The key requirement here is that the enterprising investor concentrate on the larger companies that are going through a period of unpopularity. While small companies may also be undervalued for similar reasons, and in many cases may later increase their earnings and share price, they entail the risk of a definitive loss of profitability and also of protracted neglect by the market in spite of better earnings. The large companies thus have a double advantage over the others. First, they have the resources in capital and brain power to carry them through adversity and back to a satisfactory earnings base. Second, the market is likely to respond with reasonable speed to any improvement shown.
Value Investing
Markets have been like weather in Delhi. Sometimes rising more than 100 points in a day (becoming hot) and falling by a similar score the next day (chiller). Correction of about 9% in Nifty and more than 15-30% in most blue-chip stocks.
As an investor, there are two most important things to think - where will the markets move and how will the stocks in portfolio behave. The first part is something which an investor is not much worried about as he takes investment decision based on facts and not predictions alone. Predicting the market behavious is not only dicey but can be a costly affair as even though our prediction, about market and stocks, is correct but when will the market reflect that prediction into prices is also unknown.
Value investing has been defined by countless investors and academicians. For me, what little I know about investing, VALUE INVESTING is investing in stocks that provide enough evidence of the value that an investor finds has been ignored by the market. As one might comment, it is easier to define than to practice. Being a investor with very modest investments and understanding, still I find that when the decades old rules are applied to investing, it can fetch descent returns (more than a FD) with lower risk. But value investing does not at all mean investing in all low P/E, low P/BV stocks or those stocks which have fallen by 50% or more during the year.
Important for us to understand is that markets can misprice stocks despite existence of FIIs, IIs, DIIs, analysts, etc. And the most common reason which I see for such mispricing is that so many people are analysing stocks with borrowed beliefs. If the financial TV channels and reports say that infra sector shall not do well, then majority of us buy such analysis. Result is that the stocks get the beating much more than what is deserved. Similar happend with IRB (went down to 158; already recovered by 17%), JP Associates (72.35; 16%), L&T (1487; 8%). People said so about Banking and NBFC sector also with outlook of tight liquidity and rising cost of borrowing. Kotak Mahindra Bank (339; 20%) IDFC (123; 10%). Now it is very easy and comforting in the hindsight to find out such stocks which got a market thrashing and recovered. It is easier to show astronomical returns by using their lowest price during the period of analysis. However, one can agree that such stocks are fundamentally good businesses with able management and a strong track record of performance. Even though, such stocks in similar businesses did not yield much till now but an investor can be assured of their recovering in the next 3-12 months.
Not complicating the concept, Value investing for me is to look for great (in terms of size, history) business and attractive price, price which one without going into valuation model finds too low for the Company. Maybe because of the peer comparision or due to stock's own historical prices. Using the 52 week low price or P/E or P/BV can be a helper.
Still the probability of suffering losses can't be eliminated but idea is to minimize the probability of losses.
Using nifty sparks, one can easily find stocks that are down in the past 30 days and a comparision with their 365 days prices is also provided. Another benefit of using sparks is that the stocks shown are included in indices which assures liquidity of stocks.
As an investor, there are two most important things to think - where will the markets move and how will the stocks in portfolio behave. The first part is something which an investor is not much worried about as he takes investment decision based on facts and not predictions alone. Predicting the market behavious is not only dicey but can be a costly affair as even though our prediction, about market and stocks, is correct but when will the market reflect that prediction into prices is also unknown.
Value investing has been defined by countless investors and academicians. For me, what little I know about investing, VALUE INVESTING is investing in stocks that provide enough evidence of the value that an investor finds has been ignored by the market. As one might comment, it is easier to define than to practice. Being a investor with very modest investments and understanding, still I find that when the decades old rules are applied to investing, it can fetch descent returns (more than a FD) with lower risk. But value investing does not at all mean investing in all low P/E, low P/BV stocks or those stocks which have fallen by 50% or more during the year.
Important for us to understand is that markets can misprice stocks despite existence of FIIs, IIs, DIIs, analysts, etc. And the most common reason which I see for such mispricing is that so many people are analysing stocks with borrowed beliefs. If the financial TV channels and reports say that infra sector shall not do well, then majority of us buy such analysis. Result is that the stocks get the beating much more than what is deserved. Similar happend with IRB (went down to 158; already recovered by 17%), JP Associates (72.35; 16%), L&T (1487; 8%). People said so about Banking and NBFC sector also with outlook of tight liquidity and rising cost of borrowing. Kotak Mahindra Bank (339; 20%) IDFC (123; 10%). Now it is very easy and comforting in the hindsight to find out such stocks which got a market thrashing and recovered. It is easier to show astronomical returns by using their lowest price during the period of analysis. However, one can agree that such stocks are fundamentally good businesses with able management and a strong track record of performance. Even though, such stocks in similar businesses did not yield much till now but an investor can be assured of their recovering in the next 3-12 months.
Not complicating the concept, Value investing for me is to look for great (in terms of size, history) business and attractive price, price which one without going into valuation model finds too low for the Company. Maybe because of the peer comparision or due to stock's own historical prices. Using the 52 week low price or P/E or P/BV can be a helper.
Still the probability of suffering losses can't be eliminated but idea is to minimize the probability of losses.
Using nifty sparks, one can easily find stocks that are down in the past 30 days and a comparision with their 365 days prices is also provided. Another benefit of using sparks is that the stocks shown are included in indices which assures liquidity of stocks.
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