Author: Ajay Mohanty, Head of Investment Advisory at Xanara
There is a saying in Cricket that “It’s a see the ball, hit the ball game! If you don’t watch the ball closely enough you are not going to hit it too far!!”
The same thing applies to Financial Markets “Sometimes watching the price action closely can tell much more than all the analysis put together”
Historically, Macro and Micro were the two biggest camps which means either a ‘Top-down’ or a ‘Bottom-up’ approach can help you make money !
But the emergence of ‘Liquidity’ has literally poured Cold water on these theories.
Central Bank Liquidity has given rise to the “Bad Data is Good News” phenomenon because Bad Data means easy money for longer.
So the key these days is to fathom when exactly “Bad ceases to be Good”.
For the best part of last year, market participants celebrated not so good Macro Data until The Federal Reserve woke up from its slumber to recognize Inflation as the ‘Fly in the Ointment’.
Suddenly, Investors face the deadly cocktail of slower growth, bloated valuations and tighter monetary policy.
Bottom-up stock picking is still regarded highly and rightly so but analysts can sometimes be lured into a false sense of security given that a stock’s move can be due to a myriad set of factors. Of course over the long term, bottom stock picking wins hands down. However, identifying the catalysts for stock-selection can be a herculean task given the noise created by Macro and Liquidity factors in the short-term. Valuations seem to have taken a whole meaning in this day and age when we have to value SPACs, Loss making Techs and Cryptos.
It is more on the lines of “Value lies in the eyes of Valuer” just like “Beauty lies in the eyes of the beholder”
Market upheavals are the best time to build Portfolios.
The biggest Irony is that we are happy to have SALE for clothes, or bags or shoes but not so happy if we get to Invest at 40% lower valuations despite the fact that Investments are supposed to make us money for the rest of our lives!!
