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Topic: Smartcat - Portfolio Checkup

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prabhakarkudva
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Joined: 16/Jan/2008
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Posted: 03/Feb/2010 at 11:56am

If a stock goes from expensive to more expensive we still make money.There is no rule which says that we make money only when a stock goes from cheap to expensive.

I don't think this fact is appreciated by a vast majority of investors.

Take your chances and keep them in a box until a quieter time.

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rapidriser
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Joined: 18/Nov/2007
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Posted: 04/Feb/2010 at 1:48pm

Originally posted by prabhakarkudva

If a stock goes from expensive to more expensive we still make money.There is no rule which says that we make money only when a stock goes from cheap to expensive.

I don't think this fact is appreciated by a vast majority of investors.

I am sure those familiar with basic mathematics are aware of this "fact".

Just that the journey from cheap to fairly valued to expensive is usually more rewarding than the one from expensive to more expensive.

When all else is lost, the future still remains. - Christian Nestell Bovée

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prabhakarkudva
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Posted: 04/Feb/2010 at 2:12pm

There is one very profound thing i have learnt here on TED(from basantji)that valuation is subjective to a business and is a function of sustainable growth over a period of time.So a PE of 15 may be deemed expensive for Hawkins and yet a PE of 40 can very easily be a bargain for Titan.Its a simple insight but is very difficult for a lot of people to digest and put to practice.

What bothers me is when people generalize valuation and say a PE of 40 is expensive and i wont invest.Worse still when people think that investing in a 40 PE business is riskier than investing in a 20 PE business.A lot of people(including qualified analysts ) are giving up on great businesses due to such prejudices.

I just hope at least people here on TED don't fall into this very common pit.

Take your chances and keep them in a box until a quieter time.

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vincent
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Joined: 16/Jun/2007
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Posted: 04/Feb/2010 at 2:15pm

IMHO the mindblock is to differentiate "fresh money" and "switch over" from one stock to another. The sunk cost fallacy is difficult to get rid of !!

Time is your friend on the road to wellbeing.

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somu0915
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Joined: 25/Nov/2008
Location: India
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Posts: 703

Posted: 04/Feb/2010 at 2:30pm

RJ once said that valuation is a matter of experience.
What is cheap can only be learnt through the thorough understanding of business and not only its numbers.
If that would have been the case, anyone could enter these numbers into an computer algorithm and become super rich !

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basant
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Joined: 01/Jan/2006
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Posted: 04/Feb/2010 at 2:50pm

That is probably why everyone cannot be rich at the same time.

'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

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Vivek Sukhani
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Joined: 23/Jul/2006
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Posts: 6675

Posted: 05/Feb/2010 at 5:12pm

Hey Smartcat, how was the implementation of your strategy of pulling amount X from the portfolio, everytime the portfolio used to cross X amount????

Jai Guru!!!

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nikhil090
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Joined: 06/Nov/2006
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Posts: 1344

Posted: 05/Feb/2010 at 5:38pm

Originally posted by smartcat

Pulled out two weeds (IOB & Karnataka bank) and planted a flower bearing plant (Titan).

Titan looked expensive at Rs. 700 in Mar'09 at trailing 20 P/E, but now looks quite cheap at Rs. 1750 at FY10 P/E of 20.

Makes any sense?

i think at 1700-1750 it is going to be closer to 26-27 PE even in the best possible event of having 65 as the FY10 EPS. For FY11, it may be at PE 20 but that will take another year to unfold.

However, the advantage with "brand" companies is that the reward can be delayed but hopefully not denied.. Also the mortality rate of these companies is almost negligible.. what that implies is that probably they will generate returns which can be compounded over a period of time.

I dont think it is cheap but looking at FY11, it is not very expensive either. When we can pay 17-18 PE for FY11 for page , some premium over that can be justified.

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