1. a) taken off in a big way 1. b) or starting to take off
Have the second rung stocks..
2. a) caught up with the leaders 2. b) yet to catch up
Your alpha comes from there
The second rung stocks too have the potential to reach the same destination, albeit, with a lag. Use this lag for timing your investments. If the leader is in a strong uptrend, start SIP-ing into the other one. Catch the leader at any future drawdown.
The US armed forces faced a dilemma during WW2, because returning bomber planes were riddled with bullet holes and they needed better ways to protect them.
The army knew they needed armor to protect their planes but the question was, “Where should they put it?”
When they plotted out the damage these planes were incurring, it was spread out, but largely concentrated around the tail, body and wings. So the most natural impulse was to armor the parts with the most bullet holes.
Abraham Wald, a statistician, made an observation—the military would make a terrible mistake by upgrading the armor along these sections.
Because the military was only looking at the damage on returned planes. They hadn’t factored in damage on planes that didn’t return.
When a stock falls, it opens up deeper arbitrage opportunities during a 'falling knives' scenario. This discount attracts a rapid influx of fresh cash until the arbitrage opportunity gap is filled (i.e the market stabilizes) to the point of 0 alpha.
Earnings yields is mostly stable and smooth curve. It's the stock price that fluctuates due to sentiments, liquidity, news cycle, perception etc.
Let's say the long term earnings yield was growing at 9%. If you bought at
(A), your returns = 5%.
(B), your returns = 15%
If you track yield, you'll get better entry points and get better bang for buck. If you track only price, there's a risk of getting trapped at (A) where all technical indicators are bullish.
Stock prices respond disproportionately to free float availability (or lack thereof) than to theoretical Excel valuations. The growth rate x float decides the PE multiple, that's why every co. can't be 15PE. A co. with just 10% float will deviate that much from its DCF valuation.
If there's 2 similar co.'s, one listed (with 15% float available to investors) vs another co. unlisted. The market will arrive (rightly so) at wildly divergent valuations for both. The second co.'s valuation is based on 100% ownership, while the 1st one on a limited supply basis.
If both were listed with 100% float available to free-market forces, or if both were unlisted, then one can do a side by side DCF, otherwise sharing social media infographics comparing stats of Nestle vs Amul, vs ITC without considering locked up float shows lack of wit.
From a mere 54 cr in 2008 to 978 cr in 2021, that's a huge leap in profits. For context, the dividend they paid out this year (279 cr) is 6x times their 2008 profit.
#SupremeInd management has diligently worked to eliminate their debt from 2008 to being completely debt free now.
ICR has shot up from 3 to 50 over the last decade. This is a sign of hefty cash on the balance sheet. The fact that the management isn't paying it out as dividends shows their intention to reinvest it into their business.
Presently all Insurance stocks are fully valued (i.e 4% margin priced in but 6% margin not priced in)
Someone who enters now will ride the expansion from 4% margin to 6%. Those who had the foresight to enter at half the rate in 2020 March will get a 6x bagger when EPS goes up 3x
Additionally, Insurance companies reinvest the premium corpus accumulated with them which creates a secondary revenue stream with zero added expansion cost. Very high operating leverage business model and an under-penetrated sector (75% Indians don't have insurance cover).
If the uptrend has sustained for a greater time (12Mo) whereas the correction is relatively quick and deep (3Mo), as though it is in a hurry to complete a pattern, it is usually the accumulation zone for a fresh impulse wave.
Whereas, if the correction is taking its own time & allowing (i.e inviting) people to buy, it is usually a distribution prior to multi-year stagnation
Smart money knows deep, swift corrections scare retail investors into selling, while long consolidation attracts value investors
Moral : Smart money is smart for a reason
They don't do what laymen do i.e consensus buying in 'value stocks'. Possibility of returns is greatest at the point where your brain tells you "it's too risky to buy THIS at THIS PRICE".
Entering a good investment opportunity is hard enough, having an exit strategy is exponentially harder due to the risk of exiting too soon and losing the potential gains, or not exiting soon enough and facing an erosion of notional gains. Can you eat the cake and have it too? 👇
Once you are favorably positioned in an investment, say you enter at X & 2Yrs later it has grown 3X. Then, without killing the golden goose, just extract your X out of it. Now the engine is running on risk-free capital. This is a mind-hack to prevent you from getting cold feet.
Let the 2X ride the trend perpetually, don't worry about under/overperformance henceforth.
Invest the X you just extracted in a 'new economy' sector that is poised to do well for the coming decade.
"Internet Software & Services" sector an overview of listed peers. A thread 🧵
TataElxsi has the largest marketcap in the sector, followed by Tanla.
Sorted by sales figures, it's clear that the market is rewarding TataElxsi with some premium marketcap, because there are companies which make similar sales but don't enjoy the same valuation (and with good reason) :
Profit analysis makes the reason for the premium valuation evident.
Tata Elxsi is able to convert a large(r) part of their revenues into profits and hence higher FCF and dividends fall in the lap of minority share holders.