Investing in an information overload world

Dated: 2nd of December, 2017

Return requirements and  expectations generally, according to my view, determine stock selection  and portfolio allocations. A particular stock may be completely fine,  return expectations wise, for an investor while being low for the other.  My effort in the past few months has been to stick to stocks which has a  story going behind it already rather than finding a stock which might  have a story that gets attached to it in time. I am not convinced that  an untold story stock will give better returns over time, even though it  might provide quick returns once the story is found and it unfolds.  Many investors play this sort of strategy but I think that there is a  significant possibility of falling into a value trap if the untold story  never materialises. I have tweaked my mind to read Warren Buffett's  famous saying "Price is what you pay, value is what you get" as "Price is what you pay, value is what the market determines".  On the surface, these two may mean essentially the same thing or  something completely different to different people. For me, the value of  a stock (or company) is equivalent to the value that the market  perceives, not of what I think it is. I only try and ensure that the  price I pay is probabilistically lower than the value that other  investors may perceive in time. Sometimes the stock/ company/ business  has enough growth that paying a reasonable price is enough to get the  compounding effect.

The line of thinking above has led me to concentrate (yet again) on a few names in the portfolio. I have added more to Apex Frozen Foods  by exiting or reducing other stocks in the portfolio. The rationale  being that given the growth story of the business ongoing and the  valuations combined, I think the stock is relatively cheap to other  growth stocks. On the other hand, I had included two stocks Repro and HFCL previous  month but I exited them as I realised that their story is yet to be  found (exciting though) and I would be better off with an ongoing growth  story at a reasonable price (Kei Industries). The rapid uptick  in Apex's stock price may mean a paring action very soon. This stock  also explains a large part of portfolio's November 2017 performance.

"Buzzing in trade today is SRG (Seritage Growth Properties)"  and similar statements or news bites is what financial news media  survives on. Afterall, if they failed to generate mass attention, they  as a financial news media agency would not financially survive. However,  the very people they entice, I am sure, if they listened to those news  bites, would in more than, I dare say, 99% of cases lose money rather  than make any. Even though ultimately found foolish, I firmly believe  that at some level, less information and more thinking is more  beneficial than more information and less thinking. The point I am  trying to make here is to seek information which is necessary for  sufficiency rather than upload information full of noise which for a  human mind becomes difficult to process.

I also assess that an  investor (with no market cap constraint) who uses this approach will end  up with a portfolio of niche or relatively unknown companies. The  simple reason being that, obviously, there are many more smaller  companies than larger ones which have attractive growth potential. It is  those who stick to the media news bites and large broker  recommendations who feel the need to stay around only large caps even  when the return potential is much lower. The mutual fund industry is  abound with this trait. An over- the- top, all- you- can- eat  diversified portfolio is probably likely a subdued result of the same  phenomenon.

Lastly, as everyone is talking about bitcoins, I  thought I might share my two pounds' worth on it. If anyone thinks that a  >10x increase in price of a virtual coin (I think some people call  it an asset jokingly) is not a bubble, they are just plain crazy. This  is a text book storyline copy of all the manias that have happened in  the past and I am not sure the ending storyline would be the different. I  have known some people in my network who for one reason or another  (mostly fear of losing money) has not bought a stock in their life but  for some reason think that putting money in bitcoin is safer than  placing a bet on a productive company. Talk of a bubble? Here you have  one. Adding to the story are wannabe technology evangelists (mainly  youngsters) who have become cryptocurrency experts, and who can blame  them given the attention they have been receiving of late. It's like  people who already know they are high attending conferences being  presented but a likewise doped person. "Hey, I find the presenter sane, so I must be sane as well".  Sure blockchain technology might be a revolutionary idea but I assess  it has not yet gone through the vicissitudes of human nature to account  for its lackings. Therefore, even though blockchain technology might  have potential, it is still an egg, and it is still not certain whether  it will end up being on the dinner plate (as a chicken tikka or a french  poached egg) or go on to have wonderful chicks.