ponderings & pennings

Mint carried an article on Investment Analysts that their jobs are in danger owing to bad showing of the stock markets.

What it says is that with stock markets providing negative returns, and the analysts revising their price for a stock towards south, their perks, compensation and even jobs are at stake. While that is true and will be for the kind of business they are in, I am not sure if they can be called "Investment" analysts. They, according to me could be analysts for anything but "investment".

A decision to invest happens after making sure of the robustness of the investment on the business which emanates from the roubustness of the business notwithstanding the ocassional macro & micro economics factors. The investment analysis takes into considerations all the downsides in the horizon the investment is being considered for and a horizon less than one year, in my opinion does not make the decision an investment decision. Once invested, only the events that are kind of out-of-the-blue can make the analyst reverse his/her decision. None of the macro-economic parameters are out of the blue.

Now if, as the report suggests, the anlaysts who were a few months giving optimistic views on stocks are busy scaling down the price of stocks, then it shows that they were not giving prudent investment views on the first place. An analyst should give a "buy" signal only if (s)he is sure that under normal and moderately deviated conditions, the stock will give decent returns - though there could be a few exceptions where the analyst may have to revise the decision or the price but it should not be in large numbers as has been reported. The prime reason why that report talks of this happening is that the analysts do not follow one philosophy. Their analysis methodology encompasses all styles ranging from perfectly efficient markets to perfectly inefficient markets which leads to not so robust fundamental analysis which is the first and probably the only requirement for "investment" - a long term one (atleast one year).

Why the analysts do this could also have a cause - that Indian public has short memory is well known and drawing from the same, it is pretty certain that Indian public looks for faster gains. I have no problem with that but then they should not use the word "investor" to classify themselves. They should call themselves dabblers/gamblers/players if not speculators.

I dont think India has an investor besides Rakesh Jhunjhunwala. Its sad that we dont follow him or his philosophy which is similar to those of Warren Buffet and Graham B. To quote Graham B (if you have ever received any e-mail from me then you would recall this quote as it appears below my signature):

"An ‘investor’ is often better off if he does not even know what changes are taking place in the market price of his securities".

This statement clearly indicates that the investor/investment analyst should have done his/her job so thoroughly that (s)he can afford to ignore the price changes as (s)he is sure of that the target price will be achieved in the horizon set forth.

While we realise the definition of investor as referred to by Graham, lets see this video: