Private Investor: Feeling brave? Ride the tiger and you'll profit
Saturday 09 February 2008
A bad habit of mine is to look back in anguish. It's not wise to try to live your life via an alternative universe, yet I find it irresistible. Maybe when it comes to investing it's not such a stupid thing to do; you can learn from the things you didn't do as well as the things that you did. Let me explain.
For the past few years I have watched the price of the mining stocks rise inexorably, so it was obviously a good sector to be in and I've been lucky to have a holding in Rio Tinto that has risen ten fold in a decade. I never bought it as a growth stock, so it's been a bewildering phenomenon. I've bought and sold a few more along the way and can declare myself content with the returns from this investment.
However, I have often wondered what it would have been like if I'd bought and sold on the frequent, sometimes quite violent but always reversed price movements. If you look at a share price graph, or just watch the price day by day, you'll observe that the Rio Tinto price often goes up or down by 1 or 2 per cent in a day or two.
By dipping in and out of the market and pocketing the profits as they arose, an agile investor could have made a great deal of profit. More agile than me, I'm afraid.
It's painful to reflect on such lost opportunities, but it prompts me to wonder what the next share to regularly top the winners and losers tables on alternate days might be. The fairly obvious candidates at the moment are the banks, but they are such a dodgy quantity that I'm not sure I can stand the possibility that I may end up losing the lot. My theory of making money on large-cap, liquid, frequently bouncing shares does depend on the confident belief that they won't actually collapse one day never to rise again, like Northern Rock, say.
So for now I'm sticking to my buy-and-hold strategy, with a little twist.
India is a very well-rehearsed growth story now, and to my mind has always had the edge on China. Why? Well, India is democratic; has the rule of law more firmly entrenched; it has the English language; it has a better diversified economy than China with less reliance on US trade and manufacturing; and it has as much, if not more, potential than any other nation on earth.
My vehicle of choice for investing in the Indian economy, the JP Morgan India Investment Trust has had an excellent run, another ten bagger in fact, if you look at the price of the shares 10 years back. I've put so much into this fund for such a long time, by committed monthly investments, and the shares have performed so well, that I now actually want to diversify my fund managers. Yes, India has been that good to me. So I've taken the cue offered by Mark Dampier's column in these very pages last week and taken out a plan with the Jupiter India Fund, which has just been launched.
Mark wrote approvingly of the fund manager, Avinash Vazirani, who has been investing in the Indian market for more than 13 years. Apparently, Mr Vazirani is a pragmatic stock-picker who searches for companies with high growth potential, but who isn't prepared to pay the earth for them. Sounds good to me.
I usually don't recommend any of my investments with much conviction, but India is an exception that I think I'd be happy to tell anyone to get into, with a couple of caveats. First, it is very much a long-term story. Over the last year the Indian stock market has fallen by more than 10 per cent in a day on two occasions; you need to have strong nerves.
Second, and because of that volatility, you need to invest monthly and harvest all the advantages of "pound cost averaging". A little and often will reward you well.
Third, there are especial geo-political risks associated with that corner of the world which militate against India's natural advantages. In short, having Pakistan on your border is not going to make anyone feel more confident about investing in India. (By the way, I'm not taking sides here – just pointing out that Pakistan has been notably unstable lately. I'd like to see Pakistan and India as peaceful economic rivals rather than military ones, like us and Germany nowadays).
So there you are. If you haven't already, and with due prudence and after taking sensible independent advice, I'd get into India as soon as possible. Ride that tiger!
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