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Should We Wait Before Making Our Next Recommendation...? - Views on News from Equitymaster

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  • Jul 2, 2018 - Should We Wait Before Making Our Next Recommendation...?

Should We Wait Before Making Our Next Recommendation...?
Jul 2, 2018

Warren Buffett once said: We don't get paid for activity, only for being right.

In the last 12 months, we have come up with just two Phase One recommendations.

To be honest, I was a little disappointed about not being able to offer you enough actionable stocks. But never did I feel compelled to make one. And a lot of credit for this goes to you for showing faith in me and being patient throughout.

With the benefit of hindsight, we can safely say that the disciplined approach has paid off. Small cap stocks are witnessing sharp fall. The fall is steeper for stocks in the less liquid Phase One universe. And we have escaped this fall to a large extent.

Recently, I received a letter from a subscriber. He suggested that small and midcaps have taken a beating while Sensex is still high. Since even Sensex is overvalued, a correction is likely. This could mean further downside for stocks in the small cap and Phase One space.

And he asked if it made sense to not recommend stocks for now, but adopt a wait and watch approach, in case the pain goes deeper.

I believe the thought has crossed your mind as well.

Here's my take on this:

My team and I recommend 'Buy' view only when we see strong opportunity in the long term. We recommend for the long term. And we build a margin of safety in our estimates and valuations.

It's likely that the stocks I have recommended (or the ones I will recommend in the near future) may witness a decline. It may happen because of broader markets. Or it may happen because of some temporary performance deviations. You see businesses, like life, do have their ups and downs. Like in FY18 a few of our recommendations were affected due to unfavorable exchange rates and GST implementation, temporary plant shut downs etc.

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  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
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  1. Buy recommendation: This means that the subscriber 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 subscriber 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 subscriber 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 subscriber could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
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