Kitex Garments Limited

Writing on this Kitex thread almost after 18 months and after too much discussion have already happened on this story …

I would have few humble points for fellow travellers in investment journey… It is not suggestion or advice but just sharing my own thought process…

  1. Kindly check your thesis for investing at the time of investing… Especially what is your initial expectation from the company and from the stock … Here what I mean is what growth of earning you expect (intrinsic to the company) and what growth of price you expect (it can be PE rerating, market sentiment, euphoria, bandwagon effect etc and to a large extent extrinsic variable)?

  2. If the price goes berserk ahead of the underlying growth of the company or if market starts giving huge premium to its future possibilities and you achieve your price target much ahead of your expectation then what you should do?

I feel, in spite of all the negative and positive issues involved in Kitex story and discussed ad nauseum in this thread, Ms. Market at some point gave 45 + trailing PE to Kitex for reasons and quirks best known to herself. So, it was clear that it was disregarding the negatives and only focussed on the positives. So, isn’t it obvious that Ms. Market would, at adverse time, act very negatively and very ferociously?

If you look into my initial investment note (in a doc file available on this thread), I rated Kitex at a 30% compounder for 3 years and hence my expectation was Kitex to double in about less than 3 years but never expected it to treble in price in a span of one year on the basis of PE rerating from stable to unstable range (not from underrated / undiscovered level to stable range) … Whatever wonder they may be doing, whatever great products they may be having, whatever great the management might be … To me, no business unless those which work on Networking Effect (Power Law) can match the expectation created by the market on Kitex in the first place.

To me the sell time came when I found … Kitex went beyond my initial thesis without any new development or insight, and the price action on the stock went on a decline from the euphoric high … I know that I don’t know almost anything about how Ms. Market behaves … So for me every stock has a price to buy and every stock has a price to sell … And every stock has an opportunity cost for holding …

So, even if there were no negative news, no Cash Balance issue, no CFO resignation, no political adventurism by the management, no slackening of growth I would have anyway sold it off at the valuation which Ms. Market offered me 6 months back because my initial thesis was only for 30% compounding and no fantastic things happened to change that hypothesis unless there is egregious fraud as mentioned by some valued members elsewhere here.

Another point, I feel, at times, putting too much effort to analyse a stock gives a kind of emotional attachment to it … as if I am being rewarded or I should be rewarded for my hard work!!! Hard work is sine qua non for making even for Rs. 100/- investment but price action in market also tells a very important story and I always think it is critical to look into the price action and take appropriate course correction before portfolio gets seriously dented.

Lastly, imagine a situation that Kitex stock price didn’t move at all for last 1 year and remained at about Rs. 375/- - Rs. 400/- level … Would you all have discussed the issue the same way as is being done here? Now everything in Kitex looks dark to many people … Is it because we entered a dark room from a scorching sun? If it hovered around this level, possibly we would have adjusted to the darkness of the room and felt very happy if sunlight entered even through a small hole :slightly_smiling:

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