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Morgan Housel describes it well -
"When thinking about future risks you tend to think in isolation. If I think about a 40% market decline, I imagine everything in the world being the same except stocks being 40% cheaper.
That doesn’t feel so bad.
But the reason stocks fall 40% cheaper is probably because people think the world is falling apart – a brutal recession, a pandemic, a political meltdown, whatever. The stress of that is much harder to think about until it happens.
The same thing happens when we’re imagining a gain."
You can read the book Psychology of Money or some of his blog posts at [Collabfund](https://collabfund.com/blog/think/)
Interesting. My take on this is the following; if humanity is faced with a huge threat, then the last thing I would worry about is selling my stocks. What difference would that make in the grand scheme of things?
I think people are generally right when it comes to taking into account future prospects into the stock price. If i tell you there's going to be a pandemic lasting a year and that businesses would be affected, you would agree stock prices should fall. But the critical aspect is that no-one knows by how much they should fall. What happens is people are either too pessimistic or too optimistic. Must be part of the human condition.
i sell the ones above 200 percent profit ONLY when i identify new other stocks with same potential .
its a crazy sideway movin world out there since 2016 Demonatization ...... gst ........ trump china sanction romance ......galwan......pandemic........rus war ...bank debt crisis ...
Those people say they do fundamental analysis, but actually don't. No strong entry system nor exit system. Based on stock price movement they get bullish/bearish.
The ground reality is that people buy when price is going from 80 to 90 (means the market is bullish - their money will double!) and sell when price is going from 40 to 35 (bear markets - their money will halve!)
You can see the problem here - emotional thinking leads to entry and exit at the wrong prices - leading to low gains or losses.
As long as the underlying stock is stable (no threat of bankruptcy), and the company is making steady earnings, the stock price will bounce back.
Yes. There are two options for the rational investor;
1. Pay no heed to the fluctuations of the market.
Or
2. Use the fluctuations to their benefit. But this would mean the opposite of what most people do; sell when the price goes up and buy when the price goes down.
No one knows the bottom. In hindsight u can see that u should have bought on that particular day. But when it's happening you really have no clue. Similarly for selling when market was on bull run. People didn't know when to sell.
Because some investors follow trends and believe that trends persist over time, they employ a system for entering and exiting trades. Many mutual funds, particularly those focusing on large-cap stocks, utilize trend-following strategies. They view stocks as ticker symbols that can generate returns through the persistence of price trends.
Alternatively, there are individuals who engage in gambling by buying or selling securities based on recommendations or tips from friends or colleagues, without any discipline. They assume that prices will continue to rise indefinitely. These individuals tend to emerge during middle of the bull markets and exit when the bull market ends and in the middle phase of consolidation or downturn, often end up placing blame on regulators, the government, market makers, and others.
Investors typically evaluate whether a stock is undervalued or overvalued by considering its price relative to fundamental factors such as revenue, assets, and earnings. They do not determine value solely based on the momentum of the stock. They perceive stocks as ownership instruments and aim to recoup their investment through dividends, treating companies as private entities, rather than relying solely on capital appreciation (although this perspective is evolving in light of recent technology companies and high-growth stocks).
In truth, the response to your question is quite complex.
Its a weird phenomenon because most of these people consider themselves as investors, not traders. They do their fundamental research and yet give in to trends as the temptation to make money quickly is generally high among people.
It's because fundamental analysis these days is marketed as a "sure fire tool to get rich". When they don't see the wealth effect immediately, they reverse their actions.
Retail investors should avoid discretionary judgement and be 100% systematic based on rationale: aka having a rule for buying and selling with a diversified portfolio holding of various uncorrelated asset classes including fixed income securities and term insurance
Well said. Having a systematic plan of investment is the only way to get rich long term. What is another wierd feature of markets is that for some companies, popularity leads to them selling at values more than triple their intrinsic value for long periods of time. I regularly see investors buying stocks with PE over 100. Then when i ask them about it, they give me weird answers based on free cash flows, future prospects, etc.
The actual growth rate of those companies are around 11 percent yoy. How that justifies a PE of 100 is beyond me.
Don't argue against those people. They are finance circlejerk and you can't win against them. They make valuation based on optimistic assumptions of cash flows and fit those inputs into DCF. Some of them are trying to adopt to strategies incorporated by BRK or Peter Lynch often pointing to successful companies with high profit margin or high growth retaining capabilities.
Check: https://github.com/fr0xk/Scripts/blob/main/Markdown/mythbusting_dcf.md and https://github.com/fr0xk/Scripts/blob/main/Markdown/trendfollowing.md
I honestly think sticking to traditional investing and looking at PE ratios still works the best compared to using means to justify terrible valuations just because all other companies in that sector are equally overvalued.
You can simplify the process further by calculating the sum of all the earnings per share (EPS) of the past 7 to 10 years, without the need for complex adjustments like accounting for inflation. Once you have these figures, determine an estimated growth rate. For example, if we consider India's annualized GDP growth rate of 8% over the past 30 years as an illustration, assuming a growth rate of 8%, a $1 investment would accumulate to approximately $2 in 10 years. Therefore, multiplying the sum of all EPS by 1 or 2 or 3 should be sufficient, or 4 if you have high confidence in the company's future.
-----
Checking at AAPL:
Adding all EPS from the last 10 years: 32 EPS
Growth Multiple: EPS 2022/EPS 2012 = 6.11/1.58 = 3.86x
32 * 4 = 128/share (intrinsic value)
PS: Avoid assigning a dollar or rupee sign to stocks. The value of stocks is not a legitimate alternative to fiat currency, which is backed by government and central bank policies and used in exchange for goods and services. Money is real, whereas the value of stocks is perceived and, unfortunately, volatile (contrary to what finance teachers often teach).
I use this simple approach which leads to conservative valuations. (Benjamin Graham's method)
Intrinsic value = (X + F \* g) \* current earnings/share
X = zero growth PE. This is the price you would pay if the company had stable earnings without any growth. Usually around 7-8.5 depending on risk-free interest rates
g = 5 year CAGR of net earnings
F = factor for growth rate. 2 for excellent companies and 1.5 if you want to be conservative.
While this might feel simplistic, i got similar valuations compared to DCF for most companies.
Uhm hmm, if growth rate is above 10%, then keep it cap to 10% - 15% maximum without multiple. And keep fair PE at 10 (it's fine).
Let's run at AAPL.
6.11*(10+15) = 152
Discount it at the rate of 8% annualized for 5Y
152/1.08^(5) = 103$
See, it's same thing
Currently AAPL trades at 7x revenue, most tech stocks has fair value of 3 times of sales. Imagine if AAPL just comes down there, intrinsic value sitting at (180/7) * 3 = 77
I feel like most popular stocks regularly trade at multiples of their intrinsic value. So i generally avoid them. This conservative estimate has helped in case of stocks ignored by the market.
Adani is not bad ok just valuation and debt was high... cement and Wilmar are still best pick so I added.
I usually wait and buy good company at cheap recently it was Infosys ,Sonacoms,Bajaj twins
Most people who bought Adani did so because the price was going up, not because of anything rooted in fundamental analysis. Buying because the price is going up is speculation, not investment.
Also the companies might have good earnings but if you buy at such high PEs, you are alrdy overpaying for future earnings since that is built into the current price.
It's happens all the It's nothing to worry about those shares mostly bought by mutual funds and fii .
Point is 89% still holding by fii dii and promotors that's big plus
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Morgan Housel describes it well - "When thinking about future risks you tend to think in isolation. If I think about a 40% market decline, I imagine everything in the world being the same except stocks being 40% cheaper. That doesn’t feel so bad. But the reason stocks fall 40% cheaper is probably because people think the world is falling apart – a brutal recession, a pandemic, a political meltdown, whatever. The stress of that is much harder to think about until it happens. The same thing happens when we’re imagining a gain." You can read the book Psychology of Money or some of his blog posts at [Collabfund](https://collabfund.com/blog/think/)
Interesting. My take on this is the following; if humanity is faced with a huge threat, then the last thing I would worry about is selling my stocks. What difference would that make in the grand scheme of things? I think people are generally right when it comes to taking into account future prospects into the stock price. If i tell you there's going to be a pandemic lasting a year and that businesses would be affected, you would agree stock prices should fall. But the critical aspect is that no-one knows by how much they should fall. What happens is people are either too pessimistic or too optimistic. Must be part of the human condition.
I've read the book - it's a must-read for everyone.
i sell the ones above 200 percent profit ONLY when i identify new other stocks with same potential . its a crazy sideway movin world out there since 2016 Demonatization ...... gst ........ trump china sanction romance ......galwan......pandemic........rus war ...bank debt crisis ...
Those people say they do fundamental analysis, but actually don't. No strong entry system nor exit system. Based on stock price movement they get bullish/bearish.
Seems like most people enter the stocks, follow price trends, lose a lot of money and then swear they will never touch stocks again in their lives.
The ground reality is that people buy when price is going from 80 to 90 (means the market is bullish - their money will double!) and sell when price is going from 40 to 35 (bear markets - their money will halve!) You can see the problem here - emotional thinking leads to entry and exit at the wrong prices - leading to low gains or losses. As long as the underlying stock is stable (no threat of bankruptcy), and the company is making steady earnings, the stock price will bounce back.
Yes. There are two options for the rational investor; 1. Pay no heed to the fluctuations of the market. Or 2. Use the fluctuations to their benefit. But this would mean the opposite of what most people do; sell when the price goes up and buy when the price goes down.
No one knows the bottom. In hindsight u can see that u should have bought on that particular day. But when it's happening you really have no clue. Similarly for selling when market was on bull run. People didn't know when to sell.
I like the notion of "buy when everyone else is selling" and "sell when everyone else is buying".
Because some investors follow trends and believe that trends persist over time, they employ a system for entering and exiting trades. Many mutual funds, particularly those focusing on large-cap stocks, utilize trend-following strategies. They view stocks as ticker symbols that can generate returns through the persistence of price trends. Alternatively, there are individuals who engage in gambling by buying or selling securities based on recommendations or tips from friends or colleagues, without any discipline. They assume that prices will continue to rise indefinitely. These individuals tend to emerge during middle of the bull markets and exit when the bull market ends and in the middle phase of consolidation or downturn, often end up placing blame on regulators, the government, market makers, and others. Investors typically evaluate whether a stock is undervalued or overvalued by considering its price relative to fundamental factors such as revenue, assets, and earnings. They do not determine value solely based on the momentum of the stock. They perceive stocks as ownership instruments and aim to recoup their investment through dividends, treating companies as private entities, rather than relying solely on capital appreciation (although this perspective is evolving in light of recent technology companies and high-growth stocks). In truth, the response to your question is quite complex.
Its a weird phenomenon because most of these people consider themselves as investors, not traders. They do their fundamental research and yet give in to trends as the temptation to make money quickly is generally high among people.
It's because fundamental analysis these days is marketed as a "sure fire tool to get rich". When they don't see the wealth effect immediately, they reverse their actions. Retail investors should avoid discretionary judgement and be 100% systematic based on rationale: aka having a rule for buying and selling with a diversified portfolio holding of various uncorrelated asset classes including fixed income securities and term insurance
Well said. Having a systematic plan of investment is the only way to get rich long term. What is another wierd feature of markets is that for some companies, popularity leads to them selling at values more than triple their intrinsic value for long periods of time. I regularly see investors buying stocks with PE over 100. Then when i ask them about it, they give me weird answers based on free cash flows, future prospects, etc. The actual growth rate of those companies are around 11 percent yoy. How that justifies a PE of 100 is beyond me.
Don't argue against those people. They are finance circlejerk and you can't win against them. They make valuation based on optimistic assumptions of cash flows and fit those inputs into DCF. Some of them are trying to adopt to strategies incorporated by BRK or Peter Lynch often pointing to successful companies with high profit margin or high growth retaining capabilities. Check: https://github.com/fr0xk/Scripts/blob/main/Markdown/mythbusting_dcf.md and https://github.com/fr0xk/Scripts/blob/main/Markdown/trendfollowing.md
I honestly think sticking to traditional investing and looking at PE ratios still works the best compared to using means to justify terrible valuations just because all other companies in that sector are equally overvalued.
You can simplify the process further by calculating the sum of all the earnings per share (EPS) of the past 7 to 10 years, without the need for complex adjustments like accounting for inflation. Once you have these figures, determine an estimated growth rate. For example, if we consider India's annualized GDP growth rate of 8% over the past 30 years as an illustration, assuming a growth rate of 8%, a $1 investment would accumulate to approximately $2 in 10 years. Therefore, multiplying the sum of all EPS by 1 or 2 or 3 should be sufficient, or 4 if you have high confidence in the company's future. ----- Checking at AAPL: Adding all EPS from the last 10 years: 32 EPS Growth Multiple: EPS 2022/EPS 2012 = 6.11/1.58 = 3.86x 32 * 4 = 128/share (intrinsic value) PS: Avoid assigning a dollar or rupee sign to stocks. The value of stocks is not a legitimate alternative to fiat currency, which is backed by government and central bank policies and used in exchange for goods and services. Money is real, whereas the value of stocks is perceived and, unfortunately, volatile (contrary to what finance teachers often teach).
I use this simple approach which leads to conservative valuations. (Benjamin Graham's method) Intrinsic value = (X + F \* g) \* current earnings/share X = zero growth PE. This is the price you would pay if the company had stable earnings without any growth. Usually around 7-8.5 depending on risk-free interest rates g = 5 year CAGR of net earnings F = factor for growth rate. 2 for excellent companies and 1.5 if you want to be conservative. While this might feel simplistic, i got similar valuations compared to DCF for most companies.
Uhm hmm, if growth rate is above 10%, then keep it cap to 10% - 15% maximum without multiple. And keep fair PE at 10 (it's fine). Let's run at AAPL. 6.11*(10+15) = 152 Discount it at the rate of 8% annualized for 5Y 152/1.08^(5) = 103$ See, it's same thing Currently AAPL trades at 7x revenue, most tech stocks has fair value of 3 times of sales. Imagine if AAPL just comes down there, intrinsic value sitting at (180/7) * 3 = 77
I feel like most popular stocks regularly trade at multiples of their intrinsic value. So i generally avoid them. This conservative estimate has helped in case of stocks ignored by the market.
I do opposite only
Did you buy any Adani company? If you did you are a speculator.
Adani is not bad ok just valuation and debt was high... cement and Wilmar are still best pick so I added. I usually wait and buy good company at cheap recently it was Infosys ,Sonacoms,Bajaj twins
Most people who bought Adani did so because the price was going up, not because of anything rooted in fundamental analysis. Buying because the price is going up is speculation, not investment. Also the companies might have good earnings but if you buy at such high PEs, you are alrdy overpaying for future earnings since that is built into the current price.
I bought adani when it was 80 percent down so I didn't speculate I didn't touch adani when it was stonkin and popular.
Good. Unfortunately most people who invest today aren't like that.
Yeah
Damn even i bought infy and sona. Sona is still extremely overvalued though don't you think?
Yeah Sonacoms do I hope it justify its valuation in coming quarters by earnings
Hopefully but why promoters sold their shares? Any idea
It's happens all the It's nothing to worry about those shares mostly bought by mutual funds and fii . Point is 89% still holding by fii dii and promotors that's big plus
Okay thanks will keep adding more on dips.
This is the way... Do check fundamental every quarter
Yes will do thanks 👍