Why Value Investing has become Important?

“Value investing is the discipline of buying securities at a significant discount from their current underlying values and holding them until more of their value is realized”

Before understanding Value Investing, we must know the real problems/mistakes committed by People in Stock Market : 

1. Herd Mentality

As Everyone knows Share Bazaar is all about Emotions and most of the Investors have a tendency to follow “Bhed chaal Trend”.

For Instance: If “X” share is increasing then most of the investors tends to buy the same share. On the other side, if “X” stock is decreasing drastically, most of the investors sell their shares. People join any number of herd groups. They rely on the mutual support found in these settings and the information sharing that occurs in the group.

Many people who know little to nothing about investing but who also want to take advantage of investing in Markets rely on the herd to provide them with the information about investment opportunities. It is advisable to avoid Herd Investing Behavior.

2. Gambling

As per the recent scenario in the Share Bazaar, taking a period from the month of April 2021, market is seeing with a great bull run. Whosoever is entering in the Market reaping the good amount of Profits.

It all looks Fascinating when someone earned profits very soon due to which they started doing Gambling. Gets addicted to the Stock Markets. Sitting in front of a screen with so much addiction. But Market has its own phases, it will never remain same. One should have a hold over their Emotions.

3. Naturalize Uncertainty 

Market is Volatile with it’s up and down movements very often. Due to this, people take wrong decisions in a panic situation and sell share when it is so down or buy share when it is up.

People should understand the movement of the stock that is what we call “Chaal of the stock” and on that basis take wise decisions instead of incurring a loss in a Panic Situation. So don’t Fear from Uncertainty, EMBRACE IT!!

4. Investing on the basis of Brand Name only

Novice Investors have a preconceived image that has been build in our mind about the brands. We all knew Hindustan Motors or Vodafone is a Big Brand in India.

But today, will you buy its stock even it is at so much low prices? A wise Investor would always say “NO” because of so many bad Qualitative & Quantitative Factors.

On the other hand, there are high chances as well people buy stocks of companies just because they are charmed by Enigmatic personality of its CEO. This is not the right way to become a successful investor. Use your own analysis and then put money in any investment vehicle.

5. Expecting too much, too soon

Business takes time to churn Money and deliver Profits. It is essential to have realistic expectations. One cannot deliver a baby in one day. Similarly, one cannot double money in few days in Stock Investing. Stock can grow only as fast as business grows in future.

Keep check on Expectations and let your knowledge do the talking, not your emotions.

DID YOU KNOW VALUE INVESTING IS BACK TO PROMINENCE?

• Value Investing was overshadowed by growth investing in recent years, but today, Value Investing has now come back in its game

• After a decade of underperformance, Value Funds have emerged in FY 2021. The last 10 years from a period of (2010-2019) has been characterized by low global GDP Growth, low inflation & low interest rates. It results in Liquidity chasing a few companies making the Market Polarised.

• While 2000-2009 was characterized by a high growth global GDP growth rate and better G-sec yields and that is when Value Investing thrived. It has been observed during Covid 19 market was collapsed in Early 2020, value fund investors got an opportunity to acquire high quality stocks at attractive valuations, generating risk adjusted returns when markets recovered. These stocks emerged as Multibagger Stocks.

• Value investing is for Long Term Investors

Let’s understand the concept of Value Investing. Take 3 Scenarios to analyze the situation

Scenario A

Suppose there is Company’s Stock named as “XYZ”, and Investors view on XYZ Stock is Positive and every second person is bullish on this stock. From Individuals to Mutual Funds Companies everyone is buying the stock. It seems Market View is also Positive. Thus, it can be seen XYZ Stock will obviously be expensive and it does not have any value in it.

In Future, if price movement goes up and its performance is as per the Expectations, then investor will earn Moderate Gains only because everyone was expecting this. Stock was already overvalued.

Scenario B

Suppose there is Company’s Stock named as “ABC”, and Investors view on ABC Stock is Positive and buy that Stock but due to its uncertain growth factors and other factors which gives hints that stock will not perform in near Future. So, Market View is Negative on the same.

In Future, if price movement goes down and its performance is not as per the Expectations, then investor will incur losses because of wrong stock picking.

Scenario C

This is one of the situation where most of the investors become successful by picking up the Multibagger Stocks and creates their wealth.

Suppose there is one stock whose Market Cap is small and it is not in the eyes of everyone. But you feel this stock has Strong Fundamentals and good future growth. You are Positive on it.

But on the other side, Market is not in favor of its growth factors due to its low market share and other external factors and seems Negative on its Future Prospects and many people are scared to buy these kind of stocks. This is where you can take advantage.

In Future the same stock performs above its Expectations despite of the fact Market had a Negative View. In this case, Market will change its view from Negative to Positive and then this stock is going to be Top 10 Multibagger or Top 20 Multibagger.

If you, as an Investor, makes a right prediction and have a good command over stock picking. You can create a wealth easily in Stock Market.

Few Important Points to Consider

1. It is not necessary to find hidden gems under Small or Medium Cap Category. Sometimes Big Companies stock’s prices are low and Market is Negative on these stocks. But they have the tendency to become Multibagger.

2. Market is most of the times correct because it’s view is based on many Analysts. But as an Investor, you need to find the rare opportunity where as per your Analysis, you feel market is wrong and take advantage of that situation to earn good amount of Return.

3. Buy at those levels where stock prices increased to multiple times and where the future seems bright.

IT STOCKS which turned out to be MULTIBAGGER

- KPIT Technologies

- Mindtree

- Mastek

- Tata Elxsi

Simple Steps to Find Prospective Multibagger Stocks

1) Choose an Industry/ Sectors where Panic occurred, where Market has negative sentiments.

2) Find such stocks in that Sectors, where company is quite good but due it’s sector where market has negative view, its stock valuation has come down. Once the things improve in the sector, those companies will grow very fast.

3) Check Management Track Records like their Integrity, Commitments towards vision, Company still able to generate profits during hard times, Company has less debt or debt free, Company’s Promoters have not sold off their holdings.

4) Find Companies which are facing Temporary Problems like Maggie faced some Food Authorities Restrictions due to which Maggie Product was stopped coming in Market leading to pulling down the Nestle’s share. But Nestle was good from both Fundamentals point of view.

5) These are just Temporary problems which can be resolved by the Company anytime soon. In this situation, generally market creates panic and investors sell their shares. But one needs to understand this situation that market is just playing with an emotions of investors.

CONCLUSION

With a bit of effort and prudent selection of investments, even the most novice investors can take advantage of a booming stock market while protecting themselves from the whims of the herd.

Regards

Tripti Saini

Team DFMI