiya (4/17/2008 11:46:54 AM): write down
Pulkit Desai (4/17/2008 1:17:18 PM): goog crushed estimates
Pulkit Desai (4/17/2008 1:17:22 PM): long live the bull market