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Value investing is difficult because...

By P V Subramanyam
January 29, 2015 09:17 IST
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All investors are value investors. Or they at least like to believe this. So let us see why VI is so difficult to achieve, even though philosophically it is easy to understand.

You just need to be buying when everybody is selling, it is so simple!!

Well one amazing sentence that 'market experts' use commonly on the idiot box is "It is all there in the price". God, I wish the guys who say that DROP DEAD by the time they say this.

Let us take a share like Tata Docomo.

At Rs 13 was the court case in the price?

If yes, then why did it go to 8?

And when the court judgement came why did it go to Rs 11?

So when was the court case in the price?

If you say 'It is all in the price' -- you are saying "I know what SHOULD be the intrinsic value of the share" and more importantly 'How much is the foam' in the price. Frankly I do not know both.

So how can I say 'it is already in the price'? You realise with experience that what Lor Maynard Keynes said is true: "Market can be irrational far longer than you can be solvent".

Having said that when I bought Cholamandalam at Rs 65 I knew I was buying very good value. At a price of Rs 535, I have no clue how much is value and how much is foam. The only thing I can say in its defence is shares which are quoting much higher have no value, so this may be carrying value. However it will take 30 horses to pull me to BUY the same Cholamandalam today.

Let us take infrastructure. From when have people been seeing value? I have not been able to see value in India's infra companies. I prefer the cement, tiles, banks, and not the GMR and GVK -- any way they do not match my Hyderabad bias too.

If you had bought infra in 2009, maybe you would have been too early. Likewise we all know that oil is at $50 and soon it will be available FREE... and after sometime they will pay you money to use oil. So one sector NEVER to go near (as of now) is oil and gas.

I can assure you that if you take a contrarian view on say Reliance, you will make money. LISTEN I AM NOT PUTTING A GUN on your head and saying "Buy RIL TODAY or you will be dead". I am just saying that at Rs 825 it looks attractive. Period.

Can it go down from here? sure!!

I am saying this is a good price to buy. Period.

I have no clue where the market will be tomorrow, one month from now or one year from now. I can see some shares which have been beaten down too much and some in which the foam is MORE than the substance. You should know what to buy.

When I say 'market' I normally mean 'my portfolio'.

So If RIL gave me a 14 per cent return per annum growth over the next 5 years, I would be thrilled. This is including dividends. This means the share should be quoting around Rs 1500 in 2020. I do think it will.

I am not enamoured by FMCG, but hey like the stupidly over-priced BFSI (banking, financial services and insurance) space this too has kept me in the money. I am convinced at the current market capitalisation both Tata Power and NTPC are good buys, but again they can fall 20 per cent. Are you ready for that?

Can you spot value?

If yes can you write how and why this value will be unlocked? Can you also say honestly why the market is not willing to pay this extra price that YOU think it deserves? Be careful, the path of value investing is paved with stones.

Illustration: Uttam Ghosh/

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P V Subramanyam