Amit Chokshi

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  • The Problem With Stock Picking in a Down Market (SAN)
    Top-down approaches result in herd mentality in that top-downers generally focus on broad secular themes that everyone, including the market, is/has already priced into securities. In essence returns are largely just driven by the risk assumed. By the time one figures out what sector to get into, the initial "risk-free" gains have already been made.

    Also, time frame needs to be considered. If you're going long in any emerging market, the higher volatility requires one to be willing to have a stronger stomach and higher level of patience. Big deal that SAN is down 20% from its high, it's a large bellweather stock on the Chilean exchange and like a TKC on the Turkish exchange, serves as a proxy for its country's market. If the fundamentals are strong, buy more. The focus on the initial buy-in or a 52 week high price is a behavior flaw. The real value of a money manager is from what he/she does when a stock is down that 20% in terms of adding more, getting out, or just being patient.
    Jun 20 21:24 pm |Rating: 0 0 |Link to Comment |View article
  • The Problem With Stock Picking in a Down Market (SAN)
    If you're not a value-oriented bottom up manager you're going to struggle in volatile markets. Disciplined bottom-up managers have at least some anchor point on valuation that they can reference. While those points are widely subjective to model inputs, value-oriented investors are generally conservative in these estimates when trying to determine whether a stock is a good buy or not.

    It's tough to find stocks with adequate margins of safety, you picked an emerging market stock that at $7BN in market cap is probably a bellweather market stock/proxy for the Chilean market. When investors get scared, stocks like SAN will take the brunt of the punishment for the Chilean market, just like TKC would for the Turkish market.

    I'd imagine bottom up investors have a much more patient time horizon from which to realize investment returns as well. Big deal if you lose 20% off a sound investment and sound valuation point due to a market correction, buy more if the fundamentals still support it. Averaging down for general investors who play without a margin of safety is one thing but in many cases the decision that results in whether you win or lose on an investment is what you do with it once you take a hit off your initial position.

    Also, you speak of your fondness for the Chilean market, I would argue that many of the basic macro/top-level points are the first things to be priced into any stock. Witness how CTC has done over the past year.

    Secular bear markets serve fundamental, value-oriented bottom up managers the best. Rotating in and out of sectors based on mainstream macroeconomic ideas will run up transaction costs and most times the manager will be too late to accrue the real alpha of that sector (real returns might be 30% for a sector but by the time the manager gets in he only gets 15%, which might be poor on a risk adjusted basis).

    Bottom up analysts do value general economic trends but the focus is on industry specific trends and views that can directly impact a company and not broad secular themes.
    Jun 20 14:43 pm |Rating: 0 0 |Link to Comment |View article

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