As per 17 Sep 2018 closing price, the combined Market Cap of BoB, Dena Bank & Vijaya Bank was Rs 47,154 Cr. After merger of these 3 banks was proposed BoB started crashing on 18th Sep. Dena gained well and closed at about 20% high. Vijaya Bank reaction was most strange as it first gained about 10%, and then ended about 10% down. After a month, as per 17 Oct 2018 closing price, the comibine mcap of these 3 banks is now reduced to Rs 35254.44 Cr. Though other stocks have also corrected in past one month, but 25% looks like a pretty good correction. Specially considering the fact that merger should help the 3 banks to improve overall efficiency, and hence to improver performance as a joint entity. There surely should be concerns due to bad books of Dena Bank, but GoI has already shown its intent by declaring that it will infuse extra cash in to Dena Bank before merger. So my question is, is it a good time to buy Bob on dips?
Wednesday 17 October 2018
Thursday 19 October 2017
The Mirage of Multi-Baggers
It's been a long time since my last blog post. This one is also on a very different topic than any of my previous posts. One of my very first financial blog, so it may be kind of boring. Please bear with me :-)
THE MIRAGE OF MULTI-BAGGERS
----------------------------
In present market, I sell most of my holdings on a 5-15% rise. Inmarket like today's, the 5-15% rise mostly happens within days or weeks. Of course there are few stocks which I continue to hold for years, latest example being RIL which I hold from 2015, and still holding despite more than 100% return. Recently I also accumulated BHEL in big chunk, from which I expecting a 5x return, so I will hold it till it goes up significantly. But on almost 75% of my portfolio, I never loose opportunity of booking short term profit. Big question is, is it wise to sell too early? What about those 5x and 10x baggers which we loose out on by selling too early. In this post I will share some data which give more insight in to mirage of multi-baggers.
First of all, let me point out what happened with my IFB Agro investment. I sold off this stock on 4th of October at 440 with 8.6% return in 44 days [after adjusting the brokerage charges]. 8.6% returns in about 44 days sounded like a very good return at that time. But in last 2 trading sessions stock has just blasted giving more than 40% return in just 2 days. In Hindsight, one generally repents having sold off such a gem. But a careful analysis of numbers will show that numbers don't really add up as they appear. Whenever you are faced with such a situation, you need to remind yourself of following
(1) Its only a chance that stock has gone up. It could have gone down as well. So whatever return you got need to be looked stand-alone.
(2) Of the many stocks where you book profit, not many shoot off like this. Some nose dive, some keep oscillating in fixed bands, so if you were to take the average, then selling off on a decent profit works out much better.
Another point I would like to tell about IFB Agro is that I really admire this stock. I have always believed that its packaged food business will continue to grow. Its current PE is also attractive [still attractive after recent 40% jump]. However, when I buy a stock for long term, I do a closer scrutiny. Instead of finding reasons to buy, I try to find reasons not to buy. Main dislikes I discovered with IFB Agro were - (1) It does not pay dividend (2) I don't like its core distillery business (3) It is based in WB, where political situation is very fluid, environment not conducive for business. Now, not every one dislikes these points, but I do. And if I had to hold a stock for long term through thick and thin, I need to have 100% confidence in that stock.
Now let us start the number crunching. first let us look at the return I got. 8.6% returns in 44 days. That translates to almost 100% annual return. Over 5 years it will translate to 30x returns. Since I am only looking at my 44 days gains, the gain is small 8.6%. And this number sticks to mind. But if some one was to repeat this performance over time, then numbers stack up pretty big. Btw, I had also bought IFB Agor on 29 Jun and sold off on 7 July with 5.2% returns in 9 days. And there are many such trades available in current market from time to time.
There is a lesser know micro-cap SDBL. This beer making company makes a case for good value investment - for many reasons [which I can discuss if some one is interested]. But it is stuck in legal tangles over some old debt it didn't repay. Because of that single point, I always have trouble convincing myself that its risk free. So, I can never relax myself when my money is in to SDBL. Since a good sleep is essential to good life, I never miss an opportunity to book profits here. Let me give you details of profit I made on this stock
- Bought on 4 May, Sold on 12 May: 29.6% profit in 9 days
- Bought on 28 June, Sold on 5 July: 10.4% profit in 8 days
- Bought on 10 Aug, Sold on 5 Sep: 9.75 in 28 days
The compound profit on above deals is 55% in 45 days. But if I were to assume that after selling off my stock, I held money in cash for future buy, then it is still 55% in 3 Months.
I won't mind buying SDBL again on correction. Infact I missed a chance to buy it on 25th Sep, as I didn't track markets on that day.
Then there is a defence sector small cap called Astra Micro. It showed a sharp rise when NDA govt came to power in 2019. But since then stock has corrected and is available at relatively cheaper PE in current market. I know many people who are bullish on this stock and consider it a potential multi-bagger. I too expect it to given 60-70% return in single rally, whenever that rally happens. There are people who have been waiting for that rally for more than an year now. During this one year period, the RoE has been zero or even negative. I only started venturing in to Astra with FY 2017-18, as all my money was stuck elsewhere before. I have two pronged strategy with Astra - some money I have locked in this stock hoping for 2x to 3x return within few years. Rest of the money I use for swing trade. Now here are the profits I made on swing trade so far this FY,
- Bought on 25 April, sold on 30 June: 9.&% return in a month
- Bought through Aug, Sold through Sep: 8% retun in a month
After above deals, I have done fresh buying on Astra with average price of 123. I hope to make another 10% profit on this within a month. If I were to compute compound returns on my deals, it will turn out to be more than 100% annualized.
So, as you would realize from above numbers, even small profits, made in short intervals, can multiply wealth very fast. But most of us often keep chasing multi-baggers. Of thousands of companies trading on NSE/BSE, only a very few actually turn out to be those multi-baggers. So, if we were to do some maths and probabilities, then future multi-baggers are not so easy to spot. But past multi-baggers are easy to spot because so many funds will advertise for them. Those funds recommend 100s of companies to you, if a few of those 100s turn out ot be multi-bagger, they keep reminding you through continuous advertisement about how their prediction was right. But if they were to also talk about rest of their recommendations with same zeal, then numbers don't add up so lucratively.
WHEN IS A GOOD TIME TO SELL
---------------------------
Though celebrated value investors will always tell you that good stocks need to be held forever, there is no business sense to it. If we were never to sell a stock, we will never realize any real profit, and if we were never to realize any profit, there won't a business cause for it. There can be ornamentals causes, feeling happy, feeling successful, feeling rich, but no business cause. Most of the people [barring a few Warrent Buffet types in 7 billion world population] invest money for future use. They have money, they have needs, but they realize that if they could delay their gratification of satisfying needs, in future they could satisfy more needs with same money. That's how I look at my investment. If I invested 100 Rs in a stock, and after a while if the net worth of that money becomes more than the worth of old 100 Rs, then its a good time to sell. But, I am further faced with the old question, whether to gratify my senses, or whether to delay it further. While answering this question, I perfer to let the fear take over me rather than being overly driven by greed. Once you have made decent profits, its wiser to be fearful. As late Mr Parag Parikh would say, right time to sell a stock is when there are still plenty of buyers for it. I will cite a few examples on why it's wiser to book profits, when you are still profitable.
First let me cite the case of Reliance, since it's one of the most valuables Indian company, I feel it desrves a mention. Those who were holding this stock during 2006 & 2007, got plenty of opportunities to book profit. Depending on when one sold, their profit margin would differ. But almost everyone who sold during that period, must have booked profits. During Dec 2007 & Jan 2008, stock traded in 700-800 band [citing Bonus adjusted prices]. Anyone who failed to book profit at that time, would have to wait almost 10 years for price to reach at the same level again. Needless to say, 10 years with a zero return is very signficant wealth destruction. Even a 12% annual return compounded for 10 years gives more than 3x.
Another interesting case is that of BHEL. Its greatest bull run started from early 2003 and last till Dec 2007. In those 5 years, stock gave 30x returns. If one wasn't patient enough, and one sold off for a 15x or 10x or even 5x profit, I think it deserved a celebration. As long as one makes profit, good profit, one should celebrate. Even if one made a 5x profit, which would have happened my mid of 2005, and then used that money for good cause, or invested it further elsewhere, should never repent missing on eventual 30x returns for following reasons:
(1) Its only in hindsight that you realize where peak was formed. No one can detect bottom or peak in advance.
(2) If you made 5x return, but peak was at 30x, you get an impression that you lost on 25x profit. But in reality you only lost on 6x proft. The money you got after booking 5x profit, invested elsewhere will become 30x on a 6x return.
(3) If you made 5x return in a couple of years, then you must consider that you are smart enough. You would have easily made another 6x profit elsewhere in next few years. So why bother.
Now, comes the real tragedy. Those who didn't sell their holdings towards 2007 End, are now sitting on almost an 80% loss after 10 years. If you were holding 100 Rs in BHEL towards 2007 end, even a 12% annual return would have given you 300+. But if you kept your stocks, today you are worth only about 20. So in those terms, you are at a 15x loss.
So, when it comes to booking profit, be fearful. Today BHEL is no one's darling. I have recently stocked up this stock. When no one likes a stock like BHEL, be greedy.
SOME MORE MATHS, COMPOUNDING, MULTIPLIER EFFECT
----------------------------------------------
If you could spot a 5x bagger every 5 years - You get a 625x bagger in 20 years. You don't really need to chase a 100x bagger. If you start investing early, keep investing longer, and can do hard work on fundamental analysis [not putting money in wrong companies], then even 5x baggers can make you super rich. If you are not so brilliant, and lady luck never smiles on you, you could still spot 2x baggers every 4 years [at least in a market like India where growth is huge, its not that tough a task]. Even that will give you 30x returns over 20 years. You could still survive without chasing those illusional multi-baggers.
DISCLAIMER
----------------
It's not an investment advice. The opinion & views expressed here are personal and solely meant to be for casual discussion. One should not make any investment based on this opinion. One should consult a certified financial adviser for investment advice.
THE MIRAGE OF MULTI-BAGGERS
----------------------------
In present market, I sell most of my holdings on a 5-15% rise. Inmarket like today's, the 5-15% rise mostly happens within days or weeks. Of course there are few stocks which I continue to hold for years, latest example being RIL which I hold from 2015, and still holding despite more than 100% return. Recently I also accumulated BHEL in big chunk, from which I expecting a 5x return, so I will hold it till it goes up significantly. But on almost 75% of my portfolio, I never loose opportunity of booking short term profit. Big question is, is it wise to sell too early? What about those 5x and 10x baggers which we loose out on by selling too early. In this post I will share some data which give more insight in to mirage of multi-baggers.
First of all, let me point out what happened with my IFB Agro investment. I sold off this stock on 4th of October at 440 with 8.6% return in 44 days [after adjusting the brokerage charges]. 8.6% returns in about 44 days sounded like a very good return at that time. But in last 2 trading sessions stock has just blasted giving more than 40% return in just 2 days. In Hindsight, one generally repents having sold off such a gem. But a careful analysis of numbers will show that numbers don't really add up as they appear. Whenever you are faced with such a situation, you need to remind yourself of following
(1) Its only a chance that stock has gone up. It could have gone down as well. So whatever return you got need to be looked stand-alone.
(2) Of the many stocks where you book profit, not many shoot off like this. Some nose dive, some keep oscillating in fixed bands, so if you were to take the average, then selling off on a decent profit works out much better.
Another point I would like to tell about IFB Agro is that I really admire this stock. I have always believed that its packaged food business will continue to grow. Its current PE is also attractive [still attractive after recent 40% jump]. However, when I buy a stock for long term, I do a closer scrutiny. Instead of finding reasons to buy, I try to find reasons not to buy. Main dislikes I discovered with IFB Agro were - (1) It does not pay dividend (2) I don't like its core distillery business (3) It is based in WB, where political situation is very fluid, environment not conducive for business. Now, not every one dislikes these points, but I do. And if I had to hold a stock for long term through thick and thin, I need to have 100% confidence in that stock.
Now let us start the number crunching. first let us look at the return I got. 8.6% returns in 44 days. That translates to almost 100% annual return. Over 5 years it will translate to 30x returns. Since I am only looking at my 44 days gains, the gain is small 8.6%. And this number sticks to mind. But if some one was to repeat this performance over time, then numbers stack up pretty big. Btw, I had also bought IFB Agor on 29 Jun and sold off on 7 July with 5.2% returns in 9 days. And there are many such trades available in current market from time to time.
There is a lesser know micro-cap SDBL. This beer making company makes a case for good value investment - for many reasons [which I can discuss if some one is interested]. But it is stuck in legal tangles over some old debt it didn't repay. Because of that single point, I always have trouble convincing myself that its risk free. So, I can never relax myself when my money is in to SDBL. Since a good sleep is essential to good life, I never miss an opportunity to book profits here. Let me give you details of profit I made on this stock
- Bought on 4 May, Sold on 12 May: 29.6% profit in 9 days
- Bought on 28 June, Sold on 5 July: 10.4% profit in 8 days
- Bought on 10 Aug, Sold on 5 Sep: 9.75 in 28 days
The compound profit on above deals is 55% in 45 days. But if I were to assume that after selling off my stock, I held money in cash for future buy, then it is still 55% in 3 Months.
I won't mind buying SDBL again on correction. Infact I missed a chance to buy it on 25th Sep, as I didn't track markets on that day.
Then there is a defence sector small cap called Astra Micro. It showed a sharp rise when NDA govt came to power in 2019. But since then stock has corrected and is available at relatively cheaper PE in current market. I know many people who are bullish on this stock and consider it a potential multi-bagger. I too expect it to given 60-70% return in single rally, whenever that rally happens. There are people who have been waiting for that rally for more than an year now. During this one year period, the RoE has been zero or even negative. I only started venturing in to Astra with FY 2017-18, as all my money was stuck elsewhere before. I have two pronged strategy with Astra - some money I have locked in this stock hoping for 2x to 3x return within few years. Rest of the money I use for swing trade. Now here are the profits I made on swing trade so far this FY,
- Bought on 25 April, sold on 30 June: 9.&% return in a month
- Bought through Aug, Sold through Sep: 8% retun in a month
After above deals, I have done fresh buying on Astra with average price of 123. I hope to make another 10% profit on this within a month. If I were to compute compound returns on my deals, it will turn out to be more than 100% annualized.
So, as you would realize from above numbers, even small profits, made in short intervals, can multiply wealth very fast. But most of us often keep chasing multi-baggers. Of thousands of companies trading on NSE/BSE, only a very few actually turn out to be those multi-baggers. So, if we were to do some maths and probabilities, then future multi-baggers are not so easy to spot. But past multi-baggers are easy to spot because so many funds will advertise for them. Those funds recommend 100s of companies to you, if a few of those 100s turn out ot be multi-bagger, they keep reminding you through continuous advertisement about how their prediction was right. But if they were to also talk about rest of their recommendations with same zeal, then numbers don't add up so lucratively.
WHEN IS A GOOD TIME TO SELL
---------------------------
Though celebrated value investors will always tell you that good stocks need to be held forever, there is no business sense to it. If we were never to sell a stock, we will never realize any real profit, and if we were never to realize any profit, there won't a business cause for it. There can be ornamentals causes, feeling happy, feeling successful, feeling rich, but no business cause. Most of the people [barring a few Warrent Buffet types in 7 billion world population] invest money for future use. They have money, they have needs, but they realize that if they could delay their gratification of satisfying needs, in future they could satisfy more needs with same money. That's how I look at my investment. If I invested 100 Rs in a stock, and after a while if the net worth of that money becomes more than the worth of old 100 Rs, then its a good time to sell. But, I am further faced with the old question, whether to gratify my senses, or whether to delay it further. While answering this question, I perfer to let the fear take over me rather than being overly driven by greed. Once you have made decent profits, its wiser to be fearful. As late Mr Parag Parikh would say, right time to sell a stock is when there are still plenty of buyers for it. I will cite a few examples on why it's wiser to book profits, when you are still profitable.
First let me cite the case of Reliance, since it's one of the most valuables Indian company, I feel it desrves a mention. Those who were holding this stock during 2006 & 2007, got plenty of opportunities to book profit. Depending on when one sold, their profit margin would differ. But almost everyone who sold during that period, must have booked profits. During Dec 2007 & Jan 2008, stock traded in 700-800 band [citing Bonus adjusted prices]. Anyone who failed to book profit at that time, would have to wait almost 10 years for price to reach at the same level again. Needless to say, 10 years with a zero return is very signficant wealth destruction. Even a 12% annual return compounded for 10 years gives more than 3x.
Another interesting case is that of BHEL. Its greatest bull run started from early 2003 and last till Dec 2007. In those 5 years, stock gave 30x returns. If one wasn't patient enough, and one sold off for a 15x or 10x or even 5x profit, I think it deserved a celebration. As long as one makes profit, good profit, one should celebrate. Even if one made a 5x profit, which would have happened my mid of 2005, and then used that money for good cause, or invested it further elsewhere, should never repent missing on eventual 30x returns for following reasons:
(1) Its only in hindsight that you realize where peak was formed. No one can detect bottom or peak in advance.
(2) If you made 5x return, but peak was at 30x, you get an impression that you lost on 25x profit. But in reality you only lost on 6x proft. The money you got after booking 5x profit, invested elsewhere will become 30x on a 6x return.
(3) If you made 5x return in a couple of years, then you must consider that you are smart enough. You would have easily made another 6x profit elsewhere in next few years. So why bother.
Now, comes the real tragedy. Those who didn't sell their holdings towards 2007 End, are now sitting on almost an 80% loss after 10 years. If you were holding 100 Rs in BHEL towards 2007 end, even a 12% annual return would have given you 300+. But if you kept your stocks, today you are worth only about 20. So in those terms, you are at a 15x loss.
So, when it comes to booking profit, be fearful. Today BHEL is no one's darling. I have recently stocked up this stock. When no one likes a stock like BHEL, be greedy.
SOME MORE MATHS, COMPOUNDING, MULTIPLIER EFFECT
----------------------------------------------
If you could spot a 5x bagger every 5 years - You get a 625x bagger in 20 years. You don't really need to chase a 100x bagger. If you start investing early, keep investing longer, and can do hard work on fundamental analysis [not putting money in wrong companies], then even 5x baggers can make you super rich. If you are not so brilliant, and lady luck never smiles on you, you could still spot 2x baggers every 4 years [at least in a market like India where growth is huge, its not that tough a task]. Even that will give you 30x returns over 20 years. You could still survive without chasing those illusional multi-baggers.
DISCLAIMER
----------------
It's not an investment advice. The opinion & views expressed here are personal and solely meant to be for casual discussion. One should not make any investment based on this opinion. One should consult a certified financial adviser for investment advice.
Monday 6 August 2012
Book: India: A History
India: A History is a book by English Journalist and author John Keay. A comprehensive book on Indian History covering ancient, medieval and modern India. Though there is nothing like unbiased History, but I would rate this book most unbiased because it presents several alternative versions of various events. I would highly recommend reading this book to every Indian.
PS: Several post indepence political events [including operation blue star] have been added to the latest edition of the book.
PS: Several post indepence political events [including operation blue star] have been added to the latest edition of the book.
Book: The Story of Philosophy
The Story of Philosophy: the Lives and Opinions of the Greater Philosophers is a book by Will Durant that profiles several prominent Western philosophers and their ideas, beginning with Plato and on through Friedrich Nietzsche. Durant attempts to show the interconnection of their ideas and how one philosopher's ideas informed the next. [from Wikipedia]
A wonderful introduction to great Philosophers [of all times] & their thoughts. Durant spent several years working on this book & his effort reflects well in this book.
[PS: I was highly disappointed by other books from Durant]
A wonderful introduction to great Philosophers [of all times] & their thoughts. Durant spent several years working on this book & his effort reflects well in this book.
[PS: I was highly disappointed by other books from Durant]
Monday 30 July 2012
Movies: Who is Afraid of Virginia Wolf
A black Comedy based on play by American playwright Edward Albee. It is a movie, not for the weak-hearted.
Movie Trailer: The Shawshank Redemption
A great Drama/Thriller. It has managed to stay @1 on imdb, for several years.
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