Did you sell this stock after it tripled?

In this issue:
» Who will benefit from extended trading hours?
» Marc Faber on investing in 2010
» Is the Fed sowing seeds of another bubble?
» How you can guard against corporate frauds?
» ...and more!!

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Sintex is a household name in India today. From selling water tanks to becoming the biggest plastics manufacturer in India, the company has taken off in a big way. Its sales have multiplied almost 14 times over the past ten years. Profits have done even better in multiplying around 28 times. And someone who had invested in the stock in December 1999 has already multiplied his money 36 times!

Now whether Sintex is a worthy investment now is not a matter of discussion here. What we are trying to point is that the right kind of small companies can help you generate tremendous wealth.

But only if you have patience! And stick with good quality stocks across market cycles.

You can learn this from an investor in Sintex in December 1999, who sold the stock after it tripled in December 2003. Since then, the stock has multiplied another 12 times!

So you may ask - should I never sell a stock, always expecting it to multiply several times?

Well, if the company continues to do well, the idea of selling it should not even enter you mind. As the legendary Warren Buffett says - "If the homework is done right while purchasing a stock, the time to sell it is never."

But then, one must also never be greedy. With a stock whose valuations move way above its true business value, it is always good to book profits.




"I don't think the S&P or any market would go up significantly after rising 50-100% in the last 8 months." If you wanted one investment advice for the year 2010, there possibly can't be one better than this. And it comes from none other than Marc Faber, one of the most successful investors of our times. Speaking to a leading business daily, Faber has opined that he would be happy to preserve whatever he earned in 2009 as risks have increased and valuations are not as compelling as they were a year ago.

This is exactly the line of argument that we at Equitymaster have been holding for quite some time now. Unlike end 2008 or early 2009 where there were a lot of compelling buys available, the risk reward ratio from a medium term perspective does not look all that favorable. Hence, caution while investing should be the need of the hour right now.



Anyways, Indian markets traded volatile today. The BSE-Sensex was trading up by around 30 points at the time of writing. Realty and oil & gas stocks were the worst performers today while IT stocks led the gainers' pack. Most other Asian markets traded weak today. Gold was trading US$ 10 an ounce lower.



Marc Faber has also outlined his views on gold in the above quoted interview. He has maintained his bullishness on the yellow metal despite the huge run up in its price. "If I look at the growth in quantity of money worldwide, then gold around this level is not overpriced. Well, it's not as much as a bargain as it was in 1999 to 2001, but I would believe that it's not very expensive still now," Faber notes.


As he did earlier with Jim Rogers, New York University professor and noted economist Nouriel Roubini disagrees with Marc Faber's positive views on gold. In fact, Roubini believes that the recent price surge in gold 'looks suspiciously like a bubble, with the increase only partly justified by economic fundamentals'.

He adds that there are several reasons (like easy liquidity, falling dollar, and potentially high inflation) why gold prices are rising, but they suggest a gradual rise with significant risks of a downward correction, rather than a rapid rise towards $2,000, as today's gold bugs claim.



As much as the US Federal reserve would want to appease everyone, it seems to be finding few takers for its logic. Yesterday the Fed confirmed its resolve to keep interest rates near zero for an 'extended period'. The same backed by hopes of economic recovery. Ignoring the fact that trillions of dollars of stimuli have had little impact so far.

However, its critics are not taking the central bank's inertia in good taste. According to Morgan Stanley Asia Chairman Stephen Roach, the Fed has not learnt from its past mistakes. And after having fueled the subprime mortgage crisis, it is on the verge of causing another one. He attributes the Fed's attitude to lack of political will to exit the loose monetary policy in a timely manner. Roach also believes that the Fed's attitude is very worrisome in assessing the prospects of a next bubble.



In what might burn a deeper hole in your pocket, India's food price inflation is now nearing 20%! This is as per data compiled by the commerce ministry, which shows that food prices on an average increased by 19.95% during the week ended December 5. This is higher than the 19.05% food price inflation that was recorded in the previous week.

All eyes are now on the RBI as the central bank may raise interest rates to curb the rising prices. But we see any rate hike from the RBI having a minimal impact. This is given that food prices are rising owing to supply-side issue, and this has a lot to do with this year's weak monsoons than anything else.



Given human frailties, frauds have been around us almost as long as there has been money. But their form changes with time. As per a leading business daily, most frauds in companies today happen in the human resources department. Especially in the IT industry, where hiring volumes are large. Some HR people float their own consultancy firms and route CVs/resumes through them. The procurement division is also fertile ground for frauds. A single company bids for a tender under different names. Another susceptible area is 'private equity'. It is hard to track where the money is going. Ironically, one of the reasons is the investor pressure on companies to show earnings performance.

In our view, much of this can be prevented. That is if managements and auditors do their job earnestly. Investors on their part must also learn to set reasonable expectations from businesses.

Today's investing mantra
"If you took our (Berkshire Hathaway's) top fifteen decisions out, we'd have a pretty average record. It wasn't hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor." - Charlie Munger