Performance and Portfolio Activity
The portfolio was up 4.7% Dollar terms for the month of May, 2017, compared to the investible Indian index, Nifty 50, which was also up 2.9%.
Stellar stock price move of Avanti Feeds, a shrimp feed and shrimp exporting business, helped matters. Avanti reported excellent numbers this quarter as they move up the value chain from shrimp feeds to shrimps. Few other stocks in the portfolio also reached their life highs in the month of May. There were no additions, deletions or changes to portfolio holdings.
As I have been stating ad nauseam, it has become more and more difficult to find comfort in valuations as markets show no signs of fatigue. The relentless rise in broad markets around the world, including Indian ones, is probably causing a situation where a portfolio assessed on future growth valuations, even if on a sound base over the long term, is dancing on the verge of short term pain. It is difficult to ascertain, probably impossible, to state with any confidence the nearness to the tipping point. Maybe we might not ever reach a tipping point, maybe we are extremely near it, but that's markets for you. Two birds in the bush is not the question but the path to catching them may not be as straight forward anymore with loads of intermediary questions.
Even though we may not fancy the idea, politics seem to have become a very heavy dominant factor in determining short term/ medium term nature of markets. Mr. Trump may end up making some huge policy errors/ or diplomatic mistakes which may ignite fear among market participants (the opposite may also be true). The constant news flow from the White House may not have rattled markets till now but the chances of a disturbing news outburst is none the less present.
I am confident that Mr. Trump or no Mr. Trump, businesses will be valued on its own merit over the long term but is there any possibility that absurd presidential actions change future business environment and hence future business valuation permanently? Only time will tell. I hope that the market system is kept intact in all circumstances.
Finding a marriage partner...
When we look for a marriage partner, we look intuitively for certain qualities in a person which indicates with some confidence level that the partnership will result in a situation where the sum is greater than its parts. Although it is next to impossible to predict future events, the basis of consideration is based on accumulating information, some objective, some subjective, to determine the possibilities of a successful partnership. I think lasting love is simply a way humans express that intuitive fit. After all, as animals, we all look for symbiotic relationships deemed best for furthering our gene pool.
I think in investing similarly, there is actually no way to assess with certainty the future path of a stocks' business prospects. Like in finding a marriage partner, I find that the process of analysing a company's future business value is based on historical facts, current business environment, qualities or capabilities for the business or its management to grow business value and assumptions about future business and economic environment. As we can see, all we are essentially doing is to gather information, some objective, some subjective, to form rational judgments about the value of a business in five to ten years from now.
With the above in consideration, it is but very humane that we sometimes end up overvaluing a business, like my wife did when she married me (and I keep telling her that), and sometimes, grossly undervaluing some. As we do not rationally analyse the value of a marriage partnership year after year, I often come to think if it may be wise to constantly analyse a business's value after every quarterly result? A buy and hold strategy, akin to a marriage partnership, does hold very valid advantages as the real value of a business may not come to light in a distinct visible manner with known patterns.
Moreover, overtime, if the basis of valuation is sound enough, the undervaluation and overvaluation should cancel out leaving us with a more than satisfactory result over the long term. Consider Amazon for example, it is but impossible to ascertain a confident narrow range future business valuation, but analysing Amazon's history, capabilities of Mr. Bezos, and industry trends, it may be possible to see that shareholder capital plus founder capital may result in a sum greater than its parts in future.
On a lighter note, lowering expectations has been my strategy to try and keep my marriage partnership in a healthy state. I am not yet sure if it is working.