Basant Maheshwari of Basant Maheshwari Wealth Advisers and author of The Thoughtful Investor, shares amazing insights with Bloomberg. Below are a few takeaways from this brilliant one-on-one engagement where he speaks about his perspective and how he specifically picks stocks.
The bull market ended in January 2018.
The format of investing should not change just because the market is up or down.
The stock is different from the product. The product may be superior, but the stock may not reflect that.
Look at some stocks, like Tata Steel and Tata Motors. They have not yielded even fixed deposit rates of return over the past 20 years. There was a study done a while back which indicated that 85% of Indian stocks don’t even yield inflation-adjusted returns over a 20-year period.
There will no post-election rally.
The consensus is that this government has confirmed another 5 years in Delhi, so the post-election rally will happen pre-election. Once the govt is voted back in, there won’t be too much of a flurry in the market. So, don’t be on the sidelines waiting for the elections.
The Nifty is being propped up by a few stocks.
When everything is going up, it’s normally, 6 months before the top. So if we have a situation where only handful of companies are going up in the Nifty, I think it’s good.
RoE takes precedence over valuations.
A company with a low ROE of 13-14-15%, that is not a sector leader, is a red flag. The cost of debt in India is generally 12%, hence the spread is low. Instead, buy a company with 100% RoE, and some growth over the next 10 years, irrespective of the P/E, you will not lose money (unless there is a business model failure).
Look for growth.
Good things in life never come cheap. The market pays for growth. You will have to buy quality a little expensive in the hope that over the next 6 to 12 months, earnings would come in. Investors miss a lot of companies just waiting for them to get cheap. You want to buy a stock 20% cheaper than its current rate, not realizing that in 5 years it could go up 3x. But, you have to be sure about the earnings.
Look at the sector.
Avoid government regulated businesses. I don’t want a big brother to be influencing the business and the stocks.
Also avoid cyclicals.
Don’t worry about bottoms or tops.
If buying cyclicals, look for the bottom – a steel company, a sugar company or a shipping company, for instance.
If you are looking at a secular growth multi-year compounding monster, don’t look for a bottom because the bottom will keep moving up. My experience has been that the best company in India never fall more than 18%, unless there is an external impact.
The focus should be if earnings will return. If earnings return, the stock will bounce back.
Do watch the entire discussion with Bloomberg or read the transcript here.
