Avoid Buying Lousy Businesses and Avoid Falls Like These - Chart Of The Day 26 October 2018 - Equitymaster

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Avoid Buying Lousy Businesses and Avoid Falls Like These
Oct 26, 2018

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.

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.

Data Source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - Ride Sidecar in this Stock with One of the Best Investors in the World

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