Porinju Veliyath and the purists have an ongoing feud on whether high-quality high P/E stocks should be preferred over low-quality low P/E stocks.
Porinju is outspoken about his contempt for high P/E stocks even though they may represent high quality. He believes that real value investing comprises of buying stocks which are not fancied by the market and which are available at dirt-cheap valuations.
On an earlier occasion, Porinju mocked the gurus by pointing out that they have lost sight of the difference between “great stocks” and “great companies”. He explained that while stocks like Page Industries, Kitex Garments, Ashiana Housing, Atul Auto, Symphony, Kaveri Seeds etc are “great companies”, they are not “great stocks” owing to their exorbitant valuations.
Page is over-priced unless govt makes it compulsory to wear 2 underwears, like superman 🙂 https://t.co/OVTovP99Lq
— Porinju Veliyath (@porinju) August 14, 2015
(Page is over-priced unless govt makes it compulsory to wear 2 underwears, like superman 🙂 )
Great Cos may not be Great Stocks: Ashiana was 'Great Company' at ~325 in Feb, while I was buying Ansal Buildwell, a 'Great Stock' at ~70
— Porinju Veliyath (@porinju) August 17, 2015
(Great Cos may not be Great Stocks: Ashiana was ‘Great Company’ at ~325 in Feb, while I was buying Ansal Buildwell, a ‘Great Stock’ at ~70)
Sad that amateurs are chasing success stories at wrong prices; I have been warning about Page, Kitex, Ashiana, Atul Auto, Symphony, KSCL etc
— Porinju Veliyath (@porinju) August 17, 2015
(Sad that amateurs are chasing success stories at wrong prices; I have been warning about Page, Kitex, Ashiana, Atul Auto, Symphony, KSCL etc)
In his latest interview, Porinju was asked his opinion about “wealth creator” stocks like Dr Reddy and Sun Pharma which appear to have lost favour with investors. Porinju used the opportunity to launch a scathing attack on the gurus:
“I am so lucky I do not have that kind of positions to hold on. I am a value investor, so Sun Pharmaceutical never came to my radar in the last few months or a Dr Reddy’s or Page Industries or Eicher Motors or Bata India, Kaveri Seed Company, Kitex Garments. I hated these stocks in the last one year because there are no values left, they are great companies. That is again I am repeating, I have been always talking look at the stocks, the great stocks and not the great companies.
I am telling you one more thing. In the last one year, Samvat 2071, what happened? The moat became a trap for all the new investors in this country. A lot of people I know, thousands of them, they started first time investing in this last one year. They listened to the biggies and the big people, fancied guys and they were all talking about some stocks which have gone up by five times and 10 times and 20 times and now, it has become moat stocks.
This was the biggest trap and people are losing 20-40 percent by doing that kind of safe investment.”
Porinju did not take any names but there are no prizes for guessing that the gurus in his cross-hairs are Prof Sanjay Bakshi and Basant Maheshwari.
Prof Sanjay Bakshi, the authority on value investing, is an outspoken votary of buying high-quality stocks even if they are quoting at high P/Es. In fact, the Prof wrote a treatise (Pay Up, But Don’t Overpay) in which he argued that even if investors had bought stocks like Nestle, Asian Paints, Pidilite etc at exorbitant valuations, they would still have made mega bucks. The Prof repeated this theory in another piece. Even in his latest piece, the Prof has drawn the analogy of a race between a high-powered Jaguar car and a low-powered Nano car. The Prof argues that even if you give the Nano a head start in a race, the Jaguar will still overtake it and win the race if the race track is long enough. It is explicit in the Prof’s advice that investors should prefer high quality stocks and pay the price for that.
The Prof also wrote a piece on Kitex Garments in which he waxed eloquent on why the stock offered a great investment opportunity despite its high valuations. The Prof has also written a note on why Symphony is/was a great investment. Ashiana Housing is also known to be one of his favourite stocks.
Basant Maheshwari is also an outspoken advocate of buying high P/E stocks. His Model Portfolio comprises of Page Industries, Hawkins Cookers, Sun Pharma, HDFC Bank, Gruh Finance, Repco Home Finance etc all of which are known for their high quality and high P/Es. Basant also delivered a talk in which he explained his theory about why high P/E stocks will not crash land even if the growth slows down.
At the end of the day, the debate between whether one should buy high-quality stocks at a high P/E or low-quality stocks at a low P/E is not one that can be resolved one way or the other. Both have their advantages and disadvantages. Each investor has to decide for himself which path he wants to take and which guru he wants to follow depending on his own preferences and investment outlook.