Happy Diwali. It’s like asking how many minutes do you wait before taking a heart attack victim to hospital? While buying a growth stock needs skill selling it requires both skill and experience plus the emotional detachment to sell something that’s down 10% to 20% from the top.
Strangely, the public jumps in when valuations start to becomes cheap and that’s the time the professionals log out ! Ask yourself, how many bought Infosys, Wipro, HUL, L&T, Unitech, BHEL, Bharti, Pantaloon, Page, Gruh, Sun Pharma, Eicher when they were expensive?
Also ask how many bought under the garb of ‘value investing’ when they got cheaper. And what was the returns to the one who bought expensive to those who bought cheap? Generally, the guys who bought expensive made more than the ones who spent their life looking to buy cheap.
And for the text book critics who talk of picking up the peaks of ACC in April 1992; Infosys on March 2000; L&T in 2008 or Sun Pharma in 2015 the message is clear. It takes great skill to pick out the top to push your entire allocation in on a single trade.
If you study historical price movements stocks move wildly almost doubling in 6 to 9 months before they peak. So to assume that you’d suddenly wale up to buy Infosys on March 10,2000 is being stubbornly stupid - just to prove a point. Read the relevant portion from my book.
If stocks get cheaper even while growth continues it rebounds hard; if a stock gets cheaper because growth has fallen all it gets is a dead cat bounce. Growth is the horse that moves the cart of valuations 99% of the investors focus on valuations.
But the trick is to know the catalyst that moves the cart of valuations. Focus on the horse and not the cart. Easier said than done because very few do so and that’s the reason this strategy creates outsized returns.
Some things in life are only good as expensive because there’s a reason why they are expensive. The Infosys, L&T and Sun Pharma stories would never have stopped had growth not stopped. One has to watch for growth all the time as it’s that music that sets the tone of the party.
