»Smart Contrarian by Equitymaster

On This Day - 4 DECEMBER 2017
Stock Market Riches Don't Get Any Better Than This

Rahul Shah, Editor, Smart Contrarian

The universe of small cap stocks is a minefield!

Like on the battlefield, if don't know where to step you can be in deep trouble.

But know the tricks of navigating it and there are rich rewards waiting for you on the other end.

I've seen no one navigate the small cap stock space better than one of our savviest research analysts, Richa Agarwal. And of course she can; she's been doing it for over seven years now - with phenomenal results.

If you'd followed her recommendations, you could have made phenomenal gains like 5,920% in under 9 years...or, 1,058% in 7 years. These are crazy returns - but like I said, only the few that know their way can discover the rich rewards that await on the other side.

So how does she do it?

I'll tell you one thing. Richa is ruthless when it comes to identifying the most profitable stocks. She has created standard processes that she and her team follow religiously for every company which comes under their radar. Often ten ideas are rejected before one is finalized.

A company is ruled out from further investigation if it misses even a single trait

Right from analyzing the financial reports to in-depth sectoral studies. Checking the competitive advantage to promoter record.

Most importantly, meeting the top management to get a closer look into the company and verifying their claims.

There is a standard process followed for every company which excites her team. Only then does she decide to let her subscribers in.

This is not possible while sitting in office and doing stock research. No stock is recommended without meeting and regularly interacting with management and what she likes to call 'boots-on-the-ground' research.

Unlike most others in the financial industry, there is no pressure to come up with buy recommendations every time (and trust us, this is a real killer of results). No one directs the 'view' on her stocks.

So Richa and her team can always do what it takes to pinpoint the small cap stocks that deliver the juiciest returns.

When you are looking to spot such high potential small cap stocks, or looking for recommendations, remember to keep Richa's process in mind. And you will safely be able to navigate the minefield of small stocks, and make your profits.

Good investing,

Rahul Shah (Research Analyst)
Editor, Smart Contrarian

Editor's Note: Click here to find out how thousands of our readers are using a simple small cap secret to fund their retirements.

Brain Food for the Day

Are Rising Markets a Good Time to Buy Small Cap Stocks?

There is never a good time to buy expensive stocks: Investors, in general, have a tendency to invest when they see rising prices and optimism. And when the markets change course, even for a short while, they start looking the other way. This is classical pain avoidance tendency that causes investors to buy high and sell low. But let me tell you, nobody ever got rich buying expensive stocks. So the best time to buy is when there is mindless selling on the bourses.

Buy businesses, not sentiments: If you are relying on the so-called bull rally to make your millions, you could be heading for trouble. Sooner or later, investors will come back to their senses and dump companies that don't offer value. Small caps can skyrocket in a matter of weeks. And they can tumble down in a matter of days. So if your small cap stock is not backed by a solid business, then it is something that you should be worried about.

The worst mistake - Portfolio misallocation: If you have been investing for a while, you know that there are going to be mistakes and mis-judgments from time to time. Not all your investments are going to be rewarding. Some will be outright value destroyers and it would be best to exit them at the first sign of trouble. Some would be value traps. They wouldn't add much value to your portfolio. And then, there would be the winners. It is these stocks that would be your real wealth creators.

These things will appear crystal clear in hindsight. Until then, you would not know which one will be the hero and which one will be the zero. So the best way to go about investing in small cap stocks is to follow a group approach. Adhere to strict allocation levels.

The last, little secret: Many investors have a tendency to sell their winners prematurely. This phenomenon is known as 'scalping'. At the same time, they hold on to the losers, waiting to 'recover' their cost price.

Do you know what really distinguishes the great investors from the rest? They have the ability to not only hold on to their winners, but also to add more as their conviction grows.

So, what you can do is when you find a prospective investment, don't invest the entire intended amount all at once. Buy a partial amount first. Then track the business developments for a while. If you think the company is on shaky ground, you may want to exit the stock. But if your confidence about the company's prospects grows, keep making staggered investments when the prices are attractive. Over time, as your understanding of the company deepens even further and you still see value in the stock, you can increase your financial commitment to such solid companies.

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