Basically, you mean… Page Pidilite are trading at high PEs and will continue to, because they not only have a good track record of RoCE and management but also growing market. Whereas, Castrol does not seem to have a growing market.
Therefore, If one buys Castrol when it’s cheap, he is bound to get out when it’s expensive. Effectively, he will be flipping, trading valuations and not really Investing in the truest sense.
Flipping looks good theoretically. Often times, cheap gets cheaper. See BHEL, Tata motors, Sun, Lupin. However, the overall returns would be more than the returns of the index, not that much more though.
On the other hand, if one is truly Investing, he would buy a stock because it’s sales would be growing each year, has RoCE > 20 and great management. If any of this changes, then it would not justify paying high PE. Until that happens, our investment sees a comounding effect for years… Decade may be. Therein lies the real power of Investing… in compounding.
Buy and Hold is the way to go. Agreed. (Finally)
Hence, now we know the “How”.
We also know the “What”.
This is common knowledge. However, I guess, what only a few people know is “For How Long”.
My question is… Have u ever exited such a high PE stock, a high flier? What sort of correction does such a stock go through, when it becomes undeserving. Do investors go into wishing and hoping mode, and lose a lot before they can exit.
Does the weakness in the business start showing in the numbers or does it take a Sanjay Bakshi to understand/see it?