I was eagerly waiting for this update from you. With no disrespect to others I appreciate your thoughtfulness and courage to actually put real money to work, and have a first hand experience on aggressive contrarian bets. IMHO the learning and conviction coming from first hand experience is far better than ones which you get from books, forums, chat, work shops and following some other more famed investor. My congratulations to you.
I also had a similar contrarian bet on DHFL, IndiaBulls and PCJ. Sold out DHFL (booked loss of 30%), Indiabulls is slightly above buying price, and PCJ is more than 50% above buying price. To be clear this is not my core portfolio. Just that I wanted to check out how the āaggressive contraā bets work for me and if I could learn something which I could apply in future for my own benefit. My learning so far had been
1- When you have such bets then it sucks lot more mental energy from you because it requires close watch and the price swings are wild
2- You need to be reasonably sure that you are fishing near bottom. Very hard to do it and chances of fishing near bottom is very very difficult. Fishing at absolute bottom is myth.
3- You need to have a clear price anchored exit plan. Both on up and down side. Not to misunderstand these with your core portfolio bets.
4- The money made or lost through these bets does not smell any good or bad than made through other channels.
Avoid the stocks which r the prima focus of news. There is so much volatility that it is very difficult to do bottom fishing. e.g. I started to look at Yesbank from 200 levels and it finally ended up to 140s.
Look at no so much infamous stocks in the same or other sectorsā¦ e.g. main issue was in NBFC spaceā¦ but small banks growing at 20-30% pa were treated by the market in same way. Ujjivan Financials did so much better than NBFCs.
Try to gather as much information as you can before investing in such stocks. One must be sure that problem is temporary. The business model is sound, promoters r reasonably ethical etc. Look at last 8 quarters analyst reports, earning conference calls etc to determine this.
Look at how buy-side funds are doing when stock declines. There should b some confirmation that buy side isnāt panicking so much.
Never get into companies where interest servicing is difficult. Its Itās a debt trap almost all the times.
Indian economy is in grip of slowdown on wake of liquidity crisis triggered by corporate defaults. Liquidity is ample at the top available to good corporates, but scarce for others. Issues may be more structural in nature, as compared to cyclical. Slowdown in auto sales, de growth in consumption, higher NPAs, and tighter credit from shadow banking all have hit the economy. Government still is in denial of ground situation and tighter fiscal policy and imprudent and inconsistent taxation policies have triggered a market sell off , at the same time when growth is slowing.
Value stocks are deeply sold off in a risk averse situation. Also, shadow banking institutions are finding it difficult to borrow money even in a benign monetary policy environment. Financial sector is punished disproportionately, because of solvency and liquidity issues.
While NIFTY performance is flat in the same time period, my portfolio has taken sever hit. Learnings, in hindsight, are:
Value stocks are bad investments in the beginning of an economy slowdown. Of course, at the end of slowdown, some of these stocks turn out to be multi-beggars.
Problems can always get worse before they get better. Looking for signs of turnaround could be more rewarding than being contrarian.
Stocks with questionable promoters are hit hard when things go bad.
Again, in hindsight, my assessment that Indian economy is healthy and NBFC problems are temporary; proved to be wrong. This temporary phase has lasted quite long and may continue for the coming time. I need to look at signs of improving solvency (lower stressed assets in banking), pick up in discretionary consumption and increase in private investments before committing further capital in bargain stocks. Any fiscal stimulus by government will be a key trigger.
Well, in this scenario all of us are hurt as market spares none. Just one thought i would reiterate, i may have mentioned earlier that i found your portfolio more opportunistic rather than contrarionā¦thatās because you bought beaten down stock with individual big problems with thought of revival and i think bought them at a time when the sector or rather systemic issue was not that clearā¦as you rightly mention early in cycle.
A true contrarion would be when entire sector in systemic trouble and one buys the sector leader with good promoters and no big individual problem and not just any beaten down stockā¦very tough to achieveā¦
I may be wrong in above assessmentā¦ thanks
Being Contrarian just for the sake of being Contrarian is wrong. Itās just my opinion though, most of these stocks might not recover at all. Look for companies which are gaining out of chaos. These cos look like a part of the chaos.
This is not contrarian investing sorry. 31% is Yes bank & Dhfl. Yes bank has no money to lend and itās a bankā¦Dhfl is selling itās assets and has no money to lend.
You lose your capital and it takes just 2 to 3 years just to recover this capital if you start now making the correct call & if you are lucky.
If the underlying business case is lost for a company what gives the value ?
When you are contrarian, be sure that you are 100 % right as we know there is never top or bottom in market. You can be right ony if you know the company and its sector like back of your hand which is not the case in most of the situations. It is better not to adventure as contrarian.
and if I could learn something which I could apply in future for my own benefit. My learning so far had been