»Profit Hunter by Equitymaster

On This Day - 10 SEPTEMBER 2020
Ignore the Media Headlines and Focus on High Quality Small-Cap Stocks

Do you see everything in black or white?

Do you tend to have right/wrong or yes/no opinions on everything?

Well, most people do.

That's why newspapers and TV channels feed you everything in extreme. They take sides and provoke you to do so too.

Take the recent headlines about the Indian GDP. You would've found news headlines like these...

  • 'Indian GDP crashes to an all-time low'.

    'India GDP much worse than expected'.

What do you feel, immediately, when you read these headlines?

Do you feel something is horribly wrong with the economy?

Do you think we might be in for a recession or depression for years to come?

{inlineads1}

Well, these headlines are not factually wrong, but they don't tell you the context we're in.

With the right context, the headline would've been something like this...

  • 'Indian GDP expectedly down due to the Covid-19 related lockdown'.

But this headline doesn't sound so interesting, right? That's why you won't see such headlines often.

In the real world, it always helps to have a balanced perspective. The same goes for the investing world as well.

We see retail investors asking questions like... Smallcaps are up 60% in just over 5 months. Is it time to sell?

But what if I tell you the BSE Smallcap index has given negative returns in the last 3 years. Would you still think about selling smallcaps?

{inlineads2}

You cannot sell all your small-cap stocks based on good or bad headlines that newspapers show you every day.

Be selective in the stocks you buy or sell. More so as the world slowly recovers from covid-19.

You see, there will be a few businesses that will be permanently damaged in the post covid-19 era.

Poor business models that are debt heavy will likely not survive this difficult phase. These are the businesses you should avoid. If you're still holding them now, you should sell them, even if you are positive on smallcaps overall.

On the other hand, strong businesses with less fixed expenses, and little no debt are likely to survive.

These stocks will bounce back stronger when this crisis is over.

That is what we've consciously tried to do when picking Hidden Treasure stocks for our subscribers.

{inlineads3}

We've focused on low debt but fundamentally strong businesses. Businesses that are essential part of the customers' day-to-day lives.

We know that despite short-term uncertainty, these businesses will be around for decades.

When we're confident about these businesses, what the BSE Smallcap index does in the short-term does not matter.

If you too select stocks this way, dear reader, you don't need to worry about sensational headlines on newspapers or TV channels.

Having the right approach to picking stocks will go a long way in creating long-term wealth.

Warm regards,

Girish Shetty
Girish Shetty
Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

PS: Get access to Rahul Shah's Automatic Income training here.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407