»Profit Hunter by Equitymaster

On This Day - 26 OCTOBER 2020
There is More than One Way to Financial Heaven and I Like Richa's Way a Lot

Editor's Note: Today is the last day to access the free reports - How to make Explosive Profits with India's#1 Defence Stocks - as well as - 2 Defence Stocks Set to Go Vertical - and you can claim your virtually free copy here...


Rahul Shah, Editor, Profit Hunter

Have you tried to make a team on one of these fantasy cricket websites that are all the rage these days?

Well, in a nutshell, these leagues ask you to make a team of your favourite 11 players within certain well-defined parameters.

Your team then competes with those put up by other members. The winning team takes home a grand prize at the end of the match.

The ongoing IPL has given me an opportunity to dip my toes in these waters and it's quite exciting to be honest.

I just do it for fun though. We are a small group of friends who compete against each other and give a hard time to those who end up at the bottom.

What I have noticed is that the way most people choose their team, falls into two major categories:

For the first category, it is the recent form of the player under consideration that matters the most.

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For the second, it is all about quality and class.

The guy who cares about recent form is a numbers junkie. He will meticulously go through the team sheets to determine which batsmen scored the maximum runs, which bowler took the maximum wickets, pitch condition etc.

The guy who relies on class hates numbers.

'Tell me about the players in each team and the quality of the opposition', he says.

Well, these different strategies have their parallel in the investment world. There are analysts who swear by the quantitative approach and there are those for whom quality is paramount.

The quantitative analyst will usually say, "Let's buy the cheapest stock as measured by ratios like price/earnings, price/book value, dividend yield, etc."

The qualitative analyst says, "Buy the best company, the best management and don't worry too much about the numbers."

Thankfully, there's more than one way to attain financial nirvana.

Skilled and insightful practitioners of either approach will be rewarded over the long term.

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No prizes for guessing which of the two categories my approach falls into.

I am more of a Ben Graham guy. I usually look for something that's so cheap that there is a little chance of it having a big decline.

I've got the financial safeguards like strong balance sheet and long earnings history to go with it. So, the stocks aren't going to suffer a big decline and sooner or later, value will come into it.

My colleague Richa Agrawal is more of a quality buff.

Nothing gives her a greater high than knowing her companies inside out and knowing them better than any other analyst out there.

And a sure-fire way to do this, she believes, is to go where the real action is and look straight into the management's eyes.

I don't remember a single company where she made a recommendation without visiting the management.

Numbers tell only half the story as per her. They tell you only about the past. Whereas investing is all about the future.

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For your recommendations to stand out, for them to earn way more returns than the market, you should jolly well know what the management is up to.

And there's no better way to do this than hear it straight from the horse's mouth.

The conviction with which the top management speaks - its body language, the passionate glint in the eye or the absence of it - are all pointers towards whether the management can fulfil its promise, and whether it is battle ready.

Absent such signs, she is more than happy to give the company a miss no matter how glorious it's past.

Her 140% gains from a micro finance company, 69% gains in just 1 year from a unique pharma company and 22% gains in just 2 months from another niche pharma player, are proof that her approach can indeed open up huge wealth creation possibilities.

What do you think about these different ways of making money in the market?

Let us know your thoughts by writing to us here...

Warm regards,

Rahul Shah
Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: Today is the last day to access the free reports - How to make Explosive Profits with India's#1 Defence Stocks - as well as - 2 Defence Stocks Set to Go Vertical - and you can claim your virtually free copy here...

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