I have had love affairs with Gujarat gas, concor, asian paints, Blue star etc in the past. The original thesis when investing in these stocks played out and the final results were far better than what I had expected.
Then like all affairs, it was time to part. A few of these stocks got overvalued and I moved on.
Now unlike old girlfriends, there is no harm in revisiting these old relationships from time to time. You know the company, its management well and if you held it for a long time, then you would have become comfortable with the business too. So I tend to track these old flames regularly and if I find them to be attractive again, I will go ahead and invest again in them.
They key point when investing in the same stocks again is to avoid becoming emotional with these stocks which have treated you well in the past. It is important to analyse these companies as if you are analysing a new stock and check the price value relationship. If there is a substaintial gap, then I am fairly comfortable re-investing again.
Case in point : Gujarat gas. I sold off this stock by end of 2006 thinking that the stock was overvalued, after having held the stock for 3 years. Then last year on checking the fundamentals, I realised some of the risk in terms of gas pricing had been handled pretty well by the company. In addition the company has expanded its area of operations further and is doing very well. With the current spike in fuel prices, I think the company should do well for the next few years.
So no harm in revisiting these old flames from time to time and re-starting the old relationships again. Ofcourse I mean stocks and not girlfriends :) . Now this is one post my wife should not read (she hardly reads them anyway, so I am safe I guess).
6 comments:
Hi Rohit,
Getting out of overvalued stocks is something i am not very good at. I do realise the need for it and that is an aspect of my mental make up which i need to work on.
It makes perfect sense to get back into these businesses at lower levels because you have studied the company when you got in in the first place and the additional effort is minimal. Plus there is a certain comfort factor in going with old girlfriends.
Hi Rohit,
I wanted to have your views regarding Pioneer embroiders. This company seems to be attractive at CMP of 62. But company has taken lot of debt to finance its growth. Debt to equity ratio is 1.7. So might have trouble in servicing its debts during these high inflationary times. Company looks attractive but it seems to me they have bitten more than they can chew. What do you think?
Regards
Amit
mahendra
getting out of overvalued stock is always diffcult. you never know if you are being overly pessimistic. my biggest losses have been around out of stocks which i thought were overvalued. so that way selling is way more difficult than buying
amit - i will have a look and let u know. however as a personal thumb rule, i filter out companies which have debt equity ratio of more than 1. i may have missed some good companies, but i am comfortable with companies having high debt
regards
rohit
I think your response to Amit is erroneous. Perhaps what you meant in the last line is that you are uncomfortable with companies having high debt.
Coming to the topic of revisiting old flames, it is not bad but it shouldn't be at the cost of NOT looking for newer beauties.
--Manish
yes ..manish you are correct. the last statement should be i am comofortable with companies NOT having high debt
regards
rohit
Hi manish
i agree one should be looking out for both new opportunities. Its just that if you have two equal opportunities, one which you held earlier and one new , i would prefer the older one as i have more confidence in that company due to familiarity.
ofcourse it can be a double edged sword if one becomes emotional in such decisions
regards
rohit
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