ValuePickr Forum

VP CHINTAN BAITHAK GOA 2015: Hitesh Patel: INVESTMENT JOURNEY/PHILOSOPHY

I have a model/rule of thumb here. Look keenly for IPOs coming in bear markets. Generally they come in during this time because they genuinely need the cash to fund growth and they are relatively more desperate. This can give us good entries in good businesses. Eg. Repco, Page.

And IPOs in bull markets? You all know it better.

5 Likes

Hitesh, really like the suggestion of parking money in stalwarts rather than may be putting it in liquid funds, etc.

I don’t know your definition of stalwarts, but for me any listed company whose stock price witnesses extremely low volatility through different phases of the market is a stalwart.

Which brings me to IPCA Labs (was invested and sold now without any significant profit) and MPS (never invested).

IPCA has been coming up with horrendous numbers since the US FDA ban and I can’t understand why it’s stock price never falls or keeps bouncing back so quickly! And even after such poor FY 15 results, it’s probably gained 10% more than anything at is trading higher than industry P/E of 33 according to MoneyControl. Either that is a Stalwart or market know things we don’t.

MPS - Trying to know more about the business. But seeing it’s stock price…in the last month and a half, there have been so many significant negative effects (or at least the market has reacted with deep cuts) like hawkish RBI stance, poor monsoon forecast, Greece exit, etc…it’s just not budged below 800! And it’s continuously traded between 820-900 throughout whereas companies like Gruh have dipped 15-20% and gained again. Now stock price action like that is a Stalwart for me and would give me great safety! Still waiting for it to fall and invest though :wink:

Hi Hitesh, Glad to see that you are back to active discussions. I presume that you are now refreshed and energized after the VP Chintan Baithak and Goa’s relaxing atmosphere.

This community has great regards to your thoughts and values. There are lots of fellow members who are learning from your wisdom and not for the stock tips. :smile:

3 Likes

@hitesh2710
Thanks for sharing your knowledge.

Why do you think “Management forecast/promises” is ignorable? Let us take two cases:
Case 1: Kitex: they are forecasting that they will double the turnover in 3 years. or promising to be the biggest childwear manufacturer in the world in next few years
Case 2: Mayur Uni or Atul Auto - These companies have predicated ~10% growth this year and not very positive on their tailwinds.

Won’t these kind of management commentary impact your decision making? To buy/hold/sell?

@hitesh2710. Firstly thanks for the presantation, Its a good learning & get some confidence since I too made similar mistakes, Few points I wish to put forward from the presentation hope you reply whatever u find appropriate.

  1. U mentioned to bet 10% of pf; do u keep cash always. If not then which stocks you decide to sell the ones which have run up a lot on valuations, stocks which thesis you bought the story is unfolding or your reason.
  2. Can you elaborate on bigger picture ? U mean the overall maketsize ?
  3. Good & Mediocre companies what are few basic things to spot them.
  4. Sitting on cash is difficult. Even currently i have raised around 20% cash but get tempted to buy daily. As you explained earlier you deploy is safe names. Is it ok to buy more of stocks which are currently held in pf rather then adding a new name.
  5. What parameters would suggest change in perception of a company ? PE moving up or marky investor entering or sector in focus.
  6. Insider buying is a good sign but many times financial dont change immediately & when they do the stocks get expensive so not able to buy.
  7. Should the stock be bought before the spinoff or post ? Its difficult to know much about the new company since not much financial available. Case in point Intellect Design. Example incase of IDFC what will be bank valuation is difficult or the original company holds more value.

Thanks

Manish Shah

@whipsaw,

regarding promoter promises and projections, you will get all kinds of promoters. Some will be the kind who will not promise too much deliver better than expected. In the past there has been Mayur and Ajanta management who have been guiding very conservatively and delivering stellar results.

Against that there are some like Acrysil who have been very vocal about achieving lofty targets and have not managed to reach there (although the shareholders may be a happy lot :slight_smile: )

So rather than relying on the promoters one has to make one’s own conservative estimates and if one knows the business well it could be possible to be quite near to the mark.

5 Likes

Karan if you are a beginner then most of us are diaper wearing babies:D . I am just writing this analogy on the basis of your high quality contributions on several threads here.

2 Likes

manish,

regarding keeping cash I tend to be fully invested most of the times. that was not the case a few quarters earlier. Regarding selling its usually a comparision between the existing idea which either has not played out or has reached obscenely high valuations or maybe some other reason.

About the bigger picture, sometimes in the path of a company having a great foreseeable future, there will be temporary hiccups. e.g I have seen such concerns happening a atleast a couple of times a year in Gruh and Page and Ajanta… These are to do with some minor regulatory issue as in case of gruh or some minor concern in case of page or something similar. Now for multi year stories these should not weigh too much. In Ajanta there were some concern s about suppy of antimalarials suffering due to some or other issue, some tax concern some time back and so on. But these things dont affect the longer term bigger picture which is that the company seemed at that point of time on a strong growth path as comaped to peers.

Good and mediocre companies — I think we have full threads on business quality. So I dont feel the need to elaborate.

Sitting on cash as I mentioned is difficult. If the existing ideas are more attractive even at current prices as compared to new ideas then of course it makes sense to buy them. Provided the portfolio balance is not skewed.

Regarding change in perception, it is not to do with only one thing or one parameter. And many a times it is not to do with PE levels as well. But these usually are seen while observing market reactions to some stocks having very good or very bad news. e.g during last quarterly results, ipca stock tanked initially and then recovered to close near the highs of the day and formed what is in technical terms called a daily reversal bar pattern. this is just one example. But sometimes we can see a list of negative news being ignored and then that should make us sit up and take notice and think more about that. Same thing could happen other way round as well. A stock not reacting positively to a slew of positive news should also alert us.

About spinoffs, its one’s own call when one buys whether after or before the actual demerger. There is not one size fits all rule here as in investing. One has to be flexible and adapt to different periods of market.

18 Likes

@hitesh2710

Man, you are like Amitabh Bacchan on TV. One wants to listen when he speaks and one wants to read when you write :).
Thanks!

11 Likes

Gursimran - Haha, my knowledge and skill levels in stocks is quite limited. Its just been a few months for me in the market. However, I feel that the world of stocks is beautiful and extremely fulfilling. There is so much to learn and pick up, we can all keep doing that from various sources.

Having said that, I think we are fortunate to have membership of a forum like ValuePickr and are allowed to post and learn from fellow posters here. Must thank the founding team and senior contributors for this.

3 Likes

@hitesh2710. @gurjota. regarding stalwarts even i am confused. IPCA and VST tillers. even with poor performance these have bounced back. is it due to temporary nature of the roadblock and the market willing to wait. was more surprised with vst tillers. with such poor performance it traded at 1400 consistently. would like your thoughts on that. i do hold these two from lower levels

@sta

I think Hitesh means Stalwarts - the way Lynch defined it.

DEFINITION OF 'STALWART’
A description of companies that have large capitalizations and provide investors with slow but steady and dependable growth prospects.

INVESTOPEDIA EXPLAINS 'STALWART’
The annual gain that would be viewed as the norm for investing in stalwarts is about 10% to 12%. Stalwarts will by no means become tenbaggers overnight, mainly because of their large capitalization, but they are usually a good source of fairly predictable returns.

Peter Lynch popularized this term in his book “One Up on Wall Street,” where he shows that the price chart of a stalwart compares neither to a topographic map of Delaware nor to one of Mount Everest, but assumes a place somewhere in the middle.

Source: http://www.investopedia.com/terms/s/stalwart.asp#ixzz3ec4OQ66v

I don’t track IPCA and VST Tillers to comment on whether they are stalwarts.

Thanks,
Rupesh

I am still awaiting other docs, ppt to be shared here @Donald , Thanks

Hi Hitesh, I have seen your earlier posts from the TED times… Do you still closely follow technical chart ? Is focus now more towards the fundamentals ?

santosh,

I do look at technicals now also. But focus is more on fundamentals.

Some technical patterns in fundamentally good stocks do provide very good techno funda setups.

@hitesh2710 Hitesh sir , can you recommend the best reading material on technical analysis that you have come across. TA has been my weak area and would like to fix this soon. thanks for sharing your straight/uncomplicated views in the slide deck, much appreciated.

thanks
Raghav

You can read John Murphy’s textbook on technical analysis.

Another book which comes well recommended (I havent read it yet though) is Technical Analysis of Stock Trends by Edwards and Magee. I think its available on flipkart.

Plus u need to keep correlating technicals with fundamentals to keep errors in check.

3 Likes

@Donald @hitesh2710 Thanks Donald for this great initiative and thanks Hitesh for sharing experience and wisdom with the community.

I have few questions if you could answer.

I loved the way you have highlighted Ignorable and Non Ignorable.

  1. On the Ignorable - Management forecasts/promises - How do you evaluate specially in the case of undiscovered potential micro/small caps ? In the absence of information in the public domain, I believe a lot of dependency is on the details shared by management in Annual Reports in this case.
  2. Non Ignorable: High promoter pledging. I understand Ajanta Pharma’s promoters had pledged shares as well. What upper limit do you set with which you are comfortable with ?
  3. What key criteria you use to differentiate mediocre companies from great companies for the longer run ?
  4. Parking space is a very interesting concept. Do you think IT stalwart like Tech M or FMCG major like ITC are few suitable examples at this moment ?

Thanks again and please reply as your time permits.

Regards,
Amit

Amit,

Regarding following undiscovered potential small/micro caps, I think one will need to connect the dots and try to get a full picture. Looking up past few years annual reports and finding out whether management is walking the talk is an important part. But it becomes difficult where there’s no talk. :smile: One can also visit company website to get a better picture. And now with the information boom, we can try and find out with fellow investors staying in the vicinity of the company what the feedback is. Many a times the business potential itself has to excite us.

Re promoter pledging, if the promoter holds near to 70-75% and pledges 5-10% I wont be too worried. But promoters with 45-50% holding pledging say 15-20% would be a cause for concern for me.

Key criteria for seperating mediocre from great companies are mainly good management, sustainibility potential of company’s growth and more importantly predictability. All the great wealth creators over the past 2-3 years have been consistently predictable. In absence of these factors one has to have much better insights into the business of the company as compared to the next investor on the street. I think the business quality thread at VP provides excellent insights into that.

About parking space, one has to be sure that downsides are limited and chances of major capital erosion are low. Instead of Tech M maybe sectoral leaders like TCS or Infy maybe better placed. (Although I havent considered software firms as parking spaces till now… mostly it has been hdfc bank, gruh, page inds, – all of these are usually expensive but because of a reason and thats predictability or better still market perception about their predictability… and there too one cant buy at absolute near top prices… I usually wait for stock to undergo time correction , preferably along with slight price correction before venturing out)

15 Likes

Thanks @hitesh2710 for your response and sharing your knowledge and experience.