Saturday, February 14, 2015

When Donkeys can Fly

There is a mood in the market today that every stock will spike irrespective of their quality. This is the time most people who are entering the race late  will witness euphoria and fear at the same time. People will sell fast believing that profit is temporary. It requires great courage to hold on to wonderful businesses even when there is not much happening on the surface. Most of the the spike in stock prices happen in spurt over a short period of time which is not known.

The market it self has gone by 100 times in 30 years which is the average of index stocks. Specific stocks have done much better. So hold on to best stocks with patience, never sell, have courage to hold and not book profits

Best returns come when good business are bought at an early stage before the general markets get a whiff of it. Buy small companies when that are not popular and show high growth , high roe and have attractive valuation.  We need to distinguish between growth and longevity of growth.

We held on to Cera since 4 years now and we bought the stock around Rs 200 level.
Here is what we wrote then

"I am right now investing in a very small sanitary-ware company. its a small cap available at cheap valuation. It is not tracked by analysts thus available very cheap. They are growing at a good pace and have a very strong balance sheet. I believe it will get to 3X to 4X in as many years. The company sailed through global recession, profitably. It has never given up profit margins for top line growth – speaking volumes about their focused approach and business acumen. There’s not a single year during which they have witnessed a de-growth. "

We sat tight on it and the investment has gone up by more than 10 times in 4 years. Some times market surprises us positively and we accept it with both hands. When you have no convincing idea, it is better to preserve cash and wait for that idea that will be multibagger.

Currently we have identified small companies which have the attributes to make in big in the future and are taking some positions, will add over time and share details at an opportune occasion.