Ride Sidecar in this Stock with One of the Best Investors in the World

We are passing through a very volatile period in Indian equity markets.

With a lot of macro headwinds and the IL&FS fiasco, markets are having a negative bias right now. Even good news is being ignored.

This has made investors not only cautious but has also created a fear of losing their hard-earned money.

If your investment horizon is less than two years... you should be really worried. And you should probably get out of the market.

However, if you're prepared to invest from a 3 to 5-year perspective, this is a great time to put your money to work.

You have two options to invest in the markets at this point.

Option 1: Buy lousy businesses with questionable management at great prices!

There has are stocks that have corrected between 50% and 90% from their peaks. Some of these stocks are hitting life time lows.

These companies might look very attractive on valuations.

But most of them are lousy businesses, with crooked managements running the show. In fact, in some cases the management is selling their own stock.

Option 2: Buy Strong businesses with sound managements at reasonable prices!

Many other stocks have not seen that kind of correction, but even they have fallen 30-40% from their peaks.

These are very strong businesses, with decades of operating history.

They have strong managers running the show with skin in the game. And they are buying their own stock.

While, the correction may not be too deep in these businesses, this can be a very good time to buy them.

If you subscribe to Smart Money Secrets, you will know that we are strong followers of the second approach- finding high quality business run by strong management teams with skin in the game.

Sarvajeet and I believe it is better to be slightly wrong about the price rather than being completely wrong about the business.

We are not comfortable recommending a lousy business even if it's available cheap.

With this approach, Sarvajeet and I have been working on a report about a 137-year-old company which has a fantastic management running it.

It is consumer facing business with a global brand. It is one of the market leaders in the space it operates with sizable market share.

And the cherry on the cake is that it is owned by one of the best super investors we track.

With an outstanding track record, this super investor believes this company is one of the best investments he has made.

Well, when we analyzed this company, we felt the same way.

With the recent correction, the stock is available at an attractive valuation. We recommended subscribers buy the stock on Monday, 22 October.

The stock is still in its 'Buy' zone. The upside from these levels, as per my calculations, is more than 63%.

We believe, we have just got into a side car with one of the world's best super investors.

You can too.

Chart of the Day

Talking about lousy and quality businesses, these days I see funny and scary charts on share prices.

I mean there are stocks which have fallen more than 70%.

Imagine how those charts look like. A steep free fall with lower circuits throughout the downwards journey.

Imagine you hold any such stock. You know you made a mistake buying a bad business and now you see your stock price go down and down, making new lows, frequently hitting lower circuits.

For the first few days you might try to buy more and average down. But once it is down 50% you feel the real heat and try to sell but you are not able to.

You feel trapped.

This is like a person who is on a mountain, rides a car down the slope, loses control and falls from the height. He is trapped in the car with no options.

This is not hypothetical.

2018 has been that kind of year for many investors, and it continues to be. First, the auditor resignations, management doing funny stuff with their books, now the NBFC saga, the IL&FS fiasco...

These events have made many stocks look like falling cars from mountains. The chart below is of one of such company: Infibeam Avenues limited. For the story about how we avoided recommending Infibeam, read this.

Avoid Buying Lousy Businesses and Avoid Falls Like These

This is the reason the Smart Money Secrets team focuses so much on quality.

We believe it is fine to be slightly wrong about the valuations, rather being completely wrong about the businesses.

This month's recommendation is a quality business available at great price.

Regards,


Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

PS: As an intelligent investor, you should welcome market drops, says Richa Agarwal, Equitymaster's small cap investing guru. We believe her. The markets are down now. You should be ready to invest in small caps. Click here to join Richa's small cap stock recommendation service, Hidden Treasure.