You have heard of a game called “Who wants to be a Millionaire?” But that’s a television series. It increases your common knowledge. And helps kill time watching other people become rich. Instead, sometimes it makes much more sense to play another game – “who wants to HAVE a loser?”
Huh?!?
In the realm of investing, one has to keep looking for opportunities.
And frankly its much more difficult to do that in a rising stock market when everyone and their uncle talk of investing in the “hot stocks”. The bigger opportunities tend to come when the rest of the investing world is trying to hide away in shelters, waiting for the market to explode around them.
The Sensex (the best known Indian market index) has corrected by around 11% from its 12 month highest levels. But that’s nothing compared to the small and mid cap indices, which have corrected by 21% and 18% respectively.
And recently there have been days when there was sheer panic on the street. On a particular day, my broker called me up long distance and commented that one could virtually give any quote for a stock and still get it. Quite a few stocks were going down by 20% a day. Clearly Mr Market was being ruled by Fear those few days.
I have no idea whether this was happening because the FIIs were dumping or there was a genuine concern that the Indian economy was overheating due to inflation etc. But not for me to look at the gift horse (or bulls or bear) in the mouth.
In such a situation, I normally do 1 of 2 things. Either I buy more of an existing stock, of which I already know enough about. In this category are Shivam auto, Manugraph, Visaka Industries, Nirlon (more on this later), Binani Cement and Piramal Healthcare. Doing this helps in either averaging the cost down or getting more of a stock that one had missed earlier. These are safe since these are already researched.
Or else, Every now and then I would look at the list of the biggest losers in the market at one of the internet sites.
The last time this panic happened, some losing stocks were familiar names. And they truly deserved to be on the losing side. In fact I was impressed with the fact that the recent correction has generally been to the deserving (read: worst) companies – the over-leveraged and over-hyped kinds.
But then there were a few cases, where I could see that these were the proverbial cases of throwing the baby with the bath water. The good guys were going down with the bad guys.
In the latter category, I did pick up a few, namely RPG Lifesciences, Century Enka , Suashish Diamonds and SJVN.
I won’t go into the details of all of these stocks as I want this blog to be a short one (limited time). My simple filter for all of these companies was high cashflows, reducing, low debt levels and close to or at the lowest price in the past 52 weeks. And I took fast decisions and spread the amounts to a few stocks. (Buffett would never approve of that - but then he doesn't have a day job!)
Besides the above 2 categories, I look for and sometimes do come across companies that have a hidden value in some form or another. Typically, such companies would have announced an important, value changing event a few months back but public memory being short (and especially with panic setting in), it is very usual for such companies to be offered at a fraction of their intrinsic values. In such cases, it makes sense to buy and hold.
An example of this is Niron which has a lot of land that it is developing in Mumbai and around. I have had a good story with this company, though it has never reached its value (and that’s fine, as long as we are buying it at deep value to the intrinsic value of its assets).
Another similar (and dissimilar) example, is Mafatlal Industries. In July/ August 2010, it was widely announced that the company, an earlier BIFR case, had decided to sell 7 acres of prime land worth around Rs 1000 cr in Mumbai. I have tracked this company since then and unlike Nirlon, this company has started to do well in its core business of textiles. If there is one thing that is holding them back, it is the high interest cost. So the land sale, when it comes, will be a massive plus because the market loves consistent good performance besides hidden value. And it will help to lighten the debt burden.
Against the expected sale of land of Rs 1000 cr (which I checked thru someone has been done and will be announced shortly), the EV of the company (including the Rs 100 cr of debt) is Rs 350 cr. The company’s reputation is clean (audit done by Deloitte, Haskins) so I am not worried about misuse of the eventual funds.
When the intention to do the land deal was earlier announced, the stock shot up (pl. see chart below) and the company’s EV went from Rs 200 cr to 430 cr within 6 months. And then, with all the recent chaos, it fell back to 330 cr. Good opportunity to buy a company worth 3 time that much! Long live short memories!
So heck, don’t balk at playing the loser game. After all, it helps you become a millionaire!!
