This Smallcap Textile Stock Perfectly Captures our Investing Strategy

Investing is a great playground for psychologists. They study stock market psychology including the biases, motivations, and fears that take over logic and facts, and push people into behaving irrationally.

Last year, we saw this mass psychosis or hysteria in the Indian stock market.

Loss making new age companies in India, with no visibility and sustainability to speak of, witnessed a buying frenzy.

This was not going to end well. The tech stocks in the US have witnessed a sharp sell off.

Back home, FII selling and rising uncertainties at macro level have caused a market correction. Individual stocks have crash up to 50%.

And this has led to another bias creeping in the minds of investors - Recency bias.

Even at much better valuations, investors are cautious of getting in, for the fear that correction could go sharper.

Unless you are anchored to a process that works across market cycles, you are likely to be swept in biases and make wrong investing decisions.

So is there an evergreen process you can count on?

I believe there is. It has worked fairly well for more than a decade for us.

Allow me to explain it through a real example - Monte Carlo Fashions Ltd - a branded smallcap apparel company.

When I recommended the stock for the first time, it was with a Buy at lower price view.

We liked the management a lot and the fundamentals of this solid branded player with 50% market share in the organised segment. But we were not comfortable with the valuations.

It took us a waiting period of 1 year and 5 months to trigger a Buy view on the stock, when the stock seemed to offer enough margin of safety with 23% correction.

Now this was not an attempt to time the market or the stock price movements. We were just looking for valuations and a price that we were willing to pay for a long term stocks to buy in India.

To be sure, the journey thereafter was not easy.

After the buy recommendation, the stock continued its downtrend. Then the pandemic hit. It touched a bottom of Rs 129, down 62% from our recommendation price.

We did not work with stop loss limits. Had we done that, we would have indeed exited the stock with some losses, well before the 60% dip.

We had met the management, had faith in the execution and business fundamentals. But more importantly, we had patience and capacity to suffer - some of the most underrated virtues in investing.

It took some time, but the approach delivered gains.

The stock surged 5 times from the bottom in March 20. It's up 134% from the recommendation price.

We closed the recommendation last week with 134% gains. That's a 25.5% CAGR over 3 years and 9 months.

And these returns do not consider a dividend of Rs 20 over the investment period, on a recommendation price of Rs 343.

While we are still positive about the business, we believe the current valuations price all the positives. And it would be prudent to take profits off the table.

As the fears of FIIs exit, the Russia-Ukraine war, supply chain disruptions, inflation, and rising interest rates, weigh on market sentiments, I believe this is a good time to use this example to emphasise our approach to investing.

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While we look at the macro picture, the investment decision is based on micro level factors - business fundamentals, management quality, and margin of safety in valuations.

This gives us conviction to hold stocks when the broader markets are in a panic.

And most importantly, a prudent asset allocation.

We are aware that not every recommendation we make is going to be successful.

A 100% success ratio has been an elusive goal even for the investing geniuses. We are humble enough to acknowledge our limitations in achieving that.

Now this was just one example. But the approach has been common for all recommendations in smallcap space.

With a median success ratio around 60%, the smallcap recommendation service Hidden Treasure, has managed an IRR (internal rate of return) of 26.8%.

This considers all recommendations made since inception in February 2008 until March 2022.

Even though we have a few gainers that have exceeded 500%, 1,000% and even 10,000% gains, our track record is not a result of a few big gainers. It considers equal allocations to all recommendations made.

So when someone asks me if it is a good time to invest now or wait for more correction (smallcap index is down 14% from its peak), my reply is fairly standard and evergreen.

You could worry all you want about the macros and go into action paralysis with all the doom and gloom scenarios.

You could even feel validated in the short term. But that's not going to help you beat the market.

So, instead focus on what you can control.

Ignore the noise. Focus on the micro. Invest only what you can afford to lose.

There are still managements and promoters building businesses for the long term and solving real problems.

There are industries which are riding tailwinds and companies whose product and services are critical for their clients.

Focus on businesses with longevity and a margin of safety, rather than whether you will make money or lose it over next 3 months or even a year.

And stick to long term investing. I hope the video shared below will convince you why it is an almost foolproof strategy to win in the long term.

As an individual investor, you have a real edge over big investors.

The biggest fund managers out there are under the pressure to grow the AUM base. This sometimes make them buy at any price rather than wait patiently to invest in good businesses.

Further, their incentives are mostly aligned with short term performance metrics. This makes them press the panic button and exit when markets sentiments turn weak.

This behaviour often leads to missing the long term upside.

That's their institutional imperative which they find hard to avoid. You are bound by none of these.

So adopt a process that suits your edge. And let the compounding and long term investing do its magic.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure

PS: I recently shared my 5-minute blueprint to become a One Stock Crorepati. Get the details here....

{lb~Textile Stocks}