»5 Minute Wrap Up by Equitymaster

On This Day - 11 JUNE 2018
Do You Feel Like Selling All Your Stocks Now?

Girish Shetty, Research analyst

The stock market is in a bad mood right now. Every day, news comes in of some stock falling by 10-20%. The days of euphoria seem to be a distant memory.

The entire market isn't crashing though. Large caps have remained resilient. But mid and small caps have taken a beating. The BSE 500 Index, which tracks the broad market, is down by 6% from its 52-week high.

Investors, big and small, are left scratching their heads.

What to do? Buy more?

If yes, then which stocks to buy? Large caps where there is relative safety?

But then what about the mid and small caps in the portfolio? Sell them at a loss?

All unpleasant questions...

This is one of many phases investors go through. Allow me to explain...

Phase 1: You hear multi-bagger stories everywhere. Newspapers, T.V channels, friends and family... everyone says the same thing... stocks will go higher. The stock your neighbor bought has doubled or tripled. You give in and ignore people who say the market is overvalued. Maybe they're jealous or don't know how to pick stocks. You too enter the market.

Phase 2: Your stocks have gone up 20-30% in a few months. Wow. There isn't a better way to make money. You buy more. Like many others who're thinking the same thing, you believe, maybe you can quit your job soon and do this full-time.

Phase 3: You look at company X, Y, and Z which are up by more than 100% in a few months. You've read somewhere that something is not right about X, Y, Z and their managements. Who cares? Everyone is buying. You buy too. It's all about making money in the end right?

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Phase 4: Markets start to fall slightly. The index is down by 10%. Companies X, Y, Z are down by 20%.You average down. These companies won't go bankrupt right?

Phase 5: Markets keep falling. Your portfolio is down by 20-25%. Stocks X, Y and Z have fallen 50% or more. You hear of some corporate governance issues at those companies. You can't get out now because these stocks are hitting lower circuits. There is no one at the other end to buy.

Phase 6: Stock X, Y and Z have taken a heavy toll on your portfolio. You sell off all your good and bad stocks in frustration and anger and vow never to return to the market. It's a scam. I'm not looking at markets again. I love my job!

If you see yourself in any of these phases... rest assured that you are not alone. With the correction that is going on, do you feel like selling everything off and leaving the market for good? Don't panic, you're not the only one.

But it's important you don't give into the herd mentality. Consider these tips...

First of all, stop looking at your portfolio daily. That will take some stress off. Then, calmly evaluate and separate the good stocks from the bad. There is no point in keeping stocks with ethical issues even if they're 50% down from your buy price.

Then let the good stocks stay. Over the long-term, fundamentally good stocks will survive and reward you. All you need is patience. How much?

A few years, at least. The longer, the better. For example, in ValuePro, we look at stocks from a 10-year perspective. The first question we ask is... Will this company exist 10-years from now? That automatically removes short-sightedness on our part.

Companies that do not operate in highly competitive industries have greater bargaining and pricing power. Combine this with a decent margin of safety, and we have a winner on our hands.

We had not recommended any stock between Dec-17 to April-18. Why? Because we knew, markets were overvalued and it was better to wait than give in to popular opinion. We received a fair few brickbats for this. People kept asking us why we aren't buying when everyone else is. We knew the right time would come sooner rather than later.

Markets have promptly corrected since then and we were able to come out with two back to back recommendations in the past two months.

This correction has come as a reality check for a lot of investors. The important thing is how will you react to this situation?

Take the right decision and you will separate yourself from 99% of investors who struggle to make money in the market. The 1% who stay and survive end up winning big at the cost of the other 99% who quit.

Chart of the Day

A decade-long story which is yet to pick up is the Indian Travel and Tourism industry. Though in recent times, we have seen signs of revival in Hotel stocks.

Recent data on arrival of tourists have also been encouraging. Foreign tourist arrivals have seen an average growth of nearly 10% annually over the past 5 years.

Hospitality Industry Showing Encouraging Signs of Growth

Ease in the visa arrival process, vast cultural diversity of the country, and inexpensive currency has attracted foreign tourists in numbers. Occupancy levels across hotels have also been constantly rising. Visa on arrivals have grown from 0.04 million to 1 million over the past two years.

My colleague Kunal is certainly intrigued by this growth. So much so, that one company from this space is on his radar as a potential Smart Money Secrets recommendation.

Girish Shetty
Girish Shetty
Research Analyst, Stockselect

PS: For over 16 years, members of the exclusive Bombay Investing Society have received safe stock recommendations that generated double, even triple digit returns! This society is currently accepting new members. Click here to find out how you can join...

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