Every type of investing is value investing. Even in Growth they seek value, right?

So Let me ask you a simple question. You have tagged yourself as a Value Investor and you have reasonable confidence in your own research. So you are doing a review of your portfolio. Sadly, all the companies have names so bias is difficult to avoid.

Here your portfolio consists of the following shares and their returns in the past one year…tell me what will you do? Buy/Sell (Hold is a stupid answer – it just means i do not know).

SP(2.6%), Sb(-9%), I (36%), N(-9), W(10), P(-7), I(10) M(10) I (-21) E (25)…….

all figures are in percentage….if you were a real, true, value investor with full and complete conviction in your research, you will sell the shares which have achieved 36, 25..and buy those who have -21, -9, …etc. right?

Sadly if you are reading this post, it means you have a lot of outside forces acting on you and your decision making. Remember this sexy thing of “decision making” is just rearranging all the nonsense in your head acquired by your 5 senses.

Now lets put the names. Sun Pharma, State Bank of India, Infosys, Ntpc, Wipro, Power Grid, Itc, MnM, Indian Oil, Exide Industries….

Suddenly you do not know what to do. We have enough reasons to buy Sun and enough reasons to sell Sun pharma. Ok not Sun BUT ALL THE SHARES. Should you sell Infosys because you have got 36%? Should you sell MnM which has given you 10% return and buy Ta Mo which has fallen by say 30%?

Well when you bought you did not do too much of industry allocation – so you could ignore the industry, but tell me what makes sense?

Should you buy all that went down – take a slightly closer look, PSU have been hammered. Hammered is the word. Assuming NaMo comes back to power in 2019, and decides to kick ass on the psu. And all these shares double from here. So your case of buying the companies which have done badly (sbi, ntpc, Ioc, power grid…) would look like a genius.

However if NaMo comes back to power and the US economy does well – you might suddenly see Infy, Wipro, and TCS double from here – you will regret missing a 100% growth because you were happy taking a 35% return.

Which is the correct option? Well as a Value Investor there are many times when we feel we took our profits too fast. In some cases we feel….’OMG having bought TaMo at 90 why did I not sell it at 330…now I could have bought much, much more’.

Value Investing is not dead, but it has surely got far more complicated, and the external noise is making it worse. You will have to remember that in investing a few brilliant companies in your portfolio take care of many non (or under) performers. So if you SOLD Infosys at a pe of 200, and bought it back at a pe of 16, or you bought Hdfc Ltd, and Hdfc bank at par…JUST holding for 3 decades created a big alpha. Some shares you could have made money investing and by trading also. Cholamandalam is a share that I have invested (at Rs. 16, in 1986). I bought more at 65 (2009) and sold even at 1850. Of course I still have lots of it left – I bought recently too.

The recent long spell has got a lot of investors questioning whether value investing still works. I believe that value investing still works. How ever, the strategy could be changing from time to time. So will the numbers. If your own goals change you may change your targeted return. Some of your thoughts will become big headwinds for a long only portfolio.

A 10 year bull run has created a lot of complacency among a lot of value investors. However, they are not sure if Value Investment works! Old Rules of value investing has harmed us a lot. You need to use Value Investing with a lot of new theory. How would have value investing been used to hold on to Hdfc bank for the past 24 years?!

One Hdfc, one Hdfc bank, one Cholamandalam, will make up for many under performers. It will also give you the strength to build on to a completely different value investing. If we assume that if a company builds a 48% market share in India, in an experience business, it is just a matter of time that it will make money. Learning not to get worked up on current losses (growth phase) is very important. Just hold on – remember hdfc mutual fund and Hdfc standard life insurance – had bleedin PnL for at least a decade. Hdfc Ltd had the patience to stay on. Today each one is capable of putting at least Rs. 500 crores every year…into the parent’s kitty.

Sadly in India there is not much academic research ……so we have to live with my kinda blog!!!

The academic research in USA shows that value investing gets better returns than Growth investing. We can only hope anecdotally!!

.