1. One should trade cyclical stocks only when one understands the start and end of cycles. Cyclical stocks peak in their prices not when their earnings peak out when expectations of earnings peak out.
2. MNC consumption commands a premium and should be looked at as a safe zone when markets are in an uncertain phase.
3. The financial mess can be more profound and trickier than manufacturing or product based company’s mess. In a finance company, troubles are unknown, leveraged and also have a ripple effect on other good assets.
4. Quality, the reputation of management, and quality of earnings provide a better margin of safety than cheaper valuations.
5. The market is smarter than all of us put together. If a stock trades at 30-40 PE, 50-60 PE, there are reasons for it. Predictability, longevity and quality with high growth command premium and price anchoring.
6. If the approach is not well defined, and strategy is not rolled out clearly, then random bets are bound to suffer.
7. Stock becoming cheaper and cheaper is not the right criteria to buy it, single-digit price is not at all a compelling reason to buy. If you ask me if it has assets, not so bad earnings and it’s in 10s or 20s of price, how much it can fall then answer is Zero. Sentiments and happenings to conduct in the future, perception towards them plays a significant role in price movements.
8. Turnarounds do not often turn. Stocks that have fallen from a ratio of 5 to 1 will not change their longer-term direction bouncing to 1.3 or 1.4 from 1. many stocks make such rallies in between but not able to sustain them when have fallen from very high.
9. no situation lasts. At one point people were picking mid-cap and small caps, now finding large cap as the holy grail. This won’t last all the time too. Time changes so do the momentums. Ability to hold good stocks for long, buying them on correction, digesting their falls only will produce substantial, durable returns. No shares or portfolio in the world has been invincible. Most revered veteran investors had witnessed 40-50% drawdowns in their holding value in their stock market investment career. Conviction and stomach will only make sizable investment and returns.
10. By merely avoiding what you don’t understand, stocks having pledges, low margins or cyclical margins, low promoter holdings, and investing in better roce, better visibility companies, one can do very well passively.
Lessons have a long way to go. The market is the best teacher.