As I reflect on some of my “misses” of the year gone by, one such investment mistake which I made was having invested in Indigo Airlines. Well, you may be thinking, this can’t be a mistake since the stock is up more than 60%. The mistake was not in my investment but was my exit from the stock – hence the gargantuan notional loss!!
While I had rationalized my thoughts while investing in Indigo Airlines – Am Loving it!! as follows on April 16, 2020, reproducing it below:
Interglobe Aviation (˜Indigo”) is one of the best placed airlines to take some buy position under the current circumstances.
Investment Thesis: With the lock-down being removed gradually in the next few days, airlines would start to resume partial operations, if not all. This should give fillip to some airline companies.
Among the airline industry players, Indigo’s value proposition in terms of having more than 48% domestic market share + low-cost + strong cash flows + continuous profitability + optimal debt – makes it attractive.
With the collapse of Jet Airways, Spicejet reeling under huge debt, Wadias wanting to exit Go Airlines and Government of India (“GoI”) wanting to sell our beloved maharaja, Air India – the only formidable player in the Indian aviation industry is Interglobe Aviation.
Price: The stock price closed at INR 1,012 per share on 16th April 2020, i.e. market capitalization of INR 38,954 crs. You may dip your toes at the current levels, and you may follow it with gradual purchase as when there are stock price dips. Please note that one or two quarters would be dismal, hence there could be some further price correction.
When asked by one of my investors: Do you think the airline will survive the downturn though? She had been in conversation with the airline’s team members with respect to her company’s business deal, hence was closer to the ground reality
My Investing Rationale:
- There is going to be pain for sure amongst the airlines, less so for Indigo for reasons stated above.
- The company overall is fundamentally strong with decent cash flows and reasonable debt.
- They have become too big to fail (blessing in disguise, perhaps)
- Travel will be tempered, yes – for a few months!! But there is no other credible mode of transport!! Nobody is going back to trains once you have got used to air travel!! Any other mode is obviously too cumbersome!!
- People typically have short term memories. Even after 9/11, Air-travel increased manifold in couple of years!!
Oh, the above rationale looks convincing, but why the hell did I then change my mind?
Warren Buffett, whom I follow closely reversed his airline bet. Yes, he exited stakes in the 4 major US airlines, viz. Delta Air Lines Inc. Southwest Airlines Co., American Airlines Group, Inc. and United Airlines Holdings, Inc. where he had cumulatively invested USD 10 Billion by 2019. By April 2020, he had trimmed his positions in all the airline businesses at a significant loss.
According to Buffett, the airline business had fundamentally changed due to the economic fallout of the coronavirus pandemic. He acknowledged his mistake of having invested in the airlines and that the business had altered in a major way. Also, acknowledging that he was unclear as to how consumer travel habit will change after the pandemic subsides, but any reduction in travel would leave airlines with high fixed costs almost forever.
When the world’s greatest investor says something, you need to listen!! That’s what happens when your monkey brain gets susceptible to Authority Bias – tendency to attribute greater accuracy to the opinion of an authority figure and be more influenced by that opinion.
Authority Bias and its far-reaching effects was first conducted Stanley Milgram, professor of psychology at the Yale University in 1961. In a shocking experiment led by Milgram, the participants were asked to administer harmful electric shocks to another person, even their friends!! Yes, even while they felt that it was wrong, but they continued injecting it because of the pressure created by the perceived authority of the person leading the experiment. By the way, most of the participants were well-educated, in case you were wondering that it was done by people with low IQ.
So, while my monkey brain obviously did oscillate, and I subsequently changed from being invested to exit from Indigo Airlines because of Mr. Buffett, a bigger question which now besieges me – How could I avoid some of these “misses” in future?
P.S: Indigo Airlines was quoting at INR 1,651 per share on December 24, 2020. So, technically, the notional loss was a whopping 63%!!) By the way, would be happy to receive some practical gyaan on how to avoid these ‘misses’
Disclaimer: Please note that these are my personal views. While, I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.
Hi Vikas,
I think it’s futile to do a post mortem analysis of trade. When we make a decision we are filled with emotions, whatever we have read, heard impacts us consciously or subconsciously. Analyzing that with today’s rational mind post even when the price action has already happened is futile. No one can buy at the bottom and sell at the top, We will always buy too high or sell too low, This is part and parcel of the game. We can make perfect decisions only if we know the future price action.
The way I look at it is I buy the best business and then hold them forever, any decision to buy or sell in between is only if my view has changed and I wont care whether the price goes up or down once I have traded.