Value Buying - An illustration

Theoretically everyone want to buy cheap. This idea is very strong when market is at its peak. And when markets start sliding down, these clients often think of having escaped a catostrophy and THANK GOD and their stars for not investing.

But the fact is : stock prices crash often in the back bad news. But emotions cloud intelligence resulting in paralysis in decision making.

Just look at the example below. EASUN Reyrolle, a chennai based power anxillary company did run up from Rs.100 in 2006 to Rs.380+ in Jan 2008. That is a typical bull market. From there, the stock joined the list of losers and fell to just Rs.34 on Jan 2009. Many investors who were willing to invest in EASUN in Jan 2008 were not found in Dalal Street in Jan 2009. But the fact is it was quoting at 10% price. Today the price is about 134. Though the stock price has not reached its previous highs, it is still quoting at a decent premium from its lower levels.

Someone who was willing to invest say Rs.1 lakh in Jan 2008, had he invested in Jan 2009, he would have got 10 TIMES more shares. And today he would have made a four bagger. Buying at 10% of its previous market value is known as Value buying, often practiced by investors like Warren Buffet. And it is not that difficult to practice it. What is required is a bit of CONVICTION.