If I know that a company will face headwind for next 1-2 years and if I were holding the stock I would exit as early as possible. Or if I have to consider it, I will stay away. This is because I am a momentum investor and don’t want to waste my time and money on stocks that are not in a strong uptrend.
However for fundamental value buyers, this kind of situation often provides fertile grounds to keep this kind of company in watchlist and buy at appropriate time.
Currently we have the example of chemical companies (and the so called high quality companies mainly due to tepid growth inspite of high valuations) which have been under pressure due to various reasons like high raw material costs, high power costs, transportation costs, etc. After massive bull runs these are in corrective mode due to above mentioned factors. These kind of stocks have not moved much during the roaring bull market that we are currently in. And all this while the stocks in fancy, with earnings tailwinds and in strong uptrend have gone up nearly 2-5 times or even more. Even somebody with no fundamental prowess, but who detected the PSU bull run could have made crazy money.
A strong trending bull market ( like the one we are experiencing) provides a great time to make quick returns in short period of time of 2-3-5 years. Portfolios can go up 5 to 10 times or more. This is often the differentiating feature between being rich and being wealthy, and finally financial freedom.
Just to give an example, stocks like HDFC Bank, Kotak bank etc have not moved much during the past 2-3 years, whereas stocks like HBL, Usha, most of the PSU companies and PSU banks etc have gone up multifold. And still some investors are stuck like a limpet on HDFC bank and the likes. These stocks will also have their day but in the current scenario, they are rank underperformers.
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