Many investors might find themselves at tight spot after evidencing a rally of 21% in the market from the start of the year. People who were on sideline, focusing a lot on timing the market were taken back by their theory.

Instead of timing the market, time you remain invested in the market counts. But time is only your friend if you have invested in good quality businesses when they are trading at discount.

It is very hard or next to impossible to predict where markets will head in short term. I say that because market reflects nothing more than the hopes, fears, opinion or views and inspiration of countless
people who are irrational with money.

If you believe in the theory that ‘market is inefficient’ as I do, then market is not that smart over short term as it is made up of all irrational neighbours. So there is a good reason that you separate yourself
from its distracting noise, to isolate yourself from the reports of what price have done, are doing or predictions of what they will do.

It is a short term trader who is worried more about the direction of market in short term. They all need to rethink and register that they are parking wrong money in wrong asset. Christopher Browne in his book, “The little book of value investing” said, its ‘fool’s game’ of thinking and trading short term and predicting the stock markets immediate direction. It is risky, extremely difficult, speculative and in the experience of most people engaged in it, loss generating.

Some things simply take time. The benefits of compounding require time to show you the magic on the market value of your portfolio. It takes time for businesses to increase their economic value.

As mentioned earlier, I do not invest looking at the market. My focus is to look for the opportunities where quality companies are trading at discount and satisfies to me that the economic value of those businesses are on incremental trend.

We shared with you a very powerful list of 24 quality businesses to look for investment in 2012. Of those there were 10 companies which were trading at discount during that time.

Identifying quality business is only half battle won. It is also important to know when to invest. We calculate the business values of those businesses and invest within them when they are trading at cheap price.

I won’t be able to answer on where the market is heading, but will be happy to share with you where the values heading. Hope this might help you figure out if market is trading at premium or cheap.

We think that BSE Sensex (constitute of 30 stocks) will rise in range of 10-12% in 2012-13 financial year to its Expected 2012 values. The intrinsic value of Sensex 30 for the March 2012 is expected in the range of 16,325 – 16,600.

In early Jan of 2012, Sensex 30 was trading at discount in range of 5-7%. We expect the Sensex 30 value for March 2013 will be in range of 18,480 – 18,600. After the recent rally, market is already trading at fair values to its March 2013 values.

Remember, there is a lot of difference between ‘target’ and ‘value’. It is foolish to consider that they both are same. We believe that market is inefficient and it flips flops to the aspiration of irrational participants. Also, as per Value Operations only 40% of Sensex 30 (12 companies) are considered as
investment quality businesses.

We think there are still 12 businesses out of Sensex 30 which are trading at discount to its intrinsic value for March 2012. They are as follows:

Bajaj Auto

BHEL

Coal India

GAIL India

Jindal Steel & Power

Mahindra & Mahindra

ONGC

Reliance Industries

Sterlite Industries

Tata Motors

Tata Steel

TCS

Out of our 24 businesses, following are still trading at discount to their intrinsic values for March 2012:

Gandhi Spl Tubes

ONGC

Eclerx

TCS

Lakshmi Machine

Swaraj Engines

If you own any of these above companies or doing any research on them, then let me invite you all officially to share your views on any of the following businesses. I will be happy to share my views if you have any queries on the companies listed above.

We are in process of building a portfolio from the list of our shared quality businesses and an activity that will give great insight on how to approach towards Equity investments. Stay tuned and email me if you want to be part of that activity at aziz@valueoperations.com and write in subject column of your email ‘PORTFOLIO 2012’.

Please keep your comments in context to the above listed companies only. Any irrelevant comment will be deleted.