Phantom Markets - Karachi

Last few days have been quite interesting:

I have started to read all of Warren buffets shareholders letters from the starting. I have finished 1977-1984 till now. They are quite interesting and well worth a read. What I propose to do is make notes of all as each one of them has a lot of theory and guidance about investment behavior.

In the last 7 years Buffet mentions 3 times in his letters:

Pascal: “It has struck me that all the misfortunes of men spring from the single cause that they are unable to stay quietly in one room.”
(Read the article on Buffets ability to do nothing  in my earlier blog - An article by Mohnish Pabrai)

I think the same goes for investors trading behavior. I know many of you rode the upside well andmade money. While now everything looks cheaper then yesterday. I am not really sure how the valuations look, the last time I was bearish was at the same Sensex levels 7750.

Yesterday, one of my friends with whom I was discussing Sensex levels and stuff showed me the chart of Karachi stock index (KSE-100 index). It had risen by from around 2400 levels to 9000 levels (peak of 10000) in the last 2 1/2 years. Amazingly we just moved from 5000 to 8000 levels. Another interesting fact is that Market cap of Karachi stock exchange in only close to US$ 50bn. To put into perspective Bharti Tele Market Cap is about US$ 11bn. While it is difficult for us to forget may 17th 2005, the Karachi stock index fell from 10305 on 15th March 2005 to 8314. (Yeah, 20% circuit). Well very clearly a phantom market existed in Pakistan (In retrospective everything looks so clear and logical).

A brief on Karachi stock Exchange:
The Karachi stock exchange has since long been controlled by a number of rich families with almost negligible regulatory intervention. The Kse –100 index accounts for 85% of the market Cap and the state owned telecom and energy companies account for 45% of the index.

While nothing like a phantom market exists in India, but it definitely makes sense to sit still and do nothing. While taking calls on index and stocks is very easy it is extremely impossible to predict the timing. (I learnt this the hard way) So, in case your fundamental picks have fallen it is the right time to add a few more quantity gradually to your portfolio.