Investing Lessons: 7 Lessons the Stock Market Taught Us in the Last 2 Years

In the heady bull market of the last two years, are there any Nifty stocks that have given absolutely negative returns? Don’t google this. Just try to rack your brains to get the information.

The last two years witnessed a strong rally in the Indian markets. From the bottom of the panic reached in March 2020, the Nifty rose from 8,598 to 17,222 on March 28, 2022.

Sorting the data by market price shows that 29 companies outperformed Nifty and 21 underperformed the index. Last year, when Nifty’s returns were 19%, 30 stocks outperformed Nifty. In FY21, 29 stocks outperformed Nifty.

The best in the Nifty are Hindalco, followed by Tata Motors. They both zoomed in more than 5 times. Other stocks in the top 10 include JSW Steel, Tata Steel, Bajaj Finserv, Bajaj Finance, Wipro, Infosys, Grasim and Adani Ports.

Given the commodity boom, these stocks were expected to do well. Tata Motors is an exception as the commercial vehicle (CV) upper cycle has yet to materialize.

Now let’s take a look at the bottom 10. HUL, at -5% return, gets the wooden spoon. Nestlé with 14% is the second. Others are BPCL, Britannia, HDFC Life, Shree Cement, Kotak Bank, Coal India, Dr Reddy’s and HDFC.

HUL, Britannia and Nestlé are companies with deep moats and strong brands. No one doubts his pedigree. But its price performance has been lackluster. Also, in the heat of March 2020, these stocks would have melted less.

I have received dozens of memes about ITC without moving. The fact is that the ITC has risen 78% between March 20 and March 22 and 28% between March 21 and March 22.

We look at returns for the last 2 years, and for FY22 and FY21. Here are some points from our spreadsheet:

Apna time aayega is hope as the pendulum swings: There are several strategies in the market to make money. Some work and some underperform in various types of market cycles. You can classify them into various segments such as growth, value, quality at any price, quality at a fair price, and junk stocks at junk prices. There is no guarantee that your chosen strategy will always outperform.

Don’t try everything, everywhere at the same time: Choose your style and stick to it. If you keep changing your style according to the latest trends, the probability of losing is high. Scheduling your stocks and changing your investment strategy frequently based on the latest fad can be detrimental to your financial health.

Crash and unexpected gains: The market operates in two modes: with risk and without risk. In a risk mode, also known as a bull market, so-called risky stocks, such as commodities and those sensitive to the rate cycle, perform well. Everything is at a rally. Sometimes the worse the quality of the stock, the better its performance. When the market is trading in a risk-off mode, or a sideways or bearish market, defensives like FMCG and pharmaceuticals come into play.

In retrospect, everything is much clearer: Unfortunately, whether the market is trading in risk-on or risk-off mode, more is known in hindsight. Is the current downtrend a correction or a trend reversal? The answer is only visible towards the end.

Risk there toh…: Clearly, over the past year, we have been in risk mode, helped by an unexpected rally in commodity stocks.

Not a penny more, not a penny less: Good companies don’t need to translate into good stock to buy. Case in point is HUL; Exceptional management, great brands, strong distribution, and yet in a raging bull market, it’s the only stock to give negative returns. I belong to the camp that believes in the importance of the price of entry. If you buy a great company at a not so good price, it will hurt you for a long time, just as a HUL holder would have felt in the last 2 years. Frustration will drive investors to exit just before the returns kick in. There is nothing more frustrating than seeing the stocks in your portfolio do nothing while the rest of the world is partying.

Street full of surprises: In the stock markets, just when you think you’ve cracked the code, your algorithm fails; And believe me, they fail miserably. It can be summed up with this quote: I thought I knew all the answers, but God changed the quiz.

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