The 7th Secret to Beating the Sensex 2x - Smart Contrarian by Equitymaster
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The 7th Secret to Beating the Sensex 2x

Feb 19, 2018

Rahul Shah, Editor, Smart Contrarian

If I were to give my conference presentation all over again, I would have added a 7th secret.

At the conference I presented these 6 exceedingly simple secrets I used in my Microcap Millionaires portfolio that beat the Sensex twice over since 2014.

  1. It is not about buying high quality assets. It is about buying assets for less than they're worth.
  2. 100-baggers like Titan and Page Industries are hundred baggers only in hindsight. Stop looking for them.
  3. You don't need complex math to value a company.
  4. Diversification as powerful a force as concentration if you know how to use it.
  5. Give each stock a performance deadline.
  6. Do what you have to do; don't worry about what the stock market is going to do.

Here they are. The key reasons we've been able to beat the Sensex by 2x over the last 4 years.

Pretty self-explanatory, isn't it. Keep following these rules over and over again to set yourself up for market beating long term returns.

And here's the 7th secret - I am now adding, for the first time to this list.

  • 7.    You either get good news or good price, but seldom both.

No, I didn't come up with this gem.

It is one of my favourite quotes though. It nicely sums up the biggest mistake value investors make.

They wait for good news to arrive before investing in a stock that's trading at very good prices.

However, as the seventh secret says, if you do so, the good price may no longer be a good price.

It is quite possible that the market has got a whiff of the good news and it has already bid the stock price higher. So it's either good news or good price but hardly ever both.

This is the same as saying do not ever wait for a catalyst to arrive. Because by the time it arrives, the opportunity may have already gone.

And in fact catalysts are extremely impossible to spot.

Graham himself called them one of the biggest mysteries in finance, something that works extremely well but is very difficult to explain.

Over the years, if you simply buy a group of stocks with consistently strong balance sheets and low enough valuations, you don't necessarily have to look for catalysts.

And I have seen this come true over and over again in my four years of managing the service.

A lot of stocks where I closed the position and where we got gains like 545%, 173% etc have been achieved without resorting to any company specific catalysts.

The triggers really were about the industry or the overall economy turning around and not really stock specific.

In view of this, subscribers shouldn't really wait for stock specific catalyst if they are taking a group-based approach, and let the improvement in economy or the sector - or anything else in between - do its work and take the stock higher in due course of time.

Trust me, this works better than you think it would.

Good Investing,

Rahul Shah
Rahul Shah (Research Analyst)
Editor, Smart Contrarian

PS: Take a peek "inside" our best service - an array of ideas from every stock-picking style in our research house. Try it here.

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