If you ask an investment pundit like Warren Buffett, Peter Lynch, Mohnish Pabrai or even Ramesh Damani for advice, he will tell you to always remember the distinction between “uncertainty” and “risk”. If you buy at times of great “uncertainty”, you are sure to get a bargain basement price for the stock. When the clouds of uncertainty clear, you are sure to make a tidy profit from the stock.
It’s as simple as that.
The latest example is Infosys.
In June 2014, Infosys, the blue chip behemoth, was in the throes of great distress. There was an exodus of its top brass which had created great “uncertainty” about its future. The stock price had predictably plunged to a low of Rs. 2,979 and brokerages were busy recommending a sell/ reduce of the stock.
Daljeet Kohli, the astute stock picker, saw a great opportunity to profit from Infosys’ distress. He went against the tide of popular opinion and rushed out an advisory urging his vast legions of fans to grab the stock. “The stock is trading at Attractive Valuations and the sharp correction in P/E multiple is more on the back of sentiment than anything else” Daljeet said. “This is an opportunity to buy a blue-chip stock at attractive price level” he added, with supreme confidence in his voice.
You can see the wisdom in Daljeet Kohli’s action and advice. Today, just 3 months later, the entire mood has changed. Infosys reported better-than-expected Q2FY15 results and the future looks very rosy now. Top brokerages like JP Morgan, which had shunned the stock during the period of uncertainty, are now falling over each other to give Infosys an “overweight” ranking.
Today, the stock surged 7% to touch Rs. 3888.
The return since Daljeet’s buy recommendation: 30% in 3 months whch works to an annualized return of 120%. Not bad at all for a risk-free investment in a top-quality blue chip stock.
Anyway, the lesson that we have to learn from this episode is that we have to remain alert for situations where temporary uncertainty clouds the prospects of a stock which is otherwise fundamentally strong. When we face such a situation, we must be prepared to put serious money to work in the stock. Then, we must have the conviction to sit tight till the clouds clear.