Yes, James, It may seem strange talking about finding "sheer undervaluation" in a continuously rising Market
There are enough examples in the past in threads of good to great businesses like Mayur, Astral, Ajanta Pharma, Kaveri Seeds, Poly Medicure, PI Industries, Shilpa Medicare...and many others here at VP, that you can go through ...where pre-SEBI analyst regulations days - we have freely alluded to what seemed like no-brainer valuations; that some or the other business appeared completely undervalued ...there are enough references in the ART of Valuation thread too. If you do spend some time in those individual threads, I am sure you will spot many such "Aha!" moments.
But all learnings are contextual. Guys will be quick to re-butt but that is the past...when markets remained subdued for long periods, what about now...when markets are continuously rising? So let's bring the focus back on that question - Can we really find absolute undervaluation in a continuously rising market? It is NOT an easy task, but yes, we CAN, provided we can assume a few things ....
If for a moment we can "assume" that we have the "clarity" of what kind of businesses we want to go after, then lets also assume that we have also put in the necessary hard work - of understanding a few businesses in some detail - the competitive position/strategy and Industry stability...why the business is likely to continue to execute well. Then we can assume, therefore we have a buy list of say good to great businesses - that may be currently placed anywhere between fairly priced to slightly overpriced, to richly priced. We also have to assume one more important aspect - that having that clarity, we also developed the "Patience" not to fritter away all our Cash ...on other Temptations Mr Market keeps throwing our way. We have some ammunition in the bank.
Then all we have to do is extend our memory horizon a few months back ....to Nov2016...Jan 2017 . Most of my friends who had these prerequisites listed above ...had no hesitation in picking up many businesses that they had conviction in. I and some of my friends concentrated on picking up more of Bajaj Finance (800-900 levels), Avanti Feeds (490-550 levels). Limited point being, every year Mr Market gives you opportunities to pick up pretty good bargains Dec2015 -Feb/Mar 2016 was another.
For a concentrated portfolio like mine ... I need to think of adding only 2-3 good to great business at most in a year...as 2-3 of the older businesses go out due to mean-reversion in business-cycle or rich valuations prompt lot of trimming. If that perspective resonates with you, that might also help in keeping the much needed "Patience" - remain CONTENTED with the goodies we have in the portfolio, and NOT chase momentum.
That and keeping faith that Mr Market always gives us opportunities if we are patient. The way our Markets are going I am happy to keep patience (and keep accumulating ammunition) for the next big correction - hopefully within next 6-9 months again.
A request - let's shift focus back to Avanti business. These clarifications are now cluttering up the thread.