Old School of Investment Says – Price is a Slave of Profit!! Is it still valid?

July 13, 15

Old School of Investment Says – Price is a Slave of Profit!! Is it still valid?

Greetings from Hitesh! Old school of investment says – if sales is moving up / profit will move up and if profit moves up – share price will move up sooner or later. So, they based their investment logic on the growth rate of profitability. But if you look at the current time – particularly – E-commerce companies – with the every increase in SALES – their LOSS is moving up and their Valuations (read prices) also keep moving up!! What should you do?

Do You Remember 1992/ 1999 / 2007?

Every week or 15 days – SENSEX was scaling new highs. It was the happy time in market. You buy a share and you sell after 1 minute to 1 hour and make your money INTRA DAY!! It was the easiest way to make money INTRA DAY in those days.

The logic of buying those shares was simple – BIG FOOL will come and rescue you from your mistake. You became fool by buying a share at Rs.100, now you wait for another fool to come and buy the same share from you at Rs.110!! He in turn will wait for another BIG FOOL!! Some day BIG FOOLS will stop coming and you will have those shares in your portfolio for another 5-10 years!!

Let us see E-Commerce Companies With This Background in Mind:-

Private Equity Investors / Big Investors / Corporate Investors – invest in E-commence start up. To gain the market share – they start giving you 50% discount!! This discount is financed by the capital invested by the investors. As the capital gets wiped out in financing discounts – new and new investors are invited. With the Sales and market share going up – VALUATION keeps on moving up(share prices).

Old investors take away their profit and sell it to the new investors. (big fool). It looks ROSY everywhere and those investors who missed the bus of investing in earlier start ups – find out new start ups and invest in them as if there is no TOMORROW.

The Unique Similarities Between SMALL and BIG Investors:-

Investment Psychology is the same. There is no such thing as MORE MONEY means more SMARTNESS or more CORRECT INVESTMENT DECISIONS!! Greed and Fear works the same at every stage.  In fact, my experiences shows Person with more money has more greed to multiply his money and he is the easy target for SMART GUYS to take him for a RIDE.

How Do SMART INVESTORS PLAY in SUCH MARKET?

They know that market will catch some or other euphoria from time to time. They will stick to their basic theory of investment as mentioned above. If sales and profit are not growing, they will simply stay out of those companies.

Mr.Buffett performed badly during 1998-2000. He was criticized for not investing in IT companies. They started talking about him as he has lost his touch of picking winners.

In 2007, RAKESH was also criticized for not investing in Construction and real estate companies. Market was of the opinion that HE missed the BUS.

If you look at both of them NOW – you will see their companies are still in the business and they are making tons of money in capital gains and tax - free dividend. The companies, which were touching new highs, are no more seen in the MARKET!!

What is My Personal Call?

If you come across some business, which are offering good discount – take advantage of the same by becoming their customer. However, do not buy the things you do not need at all – just because you are getting 50% off and for God’s sake do not invest in them.

Current market is normal market and it has no Euphoria as such. I suggest you invest in Fundamentally Good Stocks before it catches some euphoria. If you want to know where to invest in Current Market – do contact us.

Have a Great Week Ahead.

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Live With Passion….Invest With Passion.

Hitesh Parikh