Archive by Author Ketan Gujarathi

Hope Investing in Small cap stocks!

Often in Bull markets, Small cap stocks send retail investor into frenzy. Steep gains in matter of months lure them into allocating more and more funds on their next bet. Lets say, a newbie starts with 10,000 in a stock on friend’s advice and the stock doubles. He regrets betting just 10,000, next time he makes up his mind to bet more. Next 2-3 occasions tend to be equally rewarding. Then one fine day when he bets 10,00,000, a big chunk of his savings, the markets dooms and most of those stocks never seem to recover for years. This is typically happens near new all time highs. He gives up on equity investing calling it a gamble and equity since then becomes something close to social stigma. The joy of instant gratification is what we seek. However, investing is more about delayed gratification. You put away small sums now, and […]

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Category:Learn
Did you enjoy Snakes & Ladders in childhood, then why not Equities?

Did you enjoy Snakes & Ladders in childhood, then why not Equities?

In our childhood, we all enjoyed Snakes and Ladders. Snakes and Ladders is a board game with 100 blocks numbered 1 to 100. Pointer is placed at 1st block. To win the game, one has to roll a dice to reach 100th block. Few Blocks in between have ladders and a few have snakes. Ladders help to skip multiple blocks and jump to a higher number. Snakes throw the pointer back to lower numbered block. But if one plays long enough, he would reach his goal i.e. 100th Block. We can draw an exact analogy in Equities. Markets are always volatile, going from new high to lows and lows to new highs. But what we believe is, if we hang around in equities for long term, we would certainly reach our goal. Why do we say that?  See the following table: (Source: BSE Sensex; HDFC MF) If we see rolling […]

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Category:Learn

Multibagger returns for how long? What process? Is it repeatable?

Thousands of stocks have jumped to unjustifiable levels in last 1-2 years. ‘Experts’ or Social Media buffs come up with 10 new stocks every week or month and take pride in 5-10% price movements. On asking what they see, they confidently answer, “It is a value buy.” Most ideas are not exactly an outcome of a process. All that goes in is 10 minutes of financial statement analysis, that’s it. No management analysis or reading annual reports or history of business/industry. Lately the new fantasy is to track some ‘renowned’ investor and follow him into some small cap company. Everyone seems to believe that this will generate great returns for them. They buy it for a month or so, retweet every news related to recommended stocks and when the stock crashes, they simply claim they exited the stock long back! Classic pump and dump tactic. So much for long term investing? […]

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Category:Learn

High returns won’t make you rich, BIG bets will

We had an interesting email exchange with one of our customers. He raised an interesting question and made us think hard. His question goes like this: Can you suggest business/stocks growing more than 25% CAGR? I want compound my portfolio above 25% CAGR over long term. Edited answer: There is no way to find in advance which stock may yield 25% CAGR. As stock essentially follows earnings growth, we are sceptical whether there would be many businesses growing above 25% CAGR over long periods. In past quite a few business grew at stellar rates as inflation was 10-12% and GDP growth was 8% (Market returns approx ~ GDP growth + inflation). Penetration was low and higher inflation made it easy to pass on the prices, earnings grew faster than volume growth. Currently, inflation levels are at ~5-6% and GDP growth rate is likely to be 5-6% over 5-7 years (Market […]

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Category:Learn

Modi Policy: What has changed; what has remained the same

Indian Prime Minister, Narendra Modi, announced on 8th November 2016 that legal tender character of the notes in denominations of ₹ 500 and ₹ 1000 stands withdrawn. This was one bold step to scrap the parallel economy which was running on black money. Implications of this new policy are very positive for the economy over long term. Over 5-7-10 years, inflation is likely to be reasonable, taxes may moderate and real estate would become more affordable. Talking about businesses, our opinion is the businesses those were run on cash mostly from tax evaders etc will be severely affected. Consumption may slow down over 3-4 quarters. Liquidity problem may affect volume growth as unaccounted currency will vanish and black money parked in Gold and Real Estate will be difficult to liquidate. We see a modest negative impact on consumption of high-value items as entities and individuals with large amounts of undisclosed […]

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Category:Learn