My 2019 Investing Strategy - Profit Hunter by Equitymaster
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My 2019 Investing Strategy

Dec 27, 2018

Richa Agarwal, Research analyst

'How are you planning to invest in 2019?'

If you are planning to spend this New Year's Eve with friends and family, this question is bound to pop up.

Now, if you had invested in smallcap stocks at the beginning of 2018, your answer would certainly not be more smallcaps.

And, why would it?

While this year was indeed a forgettable one for investors in stock markets as a whole, those who invested in smallcaps bore the brunt of the downturn.

Have a look at this chart:

Major Stock Indices in 2018

If you had invested Rs 100 in the major indices at the beginning of the year. The BSE Sensex would have given you Rs 105 back, or a return of 5% on your investment. However, investing Rs 100 in smallcap stocks would have left only Rs 75 at the end of the year, ie a loss of over 25%.

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However, this does not mean that the smallcap story is over. In fact, it is actually only just beginning. You see, stocks and indices rarely go up in a line. They move in cycles. Euphoria does not last forever, but neither does a slump.

Let me illustrate.

In 2013, smallcaps crashed over 30% from their peak. The correction lasted almost a year, until the index began recovering by the beginning of 2014.

Smallcap stocks barely made a mark in CY15 and CY16, but came back with a bang in CY17.

Looking at how the index has performed in just a single year can be quite misleading.

However, it becomes much clearer once you look at the bigger picture.

The BSE Smallcap index more than doubled from January 2014 to December 2018, netting in gains of 120%, despite the latest crash.

Note that these are gains even after factoring the latest market crash. Investors who were prudent enough to stay invested and pick up quality stocks for cheap were handsomely rewarded.

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Just look at how the BSE Smallcap index has performed over the years. A bad year is rarely followed by another one. And the same holds true for a relatively 'good' year as well.

The point I'm trying to drive home is that stocks - especially volatile smallcaps - don't move up or down in a linear manner.

This does not mean that I am predicting 2019 to be a bumper year for smallcaps.

Not at all!

At Equitymaster, we are not in the business of predictions.

In fact, no one can predict how stock markets are going to perform in 2019 and beyond. Anyone doing so, is merely resorting to speculation.

But what I can say from my experience is that high-quality smallcaps will not only survive but thrive in the long term.

One can make good gains with a careful selection of stocks and long-term horizon, irrespective of the index levels.

Since its inception, my service, Hidden Treasure has beaten benchmark indices nearly three times over a period of more than 10 years. This period covered both upcycles and downcycles in the index.

And that is because we don't care where the markets are headed or try to time our recommendations. We simply focus on the fundamentals and wait for stocks to catch up to their intrinsic value.

The key is to stay invested and add quality stocks as and when the opportunity presents itself.

And I am writing to you today, because that opportunity in NOW.

This is the time to make the most of the uncertainty, pick up quality stocks, and sit back and enjoy the ride.

I have been keeping an eye out for attractive smallcaps to recommended to my Hidden Treasure subscribers.

So, come 2019, these 4 smallcap stocks will help you rebound from the crash in a big way.

So, what should your investment strategy be for 2019? Relish the volatility but keep your focus on the fundamentals and buy stocks where quality meets value.


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

PS: These are 4 stocks you want to be invested in when 2019 comes around and the stock rebound from their corrections. These 4 stocks are set for significant upswings - and you should come along for the ride. Get them here.

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