Hi friends, here’s a small story I’d like to share with you.
Over a year ago, JainMatrix Investments (JM) did a research and found an interesting investment opportunity. It was a mid cap firm. JM then went ahead and created a detailed 9 page equity research report and shared it with its subscribers. They projected a target price with a 50% gain in 2 years. They were convinced that this was an excellent firm, with good prospects. In the next 6 months, the share did well, it appreciated 60%, and seemed to justify the recommendation. The target price was achieved, but JM continued to be positive about the firm and retained a BUY on it.
Then things changed suddenly. There was a ‘bad news’ article about the firm in the papers. It contained unconfirmed but serious allegations. Suddenly there was uncertainty around the firm. The share price started falling. Market pundits all said they were unsure about the firm. Every action of the firm became suspect. Management interviews and press releases were cast aside by investors. Within weeks, the share price plunged 65%. In such a situation most investors would buckle under the pressure. Mutual funds cannot allow such losses on investments. HNI investors in the firm panicked. FPIs demanded investor calls and worried about everything. Naturally everyone was worried.
In share market parlance, this is called a Falling Knife.
At JM, the approach is to analyse such situations from the fundamentals and find the facts out of the news flow. The recent quarterly results of the firm were excellent. The stated 3 year vision was taking shape. There is normally no reason to disbelieve management statements and official press releases. Most of the rumors were vague, difficult to disprove and causing more controversy. Its possible that share market operators may have grasped this opportunity to drive down the price. But this can only be done for a short period of time.
It requires a lot of character to stand up to a Falling Knife. But the analyst at JM was sure. So JM advised their subscribers to hold on and not be swayed by the price movements and controversy.
After the 65% fall, the share stabilized. It then started rising again. The JM subscribers, who were invested and took our advice, saw their notional losses disappear. The brave ones actually took advantage of the fall and saw a nice profit in a few weeks.
This brings me to my question,
How much is Conviction and Confidence worth to an investor in the stock markets?
Any answers, my friends?
Feel free to add your comments, below, to this post.
Punit Jain, founder JainMatrix Investments.
PS – This note has been created as marketing and educational content to help investors. No security is mentioned here. Such a situation can arise many times in the stock markets.
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012.
This note has been created as educational content to help investors. No security is mentioned here. Such situations can arise many times in the stock markets. Any questions should be directed to the director of JainMatrix Investments at firstname.lastname@example.org.