Saturday, January 24, 2015

BASICS FOR BEGINNERS ......



Holding Great Growth Stocks—Practicing Patience: How to Be a Better Investor


Courtesy :Cabot Investing Advice

The toughest thing for many investors to do is nothing. That’s right, nothing! Once you buy a stock and watch it move up, down and all around for a few weeks, there is an urge to take action. Since you bought the stock, you’ve probably read numerous investment news stories on the market in general and your stock in particular. And even if you are only watching your stock (as we advise), you’ve taken in many days of price, volume and relative performance (RP) action. With so much input, it’s easy to have your thinking swayed, which creates temptation to take action.
Another way to say it is that most investors lack patience. That’s a shame, because almost every successful investor we’ve ever met or read about has an abundance of patience. After all, if you’re correct on a stock, what’s the point of rushing things?
So the focus of this lesson,  dedicated to holding great growth stocks, is on practicing patience. Many times, the stocks you purchase don’t do an awful lot for many weeks after your initial purchase. But if you have the guts to stick with those stocks, some can turn out to be huge wonders. And in the end, those big winners are what make all the difference.
Making Money the Easy Way—By Doing Nothing!
Here’s a quick tidbit that most investors forget from time to time. The way you make money in the stock market is by holding stocks, not buying or selling them. Sounds obvious, doesn’t it? That’s just the how the stock market works. The value of your portfolio rises when a stock you own rises. So you have to be holding on to a stock if you’re going to take advantage of its appreciation.
The following excerpt is from Reminiscences of a Stock Operator, a fictional biography about the investing life of Jesse Livermore. In it, his character, Larry Livingston, expresses the principle of practicing patience as eloquently as we’ve ever heard:
“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was my sitting. Got that? My sitting tight! Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”
Through our conversations with readers  over the phone and e-mail, we know that many are slowly becoming more short-term oriented. But we urge you to have patience once you’ve committed money to great growth stocks. Often times, a stock will start moving ahead just after most investors have thrown in the towel. Don’t be one of them!
The message is simple: Practice patience and give your investments a chance to grow into mighty oaks.
What’s Your Goal?
When buying great growth stocks, your goal for every purchase should be to develop a huge winner. By huge, we’re not talking about 30%, 50% or even 100% profits. Instead, you should set your sights much higher—300%, 500%, 1000% profits and higher. All you need is a couple of these big winners every year or two to produce spectacular portfolio returns.
That last point is an important one: All you need is a couple of these big winners every few years to produce spectacular portfolio returns. Knowing this, you shouldn’t agonize over a few small losses, or worry if your last few purchases haven’t turned out the way you had hoped. Instead, by shooting for big profits, you put yourself in a position of power, only needing to find a couple of good stocks to produce great returns. Contrast that with the investor who’s eager to take any profit he can get his hands on. He must find perhaps ten stocks each year that show him good (but not great) profits to garner the same returns you’ll attain by getting only one or two huge winners.
This is why I never use target prices for growth stocks. When you set a price target, you’re automatically limiting the profits you’ll take out of any one stock. And that’s something we will never do!
Finally, remember that if your goal isn’t to develop huge profits, you’ll never attain them. So aim high!
How Practicing Patience Leads to Huge Winners
Clearly, you cannot develop wonders without practicing plenty of patience. Developing big winners often takes months or even years. It seems like a daunting task. But our Profit Curve shows us that it’s easier to get 1000%+ profits than you might think.
Profit Curve
The main idea behind the Profit Curve is compound growth, sometimes referred to as the eighth wonder of the world. Compound growth is the reason that the Profit Curve is, well, a curve, as opposed to a line. It means that the growth of your profit in any stock increases each time the stock moves higher.For example, let’s say you buy a stock and watch it double. Great! You now have a 100% profit. Now assume your stock works its way still higher, doubling again. After your second double, your profit expands, not to 200%, but to 300%. A third doubling would yield a 700% profit. And a fourth would give you a whopping 1500% profit.It’s not impossible to attain these huge profits. Believe it or not, dozens of stocks have grown many-fold in just the past two years. Whether or not that type of growth will happen again is anyone’s guess. But the fact is, the market provides a never-ending stream of opportunities for  investors like you. You just have to have the guts to stick with your winners.

54 comments :

  1. Dear Vp Sir,
    thanks a lot for such a useful information.. I am ur big fan : )

    ReplyDelete
  2. Dear Sir,
    I am new to market trying to learn from you guidance thanks for showing us the path.
    Sir I bought SKM recently what are your views as it was kind of jittery on Friday hope results are good.
    Thanks
    Anurag

    ReplyDelete
    Replies
    1. Sorry , I am not an insider to predict results in advance . I also hope for a good result

      Delete
    2. Anurag.. read through all writings in this blog. We need to learn to focus on research and have conviction in companies rather than their share price. It you believe in a company, you wont be worried about price going down. Entry points are always important in stock market depending on your risk profile. Your query suggests that you havent done ur homework before getting into SKM. Pls read, you will learn a lot here. Thanks Vijay Mumbai

      Delete
  3. Dear VP sir,very good.Patience plays important role in stock market.Even it is more frustrating if u bought something n its going down,its human tendency to book profit early n carried out loss...:) Thanks for ur million dollar support as always...Live long n always thanks for helping others...Good Morning...:)

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  4. Dear VP Sir,

    You are showing us the way of detachment. definitely true that doing nothing will pay you lot...lot. Thanks for your true love for all of us.

    ReplyDelete
  5. Sir
    I have a question on HMVL.Do you see its other income part which is mainly due to its investments in treasury bonds,sustainable quarter after quarter.

    ReplyDelete
    Replies
    1. I this I is a good compounder and suitable for long term passive investors

      Delete
  6. Bang on sir. We should understand that brokers have a vested interest in suggesting keep booking profits at higher levels as they will earn money. I had invested in la opala and booked out after a healthy profit. It kept going up and I realised I had lost a great opportunity. Have some investments in Cera, Avanti, Granules and SKM which are giving me good returns. Will hold on to them as have faith in the management. Thanks for your recos. Though they run up a lot after your recommendation, will wait for some price correction before entering.

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  7. Hello sir today there is an interview of Mr tanti where he answered the question on senvion listing vs selling , what are your views?

    ReplyDelete
    Replies
    1. I think , the real reason for immediate decision for selling instead of Senvion IPO is pressure from bankers . Recently RBI become more strict on banks in case of NPA recovery

      Delete
  8. Thank u sir for sharing such kind of information it's really good, plz share your view on KOEL result and I m sticked with it for long term(3-5 yrs).

    Waiting your reply....

    ReplyDelete
    Replies
    1. Nothing to comment about time bounded investment in stocks

      I believe KOEL will recover with recovery in core industries.

      Delete
  9. Sir,
    Any views on Nikhil Adhesives if tracking ?
    And how would you rate Liberty shoes results ? The sales have been flat but EPS has increased.

    Thank you

    ReplyDelete
  10. Dear Sir,

    Thanks for a good article. But one doubt is always remains in mind when stock is going down from our purchase price that we are right or wrong.

    Patience is the key. But then how we decide to exit from stock that is not performing? If we don't exit on right time then we are in huge loss.

    Please suggest the criteria to help in taking a exit decision on right time. (Is we have to wait for next quarter result?)

    Thanks

    ReplyDelete
    Replies
    1. For that one should study well before purchasing the stock not after purchase .

      One should exit from a stock based on the reason of fall in stock price. If it is due to something negative specifically to the company or the industry in which company operating ,there is some rationale for exit . But if it is due to general trend of market or part of profit booking by short term players , there is no meaning in unnecessary exit.

      Delete
    2. This is a very important lesson to be taken note of by all long term investors, who sell out their holdings (bought with a lot of conviction) during short term market corrections.

      Delete
  11. Sir, I had asked you earlier but it was not posted. Sir, it was about UPL Ltd buying back Advanta shares over the past two months in a big way, around 100 crs altogether. Since UPL has also been buying back its own shares (last year), does this mean its just their nature to buyback or is Advanta poised for bigger growth or some other reason (takeover or merger)? Your opinion is of immense importance sir. Thanks

    ReplyDelete
    Replies
    1. Sorry , only they can answer for this :)

      Delete
  12. nice sir......really everybody must have patience......
    thank you for valuable note sir....

    ReplyDelete
  13. A much needed piece for most investors who are always in the look out of booking profit. I would like to add one thing to this article, as mentioned wealth creation has a lot to do with patience, similartly trading regularly for regular cash flow is completely different than , chasing growth stocks.
    One should have clear goal and conviction about a stock before deciding on whether its for a long term wealth creation, or short term cash flow.

    ReplyDelete
    Replies
    1. I believe , majority of investors are still unable to distinguish between ' Making Money and Creating wealth ' using stock market

      Delete
  14. Sir your views on international paper appm the company has made profits q3 of 1.2cr. It has turned profitable. Sir its trading around 280. Can I buy this share for long term. It is also a global cardboard manufacturer . sir your views on this share plz thanking u

    ReplyDelete
    Replies
    1. This company is currently trading at a market cap of Rs.1220 Cr .I don't think 1.2 Cr profit is enough to justify such a market cap.Its parent company's reputation and investor's expectation about an open offer at a higher rate are the reasons for such a higher price. I am neutral on this company

      Delete
  15. Dear Sir, do Voltas,sundram fastners and Excel Industries qualify in the above category of patient hold Thanks

    ReplyDelete
  16. Dear VP sir,
    Its a fabulous posting really. This may be an eye opener for genuine investors. Excellent!

    ReplyDelete
  17. Dear VP sir,
    Please share your view on Mandhana industries ltd. at cmp for long term.
    Thanks.

    ReplyDelete
  18. Dear VP sir,

    I'm new to stock market. I has been a tendency to buy stocks and lose patience when some of the value picks bought are not moving much and some are going down. This article has provided great motivation to me to learn the art of patience in equity market.

    Thanks a ton for your guidance and support in helping new as well as established investors grow their portfolio.

    You rock.

    ReplyDelete
  19. Dear VP sir,

    Trying again...

    Hope you are doing well.

    I have done below study on this company and have developed good conviction, but need your opinion on it before taking a buy call.
    I checked your recent comments where you just said you don't track this company.

    This is a ~70cr market cap company with over 140cr revenue (projected, this year) trading at P/B of 0.51 and P/E of around 5.
    Debt is at lower levels (D/E=0.23). They are into 3 business verticals - Agri(Flori culture), BioTech, Pharma. Agri is growing well, Pharma has started adding to
    topline since last few quarters. They have implemented phase 1 of expansion of Bio division and phase 2 in progress. This is expected to add more revenue to top line
    . Company reported a EPS of 4.65 within the first 6 months itself compared to 5.48 full last year.
    Company also has a good R&D division cover 3 verticals. Company BS looks clean with rich cash reserves which was/is being used for plant expansions.

    Promotor holding is less than 35%. They might pump in more money to raise for BioPharma division expansion.

    Just based on valuations itself it look undervalued plus it has good growth prospects.

    Company is Pochiraju Industries Limited.

    Need your inputs on what other factor I may be missing while evaluating a business like above.

    Thanks a lot for your time and patience :)

    ReplyDelete
    Replies
    1. No meaning in commenting something about a company I am not tracking

      Delete
  20. Sir
    can u comment on Ashapura Minechem result

    Sorry I tried 3 times to post , I don't know if it is duplicated

    ReplyDelete
    Replies
    1. Actually result was good though prima -facie seems bad due to one time extra ordinary expense.

      Delete
  21. Thank you VP sir for educating us :)

    ReplyDelete
  22. Conviction to hold !!!! The sentence which to put on

    ReplyDelete
  23. Dear Vp.
    Yet again a very good article. Yes patience is the key to success in Share Market. In my small journey of seven months in Share market I tried day trading, very short term holding but failed to make money ...but from Nov 2014 I started to hold and I am 42% in profit now.
    All credit goes to you and your blog inputs.
    God Bless you.

    ReplyDelete
  24. Sir

    All your points are understandable, but just one thing that might be reason for worry. What would be the option if any global problem pull down Indian market (When situation like Jan-2008 happened when all good stocks reached to almost a zero figure). What you suggest for that one should book profit on early symptom or remain calm.

    ReplyDelete
    Replies
    1. Please don't misunderstand stock market as a place to make 100 % profit at 0 % risk :)

      Delete
  25. Sir please share your view on Fedders lloyd

    ReplyDelete
  26. Dear Sir,

    I had bought Uflex at 296 in 2010. The share price went down drastically. The fundamental remains good but it is under performer in stock market. Pl advise if have to stay put or come out. Will it ever break its all time high?

    ReplyDelete
    Replies
    1. More than once in the past I explained that I am skeptical about Flex Group cos.

      Delete
  27. Dear VP ji,

    Ur view on Kiri Industries?? Company holds 37% in dystar global.
    Promoters subscribed warrants at Rs. 136 recently. but the price is falling in the market. company has turned its ebidta positive and reported NP on fy14 consolidated figures..
    Is it a hold or sell.??

    ReplyDelete
    Replies
    1. Not tracking it

      Generally , Dye prices are coming down globally

      Delete
  28. Dear VP,

    Could you please share your views of Nutraplus Products.

    Thank you

    ReplyDelete
  29. Sir what is your view on intellect design??

    ReplyDelete

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