It’s been a while that I’ve discussed a new idea. Today, I wanted to revisit some of the mistakes I’ve made in the past six years which has made me who I’m and maybe through the discussion, I can justify to myself the reason I believe a stock I hold dear has a lot of room to rally.
The first stock my father bought for me was HUL. Actually he bought Asian paints and HUL back in February 2017 when the two were trading at around 800-850 each. Now you’ll get excited and tell me that I’d have made a ton of money because the duo has already tripled from those levels by now. Well, we’re discussing mistakes today ,right!
So from around 2017 to 2019 end, I had learnt what I thought was the Gospel of making money in this market. The Grahamic way of not paying more than 15x earnings and 1.5x Book value and through which you end up wealthy. So I kept adding all the Oil stocks, the metals and everything which went down 30% while the markets rallied from 8500 nifty to 12k nifty and HUL and Asian Paints became the market outperformers
In my little own world, I saw my HUL double in two years and Asian paints grow by 50-60% while the HPCL and Oil India going nowhere. So I took the cue from my master and converted all my lever and Asian paints into additional oil and metal stocks believing that I’ve hit the jackpot. Also, I was extremely happy averaging into Yes Bank with immense confidence in my uncanny abilities to turn lead into gold while the stock dwindled from 150 down to around 30₹. So in the first three years of my investing journey, I had read possibly a fifty investing books and learnt all the wrong lessons! I was sure the world was wrong and a guy with ten books in his cupboard held the key to the golden goose.
Fast forward three years, I got out of the oil and metal stocks, of course by making some money through the Covid dips but learnt the hard way and by a lot of losses the importance of quality. Hence, one of my earlier blogs was titled Don’t eat junk.
The other important lesson that I learnt from the HUL journey was that it was a good company coming out of a multi year sideways range after surviving through a big crash in 2008 while constantly increasing earnings, raising dividends and being a lot cheap on valuations. So a HUL which traded from 200-300 for seven years when it finally broke out of that range in 2010, it has gone up nine times to almost 2800 in the next 11 years. So as long as the company does well, earnings might run ahead of its times and which lead to a sideways decade when the entire world gives up on the stock and calls an end to it, valuations go from extremely frothy to extremely compressed, the stock eventually come back!
So here I am trying to talk to myself about the recent run in ITC. ITC didn’t go anywhere for almost 7 years when it traded in a 150₹ range from 180-330 types and made a lot of memes for itself. Two years back, it revisited its dividend policy which made it extremely attractive with almost 6% yield. At the bottom, it was yielding six percent plus and traded at around 15x earnings or less. At the current levels, it is at 3% yield at around 25x earnings. In three five years, if it makes 30000 crores and trades at even 40x earnings, the stock will be at around 1000₹ levels. So for all of you believing that the rally is over, it’s just the beginning.
Funnily, the rally is still being pooh poohed at. People are still in disbelief, both on the markets and in ITC in particular. As long as the skepticism prevails, both will rise unhindered.
Quality always survives and what survives, thrives!
Life is all about Compounding! 