Many new investors have entered the stock market for the first time in the past two years and this is likely the first major correction they have seen in their portfolio. While sharing his advice with these investors, Delhi-based market veteran and investor Ashish Chugh said that most investors enter the market in a bullish phase when things are going well and exit in a bearish phase when news flow is completely negative. Never make this mistake.
In an interaction with business today, he added that from social media posts to his interaction with many new investors, it seemed like many of them were just chasing stock prices without much understanding of company fundamentals and valuations. Chugh’s views came as the benchmark BSE Sensex stock index is down more than 15% since hitting an all-time high of 62,245.43 on October 19 last year.
“Bear markets are a great time to learn. They change your perspective on investing. Most investors are seduced by rising stock prices and focus on returns and stock prices – they never think about risk management. It’s just a bear market that makes you rethink and rethink your investment style and strategy, deflates you and evolves you as a better investor and that process is endless,” he said, adding that an investor cannot control the markets – what you can control is your reaction to the markets.
The market watcher believes that predicting macros is futile. There are so many moving parts that are beyond anyone’s understanding or control and are impossible to predict.
“Even if you are correct in predicting the event, it would be impossible for anyone to predict the market’s reaction to the event – perhaps the event is already priced in by the time it happens. So the focus should be on the company you’re investing in, the investment thesis and whether that thesis has changed with the fall in the stock price,” Chugh said.
He also advised investors not to focus just on the companies in their portfolio, but on the entire board. There may be various other companies with good potential where stock prices have fallen from highs and are at attractive valuations – investigate these companies.
“It’s essential to focus on company valuations — remember that a good company is not necessarily a good investment. Your research intensity should increase during a bear market phase. My firm belief is that your research coupled with an independent thought process is what it takes to make you a better investor,” he said.
Previously, stocks like Avanti Feeds, Bajaj Finserv, Maharashtra Scooters, Natco, Heritage Foods, Thirumalai Chemicals and TCI have helped him achieve financial freedom over the years. He began his journey as an investor in 2000, after earning degrees in electronic engineering. He also earned an MBA before leaving his family business after a very short stint.
When asked about the investment strategy and stocks he is currently focusing on, equity investors said he has always taken a bottom-up approach to investing in stocks. However, he refrained from naming specific actions in the interaction.
For him, the 3 Qs matter the most in investing. Chugh said, “Business quality, management quality and balance sheet quality are important. The company’s long-term growth potential is significant. My approach, however, is to look for companies with high moats or barriers to entry or operating in a niche or making products for global markets with a cost or technology advantage here. My thinking most of the time is to invest and keep the business for a few years. I generally look for these opportunities in small capitalization companies. I am also open to investing in companies with solid fundamentals but which are going through a difficult period due to various factors of a temporary nature. I want to reiterate that the focus is always on the balance sheet rather than the P&L when investing,” he added.
Latest additions to portfolio
Commenting on some of his new additions to the portfolio, Chugh said he has included companies that operate seasonally and primarily during the summer months.
“The reason for this is that their revenues have been in sharp decline since the past two years have been washouts with regards to summer month sales due to the first lockdown in 2020 and the severe second wave of Covid in 2021 Their stock prices have remained low due to poor profitability for the past 2 years and hopefully, this summer being normal, will see huge growth. Some of these businesses may not only be good in the short term but also in the long term,” he added.
He also added some companies that are largely export oriented where India has a cost or competitive advantage and these companies benefit from the China factor. Chugh also gave prominence to companies’ actions in new era technologies where there is potential.
“The key here is company potential and reasonable valuations. Some tech companies do a lot of innovation – these may not be world changing, but given that the market capitalization of the company is a few hundred crore, that would be quite significant,” the market watcher said, adding that he has also invested in some pharma companies that are innovating and have paid off their debts and whose profits for the last one or two quarters have been hit. due to high raw material costs and, as a result, their stock prices fell significantly.
Chugh takes a cautious view of investing in initial public offerings as he finds similar, already listed companies available at much better valuations.
“My experience in the past is that over 80% of IPOs would be available at 50-80% below their IPO price over the next 3-5 years,” he said. .
The market specialist further added that these are just a few illustrations. The national stock market is a paradise for stock pickers. “There are plenty of good opportunities – companies with good potential that have become attractive after the recent deep correction,” the independent investor said on the market.
Note: Ashish Chugh is an Independent Individual Investor. It is not registered with Sebi and does not offer investment advice.