Risk:reward can’t be identified with just the chart I feel. Although pure TAs might disagree. Chart is good for identifying supports, which act as natural stops - however, there should be a valuation comfort as well in terms of support to bet big. As for reward, this varies - in '20 it was easy to buy at a big discount to long-term valuations due to Covid crash - this meant a reward was simply P/E reaching back to long-term median. Towards late '20 and early '21, there were several winners from Covid in healthcare (Poly Med, Laurus etc.) and also due to disruptions to supply chains (lot of Chemicals businesses - TAN, PAN etc.) - here more than re-rating to long-term P/E the reward was in figuring out possible growth in future earnings. Sometimes its re-rating due to perception gaps, along with earnings growth (like Deepak Fert) and sometimes its commodity plays (like GPIL). So there’s no easy way out to figure out reward, unlike risk.
@asarun
Kelly Criterion is something we use intuitively. Have positions large enough to make sure your research matters and not too large that it makes you feel uncomfortable. We do this all the time - we are good at pushing to the limits. The math is very straight-forward and most good investors use a version of this. Pabrai talks about it in Dhando investor for eg. and Ed Thorp swears by it. You can read about it in Fortune’s formula and several other math/investing books. Not aware of any excel calculator. If we have to calculate, I feel we might be doing it wrong. Understanding the intuition alone should be sufficient. Poly Med for eg. was a 20% position and at one point of time was over 45% of my net-worth. You have to let it run until its clearly over-valued which happened around May '21 around 1150 levels. My valuation of it at the time was ~900. It was a clear sell and I booked out almost all of it.
@iyeron - I have no view on most of these. I held Royal Orchid for sometime and also traded Indian Hotels last year in the hotels space. These were nobrainer buys last year. There’s a clear lack of capacity and operating leverage is playing out beautifully in this sector. I think that might continue for sometime. Other leisure plays, I have no view
@S.A.B - I have addressed risk:reward bit above. Hope that helps
I am no expert and there are better market veterans on VP like @hitesh2710 who are doing a wonderful job explaining how they go about doing things. I highly suggest you all go through his wonderful thread which is full of insights. I have learnt most of what I know by observing and absorbing what he does and adding little things of my own based on my temperament. None of this is original.
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