— July 20, 2018
There is this epic dialogue in the Hindi movie –“Baazigar” – “Kabhi kabhi jeetne ke liye kuch haarna padta hai….aur haar kar jeetne wale ko baazigar kete hai”. Translated in English it means – “Sometimes to win you must be prepared to lose ….and the one who ends up winning the end game is called a maverick.”
As an investor in the equity markets, one is always looking for ideas from various genres which can be used as metaphors to help explain an investment concept. This Baazigar dialogue has some pointers for the equity investor –
First, it pushes you into thinking only long-term as “Haar kar jeetna” will involve you being in the game for the long haul. In any case, forecasting the near term psychology of the market is a very tricky affair. You endeavor to take advantage of every rise/ fall in the markets knowing fully that it is virtually impossible to judge the collective short-term psychology of the market. Also, you are competing against too many people who are attempting to do this. John Maynard Keynes who is considered the father of modern economic theory has described speculation & investment very lucidly. He said –“Speculation is the activity of forecasting the psychology of the market and investment is the activity of forecasting the prospective yield of the asset over the whole life.” When you are forecasting the prospective yield of a particular asset over its life, you are not constrained by the quarter-on-quarter forecasting problem. Also, you are essentially not worried about the present psychology of the market i.e. whether it is euphoric, staid or morose. Say for eg. There is a particular stock investment which has reached your buy price. However you are aware, that there are short term problems that the company will face on account of which the next 2-4 quarter results are likely to be lacklustre. You are convinced that these problems are transient in nature and the next 4-5 years can give you an opportunity to earn a 25% plus CAGR return. You should be willing to take a short term notional loss in your portfolio knowing that there is bigger long term gain in the future. In the short term you would look stupid and appear a loser as you see the market price of the asset fall. However if the end game plays out as you have anticipated, you would be the Baazigar.
Second, it advocates looking at investment differently or counter-intuitively. If there is visibility of earnings in a company or sector, there will be many investors “crowding” around these investments. These investors are looking at immediate wins or “jeet”. Whatever little arbitrage in returns is available will be immediately lapped up by these investors. So you are essentially banking on the “greater fool theory” to bail you out. A counter-intuitive way of looking at investment would be to look at companies or sectors where the near term visibility is not clear but where there would be continued demand for the products of these companies and minimal risk of obsolescence.
So, thinking differently from the herd about your investments and playing the long term waiting game can make you a Baazigar.
—–Parag Telang