Sunday, September 26, 2010

‘Best time to buy stocks is when you don't feel like buying' .....Parag Parikh

I am pasting here an interview of a veteran analyst and very wellknown figure in our stock market, Parag Parikh.....
The reason I am pasting his interview is he has come out with some excellent analysis on what one should do.....

Read on:

Stock market investing is not just about number crunching and balance sheet analysis. It involves a bit of mind game too. In an interview with Business Line, Mr Parag Parikh, Chairman, Parag Parikh Financial Advisory Services, shares interesting insights on behavioural finance and how investors can use it to make investment decisions. Excerpts:

How does behavioural finance explain the market and its movements?

We all learn that stock markets are efficient and people make rational decisions to maximise their profits. Now, behavioural finance is exactly the opposite. It says that markets are not efficient, especially in the short run. Suppose you find Rs 5 coin on the road when you are walking. Now, why do you think no one saw it, despite so many walking on the road? In the same way, markets are not efficient. Now take the case of people making rational decisions. If this were true, how would you explain people giving money to charities, or spending on parties to celebrate birthdays?

These are not rational acts because money is going out, but people still do it out of their hearts. More often than not, we make decisions from our hearts and not mind. That humans make irrational decisions at every point of time is also the reason why markets are so interesting and have a full industry following it.

How do you integrate behavioural finance into the services you offer?

My idea is to educate investors, to make them know that there are no short-cuts in the markets. The way markets are going up, banks are lending margin money and some of the mutual fund houses are advising investors, it all gives the wrong impression that one can make money in the market by simply buying and selling stocks. These are wrong notions. We cannot sow a seed today and expect it to become a tree tomorrow. It has to go through various stages and seasons to become one.( Everybody should remember this)

What we do is adopt a slow and steady approach. Our clients believe in our philosophy of value investing; we don't take money from people just because they are ready to give it us.

So why are you then entering the mutual fund business now?

The minimum entry amount for our PMS business is Rs 5 lakh. By entering the mutual funds space, we can cater to the small investor. He is the person who needs it the most. MF is a very good vehicle to meet their needs.

Here again, we will be different and will not concentrate on amassing AUM. We will concentrate on performance alone, using value-investing and behavioural finance. This is what we did in 2008. When the markets crashed, we went to our clients and told them to give us money!

You have to buy when others are selling and sell when others are buying. This is the basic concept of buying a value.

But unfortunately in the stock markets, investors find a stock less risky if everybody is buying and the stock prices are going up. And they find it more risky, when nobody is buying and the stock prices are down. That's the challenge we have to work with.

How do you use behavioural finance to invest?

We don't have a brilliant team, no one with capabilities to point out exactly how the markets will move! What we instead do is identify a good business, with a credible management and with a good moat around its business, strong network and less debt. We only buy such businesses and at the time they are available at a discount in the market. And when is that? When there is excessive fear in the market. We buy at that time and stay away from the market after that.

With so many companies tapping the primary markets, what is your view on IPOs as an investment vehicle?

I don't believe in investing in initial public offerings. Tell me why are there no IPOs in bad markets? Why do they come only in good markets?

That's because in good markets people are willing to pay any price for anything. The management agrees to sell their shares during good times because they know they will get a much better value for their shares.( I agree partially with this it is noit always that when market is in bullrun only IPO that comes are not cheap.....there are we saw in Guj Pipavav, Indo Solar etc, the main thing is we need to able to find out which IPO is cheap.....)

And why don't companies come out with IPOs during bear markets? Well, because promoters feel that their share price should be valued higher than the rest of the market.

Why do you think retail interest took so much time to pick up?

Interest is how you see it. With the market picking up, we will certainly see retail activity picking up, as greed will then set in. Markets feed on greed and fear. Interestingly, when the markets offer opportunities for investments, there is immense fear in the market. That is also why only few are successful in the stock markets. We all want instant gratification.

What is your view on the market now? Do you think they are expensive?

See, here again we are following the insanity that the society has created. Now, Sensex has only 30 stocks, while Nifty has 50. Is that the market? No, as there are over 7,000 listed stocks! We are looking at the wrong barometer.( This I have been writing since long,don't look at the sensex....some 70 more stocks will be added by bse and then the market will still be at same high and the P/E will come down, then what one will do?Buy stocks at 22k?.....makes no sense looking at where the sensex is)

Moreover, how do companies get into these indices? By virtue of their market capitalisations alone. They are all big companies but not necessarily good companies. The market of more than 7,000 stocks outside of it is where the value is. Besides, mutual funds and institutions play with the Nifty all the time, there is no value per se there. A look at the open interest on Nifty will tell you that most institutions are into it already.

So what should retail investors do?

For retail investors, I would say the best time to buy stocks is when they don't feel like buying. And that brings me to the question - who is a retail investor?

An investor isn't someone who invests everyday. He is someone who invests once in probably two years, or whenever there's an opportunity. The rest are all punters. What advice can you give to punters?

My Comments:
Well,that was an excellent interview given by Parag Parikh a very veteran and a very well known analyst and investor of  our stock market.
I have already given my views in bracket in the above interview.....the only thing I would like to add is........
Looking at Sensex level which consist of only 30 stocks and measuring the market valuation by P/E of Sensex 30 stocks makes no sense, OUT SIDE that 30 stocks there is a big ocean of 7000 stocks......BSE is going to add some 70 more stocks in near future and I assume that due to that the P/E will come down after these stocks will be added....and the P/E can come down as low as 13....and when that happens, the Sensex will still be at 20k or even shed better at 22k, already had broke the previous TOP, and people thinking the valuation has gone through the ROOF and time to sell and at that time BSE will add 70 more stocks and the P/E will be down to 13! and market will start looking cheap...then what will happen?People will start buying at SENSEX 22k, that the market is valued at 13 P/E and looking CHEAP ?
Well, it seems that Bulls has got the smell of what is going to be added and what will be the P/E after those 70 stocks will be added.....and hence they knows it very well that even if they will take Sensex to 22k level, at certain point of time, 22k will also looks cheap....for the reason I have cited above......
Kudos to Bulls for thinking ahead of Bears.......
Well, I maybe wrong and I may prove right.........let us see what happens....this is just my assumption.....
Read the excerpts of latest interview of Shankar Sharma.......same old record.....Market is showing distribution taking place and we cannot move up......and maximum it willgo to 21k...etc etc...I use to paste his interview here but am tired of reading his bearish am not doing that....
In stock market," Winners are those who can see what will be coming up"......


  1. Excellent article with even excellent comments by Rajeev.

  2. Hi Rajeev,
    I became a great fan of Parag Parikh after reading his book 'Value Investing and Behavioral Finance' some 1 yr. back.
    He is so genuine person just something like Rakesh Jhunjhumwala and Ramesh Damani.
    And he is so open to all. What I mean is check their web-site -
    On it they post all their latest research reports and videos for free. Not like other broker services which charge for it.
    Even you get weekly report free from them in your e-mail, which are not great but good.
    At least from them, roughly you come to know their holdings.
    From their suggested list I have few stocks like IL & FS Investment Managers, VST Industries, CRISIL, which have given good results but of course not as great as yours.
    What I must say is Mt. Parag Parikh is true at his heart just like you!
    With Regards,

  3. Vikas,
    I agree he is genuine person like Rakesh Jhunjhunwala and Ramesh Damani...very rare market participant we have seen who guides like RJ, RD and PP.....

  4. Dear Rajeev Sir,
    Recently I came to know about your blog and its quite like 'GYAN BHANDAR', with a fair & frank views. Thank you for educating us.

    Prashanthsingh Rajput

  5. Very frank talk by Parag Parikh. Also what a relief not to hear all that talk about P/E, market top, bull rally to 25000 and so on... Even look at his company's logo, its a tortoise! Will surely be watching out for their MFs.

    His views on the current bull run are also very sensible:

  6. Also many many congrats on your new milestone of followers, Rajeev!

    One Stock you spoke about in reply to my comments- Arrow textiles has gone up 30% in just two weeks!

  7. Hi Rajeev,

    I am holding sterlite industry .It is another vedenta company in mining industry .If it could benefited as govt clear cairn energy acquisition by vedenta.

  8. JC,
    You should have bought Arrow Tex...even at this rate its looks good for LT.....

  9. shaifali,
    Sterlite Ind is already a bluechip Co...there is nothing to worry in such my blog) I talk about unknown stocks which are still undiscovered....

  10. sir,

    i missed to buy Loyal Textiles Mills Ltd. is this still bye @259

    Please suggest...

  11. abhijit,
    Loyal Tex is an excellent Co with excellent management.I think one can still take small stake in it to buy more if it comes down.....

  12. I was half convinced but after your recommendation, I went ahead and bought. Its a nice business they have and global corporations like Nike are their customers.

  13. Hi

    What are your views on Asian Oil Field Services..

    Couples of developments in here......

  14. Amit,
    Asian Oil was my old call maybe from MMB days in 10's....but yes,offlate I am seeing some development taking place which looks good for the Co and operator interest is still there....

  15. thanks for delivering stock like sujana tower....kirloskar ferro yet to gear up...