@ram1984
Buying small and midcaps for the long haul is a tricky proposition. One way to do it is as mentioned by @Worldlywiseinvestors which is to keep starting allocations low and gradually build up positions as the company proves itself on the fundamental front.
There are mainly two types of risks associated with almost all companies. One is market specific risk. Like we saw recently where there was severe meltdown and most stocks took a drubbing. In such situations there is very little we as investors can do. But the other type of risk is company specific risk. This would entail corp misgovernance, business risk like accidents, a quarter or two of poor numbers, etc. What I have seen is that in most cases these falls begin from fairly frothy levels.
In case of Hikal, it topped out at ttm PE of 45 -48 in Sep 2021 and then went down drastically. A sort of double top was also obvious on charts at around 700-710 which got confirmed on breakdown below 584. Now not many people will be able to read technicals and not many people will be able to figure out the PE stuff and its often possible to get this PE stuff wrong. But when stocks have run up a lot like what Hikal did from a level of 140 in March 2021 to levels of 700 plus in Oct 2021, five times in a matter of six months or less, we have to figure out that massive expectations have been built into the price. A large part of this rally is froth. This someday has to correct. While the odd stock may weather these kind of frothy moves, most stocks do end up badly and often crash or go sideways. So we as investors have to be mindful of the kind of froth built into prices and book partial/full profits as and when warranted.
Lux went up from 2100 in May 2021 to 4300 in July 2021, double in a matter of two months. Again very quick move in a very short period of time. Now here a lot of management antics were quite well known to most market participants. One only had to google to get details of their involvement in criminal cases etc. Now these charges may or may not be true or false. But these charges by themselves were quite grave. So anyone contemplating major allocations have to be mindful of these facts and either book profits after sharp run ups, or keep starting allocations reasonably low to avoid getting hurt.
When stock prices go up 2 to 5 times within 6 to 12 months, usually there is market specific or company specific froth built in and in each case we as investors need to act rather than try to be too smart and play buy and never sell strategy.
I think currently times have changed and moves happen at alarming pace in stock prices, in either direction. In earlier times, information spread was slow and limited to few people and hence probably there was an orderly rally in stocks. Barring frothy markets as we saw in dot com bubble and in infra bubble esp in stocks like unitech etc. Nowadays with advent of instruments like social media to spread information/misinformation, its very easy to attract suckers and take stock prices to stratespheric levels. A lot of players are involved in these games. Sometime back we heard about a TV anchor involved in playing these games, by buying stocks beforehand and then recommending it on a show and then booking profits while innocent investors were lapping up the stock. SO FOR MOST RETAIL INVESTORS, ESPECIALLY THOSE WANTING TO INVEST IN SMALL-MIDCAPS WITH BIG ALLOCATIONS , ITS BEST TO FIRST LEARN THE ROPES AND THEN TAKE MAJOR PLUNGES.
An easy solution is to diversify the portfolio allocations to comfortable levels by buying a bunch of stocks , so as to be able to withstand these kind of shocks. Or be very very sure of what you are doing and then take large sized bets.
