I Warned You About This When the Market Was High... - Profit Hunter by Equitymaster
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I Warned You About This When the Market Was High...

Mar 6, 2019

Richa Agarwal, Research analyst

It's easy to look back in retrospect and say that the market was too high at so-and-so time, or too low at so-and-so time in the past.

What matters, though, is what you were actually saying or doing at the time.

So, I decided to go back a bit and take a look at what I was telling subscribers of my small cap recommendation service Hidden Treasure when the BSE Small Cap index was hitting its giddying high of 20,000 points in mid-January 2018.

And yes indeed, my report to them at the time, started with a bold warning:

'A great company is not a great investment if you pay too much for the stock'

With the inflated stock prices I was seeing at the time, this seemed like the most important message to give investors. And I'm glad I had given it...even without the benefit of hindsight.

You see, when you buy a share, what are you really getting into?

You are buying into part-ownership of a business.

So, while running a business can provide useful lessons in becoming a successful investor, that knowledge isn't enough.

Why?

Because investing is both a science and an art.

It's a science because you need to carefully estimate the true value of a business from its financial statements and those of its competitors. This is called the 'intrinsic value'. The knowledge gained by running a business will be useful here.

It's also an art, however, because the price you pay for a stock determines how much of that intrinsic value you'll get as an investor. And to be able to determine the right price at which to buy a stock is difficult.

To quote Warren Buffett's mentor Benjamin Graham once again...

  • 'Obvious prospects for physical growth in a business do not translate into obvious profits for investors. A great company is not a great investment if you pay too much for the stock'.

To be a successful investor, you must buy stocks below the intrinsic value of the underlying business.

You cannot expect to buy it at an inflated price - the kind of prices that small caps were quoting at those times - and expect to make good money.

However, today, after all of this crashing and bashing of small caps, what do I feel about small caps today?

No sign of warnings anymore, only big opportunity!

Here is what I told subscribers last week:

  • Investors are shunning stocks with least regard for their long-term potential and fundamentals... the resultant opportunity to scoop them up low and early - before others get on their trail in a few years - offers the potential for massive profits. Profits of the kind that are too hard to ignore.

    I don't know how long this phase will last. But I do know that mouth-watering opportunities have been uncovered in many small caps that are selling at bargain valuations thus making them poised to generate a lot of wealth in the years to come...

So do yourself a favour, and tap into this opportunity now. You will thank me later.

Regards,

Richa Agarwal
Richa Agarwal (Research Analyst)
Editor, Hidden Treasure

PS: Now - when the small cap market looks very sad - is the time to buy into it. Heed this advice from small cap expert Richa Agarwal - and get into these stocks now.

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