@A_shah
Stable and secular compounders have an unquestionable opportunity size in relation to the companyâs and sectorâs market cap and hence these companies can grow consistently for long periods of time. Some sectors that seem to throw up a lot of these compounders are fmcg, banks and financials, pharmaceuticals, agrochemicals, consumer durables, niche software companies and so on. Among these the well run and big sized companies which can weather the periodic storms of any form usually end up being stable secular compounders.
In contrast to that, the pretenders which are often perceived by markets to be secular (for short periods of time after which there is disenchantment) have limited opportunity size or if it is there these companies fail to completely utilise these opportunities or else stumble after a point due to one or the other reason. For companies like Mayur the opportunity to grow still remained but company could not grasp the export opportunities as it should have and even the PU plant which was supposed to be a game changer never really took off. Avanti we all know suffers from a lot of variables which affect the demand supply equation.
I think companies like Page will continue to have good run in the longer term but in the near term it seems to be affected by the general slowdown. Here the management has been smart in introducing newer product range and keeping the growth going. Need to see after 2-3 quarters how growth pans out. For me CCL was always an over rated business where people got carried away by good numbers for a few quarters. Eicher has had a stellar run but the biggest growth enine which is the bullet suffered from market saturation and unless the company can come up with another such blockbuster product, it should find it difficult to grow. A hope for the company can be ramp up in commercial vehicles segment. But as of now that looks distant but who knows things can change going forward.
Getting rid of personal biases is often very difficult because a stock which has given multibagger returns often comes with a lot of market fancy and we tend to get carried away by numbers and narratives. In such a case one has to have independent thinking and keep looking out for any chinks in the armour. As hiren ved said in his presentation, never ignore the first crack. But there is a very thin line between being confident and cocky and outright stupid. One has to learn to rely on facts and figures and ignore the narrative and story built around the company.
Regarding averaging up, I have often been guilty of not having done that too often even though the story has kept improving. My problem has always been a big starting position. So if the stock tends to go up, my portfolio allocation to that particular company goes up and often reaches unhealthy levels due to run up and so I cannot think of averaging on the way up. However I could successfully do that in case of Ajanta pharma where I had bought starter position at very cheap rates and the company continued to grow consistently and even after run up the stock remained cheap on all valuation parameters. There I did add to my position especially once during the time when there was some income tax related issue and stock price corrected and I was able to add more after being sure that the tax issue was not serious.
Regarding buying in tranches, there is no definite answer to it. Depends upon the investment style of the investor. I used to buy the full allocation in a single shot when I got convinced about a company. But I have friends who have continued to buy in tranches in the same stories where I bought in a single lot and these guys tend to average on the way up. In my case I usually start with allocations of 5% these days (because markets are such that we get plenty of time to load up) and gradually increase. Earlier during uptrending markets this was to the tune of 10% and those positions never needed any more adding up. But every investor would have his own comfort zone in terms of how much to buy initially and how many tranches to use to add up.
Regarding depreciation not being considered an expense, we have to see what kind of depreciation policy the company follows. Some companies depreciate their assets within 10 years whereas competitors do so in 20 years. In such a case one has to make allowance for some higher valuation because the company in question is depreciating its assets at much higher rates than competitors or than what is mandatory. One can also go for valuation based on Enterprise value to operating cash flow or EV to free cash flow to get a better view about the valuation of the business. I am not too much of an accounting guy so I often need to take guidance from those good at these things sometimes. Thats the advantage of colloboration and being in contact with guys smarter than you.
And finally regarding someone else answering, I would prefer if someone who feels he can answer any queries addressed to me does answer as it provides an additional perspective to the query. @Ferrari1976 did answer and I would like such efforts to continue so that me and other guys reading can be benefitted by different perspectives on the same topic. Please dont discourage such attempts.
regards
hitesh.
