Did anyone predict that these stocks would be 'Multi-losers'? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

Did anyone predict that these stocks would be 'Multi-losers'? 

A  A  A
In this issue:
» The brewing crisis in real estate stocks
» Indebted private sector holding back India's infra?
» Can telecom stocks offer better than FD returns?
» ...and more!


00:00
Sensex at 40,000 by 2020. At 4,20,000 by 2030. These are the kind of predictions that experts like to make and investors like to read. It is the gold rush for multi baggers that everyone's energy is focused on during good times. And why not? After all, information on company financials is relatively easy to access, most managements are now more willing to speak and investment tools are at one's finger tips. So the risk of losing money is of lesser importance than following the predictions on big gainers.

Unfortunately while the predictions on Sensex can and will come true over time, not every investor will make money. The index moving from 30,000 to 40,000 to 4,20,000 is not entirely subject to the fundamentals of its constituents moving in either direction. For that matter not just the Sensex but even the BSE Midcap and Smallcap indices will move higher over time. But only a fraction of their current constituents will sustain or move into the orbit of higher market capitalization.

Take the cases of stocks like DLF, Financial Technologies, Aban Offshore, MMTC, Lanco Infratech and Indiabulls Real Estate. These were not just the predicted multibaggers during the heydays of realty and infra boom. But the companies were the stars of the stock market rally until 2008. Hence should the fact that they have lost 90% of their market capitalization come as a surprise to you? Or that nobody predicted that these stocks would be multi losers should completely shake your confidence in stock investing?

Well, the saga of Satyam like stocks hardly ended in 2008. Ranbaxy, DLF, Suzlon Energy and scores of such companies that were the blue eyed boys of stock markets have destroyed billions in investor wealth over past 7 years. As per Mint, while there are 219 penny stocks today that have shed most of their market cap in the last few years, 469 stocks have doubled during the same period. Thus the balance is still skewed in favour of investors who do some diligent stock picking rather than speculating.

Rest assured tons of data and complex calculations alone cannot tell you which stocks are the safest bets. In fact it is rather difficult to predict the multi losers over the longer term than the multi baggers. And its requires a lot of reading on the part of investors to know which companies are more likely to destroy wealth rather than creating it. As Charlie Munger said "The wise investor should read extensively, analyze like a fox (as opposed to a hedgehog), and act decisively and in scale when the right opportunity presents itself." Thus knowing what stocks to not invest in is as valuable as knowing which ones to expect big returns from.

Ironically, the investment industry flourishes with complexity. The more layered or immediately gratifying the advice, the more valuable it is perceived to be. However, as an investor looking to not just create wealth in your portfolio but also protect it, you should not just seek out multibagger predictions but also multi-loser ones. Watch out this space for more....

Have you come across predictions of stocks losing a lot of value over time which proved correct? Let us know your comments or share your views in the Equitymaster Club.

--- Advertisement ---
Increase Your Overall Returns. Here's How...

Returns like 288% in 2 years and 5 months, 124% in just 7 months, 250% in 2 years, 123% in just 3 months and more... all from the small cap segment... are too good to be missed.

However, the problem most investors face is that they don't have access to reliable research on the small cap segment. But you won't have that problem.

Why?

Because we at Equitymaster have been recommending high-potential small caps for more than 7 years. And as you can see from the returns above, we have done a good job at identifying them from hundreds of stocks in this segment.

So click here to see how the small cap segment could work wonders for your portfolio also......

------------------------------

02:00
Talking about wealth destroying stocks, ones belonging to real estate sector feature on the top of our minds. We had spoken about heavily indebted companies like Unitech and Jaiprakash Associates in a recent edition of The 5 Minute Premium. The stocks had corrected by over 30% within weeks when investors became wary of their poor cash flow condition. And it now turns out that these companies are not even in a position to meet its operational expenses. Rest assured there are more such leveraged companies in the realty space and other sectors that are bound to destroy value by virtue of their debt obligations.

02:30  Chart of the day
High debt levels are the cause of many a company's demise. But what happens when they are crucial for growth of an economy? This is the situation that India finds itself in. Large Indian infra firms are not able to quickly pay down their debt. Thus, they are in no position to make the huge investments needed to boost growth. The government too is unable to come to the rescue in a big way. This is because it has committed to bridging its fiscal deficit. If the private sector doesn't start the process of fixed asset creation, India's economy will languish. We have good reasons to remain skeptical.

India lags behind badly in infra investments
*PPP = Purchasing Power Parity; Source: Haver Analytics, IMF.

The chart shows just how far we have to go. If the Modi government is serious about bringing about a huge boom in infrastructure, it will have to find a solution to the debt woes of India's private sector. To achieve high levels of growth, fixed asset creation is a must. The scale of investments needed is a multiple of today's levels. Only a financially healthy private sector, along with strong support from the government, can achieve this we believe.

03:40
The telecom sector has not been an investor favorite for a while. High debt, intense competition, lack of pricing power, high spectrum costs and regulatory issues have all hampered the development of this sector. Then, there was the fallout of the 2G scam to deal with, as a large number of licences were cancelled and re-auctioned. Despite robust subscriber growth, the sector as a whole has been unable to earn a return higher than its cost of capital in recent times. Thus, it is surprising that FY15 has seen the highest ever FDI coming into the telecom sector. The first ten months (till 31 Jan 2015) has seen nearly US$ 17 bn flowing in! With 100% FDI allowed, service providers as well as tower firms are positioning themselves for the boom in data consumption. However, it is unlikely that investors will benefit from this frenzy. Even the leading telcos barely earn a return on invested capital (RoIC) higher that the prevailing fixed deposit rates. In the long run, investors will not be able to earn high returns in this sector we believe.

04:00
The Indian stock markets started the day on a muted note but remained in the green throughout the trading session. At the time of writing, the BSE-Sensex was trading higher by 90 points (+0.3%). The sectoral indices that led the gains mining and pharma.

04:50  Today's investing mantra
"Over time, you get the reputation you deserve... I believe the same is true for companies." - Warren Buffett
Today's Premium Edition
Should you buy Small, Mid or Large Caps?
Amongst smallcaps, midcaps and largecaps, which is the category that makes the most money?
Read On...Get Access
Recent Articles:
How Unique Are the Companies You Invest In?
August 21, 2017
One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
You've Heard of Timeless Books... Ever Heard of Timeless Stocks?
August 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Why NOW Is the WORST Time for Index Investing
August 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst).

Equitymaster requests your view! Post a comment on "Did anyone predict that these stocks would be 'Multi-losers'?". Click here!

3 Responses to "Did anyone predict that these stocks would be 'Multi-losers'?"

Jagannath

Nov 6, 2015

Sir, help Stocks investment me Please
Thanks.

Like 

Jagannath

Nov 6, 2015

Sir, help Stocks investment me Please
Thanks.

Like 

vijay s

Jun 23, 2015

this space is one of the most read worthy of my daily dose of reading. Thanks Ms.Tanushree.

Like 
  
Equitymaster requests your view! Post a comment on "Did anyone predict that these stocks would be 'Multi-losers'?". Click here!

MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407