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Posted On Monday, Oct 06, 2014
Stock Markets are trying to reach a new zenith almost every other week. There’s enough noise out there from your friendly neighbourhood financial advisors, whose phones are not only ringing but also get answered at the first ring, and the financial ‘wizards’ are all saying – ‘buy now’… and we seem to be getting swayed with all the noise...
And we at Quantum, perish the thought, are not buying, but holding huge amounts of cash!!
Hence one of the most common questions I get asked in my interaction with investors of Quantum Long Term Equity Fund* is “Aren’t you worried that the fund may under perform if the market continues to rally given your large cash position”?
Let me try and address this question in this article.
Quantum Mutual Fund, as per its founding philosophy follows a simple process to investing , we buy when we believe a company stock’s valuation is attractively priced relative to long term earning potential and historical valuation and we sell when we believe a company stock’s valuation is expensive based on long term earnings potential and historical valuations. This analysis is at a stock level and not at an Index level.
Whenever our pre determined buy limit for a stock is triggered, the company becomes a part of the portfolio and whenever a sell limit is triggered we exit the stock. Whatever remains is cash. During large flow driven markets like we have one right now, a lot of the stocks hit our sell limit forcing us to sell out of them raising our cash levels.
If the market continues to rally driven by relentless flows then surely we will under perform, but that does not worry us. We understand that markets can stay expensive for a very long time. Just because we believe markets are expensive is no reason for markets to correct. Rationality will play second fiddle to momentum in such markets. All it means is stocks which we believed were originally expensive have turned even more expensive as they continue to rally, increasing downside risk.
What we will not do is allocate our investors hard earned savings into stocks which we believe offer no upside based on fundamentals. We would be putting our investor’s money at risk, something we would never do.
Did a video recently on this subject , please click here to view it.
Patience and discipline have been the two virtues which have allowed Quantum Long term Equity fund to build an outstanding track record over time. even if the markets chase momentum, we will stay focussed on fundamentals.
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Note: Risk is represented as:
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