• Mayank Mehraa CFA, FRM

Testing Times

Updated: Apr 9, 2020

Simultaneous Issues

USA/ IRAN

8th January 2020- US airstrikes kill top Iranian General- Qaseem Soleimani

8th January 2020 - Iran fires missiles at base housing US Troops

8th January’ 2020 - A passenger plane blows up in flames soon after it took off from the Baghdad Airport.

A military statement on state TV on 11 January blamed “human error” for the incident.


The Covid -19

31st December 2019- The First case of Covid -19 came to light as a new kind of virus with a concentrated impact on mainland China and neighbouring countries.

11th January 2020- China reports the first death of a Covid -19 patient. The report came in days before China’s biggest holiday season. Speculation on global tourism being significantly impacted.

20th January 2020- Reported cases from other countries and the USA triggers warning signs of how the impact is not bound within China.

31st January 2020- Travel restrictions on China are imposed by the Trump administration, soon to be followed by other countries. - Such travel restriction would directly impact trade and major economies dependent on Tourism. Industries like aviation and Economies in Europe dependent on Tourism would eventually be impacted drastically.

2nd February 2020- First death reported from outside China in the Philippines. Forcing the reassessment of the gravity of the situation to major countries across the globe who rely on SEA for trade and Ex/ Im.

14th February 2020- France announces the first death of a Covid- 19 patient in Europe.

Sidenote-

23rd February 2020ies relying on China for raw materials and manufacturing have been looking for alternate resources, speculations have increased on how Indian chemical manufacturers would seem to benefit. Global tourism has taken a major hit and panic has started to set in for major European economies and the contagion effect such spending & consumption dip would have across the board.

23rd February’ 2020- Italy sees a major surge in Coronavirus cases and authorities lock down major cities.

3rd March 2020- US Officials approve widespread testing of Coronavirus.


Russia / Saudi Arabia- Crude Price War

9th March 2020- Oil prices collapsed to a new four- year low of $ 27.34/- on Monday after Saudi Arabia launched a price war against Russia.

“ The turmoil comes after the implosion of an alliance between OPEC and Russia, which had been restraining oil supply since the start of 2017 in an attempt to support prices. Oil just had its worst day in 11 years as OPEC and Russia fell out over the coronavirus crisis.

Russia refused to go along with OPEC's proposal to rescue the coronavirus-battered oil market by further cutting production at a meeting in Vienna on Friday. The standoff left the oil industry shell-shocked and sparked a 10% plunge in oil prices Friday. Crude oil was already stuck in a bear market because of a sharp drop in demand linked to the coronavirus outbreak. Saudi Arabia escalated the situation further over the weekend. The kingdom slashed its April official selling prices by $6 to $8, according to analysts, in a bid to retake market share and heap pressure on Russia. ”

To quote a CNN Business Article dated 9th March’ 2020

Impact


While investors and traders should exercise extreme caution, there is no doubt this market brings many opportunities but only to those who would remain solvent to capitalize on such opportunities.would have very little impact from but yet are trading at cheap prices/multiples owing to the system-wide panic. However, I am very against the current market situation is compared with the crash of 2008 or 2001, etc since most of these could possibly be controlled by human interventions. The Covid-19 brings with itself a series of issues most of which we are still guessing, which is what will make it extremely difficult to bottom fish in the markets and is also not something I would recommend.

While investors and traders should exercise extreme caution, there is no doubt this market brings many opportunities but only to those who would remain solvent to capitalise on such opportunities.


Inspirations & Investment Methodology

I have been an investor in the Indian markets for quite a while now and I’m sure each investor has their own developed auto-correcting investing mechanism before I talk about mine I should mention where my system has taken massive inspirations from. However these aren’t the only two books, but these are the two most monumental in my investment methodology.


The Intelligent Investor

However, under normal circumstances in the past, I have argued on how stocks available at valuations, as outlined in the ‘ Intelligent Investor’ are rare to come across and usually lead into value traps owing to the ‘Efficient Market Hypothesis’.ined in the book are scarce.


However, under normal circumstances in the past, I have argued on how stocks available at valuations, as outlined in the ‘ Intelligent Investor’ are rare to come across and usually lead into value traps owing to the ‘Efficient Market Hypothesis’.



The Little book that (still) beats the market

A book by Joel Greenblatt, whose investment company “Gotham Funds” boasted over 40% returns from 1986 through 2006. The book is a step-by-step tutorial of mathematically choosing stocks based on ‘Benjamin Graham’s footsteps’ of buying undervalued companies with long-term growth potential at good prices.

The idea highlighted by the author is to sort and rank companies by Earnings Yield (1/PE) and ROCE then adds the two ranks to arrive at a final rank and use a buy and hold strategy across that list of stocks. This formula seemed very simple back in the day when lesser stock existed.

A few insights based on 13th March’ 2020 prices and fundamental data, used to derive at a list across the Indian listed space.



Download the entire list

While both the above lists are an example of how the panic has nothing to do with specific businesses and has reduced the buying interest to a point where such bargains are allowed to exist, none of the names should be misunderstood as investment advice.





Download the .pdf


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