Shopping Cart for the Bear Market
What wont stop ticking even when the world is about to end
As they say, history may not repeat, but it often rhymes.
Given the phenomenal rise in Indian markets over the last few years, followed by an almost flattish to negative FY25, and coupled with extremely edgy geopolitics, trade wars, disrupted supply chains, and other unfathomable events, one thing seems certain — a sharp correction lies ahead.
What will trigger it?
Will there be blood on the streets?
Will the world, as we know it, change drastically?
How deep will the fall be?
How long until the next bull market begins?
I have neither the knowledge nor the willingness to predict any of these. But one thing I do know — I don’t want to be clueless when it happens, like I was during Covid.
A good way for a retail investor like me to prepare is to build a Shopping Cart for the Bear Market — a ready list of high-quality businesses to buy when my own (and the overall market`s) fear dominates — and to stay optimistic that we will survive, the macro will change, and a new world order will emerge. Like it does, almost always!
Antifragile + First Principles Thinking
The framework I intend to use this time is a combination of Antifragility and First Principles Thinking — identifying companies and industries that can adapt, absorb shocks, and thrive on chaos, and also are elemental or irreplaceable to the functioning of life and economy.
The Antifragile Lens
Antifragile businesses are those that can adapt, absorb shocks, remain resilient, and even thrive in disorder.
The first natural criterion is a net cash — companies with enough liquidity to survive at least two years of fixed expenses without external help. (Personal Finance 101)
The second is steady, high RoCE maintained across cycles, despite disruptions, competitive intensity, or structural changes in the industry. Such businesses inevitably have built moats or leadership positions in their domains — the Big who gets Bigger.
They are the names everyone wants to buy, but that usually remain unaffordable — except during bear markets, when they become relatively cheap.
In short, buy what Nalanda would have bought in the past. 🙂
The First Principles Lens
What is truly elemental and irreplaceable — without which life cannot sustain itself?
These are businesses providing absolute necessities — the ones that cannot be replaced easily, or at least would require significant time and capital to do so.
For instance, when the world came to a standstill during lockdowns, what was still running?
Trucks. Ships. Power plants. Pharmaceutical companies. Banks. Stock exchanges. Hospitals. Waste management firms.
Can these boring (and yet essential) business also become multibaggers ?
In the lockdown period — with too much spare time and surplus liquidity — fueled an unprecedented frenzy in the FnO market, and the “Casino Dealers” (especially BSE) benefited massively. The people who saw BSE as an irreplaceable asset rather than a trading platform got incredibly lucky when it transformed from a boring platform business into a hyper-growth profit-scaling machine.
They didn’t have a differentiated insight — they just had common sense and patience of buying the boring business.
The larger point: we should allow ourselves to get lucky — by protecting the downside first. Esepcially in the times of Doom, when survival matters and not growth.
I feel, BSE, Apollo Hospitals, Lupin, Coal India, GE Shipping, Tata Motors — businesses that are, in essence, are non-replaceable.
We should invest in them and then, allow the optionality of growth or hyper-growth to play out — even if it comes from dumb luck.
The Intersection
When the next bear market or “flash sale” arrives, if one can combine both these lenses, Antifragility and First Principles, and look for their intersection, the result will be a portfolio of truly robust and irreplaceable franchises, available at unbelievable valuations.
Hopeully, these will be businesses priced with zero multiples for future growth, yet embedded with immense optionality (thanks to their promoters & business models)
And when that happens — who wouldn’t want to buy quality so cheap?
I’m ready with my list. Are you?
P. S. - I did a rough backtesting of such ~90 odd business which were at the intersection of both these frameworks and from 1st July 2020 to till date they have given 3.8X returns at a portfolio level (dividends excluded) Vs. ~2.7X of Nifty 500
DISCLAIMER: I AM NOT A SEBI-REGISTERED ADVISOR OR A FINANCIAL ADVISER. ALL THE VIEWS ARE FOR EDUCATIONAL PURPOSES. I MAY OR MAY NOT HAVE INVESTED IN THESE STOCKS. PLEASE DO YOUR DUE DILIGENCE YOURSELF. THIS IS NOT A STOCK RECOMMENDATION.
Proving again and again that this is one of the best blog for thinking.
Again a great blog at the perfect time.
One request . If possible, PLEASE share your such watchlist.