Expensive stocks-What to do with them?
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Equity Valuation Techniques
Forum Discription: While valuing equities no individual technique works. Mostly it is a combination of techniques. Discuss the various techniques in equity valuation ranging from PE to RoE to Market Cap
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=897
Printed Date: 11/Apr/2025 at 8:54pm
Topic: Expensive stocks-What to do with them?
Posted By: deepinsight
Subject: Expensive stocks-What to do with them?
Date Posted: 07/May/2007 at 9:20pm
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Basantjee & the groups: Would like to have your view and a discussion started on the following point of overvaluation. As the companies we invest in get recognized it appreciates in prices such that it becomes relatively expensive –either via PE-rerating or simply because of getting positively identified as high potential e.g TV18, nucleus, educomp etc. As long term holders it’s akin to instant gratification followed by months of potential underperformance. Where the stock is priced for perfection and a small hiccup can create huge volatility or capital loss. We may have bought at reasonable prices so we are happy to hold but most likely we are more fearful (rightfully) of buying at expensive multiples. The end result is that we end up with a concentrated portfolio of good companies which are all expensive. We cannot sell because we are in it for the long term. We cannot buy as the stock is trading expensive. How does one reconcile this dynamic of portfolio overvaluation with long term goal of investing in multi-baggers? ------------- "Investing is simple, but not easy." - Warren Buffet |
Replies:
Posted By: deveshkayal
Date Posted: 07/May/2007 at 9:30pm
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How does one reconcile this dynamic of portfolio overvaluation with long term goal of investing in multi-baggers? ------------------------------------------------------------------ Anticipate and recognise change early....thats what Samir Arora says...------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: basant
Date Posted: 07/May/2007 at 9:33pm
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You have put this up as a wonderful area of discussion. I am really bothered by this and have learnt that it is always best to hold concentrated portfolios and that frequent portfolio rebalancing should not be done.
Also I suffer from a rather acute problem. All this while when NW18 was not performing I used to add and then break my head as to when will value be discovered but no sooner has it risen the gains have kind of taken away the excitement because it is no longer value and once it gets up a bit more from here it will be a pur high growth company - the cream getting taken off the milk. ------------- '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 |
Posted By: basant
Date Posted: 07/May/2007 at 9:38pm
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Devesh makes an important point. the idea is to look for the better stock. For example I have indicated in thsi forum that last year I switched out of Trent at Rs 890 and bought Tv18 at Rs 610 (predemerger). Now there was nothing wrong in Trent but just that Tv18 looked better.
------------- '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 |
Posted By: deepinsight
Date Posted: 07/May/2007 at 9:44pm
Exactly - while NW18 was cheap and held the potential it was great because we could invest our surplus cash. Then while we all excited by the 40% rise - its difficult to make a case of investing solid amounts at this rate - making our whole portfolio expensive - and with difficulty to do much. ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: deepinsight
Date Posted: 07/May/2007 at 9:46pm
We do not find high conviction stories every month or even quarter. So while the argument is correct it basically puts one in a bind. ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: basant
Date Posted: 07/May/2007 at 9:46pm
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But that is why we could keep looking at ideas two in an year is good enough and we do get two in a year. ------------- '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 |
Posted By: deepinsight
Date Posted: 07/May/2007 at 9:48pm
Then those two will also become expensive. - It does not take away the issue of over valuation in good companies - which one hopes is the sole constituenst of our portfolio.
Should one simply resign one self to holding expensive stocks? ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: deepinsight
Date Posted: 07/May/2007 at 9:54pm
And the other question is what -if anything- should one do with one's portfolio if it becomes overvalued? ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: deepinsight
Date Posted: 07/May/2007 at 9:56pm
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Always used to think what must be going on in the head of guy like Philip Fisher who held some stocks e.g. Motorola and Texas Instruments for decades with amazing results. ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: omshivaya
Date Posted: 07/May/2007 at 9:57pm
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If it's a growth stock, there would definitely be moments when the stock would look expensive. Then one should see just how much can the company scale up. The idea is to hold on, if the market is pretty large(in case of Pantaloon, TV18),since earnings should catch up. This is applicable to sector leaders only or the firms having leadership position in their niche area. But that is all one can do as there cannot be general rules as per me. Gut plays a vital part in any such decisions of mine.------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: deepinsight
Date Posted: 07/May/2007 at 10:05pm
Omji: Its the same with Nucleus - while you were insightful to buy early @ 15 times trailing you will be more hesitant now@ 30 times trailing- future appreciation is purely dependant on operational results and leaves little margin of safety for a new buyer.
If earnings have to catch up- we are borrowing returns (capital appreciation) from the future and the price appreciation has had no meaningful impact unless we are selling as we are going to hold for the long term operational performance anyway.
The bind is - we cannot sell - we cannot buy - we have to just hold. ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: basant
Date Posted: 07/May/2007 at 10:28pm
Sit tight and ignore the weightages and look for better ideas but I never chase ideas just keep looking for them Chasing invariably gets us to the wrong destination. ------------- '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 |
Posted By: omshivaya
Date Posted: 07/May/2007 at 10:28pm
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Yes I did buy Nucleus earlier, but now it should be expected to be a growth player. I would look at its price appreciation after every 6 months, to even start analyzing if earnings will catch up with the price.
Nucleus I would not be hesitant to buy at 900 levels, bcoz I expect an EPS of 52(conservative) out of it for FY08 and would give a decent 25 PE trailing to it, so price target for me would be 1300, a decent 44% grower in a year. But If I have a better story like TV18 and Pantaloon, I wouldn't go for even that.
Let me illustrate a bit(it is my investing style, and may not be suitable for everyone. To each his own):
I for example have a yearly target, where my portfolio should be after 1 year. If some stock reaches the price I expect out of them before the timeframe of 1 year, I dilute some off it, and put it into something which is underperforming...for the moment. Like if Network18 reaches 800 bucks(which is my FY08 supposed target) anytime soon, I would dilute some off it and put that extra amount into Pantaloon(if it is still trading around these levels by then). It all comes down to the target I have set my portfolio to be in 1 year's time. But overall, in next 3 year's time frame I would not look beyond the current concentrated portfolio I have. After 3 years....maybe!!!(If something better comes up). ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: basant
Date Posted: 07/May/2007 at 10:32pm
In case we have some part of the portfolio that is underperforming this is the smartest thing to do. ------------- '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 |
Posted By: omshivaya
Date Posted: 07/May/2007 at 10:35pm
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In case we have some part of the portfolio that is underperforming this is the smartest thing to do. _____________________________________________________ That is also one of the benefits of having a concentrated portfolio in that, we can keep track of almost everything in a focused manner. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: India_Bull
Date Posted: 07/May/2007 at 11:11pm
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I do regular check up of my portfolio and sell if the particular stock doesnt perform as per my expectations. My wait period is 6 months which is quite sufficient. Once I find a gr8 stock (multimultibagger) , I dont book partial profits etc and let the profits run. I like to buy stocks who have tendency to go up. I dont invest in companies expecting turnarounds . I bought NW18 when it was hovering around 340 -350 (Thanks to Basantjee and TED) and since now it has gone up doesnt mean I will sell it off , I will wait for some time to cool it off and buy again, I prefer not to buy on dips but when the right time comes. I like to buy expensive stocks and hold them. I want to keep the winners and sell loosers.
I like to have defensive (Infy ) and aggresive (Indiabulls ) stks in my portfolio,
P.S :Stks like Praj, Indiabulls have always been very expensive but they have been super duper multibaggers for me (Indiabulls at 50-60 before demerger)
Just my small bites  ------------- India_Bull forever Bull ! www.kapilcomedynights.com |
Posted By: vivekkumar_in
Date Posted: 07/May/2007 at 11:15pm
Very well thought out plan and your reasoning is very logical Om ji ! ------------- Often we forget there's a company behind every stock,and there's only one reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies. P Lynch |
Posted By: omshivaya
Date Posted: 07/May/2007 at 11:52pm
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Only time will tell Vivek ji. Let's see. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: vivekkumar_in
Date Posted: 07/May/2007 at 12:20pm
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What you are practicing is a form of 'Active Asset Allocation'.. which not only involves stocks but other forms of investments too. This if done with temperament gives superior returns against a Passive portfolio of good stocks.. Only issue is timing & the transaction fees, taxes etc.. Some of the practitioners also tend to do 'Hyper-active Asset Allocation' ...  , which I don't think is a problem in your case...------------- Often we forget there's a company behind every stock,and there's only one reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies. P Lynch |
Posted By: omshivaya
Date Posted: 07/May/2007 at 1:06am
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1) I have a portoflio which will remain the same for next 3 years, more or less. 2) If there is any re-allocation done by me, it will be between my portfolio stocks only.
3) No other asset allocation in my radar, from far far away.
Hope I clarified some things. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: vivekkumar_in
Date Posted: 07/May/2007 at 2:46am
No hassles Omji ! You have a straight forward simple approach that does make lot of sense. ------------- Often we forget there's a company behind every stock,and there's only one reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies. P Lynch |
Posted By: xbox
Date Posted: 07/May/2007 at 5:41am
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I follow dead man approach. No change for a foreseeable future. This is what I can best do.
Portfolio is not made every day/week/month/year. If once done prudentially, done for life. Ask Basant jee, once Pantaloon, tv18 were picked, he is free for lifetime. He is living example to us.
Now, some pick such scripts by chance and some by choice. This is a debatable issue as human mind is very adventurous.
Stock market is much simpler than most of us think & everybody has to find it's own way (DNA is unique). Same thinking may not work for 2 people.
Choice selection will decide failure or success of portfolio. So I repeat ...
1. Sector 2. Management (in order).
We just need 2 parameters to find a suitable stock. Simple. Right ? Basant jee identified both correctly. there are many sectors but he picked retail & media. In those sectors there are many companies but he picked legends, job well executed for life. Basant jee, koi copyright ka issue to nahi hai ? ------------- Don't bet on pig after all bull & bear in circle. |
Posted By: investor
Date Posted: 07/May/2007 at 9:14am
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Somehow i feel setting targets like this reduce your chances of really making huge multibaggers. If i had sold Mcdowell at 300 Rs. having bought at 80, i wouldve lost out on a huge upsurge which was still to come in later. My target for Mcdowell was 230-250!! But then the second part of your investing style i follow - i move money from my non-performers into the potential multibaggers. So even though i initially had around 10 stocks in my portfolio at that time, when i realized Mcdowell and UBholdings were in the midst of a major re-rating, i kept selling off the rest and bought more of these 2. That i how i created my concentrated portfolio.
------------- The market is a place where people with money meet people with experience. The people with experience get the money while people with money get experience! |
Posted By: omshivaya
Date Posted: 07/May/2007 at 10:42am
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Very important points, both Vipul jee and Investor jee. Thanks ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: deepinsight
Date Posted: 12/May/2007 at 7:50am
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Orginally Basant: " So for 4 stocks the ideal (weightage) is 25% for 3 it is closer to 33%. That is my concept of getting diversification in concentartion."
Basanjee: Would you periodically (and how frequently) rebalance based on how expensive the stock has become?
------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: deepinsight
Date Posted: 12/May/2007 at 7:52am
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the key learning so far:
If stocks become expensive and the plan is long term then hold.
If new monies become available- buy the value part (cheaper) of your concentrated holdings. ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: basant
Date Posted: 12/May/2007 at 9:45am
I try not to balance it because of arithmetical reasons but only for fundamental ones. For example if Pantaloon and Tv18 have equal PE's and the former is running on higher growth then it would make sense to shift a bit out of Tv18 into Pantaloon. But even if Tv18 is cheap and it reaches 40% of my portfolio I would not like to switch between the two!!!
It is better to balance the portfolio on fundamental reasons rather then follow a mechanical process for the same. ------------- '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 |
Posted By: tyler_durden
Date Posted: 25/Jun/2007 at 8:01pm
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opportunities ke upar sare quotes yaad a rahe hain:
Opportunity is often difficult to recognize; we usually expect it to beckon us with beepers and billboards. ~William Arthur Ward Opportunity is a bird that never perches. ~Claude McDonald Opportunity is as scarce as oxygen; men fairly breathe it and do not know it. ~Doc Sane Opportunities do not come with their values stamped upon them. ~Maltbie Babcock Nothing is so often irretrievably missed as a daily opportunity. ~Marie von Ebner-Eschenbach I was seldom able to see an opportunity until it had ceased to be one. ~Mark Twain Seize the opportunity by the beard, for it is bald behind. ~Bulgarian Proverb If opportunity doesn't knock, build a door. ~Milton Berle Opportunities are never lost; someone will take the one you miss. ~Author Unknown I held a moment in my hand, brilliant as a star, fragile as a flower, a tiny sliver of one hour. I dripped it carelessly, Ah! I didn't know, I held opportunity. ~Hazel Lee The follies which a man regrets most in his life are those which he didn't commit when he had the opportunity. ~Helen Rowland When written in Chinese the word "crisis" is composed of two characters - one represents danger and the other represents opportunity. ~John F. Kennedy, address, 12 April 1959 Opportunities fly by while we sit regretting the chances we have lost, and the happiness that comes to us we heed not, because of the happiness that is gone. ~Jerome K. Jerome, The Idle Thoughts of an Idle Fellow, 1889 ------------- If you aren't fired with enthusiasm, you will be fired with enthusiasm. |
Posted By: tyler_durden
Date Posted: 25/Jun/2007 at 8:14pm
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yea .. never thought that way... People regret that they missed infosys, indiabuls, unitech etc ..while tv18, educomp, pantaloons were right under their eyes... its up only 8% or so...
i missed educomp at 500 because it was locked for 2-3 sessions while i was plannin to add it.. waiting for it to drop 10-15% i lost it forever , same with a lot of stocks... A good stock will remain to be a good stock even if it hits circuit(lower or upper) on a given day... now i can either find another stock to replcae yes bank(build a door) or add it despite of the fact that my buying price is 8% up..atleast i wont regret 1 year down the line when yes bank would be at 300 or so that i missed it at 170  ------------- If you aren't fired with enthusiasm, you will be fired with enthusiasm. |
Posted By: India_Bull
Date Posted: 25/Jun/2007 at 8:25pm
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Well Tyler, I believe there are always opportunities in the market (e.g I added some Dish TV when it was at 130 and I wished I could buy at 100, and look it is around 100 now !!)
As someone has said, there is no price too high to buy and no price too low to sell a stock !!!
------------- India_Bull forever Bull ! www.kapilcomedynights.com |
Posted By: tyler_durden
Date Posted: 25/Jun/2007 at 8:33pm
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“Opportunities always look bigger going than coming”
who knows dish tv might be 160 in coming few weeks and yes bank at 140 ?? ------------- If you aren't fired with enthusiasm, you will be fired with enthusiasm. |
Posted By: tyler_durden
Date Posted: 25/Jun/2007 at 8:48pm
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kulman ji's signature can summarise it well
"Life can only be understood backwards—but it must be lived forwards " ------------- If you aren't fired with enthusiasm, you will be fired with enthusiasm. |
Posted By: India_Bull
Date Posted: 25/Jun/2007 at 8:51pm
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Kulmanjee is Gr8 !!
But someone from the Big boys club also have taken the rights to say this in their chatmasala show... ------------- India_Bull forever Bull ! www.kapilcomedynights.com |
Posted By: kulman
Date Posted: 25/Jun/2007 at 9:28pm
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Don't call me great, please...that was a borrowed quote anyway. Here's one quote I read in my daughter's notebook:
Yesterday is a cancelled cheque, tomorrow is a promisory note; today is the only cash you have---so spend it wisely---Kay Lyons
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Monkey
Date Posted: 31/Oct/2010 at 10:30pm
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This is interesting thread, lying idle for years.
As far as expensive stocks are concerned, I am comfortable to hold on to it and ride the growth story for long term. However, current price for the stock reflects high growth expectation for such highly valued stocks. Now, if the stock is not performing to such expectation, it will be quickly derated. If the premise of growth is wrong, this will result in permanent loss of capital which is not good for concentrated portfolio.
My query to Basantji and others is that - when stock price is coming down, how do you determine the reasons for the same - whether the growth story is not panning out as expected or whether it is normal corrections. (waiting for few quarters for validation will not work as damage would have been done by that time if story is not panning out as expected).
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Posted By: Circuit
Date Posted: 31/Oct/2010 at 10:53pm
Sure.... after that last post 25/Jun/2007 by Kulmanjee, Every stock appeared too expensive for next couple of years
------------- Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them....Ed Seykota |
Posted By: basant
Date Posted: 31/Oct/2010 at 6:14am
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A good solid growing business run by able honest management and generating high returns on capital having leadership in its sector is all you have to identify. If you think that the company that you own belongs to this category then it is sure to bounce back. Sounds cliched but that is how I look at any company.
------------- '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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