Passing thoughts…

It’s been a while since we last posted. This gap is because of some prior commitments and also because of laziness on our part. Nevertheless, we are back. But it seems that since beginning of this month, everything has started looking downhill. The Rupee is celebrating its senior citizenship. Markets are grinding lower and lower. FIIs are pulling out money from the markets. Your portfolio is bleeding. Many short term traders (you know) are making a killing in the market. 🙂

So, what should you do in such times?
The markets are slowly (but definitely) moving below their long term average valuations. So, should we consider these as signs of a coming crisis? If you listen to some of the experts, they are of view that one should not be surprised to see 20% correction from these levels. We don’t know whether these experts are correct or not. But the question which concerns us is what are we doing right now? Are we selling our stocks and booking loses? Or are we preparing ourselves for the Crisis? There is no question about whether a CRISIS will come or not. It’s only a matter of time. Sooner or later, a fall is bound to come [pardon our speculative statements]. So when the CRISIS actually comes, would you have the COURAGE? Courage to go out and buy when everyone else is selling? Now, courage comes from knowing what to do when situation gets worse. That is, you should be prepared for the crisis. It is only when you are adequately prepared, will you be able to take a rational decision in hard times.
But Courage alone (in Crisis)is not enough. You need to have the firepower to take advantage of the situation. Someone has rightly said –“Never waste a good crisis.” So in terms of stock markets, what is this firepower? It’s obvious… its CASH. You have CRISIS (when great companies are available at really cheap prices). You have COURAGE (as you are prepared and know the stocks which you want to buy in market crash). The only missing component here is CASH. This is the vital component of 3 Cs which allows you to purchase these great businesses at really cheap prices.
These are just few random thoughts we had during these trying time. So what are you doing? Selling, Buying or hoarding cash for the anticipated crash?

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10 Stocks to Buy in a Market Crash

After witnessing freefalls in individual stocks like NHPC (a PSU!), Core Education, etc, we wondered what would we do if suddenly, markets decided to crash? No, we are not trying to predict a crash or correction. We are just trying to be prepared. It is same as buying life insurance. You don’t predict your date of death. But you want to be prepared for it and hence, you buy insurance.

 
We did a similar exercise 6 months back when we came up with a list of 10 great stocks to buy in market corrections. And now we feel that we should make this a regular 6 monthly exercise, i.e., every 6 months, we should be ready with a list of 10 stocks to buy in case there is substantial fall in their prices.
 
Stock Market Crashes
 
But before we go further, we would like to end any possible controversy, which may arise in future regarding our love (& prayers) for market correction. Please read this before going ahead.
 
So how do we come up with 10 stocks?
 
In four simple steps…
Step 1: Select 40-50 stocks initially
 
We have decided to start with an initial list of around 40-50 stocks. These include –
·       Stocks respected by markets (part of indices like Nifty 50 & Sensex)
·       Stocks which we love (dividend stocks)
·       Stocks in our watchlist
·       Stocks from our Dead Monk’s Portfolio
·       Stocks from the sector we like (oil stocks: 1, 2, 3 &4)
·       Other great stocks to buy
 
Step 1: Select 40-50 stocks
 
Step 2: Decide parameters for evaluating the selected 40+ stocks
 
Now here is the tricky part. We are evaluating stocks. Hence, our first reaction was to choose parameters which are qualitative. For example, growth rates, profitability, ratios, etc. But then we thought that we should rather use simpler parameters to come up with 10 stocks. What we mean is that after ensuring that our initial list of selected stocks meets certain minimum criteria (on qualitative parameters), we should finally use more intuitive and simple filters. And therefore, we decided to use following 5 parameters:
  • Company Management (It should be atleast decent*)
  • Company shouldn’t be highly cyclical
  • Company should have atleast above average growth potential
  • Company should have a decent dividend record
  • Would we be ready to hold the stock for next 10 years?
* Deciding what ‘Decent’ is, is subjective. 🙂
 
Now all these 5 factors were not used as eliminators. They were used to subjectively evaluate these companies, i.e. we used all these 5 parameters in totality to come up with a final list of 10 stocks.
 
Caution: The approach is very simple and may not appeal to those who love calculations to come up with stock ideas.
 
Step 3: Evaluate stocks on selected 5 parameters
 
The table below shows a simple Yes-No analysis of the selected 40+ stocks.
 
Step 3: Evaluating stocks on chosen parameters
 
Step 4: Final shortlisting of 10 stocks to buy for market corrections
 
As already mentioned in step 2, all parameters are looked at in totality to arrive at the set of 10 stocks. The table below shows the 10 stocks, which you can consider buying in next market crash.
 
10 Stocks to Buy in a Market Crash
 
Want to know which were our last 10 recommended selected stocks for buying in market crashes? Click here.
 
But wait. We are not done yet. We had a tough time selecting these 10 stocks. We felt that once you are through with buying a few of these stocks in a market crash, it would be interesting to look at a few more good stocks, which did not make it into our list because of our own personal biases, our lack of knowledge, etc. So we decided to come up with an additional 7 stocks which we will keep an eye on…
 
7 Additional stocks to keep an eye for in market crashes
 
Now you might be thinking that these guys are trying to fool us. They started with just 40 odd stocks and have come up with around 17 stocks as their choice. Is this what we call shortlisting and selecting? How can this be called as stock selection? Choosing 1 out of every 2 stocks is not called selection.
 
Isn’t it?
 
But friends, this is only because we found it difficult to eliminate the good stocks. Why? Because we started with a very small number (40) of really good companies. But if you consider the number of available stocks in Indian markets, you would understand that we have actually selected 17 stocks out of about 5000+ ones listed on Indian exchanges, i.e. we chose just one company out of every 295 companies. Now that is called some selection 🙂