As anybody can see from my earlier posts , I was a Fundamental-oriented investor from start. Reading Annual reports, concalls, credit rating reports ,brokerage house reports, following news related with my portfolio companies, watching Management Interviews etc is what my M.O. for selecting and tracking the companies. I was never into technical analysis and never beleived into it…and even today also I don’t beleive more detailed technicals and I consider it as hoodoo.
And in last 2 years, when overall market was in strong bull phase ( and still is in)and even my mutual fund investments were giving very good returns, my direct stock portfolio was giving very very ordinary and disappointing returns. All my stocks were good. take Bajaj Finance, SRF, Pidilite, Divis Labs, Nestle, Tata Elxsi, LTI MIndtree, Kotak Bank, HDFC bank, Muthoot Finance etc. All are good quality companies and I was tracking them fundamentally and still Portfolio performance was so-so. And I was desperately finding the reason for my poor performance. And I came to know about Stage Analysis and read Stan Weinstein’s book…and it kinda opened my eyes.
Companies may be good quality , having moats, superior business models etc…but one thing was missing in my portfolio stocks and that one thing was momentum.
We make money, when share price of our companies go up …very simple truth…not when our companies make good profits , although that also can happen simultaneously.
First time when I started seeing Price and volume charts of my companies and it gave me a shock to see companies like Bajaj finance, consolidating for 2 years at a stretch , LTI Mindtree at same level for 1-2 years and I am blindly holding them , hoping that the price will appreciate soon, not understanding that there are currently more sellers for these stocks than buyers. Then I applied Stage analysis to all my stocks and when I entered into them and I was shocked that I was actually buying them either during consolidation or during their downtrend. That was the reason for my failure.
While those companies which I bought during stage 2 , uptrend like Trent, KEI, Polycab, have doubled in just 1 year or so.
We need to understand that share price of our stocks will increase when more people buy our companies and in large quantities. And such buyers are invariably big players, either promoters or Institutional investors, insiders. And we have to agree that they have informational advantage over us. We would like to think that there is no insider information or informational asymmetry but in practical world everybody knows that we are the last people to get any information about our companies. All results, all critical information first goes to big guys. And if they act on that information, it will be seen in the chart on price and volume. So we cant know the exact info but we can piggyback these big guys by following this price and volume action. Thats the only option we have. Ultimately all information will translate into price. Then why not track the price?
And I am not talking of trading here. Investing by piggybacking big investors through the price-volume action…Thats Momentum.
Then I started applying Stage 3 and stage 4 rules to my failed investments like Laurus labs, Divis Labs, LTI Mindtree and came to know that had I applied stage 3 rules, I would have exited these stocks much much earlier thus saving myself from big losses. And also by avoiding consolidation phases, I would have deployed my funds in growing stocks. So most important thing I realised is to avoid stage 3 and stage 4 stocks and if any of my stocks enter in such stages, I would exit at earliest.
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