NEW DELHI: Legendary investor Warren Buffett says one should be fearful when others are greedy, and greedy when others are fearful. Strong retail participation in the stock market since March lows suggests investors followed this adage to a tee in 2020 and benefitted.
Analysts said the Covid lockdown and work-from-home trends facilitated their smooth market entry on Dalal Street, as investors jumped on to the bandwagon when the stocks got ‘marked down’, something Buffett prefers, and that risk-reward paid off for many.
“People opening demat accounts was a phenomenon driven by the lockdown, when people were forced to sit at home and had nothing to do. It was an easy way for them to make use of their time and with initial success, they continued with it. These investors came when old investors had already burnt their fingers; they had no fear of downside,†said IITian-turned-value investor Gaurav Sud.
“The crowd is right most of the time. All the people who had this feeling of being left out in the rally seen earlier till January entered the market and made good money,†Sud said.
Here’s are some of the Buffett quotes that seemed to have worked for investors in the challenging year:
‘Be fearful when others are greedy, and greedy when others are fearful’
With stock markets globally taking a hit on pandemic woes, something never before seen happened on Dalal Street. While the market was gripped with the uncertainty over Covid-19 and its impact on the economy, new investors hit the Street in great numbers, taking the total demat count to 5,87,90,930 as of December 30, up 28 per cent or by 1.28 crore over the previous year. The risk paid off. Since March lows, the BSE Sensex rose 86 per cent, while the midcap and smallcap indices gained 87 per cent and 108 per cent, respectively. All in all, the domestic investors ended the year gaining Rs 32 lakh crore in wealth, as suggested by the surge in BSE market value.
‘Whether we’re talking about socks or stocks, I like buying quality merchandise, when it is marked down’
Quality comes at a cost, and growth is good only when the return on equity is greater than the cost of capital. But thanks to Covid fears, nearly 180-odd stocks from the BSE500 pack had plunged over 50 per cent in the first three months of Calendar 2020. Nearly 300-odd stocks had tanked over 40 per cent by March! That steep selloff gave investors “the marked-down prices” they were looking for in January, when the benchmark indices were ruling at record high levels. The price one pays for a stock eventually determines the return on that investment. The strategy should be to buy quality companies at ‘marked down’ prices when available.
‘Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble’
One should seize great opportunities that come along. Not one or two, but nearly 260 stocks from the BSE500 index doubled money for those investors who bought them at 52-week lows. The list just does not include midcap and smallcap names, but also largecaps. The list included IndusInd Bank, which has rallied 288 per cent from its 52-week low of Rs 235. Bajaj Finance has climbed 191 per cent from its 52-week low of Rs 1,783. Tata Motors, JSW Steel, Mahindra & Mahindra, Hindalco and Tata Steel are some other largecaps that have risen 150-180 per cent from their 52-week lows. Overall, 21 Nifty stocks doubled investor money from 52-week lows.
‘The stock market is designed to transfer money from the active to the patient.’
Those who sat tight when the Sensex nosedived from record highs in January still made money in the challenging year. Sensex hit a high of 47,807 this past week rising from the 41,000-odd level, the record high in January. It is, however, yet to be seen whether the new investors entering the market since March are here for the long haul.
“I would say, they will be more day-trading types. There would be people who will be taking profits off very quickly. There will be people who will be booking losses quickly. They will be some fearless others in terms of where the markets are going. Those investors do not have experience of the past, which is the biggest asset as well as liability. They will bring in a lot of volatility and a lot of depth in terms of liquidity on various counters,” market veteran Raamdeo Agrawal told ETNOW in an exclusive interview.
‘If you are not investing, you’re doing it wrong’
Buffett says people should not find comfort in cash equivalents. If they do, they might have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. The Covid year was one such where returns on saving accounts and fixed deposits took a hit. Inflation, on the other hand, remained fairly high, with the November print coming in at 6.93 per cent and October print at 7.61 per cent. Equities, though risky, delivered 15 per cent return during the period. Investment in gold, considered a safe haven, in fact delivered handsome returns for the year. Inflation raises the price of goods and services and, thus, reduces the value of goods one can buy with the same amount of money over time.
