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The Indefinable ‘Value’

Sep 3, 2014 | Dr C K Narayan | Fundamental Twist, Long Term Impact | 2 Comments

Or, finding stocks thru technical analysis in bull markets.                1st Sept 2014

There is simply no denying the fact that, when investing, one should buy stocks at value. To quote the guru of investing, Warren Buffet, “price is what you pay, value is what you get”. Hence the maxim has always been that one should thoroughly assess value before buying stocks.

Nice advice. But who is going to define this “value”? Most of the time investors rely on brokerage reports. But that is where the trouble begins- right where it is supposed to solve this issue! If you take five different brokerage reports (all big ones, mind you) on the same stock, it is a fair bet that there will be no consensus on value. Forget about consensus, there will be wide variance in the value! Take for example the views put out by leading broking houses on Tata Motors when they came out with the bumper numbers from JLR. A couple said  hold, a couple revised it to a buy while there were a couple of others who downgraded the stock, stating that JLR will not repeat this performance! So, clearly value, like beauty, is in the eye of the beholder!

Here we are talking about a well-researched stock like Tata Motors where all data is available, the company is approachable, its governance is not an issue nor are its numbers likely to be fudged at any time. But what about the scores and scores of stocks from the mid and small cap space?. Hardly any data is available, the managements are suspect, the quality of the numbers put out by them even more so, the corporate governance is quite opaque and the ubiquitous operator is always lurking in the background! More, hardly a few of these companies are covered by large sized broking houses and the reports by the two bit broking houses are many times engineered ones with an agenda behind it.

The main area of interest for most of the retail traders is in the small and mid cap stocks. So what does he or she do when they want follow the sage advice given by everyone around that they should be buy fundamentally vetted stocks? The numbers of stocks that are in play during a bull market are far, far greater than the number of stocks where some research is available. So, it is small wonder that retail investors fall prey to manipulations and mischief.
This makes the sage advice really redundant, no matter how well meaning it is in content. If I advise you to do something which you simply are not in a position to follow, then it is completely useless advice isn’t it? It is not because you don’t want to follow it- you simply can’t, because there is just no way that you can follow something that doesn’t exist!! These problems are particularly acute in a bull market where the numbers of stocks that move are just far too many for them to be all researched.

To all such lost souls, I can only suggest that they can at least attempt to check the stocks they are interested in using the charts. The price of the day is an absolute truth and a well-structured study of the prices (which is what technical analysis is) can at least point one towards the stocks that perform and may continue to perform. It will help one to sift between those that promise but don’t deliver in the way they should and those that do. This will solve the problem until that stock can make it to the research list of some good broking houses or independent research houses that can then make available some additional facts that could add to the conviction or otherwise of the investor.


  1. Aseem

  2. Sudhakar

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