There are numerous styles and approaches for the investing. One should look for what suits oneself instead of following any.
Very little literature is available on Indian market while there’s a lot of material is available from western market. Indian successful investors are not yet as open as of Warren Buffet. So one should read the western theories but take them more as reference or Bible but when it comes to Indian investing its bit different. India is a growth story while western world is a stable play so tactics would be different.
India is a growth story so one should not go into classic western value theories/traps. Instead if opportunity looks **huge **and in initial stage
so its ok to buy at high PE.
Value investing does not mean buying low PE. Other way to look at it from MCAP angle, if current MCAP looks small as compared to scalability achievable after a decade then it makes sense to buy and ignore the PE worries. All past growth success stories were always expensive like HDFC Twins, ITC, NESTLE etc. So point is that if MCAP guessed after a decade is far higher than current one then typical valuation measures like PE is not of much use. In this case stock is logically still cheap.
Concentrated buying is
risky and requires full time attention and tracking so better to invest in 8-10 stocks. Its for part time retail investors.
Last decade was epochal for investing. India was opened for many new sectors [Telecom, Retail, Banking etc] and those who rode on sector leaders are very rich now. But today, its different and investing is now very much stock specific i.e. not sector specific. This makes next decade very challenging for investing.
Smartest way to invest is to ride on ongoing leading stocks which has following attributes:
a) Consistency in profit
b) Thriving on innovation in its core business - For example Supreme Ind, its making new products but remain being into Plastics.
c) Good financials - Low debt, high RoE, RoCE etc.
d) Proven management
e) Most important - It has a tailwind!
As long as any stock has above attributes, it will continue to rise in price. People got rich in the past following above for many proven stories like HDFC Twins, ITC etc.
Completely agree. Often there is too much simplification and generalisation of industry which leads to high market inefficiency and improper pricing of decent growth stories. Inefficiency much higher in Small caps which leads to higher probability of disproportionate growth in holdings.
3) India is a growth story so one should not go into classic western value theories/traps. Instead if opportunity looks huge and in initial stage
** so its ok to buy at high PE.**
Very Good Point. I feel quality stocks will come with relatively high PE. I own Amazon, you cant value amazon on base of PE at all. Netflix is another one. ( I don’t own)
Though my understanding of Indian market is very limited, but why take unnecessary risk for small/unknown co and look for so called multibagger when I am sure quality co will be available at reasonable price (at various point) and may produce the same result in next 15-20 years. I don’t know much about those typical co. May be Gruh-Aisan Paints (just random example)
But my observation says that its different approach in Indian Mkt, I feel there is too much in and out from stocks, which in my view does not fit in definition of Value investing. I feel one should identify the co and forget it for next 15-20 years. All you need to do is, you keep investing in same company at better value point. I am doing that from last 3-4 years in US mkt in my retirement account. Idea is to hold these premium cos and enjoy its fruit when you retire. In my case another 25-30 years.
I fee equity should be use for securing your retirement and not for generating monthly/yearly windfall.
I slightly differ. Leaders compound for many many years and have better predictability. Hence all ordinary mortals will be able to make money. One example could be Lovable whom some people bought rather than buying page industries.
People like Hitesh have extraordinary sense and they can make out when to get on and off the train and exploit undervaluation. In my view, those who are not not in the same league should rather focus on leaders.
==> **Whatever goes up must come down : **This is not true in all cases. We can take a look at very few of good companies like Page, hawkins, TTK, Ajanta, Mayur, etc… which moved up few times in last 4 years but are still going strong [in stock price and business too].
==> **Whatever comes down must go up : **Same here. We can take a look at all real estate big boys and other infra players. Many are decimated with >90% correction. So even though it moves up and double, investors still loose 80%.
==> **Timing market : **Most of the time we feel that we can time market and buy at low and sell higher… again will buy lower and repeat it… Somebody rightly said : “Frequent in/out transactions can throw you out of market”.
If one is “investing” for long [8-10 yrs] then does PE value matter?
For example, TITAN and USL has grown from MCAP of 200 Cr to 20-25K Cr in a decade! What instead matters is buying a “high quality” stock when its MCAP is small and jut sit tight. So simple but hard to follow, trick here is one should be right to sit tight but hey who says investing is easy :-).
The most common myth is the feeling that you need to keep checking stock prices every day or frequently in order to buy or sell at the right time or at the right price to get good returns out of investing.
In fact the opposite is true, that is you need to stay away from the euphoria and keep a cool head and do your own fundamental analysis and understand the business. Once you have done this you need to study the financials and arrive at the Intrinsic Value. The last but one step is to establish a purchase price after providing for some margin of safety. Now you are all set.
All you need to do is wait for the market price of the stock to come to your purchase price and when that happens you buy a stock. This way you gradually build a strong portfolio which will not lose money.
Charlie Munger also used to say that its in the waiting that one makes money, not in the buying and selling. The message is clear that you need to have a framework in place before you buy a stock so that you are in the right direction. Once you have analyzed stocks and have a systematic framework all you need is simple patience. Sometimes you might miss a few opportunities if you are not tracking markets, but thats okay and far better than making blind decisions only to regret later. Ultimately slow and steady wins the race!
I was following above for long but now stopped doing it. Instead now i look for secular stories which has “tailwinds” and other factors like good Mgmt, financials etc. As and when once in a qtr price drops by 10-15% then i accumulate. For long term trending stock it works fine and generate pretty decent returns. Munger, WB et al is good if one has billion in saving a/c to invest.I guess it is prudent to “participate” in ongoing trend than to be contrarian and try to do very intelligent things.
One of my learnings is what you have written above - stop trying to do very intelligent things. Another thing that I have realized (a bit late!) is that while I like the theory of value investing and tried to practice it, I don’t have the temperament. My best results have been from growth type investing.
One small correction, value investing is buying something which is available at lower than its real value. Many investors interprete it as buyign something with attributes like low PE. But thats not correct. Instead if a stock which is say valued at 200 Cr today but that sector offers the opportunity to scale it to 1000 Cr in next N number of years then its cheap currently by all means, forget PE value!
Ofcourse lower you buy higher your gain would be. All classic stocks like HDFC twins, PAGE, TITAN etc were available at low PE in past decade only oncein 2008-9 event while rest of the time they were valued high and still generated fabulous returns. Those who have waited for classic PE value to buy lost a huge notional money.
I’m with you on that. One thing I’ve noticed with such stocks is that the best bang for your buck is to get in at the 50/200 wma. Its the sitting around till that happens that is hard! I’m no good at calculating intrinsic value and I’m not sure how useful it really is - for me, the above technical levels are a good, simple indicator. Of course, you need to monitor the story as well.
In my view the best way to invest is to be concentrated in small cap universe.
Index fund is the best way to invest in large cap universe. Large companies are so well researched that any further research by us is not going to be very helpful. So, let us not waste out time in researching well researched space and rely on index there. As I prefer to do research in smal cap universe only, I insure against my own probable stupidity by creating a retirement corpus though NPS where I invest 50% of the corpus in equity which is like an index fund. Tax saving is added advantage in NPS. One can make a suitable asset allocation between large/small universe, invest the large part in index and use the small cap allocation for intelligent investing.
Most of the success stories of Indian investing has come when successful investors invested in small cap universe, stocks which become large cap in due course. Even today I cannot find a single nifty share in RJ portfolio. The success stories of valuepickr is selection of small cap shares- Astral, Kaveri, PI industries, Atul Auto and numerous many.
Small Cap universe is the space where big researchers are not interested, and it gives us opportunity to identify gems here.