Our friends at Profit Hunter have been doing a brilliant job of studying the mindset of a trader. And in a couple of recent videos, Asad Dossani explained why even a trader has enough learning to take from a long term investor's mindset. So while it is true that the approach and mindset for trading and investing ought to be distinct, it is not that you should do only one of them without the other. In fact as long as your risk appetite, investment tenure and approach are well aligned to the objectives, the learnings from each can help you be very successful in creating wealth.
But do you think it is only the approach and mindset that are distinct in trading and value investing? Well, certainly not! After all, how many times have you seen traders poring over annual reports? And how many value investors understand the nuances of the stocks and bands in technical charts? So the tools adopted for the two approaches are also distinct. But that again does not mean that the trader should never 'read' about the company or that the value investor should never touch any chart with an eight foot pole.
In fact with their graphical representation, charts bring an amazing clarity to our thought process. So why not put it to good use? Just that you should be looking at the right kind of data with the right perspective. The charts that I often insist my team members to take a look at are the long term price versus valuation movement ones. Especially during a period of skepticism or euphoria looking at such a chart helps you get grounded to reality.
If you don't believe me, take a look at the chart for Bharat Forge. The stock having gained almost 190% is one of the top gainers over the last year. No doubt being one of the largest exporters of auto ancillary the company has a lot going for it. In fact with the change in its strategy to focus on order wins from both domestic and global OEMs, it is no longer reliant on the vagaries of Indian automobile industry. Without doubt investors have reason to cheer! But what kind of premium would you want to pay for that cheer? Should you be doubling the multiple that the stock deserves because of the high growth expectation?
Well, that is exactly what the market seems to be doing with Bharat Forge. And within a matter of a year the price to earnings multiple of the stock has doubled from 25 to 50! Whether the stock deserves such valuations is a discussion for another day. But as a value investor such greed for the stock should make you cautious about the frothiness in valuations. And no matter how large the company's market share or market cap, the risks to valuations cannot be sidelined.
So as long as you are looking at long term fundamental and valuation data and putting that into perspective with the qualitative moat and management of the company, charts should be your friend.
They cannot just help you pick the right stock at the right time but also tell you which ones to throw out.
From the words of Tanushree Banerjee
But do you think it is only the approach and mindset that are distinct in trading and value investing? Well, certainly not! After all, how many times have you seen traders poring over annual reports? And how many value investors understand the nuances of the stocks and bands in technical charts? So the tools adopted for the two approaches are also distinct. But that again does not mean that the trader should never 'read' about the company or that the value investor should never touch any chart with an eight foot pole.
In fact with their graphical representation, charts bring an amazing clarity to our thought process. So why not put it to good use? Just that you should be looking at the right kind of data with the right perspective. The charts that I often insist my team members to take a look at are the long term price versus valuation movement ones. Especially during a period of skepticism or euphoria looking at such a chart helps you get grounded to reality.
If you don't believe me, take a look at the chart for Bharat Forge. The stock having gained almost 190% is one of the top gainers over the last year. No doubt being one of the largest exporters of auto ancillary the company has a lot going for it. In fact with the change in its strategy to focus on order wins from both domestic and global OEMs, it is no longer reliant on the vagaries of Indian automobile industry. Without doubt investors have reason to cheer! But what kind of premium would you want to pay for that cheer? Should you be doubling the multiple that the stock deserves because of the high growth expectation?
Well, that is exactly what the market seems to be doing with Bharat Forge. And within a matter of a year the price to earnings multiple of the stock has doubled from 25 to 50! Whether the stock deserves such valuations is a discussion for another day. But as a value investor such greed for the stock should make you cautious about the frothiness in valuations. And no matter how large the company's market share or market cap, the risks to valuations cannot be sidelined.
So as long as you are looking at long term fundamental and valuation data and putting that into perspective with the qualitative moat and management of the company, charts should be your friend.
They cannot just help you pick the right stock at the right time but also tell you which ones to throw out.
From the words of Tanushree Banerjee
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