What if Indiabulls Housing Finance and Yes Bank Do Not Rebound?

Oct 1, 2019

Rahul Shah, Editor, Profit Hunter

Stocks like Yes Bank and Indiabulls Housing Finance are proving to be a nightmare for investors.

It is as if the bottom has fallen out of their stock prices.

Imagine someone buying Yes Bank at a 50% discount to its 52-week highs. He would have thought he's got a great bargain.

Little did he know the stock would fall a whopping 70% even from those levels.

That would have really hurt.

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Ditto for Indiabulls Housing Finance. The stock is down 50% in just a few weeks after the first 50% decline from its recent highs.

I have a dilemma regarding how to look at these stocks.

Should I call them 'Falling Knives'? After all, their continuous slide must have left a lot of investors bleeding.

Or should I call them deep value stocks where the pessimism has been overdone and the stocks are poised for a rebound.

Here's an interesting idea...

How about calling them deep value stocks for the next couple of years. If they recover, then you could become rich of the rebound.

If they don't, you can simply exit at whatever price you can and look for the next opportunity.

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At least this is the strategy I use in Microcap Millionaires.

I recommend a group of stocks that are trading at a discount to their true values. I then wait for the stocks to give 50%-100% returns over the next couple of years.

If the returns are achieved within 2 years, I recommend a SELL.

If the returns are not achieved, I wait for the two-year period to end. Then I recommend a SELL. This is irrespective of whether my subscribers make a profit or a loss.

You see, one of the biggest reasons investors fail to outperform is because they hate to book a loss.

They continue to believe they are right and the market is wrong. They believe the market will eventually agree with them.

But the market doesn't care about individual opinions.

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So, in my Microcap Millionaires, I added a small twist. I continue to believe I am right...but only for two years.

Once the two-year period is complete, I throw in the towel and accept the market's verdict. In other words, I recommend a SELL at the prevailing market price.

What do you think about this strategy? Will it work in the case of Indiabulls?

Here's an example. I hope it helps...

I recommended a SELL on Venus Remedies after two years at a 58% loss. Had I waited for the stock to recover, I would have had an egg on my face. The stock is down another 76% since then.

Sound familiar?

I believe, having a pre-defined SELL rule like this is more of a boon than a bane. It has allowed me to book good profits on stocks that have gone up and avoid more losses on stocks that have gone down.

More importantly, it has taken a lot of ambiguity out of the system. Ambiguity about should I hold on to the stock more or should I sell it. Should I average out or should I sell a part of it now and part later?

I don't think about any of this anymore...and neither should you in my opinion.

I simply follow the two-year rule and move out irrespective of whether the stock is up or down.

You should try it out for Yes Bank and Indiabulls Housing Finance.

Wait for two years or may be three years for them to rebound. If they don't, take your losses and invest the money in some other stock.

This rule has played a big role in helping my subscribers beat the benchmark index by a factor of 1.8x since inception.

I strongly believe investing is as much about knowing when to sell as it is about buying quality stocks at attractive valuations.

And this is exactly what this rule helps me achieve.

Warm regards,

Rahul Shah
Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: Speaking of rebounds, our smallcap stock expert, Richa Agarwal, has found the right stocks to profit from a big rebound in small caps. She will soon share details about her stock picks and her strategy. Read more about how to get rich in the small cap rebound.

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