Growth or value ?
Growth or value? how & where to invest
One can predict the rationality of value, but can’t predict the irrationality of fear.
Cheaper stock prices do not mean things cannot get worse and stocks can’t fall any further. One can predict the rationality of value, but can’t predict the irrationality of fear.
“We need to have sensible safety measures. It’s important to have legitimate amount of fear, or rational fears. Such rational fears are showing in the eyes of society and the financial markets at large.” With the rate at which medicines and vaccines are sought to be developed, there are more reasons to be hopeful, Both growth and value are required equally in investment decisions. You can’t just pick one.
An investor’s preference should be to look at the underlying attributes which create value. “These attributes are simple and time-tested over centuries. They include choosing quality businesses that have large size of opportunities, can compound and give predictable growth in the long term. One must also ensure sufficient margin of safety.That’s what investing is all about,
There is a real margin of safety in the market currently, as stock prices have fallen below the underlying values in many high-quality businesses that have quality managements and strong balance sheets. If an investor has a 3-5 year view and capital to invest, good balance of mind, knowing well that things can go worse, if he can live with the stress, and select quality well, this is a fantastic time to invest.
Quality stocks have eroded 15-60 per cent of their values in 8-9 weeks and that’s where the opportunity lies. Corporate earnings may take a hit for say one year, but we will still earn next nine years annuity in 10 years.The impact of Covid-19 on the stock market needs to be viewed with a sensible balance, as stock prices have not just fallen, they have fallen across sectors. “In many cases, prices have dropped way too much.
Covid-19, being contagious, has caused social distancing and physical lockdown of 130 crore people, which is unprecedented. The economic impact of Covid-19 is not coming in from the scare of a fatal or terrible disease and that the humanity has faced even deadlier diseases before, with far more mortality rate. The Covid 19-triggered psychical distancing is not going to disappear once the lockdown is lifted.
The decision on how much money should be deployed in equity or debt should be taken by the investor. One should not let that decision be taken by fund manager for him. While picking mutual funds, our preference should be looking at underlying attributes which create value rather than artificial description of large-cap or mid-cap. They won’t do the trick, unless these attributes are not there. When the dust settles, when people take a longer-term perspective, they will realise that Covid-19 was something one can deal with, live with. One just can’t stop living. We will all have to alter in some sense the way we live and work when the lockdown is lifted.
