Both the stock picks I wrote about here in November have done well, as have the broader markets. But there is a set of learnings I want to share from these two picks which I am trying to articulate for my portfolio as a whole.
Styrenix: Since stock picking is a probabilistic sport, when you see multiple factors moving together along with a certain kind of pessimism because of surface level reasons, it is probably time to load up on the stock. Here, the demand scenario is still in favour with the auto industry restarting its performance, the management change brought a lot of efficiencies as demonstrated by the results, and there are additional capacity plans which are always interesting.
The surface level pessimism here was because of the promoter pledging and past governance issues. Remember a promoter has to take money from somewhere to get operating control back of a business they sold to an MNC and the governance transgressions happened at the time of the MNC promoters. Added to this was the smart money cornering. I think this stock hasn’t seen its potential yet, a better picture would emerge as the results for the company come back which can see re-rating here.
Arvind Fashions: Good investors were here, it was a recognised value stock always as I pointed in the write up above, all it needed was an event to change its perception to being the high growth company. The Sephora deal happened and still for some reason many people were skeptical, but this is where opportunities exist for investors like me.
Institutions take time to get to the bottom of events, for the people working there it is a job which pays you to do a Mon-Fri 9-5. For opportunity seekers, the motivations are completed different.
Now there is greater institutional coverage and research coming out on the stock, but I believe the results would be the main driving factor here. If the results are good, it can see good valuations, if not it will go back into a longer period of consolidation.
I’m slightly more skeptical of Arvind Fashion than Styrenix, but I’m sure that even through this there will be a learning I’ll have as the markets are the best teachers.
Attaching a note I saw on Arvind here.
Again the important thing is that this isn’t a buy or sell recommendation, higher equity prices make me scared about whats to come and I’ve done adjustments at the portfolio level accordingly. Also with a high interest environment all around us, it is very plausible to meet our financial goals through other instruments. Let’s not get overtly optimistic or keep expecting something which has a very low probability of happening.
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