Ben Graham, the father of Value Investing was the first to call out the Market’s mood swings, anthropomorphizing the creature we know as Mr. Market.
Mr. Market is emotional, euphoric, moody and often irrational
This behavior of Mr. Market allows the investor to wait until Mr. Market is in a ‘pessimistic mood’ and offers a discount to fair value.
Strange how this wisdom echoes 40 years after Ben Graham, when all talk has shifted to indexing and market efficiency. Below I present 3 such money-making opportunities from November 2016 following the sudden ban on 500 and 1000 Rupee notes.
Irrationality at work
X – SOFTWARE PRODUCT SERVICES
34% Returns from the November bottom
Banning currency notes does not impact B2B Enterprise Software Services Company, which is a primary vendor for *cough* Digital Banking Channels
Y – FEMALE CONDOM MAKER
20% Returns from the November bottom
Female condom maker with revenues drawn mostly from foreign government orders. Hey, if you thought coupling would stop with the currency ban – you could have latched on to this other “de-coupling” idea.
Z – MID-STREAM NATURAL GAS
53% Returns from the November bottom
Natural gas de-hydration and compression would not slow with a ban on big notes. Maybe, if you were an ALDS franchise or selling directly to consumers – but not a mid-stream player like Z, whose revenues are drawn from multi-year fixed-price contracts with Public Sector companies.
You don’t need to be a stock picking genius. A little bit of grit and common sense can make you decent returns. Just watch for Mr Market’s mood swings, and be greedy when others are fearful.