Investing in Equity Markets : Lessons Well Learnt
investment-mantra.co.in is a platform wherein we as investors can share their respective investment philosophies and discuss what has worked/what not worked for them in equity markets. A whole lot of investors talk about influential investors and how they made tons of money in equity markets. Equally significant is to learn quickly from the mistakes which investors made as part of investing in equity markets.
As part of this learning process, I would like to share one recent learning I learned through one of the scripts which I held till very recently in my portfolio – Can Fin Homes. It has been one of my best picks in affordable housing lending space as part of my allocation under ‘Housing Finance Companies (HFC’s), mainly because of stable growth numbers and excellent asset quality. Though I tend not to invest in any business owned by a PSU (in this case Canara Bank), I even relaxed this parameter since the company and business were doing really well on all parameters, has been a wealth creator of past and then the company didn’t seem to inherit the lethargy of PSU managements which we come across way too often, especially PSU banks.
Few months bank, Canara bank announced its intention to offload its majority stake in its subsidiary – Can Fin Homes as part of government’s push to sell noncore assets and use the capital to ease themselves with the funds they terribly require to compensate the NPA mess majority of PSU banks find themselves in.
It was a positive news and just around the same time came the news of the big boy – HDFC looking to raise capital and may look to buy out a company similar to Can Fin Homes which complements and not overlaps its current HFC subsidiary – Gruh Finance. The news was all around the media and it pushed the price of Can Fin Homes to the top tier ( close to 550 if I am not wrong). I as an investor was a happier lot as I held it as the biggest allocation to the portfolio and stock moved just because in the anticipation of HDFC buying the majority stake. Looking back, it seems that greed to earn more and more should have been controlled and also dream of HDFC owning the company and thus it trading at valuations similar to Gruh should have been controlled till the deal was actually done. I decided to stay put thinking in case HDFC buys out, it will be a long-term hold. All the newspapers were flashing the news that Baring capital and HDFC were the two left in the fray and even rumors were there that Baring had outclassed HDFC on the bid price.
Felt disappointed as would have preferred HDFC but still, Baring was a reasonable majority shareholder in the company. When everything seemed final and announcement seemed to be a mere formality, there came a googly that Canara Bank has decided not to sell the stake as final bidder acquisition cost didn’t meet their expectations. This was never anticipated by me as an investor, caught me off-guard. The stock is now trading close to 389 (closing May 10, 2018) from 550 ( also slower growth, high borrowing costs, contracting NIMs has also contributed to it).
Ultimately sold my compete holding at 437 but there are some lessons for me as an investor. It is not about this particular stock ( it may again make all-time highs) but still, there is something which is for us to learn as an investor.
(a) It’s not a bad thing sometimes to sit down and evaluate if businesses you have originally invested are still going strong. There can be instances when you invested, there was a sector tailwind, markets touching new highs, interest rates were low, top management had excellent leaders which may not be the case now. It is always better to evaluate how sector and company are performing after a specific interval. Don’t turn a blind eye in case the company is not doing as well as it used to do. Earnings will dictate stock price in the long term.
(b) Never ever rely on what is published in media as it is may not be authentic and you should not risk your investment strategy based on that assumption. Don’t take your investment decisions based on what is mentioned in print media as it can very well turn out to be the other way around.
(c) Diversify across a couple of stocks and sectors so that risk is taken care of, especially if you are a retail first-time investor. Also in case, you have earned 1X, 2X profit on your investments, make sure you know how to protect it. Profit, till realized, is only unrealized profit.
(d) A famous investor held this stock but exited before the news of deal not going through came out. There were investors following his investment strategy blindly and were left in a lurch as they came to know about his exit a few days after. Learn from great investors but don’t follow them blindly.
Last but not the least
(e) As a general learning for myself, I will look to avoid investing in businesses wherein even a subsidiary is under PSU control as you like it or not – it finds it difficult to withstand cut-throat competition.