Profit Opportunity In Oversold Stocks

Dalal Street Investment Journal|October 23-27, 2019

Profit Opportunity In Oversold Stocks
Investors are often faced with two questions – How is the market going to be? And when is the best time to buy stocks to build my portfolio?

The answer to both these questions may not be easy for a majority of investors. If the market history has taught us anything – it is the fact that some of the best times to buy stocks is during the collapses, drops, hiccups and free falls that may happen once in few years. These are exactly the tough times when the investors have to summon the courage of conviction and show presence of mind to actually "buy" when the gut feeling says "sell".

Indeed, it is in such tough times that the investors are losing hope of grabbing multi-baggers and struggling to clock decent double-digit returns in the broader markets that we find plenty of 'beaten-down stocks' or 'loser stocks.' Different investors adopt different investment philosophies in different market conditions. While some believe in buying growth stocks, others believe in investing in value stocks even as there are some who invest only in dividend-paying stocks. Also, there are investors who bet on momentum stocks, while there are others who focus on beaten-down stocks or loser stocks.

The ultimate goal is to beat Sensex in the longer run, no matter what strategy is adopted. Now the moot question is: which is the best strategy that can consistently beat the markets in the longer run. Any seasoned investor would know that the answer depends on how well the strategy is executed rather than which strategy is adopted. To start with, when an investor builds a portfolio, there has to be a realistic portfolio management strategy in place and the expectations of returns from the market have to be reasonable for investors to be successful.

Says Parag Mandhana, who has been in the markets for over two decades, "In my initial investing years, I use to think I should get at least 40 to 50 per cent per annum from the equity markets. And I was not disappointed in my early years of investing career. I managed to get even better returns than 50 per cent in some years. But now I think I will consider myself a successful investor if my portfolio grows by 12 to 15 per cent per annum in the coming 5 to 10 years. It takes a lot of maturity to realize that the market in the ultra long term can deliver returns in the range of 10 to 12 per cent per annum."

Parag further adds, "I have adopted various strategies in the markets, but somehow buying the loser stocks or these so-called beaten-down stocks excite me the most. For me, it is far less risky than buying an overheated stock where the investor community is betting a lot. Must confess though that buying loser stocks is for seasoned investors and needs equity research skills that are above average. The strategy has worked for me in the past and I am confident that if I follow my stock selection filters in a disciplined fashion, I am going to generate alpha for my portfolio."

What are loser stocks?

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October 23-27, 2019