Donald thanks for imitating the discussion.
I will share my experience on 2 counts. One as outsider and later as an investor.
Year 1999-2000, stocks were at their peaks. And there used to be articles in the newspaper every other day on how still infy can be bought. And infy was quoting at 100+PE. They were using all kinds of models like PEG and forward valuations. And things were looking cheap for all those analysts. And everyone knows what happened after that.
Bought a stock named Donear industries in the year 2003. Reason for buying was typical value parameters but it was faltering on growth. But was expecting valuation to catch up and growth may also come by. GDP of the economy was picking up. Environment was very similar to what we are having in the last 6 months. We were coming out of pessimism. And things were moving with reason or without reason.
Donear performed on the expected lines for the next few years. In between it corrected several times even by 50%. But still I hanged on to it.During the period stock gave 2 bonuses (1:1) and 2 splits. After the bonuses and the splits the stock was quoting at 90rs. Suddenly it stopped moving and others were moving.
One of my friend suggested another stock named Ankur drugs. Stock was fulfilling my most of the criteria and with very high chances of doubling in a yeas time. I started contemplating about shifting. And during this period Donear fell from 90rs to 70rs. Soon stock moved back to 90rs. I started selling slowly. And then the company sold stake to Citi investments for their expansion needs.
News came out and the stock did not even buzz. I kept on selling. And then stock started moving upwards. By 130rs I have sold out everything.
The stock topped out in next 8 days at a price of 240rs and listed on the exchange as the top traded counter consecutively for 2 days.Later company could not manage the expansion well. And in the year 2008 stock fell to 15rs. As of yesterday it traded at 18rs.
Instead of just numbers tried to depict what plays on the mind and how person typically behaving in thosecircumstances.
Some examples of the previous period could be Hercules Hoist, opto circuits and modison metals which I followed closely. they may not be similar to the current VP stocks but definitely can give insight about the trajectory a stock can follow.
)- It is always easy to ride your pony then to ride a new horse
)- Should be in control of emotions (even if a stock makes 2 consecutive upper 20%)
)- Have a model in place (without a model felt stock made a good run from under 3PE to 25PE and worth selling)
I will go with Donald for a stock overvaluing between 3-5 times forward PE
May be 3 times for a 30% grower, 4 times for a 40% grower and 5 times for more than 50% growth.
thanks to all the guys for bringing clarity.