How to Find Bargain Investment Ideas in Current Market?
09
September 2018
How
to Find Bargain Investment Ideas in Current Market?
Greetings
from Hitesh! Market is at all time high and it is becoming difficult to find
bargains which can make good money at low risk. Today we are sharing a
technique of finding bargain in all market situations and in all assets
classes.
There
are four steps to find bargains in the first place.
1. List of potential investments.
2. Estimates of their intrinsic value.
3. How it compares with the prices?
4. Understanding of the RISK involved in
each and the effect of their inclusion on overall portfolio.
Unless
you are ready with the above 4, your desire to find bargain will remain just a
hope.
Characteristics
of the potential BARGAIN investments
1. Potential bargains will display some
objective defects. Say you are buying a flat and it does not have OC. An asset
class, a company or an industry may be a laggard, may have over-leveraged
balance-sheets or may have some structural issues – look at JP GROUP / Power
sector in India.
2. Bargains are usually based on
irrationality or incomplete understanding by so called intellectual and
analytical investors. So, when these kinds of investors fail to analyse an
assets fair price or fail to look beyond balance-sheet, or fail to overcome
some bias, bargain is created in those assets.
3. Media / Market / Meetings are always
busy talking about Market Darlings. Those who are not popular will not have any
mention in the above. Just find out which companies are not being talked about?
4. When prices of some companies are
falling like nine pins – usually investors think – why should we buy falling
price companies? The unusual investors will go for the reasons of the same and
they may end up buying a bargain. Remember RAKESH bought a huge qty of SPICE
JET shares around Rs.15-20 some years back.
5. Bargain assets are highly unpopular.
Capital stay away from them or they sell it and go away. So, look out what
people are selling as if there is no tomorrow.
Fairly
priced assets should never be bought as they will end up giving average return
only. Goal should be to find out under priced assets. We can find them by
following methods.
1. Little known and not fully understood
companies – Porinju is following this technique.
2. Fundamentally questionable on the
surface. Say aviation sector in India.
3. Controversial or Scary – recently
there were rumours for PC Jewllers and Vakrangee.
4. Deemed inappropriate for some
portfolios.
5. Unappreciated, unpopular and unloved
sectors or companies – since last 2 years Indian Pharma sector was falling in
this category.
6. Trailing a record of poor return
quarter after quarter.
7. Recently major investors are talking
about selling – say FIIs wants to move out of India due to SEBI regulations.
In
short, the perception must be very much negative about some assets class,
industry or company to qualify for BARGAIN hunting.
Above
steps will give you enough ideas for potential bargain investments.
Once
you have enough ideas – the next three steps given in the beginning will be
easy to do.
What
is my personal call on BARGAIN Hunting?
Bargain
hunting is not a SKILL. Its an attitude. It must be applied with very long-term
view of profit and maintaining healthy and mutually beneficial relationships.
Those who are doing it for short term – are taken for a ride by suckers in
every corner.
Being
born in India or being born in Gujarati / Marwadi / Punjabi, Sindhi or Bori
family gives you an upper hand in bargain hunting. The issue is they apply it
to petty shopping rather than in business or investments.
Go
for bigger bargain and you will be successful.
What
NEXT?
Graham
and Dodd talked about value investing and bargain hunting is one of the easiest
places to find value. It’s also CONTRA approach as we talked yesterday.
Everything is linked. The best way is to start with VALUE.
I
wish you a SUPER SUNDAY.
Live With Passion…Invest With Passion.
Hitesh Parikh.
Comments
Post a Comment