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Have You Tried the 'Garbage' Formula to Get into the Right Stock at the Right Price?

Feb 24, 2020

Rahul Shah, Editor, Profit Hunter

There is barely a Sunday these days where my afternoon nap isn't disturbed by the two mischief mongers of our house- my five-year-old and her four-year-old cousin.

This last Sunday was no different. Their persistent giggles from the next room broke my sleep yet again.

As I got up and entered their room, I was greeted by small thermocol particles strewn all over. They had gotten hold of this big thermocol block from somewhere and were using it to turn the room into an artificial snowfall.

Did I scold them? No. In fact, what they were doing was really cute in my view. So, I whole heartedly participated in their madness and tried to have as much fun as possible.

I've come to realise that I cherish such random, wild moments with them more than any elaborately planned activity.

A couple of years back we all took a big vacation. However, there's very little of it that has stayed with me.

What I vividly remember though is the time we spent at the airports or the fun we had in our rooms after the sightseeing instead of the sightseeing itself. Why? Perhaps, we were busy trying to take the perfect pictures, plan the perfect itinerary and wear the perfect outfit. And in the process, we tossed real happiness and fun out the window.

But when we were back at our rooms, we really let our hair down. We were no longer consumed with everything going right. And this is when the real fun began.

Well, looks like none other than Jerry Seinfeld agrees with me. Here's how the legendary comedian once described the time he spends with his kids.

  • I don't need any special days. I mean they're all special. We spend a lot of time together and I enjoy every second of it. Again, I'm a believer in the ordinary and the mundane. These guys that talk about "quality time" - I always find that a little sad when they say, "We have quality time." I don't want quality time. I want the garbage time. That's what I like. You just see them in their room reading a comic book and you get to kind of watch that for a minute, or [having] a bowl of Cheerios at 11 o'clock at night when they're not even supposed to be up. The garbage, that's what I love.

I couldn't have said it better. Lot of parents spend too much effort in trying to figure out how to spend quality time with their kids. They mistakenly believe that it is what matters. However, as my own experience and that of Seinfeld's suggests, it is a huge mistake. Give us 'garbage time' any day.

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This has a lot of parallels with investing if you ask me.

Quality time is the equivalent of trying to find the next hot stock, the next 100-bagger opportunity. And in an effort to do so, investors miss out multiple 2 or 3 bagger opportunities that hide in plain sight.

Why bother about finding the next hot stock when you can keep finding those 2-3 baggers at regular intervals and keep rolling the money over into similar opportunities every year or two.

In fact, I have been using this latter approach with great results over the last six years. It has allowed me to close 80% of my positions at a profit and beat the Sensex by a significant margin.

It is my own 'garbage' formula of beating the benchmark index if you will.

All it has are three simple rules for buying a stock at a certain valuation, selling it after a certain upside and rotating the money back into a stock or a fixed deposit depending on the market condition.

I believe even you should try it out. Apart from giving great returns, it will also enable you to spend more 'garbage' time with your kids.

Good Investing,

Rahul Shah
Editor, Profit Hunter
Equitymaster Agora Research Private Limited (Research Analyst)

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