Friday, November 19, 2010

Investing Strategies from Peter Lynch and Philip Caret

I was asked recently by azmath, a follower on this blog to provide an opinion on Jindal Polyfilms. My first reaction was lack of knowledge in this industry. I looked up its competitors and players in similar industry like Polyplex Ltd, I realised yet again that I have missed out a whole cyclical turnaround of polyfilm and allied industry.

I was tuned into radio station of sub 30 crore market caps for the past few months and I would have missed out TTKs and Relaxos if there were in the making even now. Likewise, I have no grip on sugar, steel, oil, cement industries. Playing cyclical stocks can be very very rewarding if one is at top of their game, best part is that its repetitive. While there are secular growth stories in India right now and for a while to come, perhaps after few years, I might cultivate interest in keeping tabs on cyclical stories.

Peter Lynch is a strong advocate of buying stocks in Industries where ‘you’ are a leading sensor by virtue of your employment/association in that industry. If you were an employee of Jindal Polyfilms, you could have made 5X the money in last four months, ditto for Polyplex. Or if you were in trading, shopkeeping, wholesaling business, you’d know when this industry is turning around and finished goods prices are soaring. There is an interesting story of Buffett sitting outside a factory and counting train bogies entering a factory with raw material to predict turnaround.

Second learning is, patience. After investing in solid 6 growth companies, there is nothing left to do for the next one year, other than reading quarterly results. One has to follow one’s hobbies and interests outside investing or reading related to investing, unless one indulges and enjoys trading.

Three months back I was prepared Photoquip may not move an inch for a year, I was cool with it. When I think now, is it possible for Photoquip to earn 10 Crores in net profits in two years from today (20 Rs EPS). Is it possible to get re-rated to 20 PE since it is a consumer brand. Multiplication of previous two numbers results in eight times possibility of upside from 50 Rs price available today, so if one’s brain is convinced, then what is left to do, unless one finds something even more seductive.

I will probably not be updating the blog frequently unless something too exciting happens, will keep adding to existing three positions (Photoquip, Relaxo, Cravatex) until proven wrong.

Both lessons remind me of this video