Moneysights column – Psychology of Investing Part I

I continue to expose my follies shamelessly in the latest Moneysights column, exploring the subject of Psychology in Investing.

We’ve all heard about investing being 99% art and 1% science. And the 99% art is 80% psychology and 19% luck. And 80% psychology is…ok, I am just making up numbers now. I am like that investor who carefully sorts out his profit percentages and makes them up to sound magnificient but never bothers about losses. Given enough numbers, anybody can convince anybody, including himself.

Without further adieu, I cover three stocks in the latest column – Shriram Transport Finance (STPC) – I really like this stock, but am unable to convince myself to buy at any price; SKS Microfinance (SKS) – Inspite of a very steep correction, I still can’t understand the stock and Allied Digital (ADS) – which is in a very promising space but beaten down due to supposed audit irregularities.

Here’s an excerpt (full column here)

I have often gone through a situation where I like a stock but don’t like the price. Let me explain through an example. I liked Shriram Transport Finance (STFC) as a stock, but I didn’t like the price which was northwards of Rs. 800 in Feb-March time frame this year. I told myself, if STFC falls below Rs. 700, I am going to buy that stock. Well, STFC did fall below Rs. 700 due to a RBI action (Monetary policy announced on May 3rd, 2011 has a new guideline whereby all loans by banks to NBFCs will now not be considered under priority sector lending (PSL)). The market took offence to this monetary policy, reacted to it by punishing STFC. At one point, it touched Rs. 610 (the price chart below depicts it).

Did I buy the stock? Nope. I was waiting for the correction and the stock to bottom out. I told myself, the 52 week low is Rs. 542. If the stock goes below Rs. 575, I will buy the stock. As it turns out, only 20% of STFC’s funding comes from Banks (the rest being retail and institutional borrowing). The stock promptly went up and due to some anomaly touched Rs. 615 again. Did I buy the stock even after knowing this? Nope. You see, I was waiting for the market to correct, the stock to correct, everything to bottom out so that I can royally come in and buy that stock.

The stock began its north move once again. Rs. 625. Rs. 640. I was now anchored to the price of Rs. 610. I told myself, if the stock moves to Rs. 610 any time again soon, I am going to buy that stock. Unfortunately, the market hasn’t given me a chance yet and its quoting at Rs. 696 now.

I am not too sure if I’d buy STFC at this price. I am analyzing the business right now, all over again and it looks to me that the EPS for FY12 might be in the range of Rs. 55-Rs. 65. Assume a PE of around 13 (current PE), we are looking at Rs. 780 as the stock price. The current price is at a decent discount to the expected price. Will I buy it? You see, I am still waiting for that correction.

Hope you enjoy the column and please do send across your brickbats and comments on how you laughed on my follies over beer. Or maybe I should start writing a column on the different investing styles between North and South Indians. I might just attract the entire Rediff traffic here 😉

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  1. #1 by ltinvestmentKarthik on March 2, 2012 - 2:04 AM

    Hi
    Do you have any update on this? did you finish research on this? is it a right time to work?

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