Warning: Following the Demigods of Dalal Street Can Be Dangerous to Your Wealth - The 5 Minute WrapUp by Equitymaster
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Warning: Following the Demigods of Dalal Street Can Be Dangerous to Your Wealth

May 18, 2018

Kunal Thanvi, Research analyst

Do you follow market gurus?

Dolly Khanna? Rakesh Jhunjhunwala? Monish Pabrai?

It's perfectly normal. People expect market gurus to have done their research.

So the stocks they buy come 'pre-verified'...right?

If it were only that simple...

As many of you know, I follow 40+ super investors of India. That's because I'm a firm believer of sidecar investing.

These super investors have guided my premium subscribers to some great stocks.

But I don't follow them blindly.

I reject most of the stocks these gurus invest in!

Why?

The reason is simple. Most of the stocks do not pass our Smart Money Score.

I have warned my subscribers of falling prey to unfounded sidecar investing.

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Richa agrees with me. This is what she wrote to her readers yesterday...

  • Dolly Khanna, Monish Pabrai, Rakesh Jhunjhunwala...

    If you have any interest in stock markets, I'm sure you have heard of these names. They are the demigods of Dalal Street. The financial dailies love to track them and the stocks they invest in.

    Most big investors and mutual funds love to talk about their favourite stocks (often after investing in them).

    Common investors hang on to every word of theirs and try to mimic their portfolios, in the hope of mimicking their returns. Most often, without digging deeper into the reasons as authority bias and fear of missing out takes hold.

    This creates a virtuous cycle for the stock price (buying interest in the stock rises sending the stock price higher) in the short run. For a while, everyone feels validated.


    And then something like Rain Industries happens.

    This favourite stock of the likes of Dolly Khanna and Monish Pabrai recently saw a blood bath. Post the results declaration, the stock price tanked. Reason- another big investor, BNP Paribas Arbitrage Mutual Fund, dumped almost 19 lakh shares.

    Devoted fans are wondering what to do next. It doesn't help some of their favourite investors are choosing to maintain stony silence. It may be too late by the time they hear from them.

    It's not just one-off example highlighting the perils of copycat investing. If you are blindly following your favourite investors, you are unlikely to make gains.

    Reason - you will always get information (and act on it) with a lag. The stock price would most likely be up by the time you hear about it and rush to buy it. And huge gains would have been pocketed by the time you would know your favourite investor has exited.

    You are quite likely to end up with the short end of the stick. At times, even losses.

Richa is right.

Sidecar investing can be a rough ride if super investors exit without telling anyone.

So what's the solution?

Don't Follow Super Investors Blindly


If you rewind the clock back to June 2017, this was precisely the reason Smart Money Secrets was born.

And I have good news for you.

First, Sarvajeet and I don't follow any of the super investors mentioned above except Monish Pabrai.

Second, we never recommended Rain Industries.

It did not pass our Smart Money Score and valuation criteria.

The same thing happened with the dairy company Sarvajeet wrote to you about yesterday. It failed our Smart Money Score (on both qualitative and quantitative factors).

I have always warned you not to follow super investors blindly.

Trust me this can be dangerous to your wealth.

But I am glad that subscribers to Smart Money Secrets understand this.

Now, coming to this month's recommendation...

We're working hard to publish the Smart Money Secrets recommendation report before the scheduled date of 28 May. It's a stock with strong fundamentals.

The recent re-classification of mutual funds has led to correction in this stock and has made it attractive.

I am super excited about this. We've done a lot work to understand the huge growth potential of this company. The report will be ready soon.

Stay tuned...

Chart of the Day

I love talking about the super investors of India.

And one of the biggest super investors - Prashant Jain of HDFC Mutual Fund is betting big on the revival of the banking sector.

Specifically, he is betting big on public sector banks. He believes, this is the bottom of the cycle and we will soon see a solution to their balance sheet problems.

Well, we at smart money secrets were never really interested in public sector banks.

While we also believe the banking sector may see a turn around with the recent clean up, we don't believe the PSUs are the right vehicle to ride that turnaround.

Is the Banking Sector at Bottom of the Cycle?

After the recent Reserve Bank of India new guidelines, both public and private sector banks have seen a significant rise in non-performing assets. That has resulted in a sharp decline in net profits.

In fact, most of the public-sector banks have reported losses in the last quarter of FY18. The RBI has even barred Dena Bank from further lending.

The RBI is considering barring more lenders that have failed to maintain minimum capital as per RBI's guidelines.

We believe, this is definitely a sign of a further consolidation in the banking sector. If one can pick a bank with a differentiated lending strategy and a strong management, it could be a good investment going ahead.

Regards,
Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

PS: Your editor, research analyst Tanushree Banerjee, has made a big prediction: Sensex 100,000. If she's right, there will be many winning stocks. But these winners will come with a lot of unnecessary risks. Consider safe stocks instead. Tanushree recommends them in her premium service, StockSelect. This service has established a success rate of 74% over the last 15 years. Let her guide you safely, to the best stocks in the market. Get full access to StockSelect here...

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2 Responses to "Warning: Following the Demigods of Dalal Street Can Be Dangerous to Your Wealth"

udayaraj.t.

May 20, 2018

its fine. ok.

Like 

Ravindra

May 18, 2018

While following one need to adopt portfolio approach. The stock market Icons have been criticized by looking at only one stock. Two of the stocks you cover is discovered by RJ very long time ago.

Like 
  
Equitymaster requests your view! Post a comment on "Warning: Following the Demigods of Dalal Street Can Be Dangerous to Your Wealth". Click here!