Part 5: Process or How the heck do I Invest in Equity Successfully?
5.10 Build a Wealth-creating Stocks Portfolio - Part 2
How do you make investment decisions for stocks in your chosen Universe? How do you implement Quality-at-Reasonable-Price way of investing? Are there different ways of doing this depending on investors’ psyche or inclinations?
What works for DIY and Retail investors is Quality-at-Reasonable-Price way of investing. This does not mean there is only one way of doing this.
Based on the differences in how they prefer to invest there are 3 variants of this way of investing.
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Best Undervalued
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Best Fair Valued
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5 Star
1. Best Undervalued
Best Undervalued strategy focusses only on very good quality companies that are undervalued or somewhat undervalued. However, these stocks are usually available at lower than their historical valuations during overall market corrections or some stock specific reasons. Both are opportunities for long term investors. The high standard of consistent performance on key parameters required to qualify as a Very Good Quality, Green stock gives the comfort that the chances of buying value traps is limited. However, patience is required to see the strategy play out.
This strategy is best suited for investors who are comfortable going contrarian to the market, prefer paying a price lower than historical valuation and waiting for the tide to turn. When that happens, the returns are likely to be very attractive since it comes with improved company performance and the market re-rating. However, since this cannot be predicted it is critical to have a portfolio and not limit to only a couple of stocks. At the same time if there is authentic news of poor governance it is recommended to exit the stock, as such risks are not factored...........Read More
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