Equities Are Not Risky And Smart Investors Can Still Mint Money: Porinju Veliyath

The points made by Porinju Veliyath in his conversation with Abha Bakaya and others at Bloomberg can be summarized as follows:

There is a wrong perception that equities are risky:

Porinju lamented that the great boom in the stock markets had resulted in wealth creation for a select minority because the majority had stayed away in the fear that equities are “risky”.

He explained that if investors buy stocks with knowledge, conviction and common sense and if they have the patience to hold on, equities are the safest and best performing asset class.

Smart investors can find multi-baggers and mint money if they are willing to think differently:

Porinju advised investors to bear in mind the difference between “great companies” and “great stocks”. He explained that established companies with great managements may not necessarily be great stocks to invest in if they are already quoting at exorbitant P/Es.

He advised investors not to chase well-discovered and fancied stocks but to find undiscovered stocks that are second rung and quoting at bargain valuations.

Don’t clone celebrity investors blindly:

Porinju was very critical of the tendency of casual and amateur investors of blindly following celebrity investors and trying to clone their stock picks.

He advised investors to use the picks as a stock idea and to do original research on the fundamentals of the stock and understand why the celebrity investor has bought it and whether the idea is still good after the run up in the price.

Buy stocks that are beaten down owing to poor quarterly results:

Porinju suggested that instead of focusing on companies that have delivered bumper results and which are quoting at exalted valuations, a better strategy is to look for stocks that have delivered poor results owing to temporary problems.

He cited the example of Unichem Labs, Bajaj Electric, Mahindra & Mahindra Finance, each of which is a great business but which is presently out of favour owing to temporary factors. He explained that though these companies are currently not doing well, they would soon recover and resume their growth trajectory.

Look for turnarounds to make better returns in 2015:

Porinju reiterated his pet point that instead of buying fancied stocks like Page Industries, Kitex, Havells etc, investors should look for beaten-down stocks with strong turnaround potential. He again cited the example of Bajaj Electricals as a “great company” which has been discarded owing to losses. These losses are temporary and there would be a turnaround soon, he said. He emphasized that there are several other stocks where there will be a turnaround in the management, balance sheet, profitability etc, and which will lead to bumper gains in 2015 and beyond.