Whoever told you that Value Investing is easy must be a professor, not an investor! During times of inflated asset prices (where the earnings are refusing to catch up with our ‘expectations aka PE!) an investor needs a lot of patience. In addition to avoiding eventual (potential I should say) losses by overpaying, patience allows us ( investors) to act decisively when valuations become attractive and opportunities return. This is not easy for sure. While patience may be required during ALL periods of the market cycle, NOT buying or inactivity in the portfolio does not mean there is inactivity in the investment process. In other words, patient positioning does not mean you are doing nothing. It is a time when you go through balance sheet and look for some flexible and opportunistic strategies.
You might get opportunities in stressed assets – when the desperate bankers are willing to sell at a huge discount.
It is a time to be extra alert for opportunities. I would happily sell a 30PE company and buy a 17 pe company. Opportunities abound. You need to look around yourself – there are opportunities outside of Hdfc, Hdfc bank and Asian Paints!
In March 2017 Gillette gave us a great opportunity to buy it – at a very high PE – at a price of Rs. 4000. Today in 6 months time it has crossed Rs. 6300! No value investor could have bought this share at 4000, THAT IS THE PROBLEM.
I bought ‘dividend yield’ share Rane Madras and waited for a long time. Sure the volumes in that share are pathetic – or were pathetic when I bought it. Now much more than dividend yield – it is a 5 bagger. Again it was patience which paid off.
During periods of waiting, and cursing my broker for not using the cash lying in the bank (currently too!), I spend some time remaining current on my buy list and searching for new buy ideas. I like Apollo Hospitals (no it is not cheap, but the cash flows might just improve in the coming couple of quarters, but my broker is against further commitment!) It is surely a good time to update business valuations and improve the quality of opportunity sets. One has to be better prepared for a fall – I found shifting from Price to Book value a better way to look at a company instead of Price Earning (I do not like PE much). Just in case some of the structural reforms do hit home, we might be in for a much longer bull run. However the transition from a bull run to a bigger bull run could see a valley of opportunities!
There are other problems for a Value Investor – he might sell off too soon simply because of the hurt he has had in the past. Luckily in india the ‘short duration funds’ are not so bad and we do not have to pay a price for inactivity! Being prepared is a meaningless word because you never know one day when to buy! I remember buying Reliance from 1000 to almost Rs. 1500 – till the bonus was announced. I do think waiting for ‘that particular day’ for buying or selling is impossible. Remember buying Intellect Design from 112 to Rs. 120 – there was no way we could have bought all the shares at the bottom. Just did not know when is the bottom. Do not wait for the last price..buy at every point and make sure that the average price is attractive. It takes considerable time and effort, but the rewards can be great. Knowing an opportunity set well allows investors to act decisively, confidently and stay in that transaction for a longer period of time without panicking! During chaotic periods, concentrating and following through on discipline becomes increasingly difficult and you need a great friend circle who can keep you grounded. Having investment clubs or meetings can be very useful! Knowing exactly what you’d like to own beforehand (both quantity and price) can be beneficial once the market cycle concludes. Try this next time you go shopping to a mall or even for grocery. I visit D’Mart once in a month and my list helps me finish the shopping in 20 minutes – including the billing. I rarely pick up a product that I do not need.
Investors without a detailed strategy may find it difficult to buy a good share and hold it to its logical end. If I did not know that Hdfc bank is a well run bank why would I have held it from Rs. 40 to Rs. 2000 after a split and a bonus?
I am now wondering whether the bounty is over? I do like Quality, Growth Prospects and Longevity of Hdfc Standard life Insurance – but I do not like the price (P).
I will wait, maybe like an alligator. If I do not get it, just bad luck…
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