To do nothing

My grandfather once told me: Doing no business is a business decision.
Of course, later he admonished me for not investing more, or not selling out bits of my portfolio :)

Quite often, the intrinsic value of a company moves lesser than its market value.
Over the last few months, the Indian stock market has seen a ridiculous escalation in market prices of a lot of its listed companies.
In some cases, this was justified, and in other cases, I deem it pure speculation.

So, if a base case 25% RoE company moves from 8x PE to 30x PE over 2 years - what does one do?
A 5x-7x on a holding says nothing about how overpriced the company may be.
Furthermore, a strong moat evidenced by strong pricing power, strong staying power (balance sheet) and strong market position may justify a rich valuation.

Oddly enough, it may not justify a new investment in the same company based on the principle of margin of safety.

When companies are not priced compellingly well relative to its business strength - like the one foot fence that Buffett always talks about - it makes a lot of sense to do nothing and keep reading.

This is one such time period.

China

Michael Pettis talks about how China's course may evolve over the next few years.
- China's consumption (or rather, use) of hard commodities is still a large chunk of global demand.
- Oddly enough, the bubble has been deflating for a while now
- Chinese equity markets have been on the wane for some years now
- Commodity prices of, such as copper, iron have been falling for a while now
- My belief is that any company or economy that is reliant on Chinese consumption may have hard times coming up
- Any company that does not have pricing power in a globally dealt commodity may face hard times

And Tepper talks about how the bond bubble will begin to end, and more money will flow into equities.

Meanwhile, Indians believe that the bull market has not even started yet.

And Howard Marks says that we are now moving towards the zone of imprudence in the markets.