In an earlier post, I talked about a search strategy '52-week lows' - looking at the beaten down dogs as potential buy candidates. Unfortunately, in today's market where Sensex and Nifty are hitting all time highs, there are hardly any decent fish left for bottom fishing.
What should a value investor do? If you propose buying at 52 week lows, it sounds logical that you should be selling at 52 week highs. (Charlie Munger: Invert, always invert!) Move out of the way of the train and wait for Mr. Market to offer better prices.
Well, not so fast. Value investing does not mean buying only the beaten down dogs and ugly ducklings. Modern masters of value investing have adapted the art to the changing times. You have Warren Buffett buying and holding blue chips like Coca Cola and Amex over the years because he believed that the growth in underlying business would take care of the price he was paying. This is allowed in value investing.
Buying Google and Amazon.com and calling yourself a value investor is allowed too. Surprised? Exhibit: Bill Miller, whose Legg Mason Value fund had a 15 year streak of outperforming S&P 500. Bill Miller rightly says that if you had avoided the all time high stocks, you would have avoided Wall*Mart and Microsoft and Dell throughout the 1990s. Without these stocks in your PF, it would have been extremely difficult to match the index leave alone beating it.
So, how would one use a 52 week high list? Curiously enough, just like 52 week low list. If a stock you already have or like appears on the 52 week high list, it is a trigger to run re-valuation. Is the margin of safety still there? If yes, continue holding it or even buy more - 52 week this or that be damned.
I recently ran re-valuation on Kirloskar Oil after it hit 52 week high. The Kirloskar Oil passed in flying colors. I am buying more.
I am not so sure about CRISIL but I will continue to hold till it doubles again :)
I need to run revaluations on 3i Infotech (I already have) and Geodesic, KLG systel, Zicom (Look interesting).
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Bill Miller got into google/amazon because they expected the online-ad market (of google) to grow exponentially. Also, I wont be surprised that with growing popularity of emails/gmail - google starts charging its normal user 1c/month (they have already started charging it for commercial use of their interface). Hence - like Buffett's coke - market is growing, and return on reinvestments is very high.
On the other hand, K-oil etc is a engineering company, whose growth will depend on the growth of economy. But having a long term super-growth is not possible. Exports too have its own limitations.
If you look at early periods of this decade, their profitabilty or ROC werent worth anything mentioning about.
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