Knowingly or unknowingly, as analysts and investors, we all use something called Mosaic Theory. What it means, in a nutshell, is that we use a variety of information and research materials to determine the value or potential of the instrument we are invested or interested in. The success or failure of this approach depends on what weightage and importance we assign to each piece of information. To begin with, for the most part, we all have the same information. How we use that information separates the boys from the men.
Let me give you a small example. Before I started investing in Tanla, as I was reading through the annual reports (FY2016, I guess ), there was a fleeting mention of Twilio by its MD, Uday Reddy. I could immediately sense that he has set his sights on growth like Twilio for Tanla. Secondly, ever since I started investing, I observed that Mr. Reddy has taken every opportunity to buy more of his company. These two pieces of information helped me to stay invested throughout and even add more. Many other pieces of information were also very supportive but they were all secondary or marginal.
Even in technical analysis, we use this slightly differently. If you are using an exponentially weighted moving average, what it means is that the computer or the formula assigns more weightage to the most recent price action but the computer does that for you.
As retail investors, the biggest problem we have with our investments is our inability to control our emotions. Sometimes, high volatility and unexpected price actions contrary to our expectations start playing games with our logical brains.
Remember these three principles we should always be mindful of:
Price advertises all opportunities
Time regulates those opportunities
Volume confirms the success and failure of those opportunities
These are some loaded principles but I have dealt in detail on this many times in the past. As many new readers have joined recently, I intend to revisit that again at some point. So much for market psychology but let’s switch to some real market news and implications.
In my previous report, I’d mentioned the name of Lael Brainard. I am pretty sure most of you must be hearing her name for the first time. From all that I am reading, it looks like President Biden will announce the nominee for Fed Chair on coming Friday. This is going to be a very big announcement for the markets and the economy.
From everything that we can ‘mosaic’ from the Biden presidency so far, what we can conclude is that the administration wants a Fed that 1) will support the social and climate agenda and will maintain a monetary policy to support the fiscal spending plans, 2) is in favour of a central bank-backed digital dollar and 3) is willing to be more hard on the banking sector.
If we look at the history of Jay Powell’s tenure, he really does not seem to fit the mould though he is trying his best to play along. Powell raised rates in a low inflation period, that too when stocks were falling in 2018 and quickly reversed his action due to political pressure. He also eased some bank regulations that were in place in response to the GFC which was implemented by President Obama with the guidance of former Fed Chairman Paul Volcker. Finally, Powell so far has taken a very guarded position on the digital dollar concept.
But Brainard will be just the opposite. She is the next top candidate in the running to replace Powell. She ticks all the boxes for the present administration. You cannot find a more dovish Fed governor than Brainard. She strongly supports the government’s intention of a CBDC. She surely is willing to execute the Biden social and climate agenda.
That said Powell is very much in the running for reappointment though, in the betting/prediction markets, his chances have dropped down to 64% from 90% in September. One thing, I am more certain about is if there is a change of guard at the Fed, a deeper correction in the stock markets will take a longer time to materialize.
So, there we go. Thanks for reading Breezy Briefings. If you enjoyed this, I'd really appreciate if you could take a second and tell a friend. Honestly. It makes such a big difference.
Forward this email. Recommend the newsletter. Share on Twitter, WhatsApp, Telegram, LinkedIn, Slack, wherever!
Join Breezy Briefings’ Official Telegram Channel: https://t.me/BreezyBriefings
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is setting up a hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.