2017 was a great year for most Stock pickers and our core Stallion portfolio was up about 100% this year against 27% for Nifty. This was a year where Low PE, High PE, High Growth, No Growth, Cyclicals, High Quality, Low Quality, Value, crypto-currency absolutely all worked and creating wealth was a easy job for Smart Investors.
The Secret of catching Future Multibaggers is studying Past Multibaggers, market follows a pattern, its always similar. Below are my Biggest Learnings of 2017
1) Never Ignore Cyclical Stocks – We at Stallion haven’t invested in Cyclical stories and commodities in our core portfolio but we invested considerable time this year in understanding previous cycles of Sugar, Paper, Chemical, Metal, Power etc between 1994-2016. Every Cyclical Cycle is broadly the same, and the maximum amount of money is made when things go from truly horrible to just getting better.
The Reason Cyclical Stocks run up is due to a Temporary mismatch in Demand and Supply which gets accelerated Earnings Growth for 8-16 Quarters. The Most Important Factor in Cyclicals Stocks is Timing, because over long term these stock are not going to create wealth but in the short term (1-2 Years), they can give you 5-10x gains. After studying data for 20 years, we have come a conclusion that in absolutely every Cyclical rise, the prerequisite was Insider Buying in the Entire Sector (Not just one Company), be it Sugar, Paper, Chemical, Graphite or even Steel very recently.
2) Every Bull Market is the Same – Every Bull Market start with Money Flowing into High Quality, High Growth Stocks, Followed by High Growth and Low Quality, and Finally the best returns are made in Low Quality, Low Growth Companies. As Expected High Growth, High Quality have under performed in the latter half of this year, whereas Low Quality, High Growth was the star in the last 6 months.
3) IPO in Bull Market – Good Story, Strong Earnings Growth, Small Float, Perceived Longevity in a bull Market backed by a New Entrepreneur (not a Corporate house like Godrej or Reliance) are the perfect ingredients for a Bubble. The Valuations of D-Mart, Shankara, Team Lease etc can’t be understood (unless you value them using 2027 financials ofcourse), and they can remain expensive for a long long long time till the end of this bull Market.
4) Bitcoin Trend – Every Old Bubble lays the Seed for the Next Bubble. In 1905 Electricity was Discovered by Thomas Edison and Electricity Manufacturing companies went up 1700x in next 10 years, which gave form to Radio in 1921. Radio was the only form of Entertainment, News and Radio Stocks went up 300x in next 7 years till 1929. The discovery of Electricity sowed seeds for Radio Bubble, Similarly Internet bubble of 2000’s layed seeds for Bitcoin in 2009 and 10-15 years from today i guarantee you that the Digital currency will be like what internet is today.
5) SME IPO’s – They have created massive wealth for Investors, We took a Random sample of 30 SME’s and in 24 of them (80%) have huge Jump of Profitability right before the IPO Year (Be Smart Here). The Trend of SME IPO’s has just Started and someday within the next 10 years, there would be more SME’s than companies on the Main Exchange. A New India is being created backed by entrepreneurs who are solving problems, this is just the start though you have be a little smarter in picking up SME Stocks, PE Ratio isn’t the right matrix in SME, Management Quality is.
Conclusion – Our Economy is going from 2 Trillion to 5 Trillion in next 10 years, our country will make 1.5x more money than what we have created in last 70 years, there are going to be big Trends in the Market, this is our time to buckle up and catch those Trends. Markets were kind this year and we doubled our money, but we need to ride the Bull with caution as markets are running on back of Liquidity.
Disclaimer – Please use the above Information for education purpose only.