Who Cares, Yeah But And So What?

Eight out of ten times after I buy a stock, it falls in price and ten out of ten times after I sell a stock, it rises in price. Value investors operate under the premise that Mr.Market's assessment of value of a company is wrong and that he is pricing the company higher or lower than it is intrinsically worth.

Warren Buffett says that all investing is value investing. Investing is the act of buying something for less than it is worth. When participants disagree about what a company is worth, it is completely understandable and that is what creates a market. Periodically, however, markets breakdown to a point where investors start to question the basic premise of passive minority equity investing. All investors agree and it becomes apparently evident that assets are priced at significantly less than they are worth, but investors lose all faith in value unlocking, price discovery and convergence of price to intrinsic value. These markets are called Who Cares, Yeah But and So What? markets.

India today is a Who Cares, Yeah But and So What? market. Significant valuation mispricings have existed in the market for a long (five to eight years) period of time and value unlocking, price discovery and convergence have been completely absent. In such a scenario investors evaluate every company management based on the liquidation benchmark. Unless a management is willing to return all cash and assets to shareholders and liquidate itself in order to force convergence with value, it is looked at poorly. All valuation based investment hypotheses are retorted at with Who Cares, Yeah But and So What? It is not necessary for a management to liquidate itself to make price converge with value. Managements that remain focused on generating high returns on incremental capital reinvested and that remain fair and transparent to minority shareholders are good ones and the stocks of their companies are good investments. Such stocks are good investments even if (and especially so) their stocks have remained at significant discounts to value for long periods and even if their managements have not forced convergence of price and value by liquidation.

Investing in Indian stocks today is like shooting fish in a barrel. Beware, however, I've been wrong for fifteen years of my investment career and one has to be willing to be wrong for an equally long time.