| The Convention |
The Exception |
Reason for this exception – How easy is it to be wise after the show |
|
Buy companies with >established managements |
Established managements rarely give you a 10 bagger. Infosys, Satyam, Pantaloon Retail, Bharti Tele were all companies with first generation promoters. |
A trust worthy management with integrity and honesty will do more then an established family name. See what the first generation promoters Sunil Mittal (Bharti Tele Mobile Telephony - AIRTEL) and Kishore Biyani (Pantaloon Retail) have done to the Tata group in their respective businesses . |
|
Buy low PE stocks |
In 2003 stocks like Max India, Bharti Televentures traded at PE's of more then 100 . They went up by more then 10 times each |
Stocks in a new sector, which are yet to hit their peak in terms of earnings and market potential should not be evaluated on PE basis alone. |
|
Buy debt free companies |
Since early 2004 Titan a had a debt equity ratio of more then 2:1. The stock however has gone up more then 10 times |
Companies that are repaying old debt make for great bets on the bourses . Titan has been repaying back its old debt and the markets have rewarded the stock. |
|
Invest in stocks that the Foreigners and Institutions are buying |
Stocks that go up 10 times or more have very low Institutional ownership . Max India, Titan, Pantaloon Retail Nagarjuna Construction, IVRCL had very low Institutional ownership when they started moving initially |
A higher Institutional ownership creates very little scope for disappointment. It also indicates a potential oversupply of shares at higher levels. Stocks that are Institutional favorites are over researched and have no scope for positive surprises. Every thing seems built into the price. HDFC Bank, Infosys, Bharti cannot be multibaggers from these levels since prices discount all future news flow. |
|
Buy dividend yield companies |
Chennai Petroleum, Bongaigaon refinery and Chambal Fertilizer are stocks that give good dividend payouts but have still under performed the broader markets . |
A company that gives announces hefty dividend pay out accept that there is no scope for further deployment of funds. If a stock having a dividend yield of 4% goes down 15% you still lose 11%. |
|
Buy companies that announce bonus issues and splits |
Mphasis BFL, Mastek are companies that give frequent bonuses and splits. Still these companies have lagged behind the sector leaders. |
A bonus or a split has no effect on market price. A bonus or a stock split can be viewed in the same analogy as cutting a pizza into smaller pieces of equal size. This means that the quantity of the pizza as a whole remains unaltered. A bonus reduces the EPS of a company by exactly the same proportion that the number of shares are increased, the RoE and RoCE remain constant after the bonus issue. |
