–Charles Dickens, A Tale of Two Cities
As the markets seem spooked, this century-old quote captures the range of thoughts of many investors.
The Small-Cap index and the Sensex are down close to 10% from their peaks this year.
Hardcore value investors who were avoiding exposure to equities would be feeling validated. They would feel better with a sharper correction.
If you are invested in the markets, irrespective of how long or short your investment horizon is, it’s never a good feeling to see your positions in the red.
It comes with regret for the notional losses you could have avoided and the gains you could have booked.
If this resonates with you, here’s a chart you must review.
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If you can zoom out of the recent market correction, this trajectory seems pretty nice and impressive—convincing enough to be a long-term investor.
From here, I believe not much will change in the long term.
The bottom line is simple: Stay the course.
Unless you have a leveraged exposure or an allocation all over the place that fails to meet your near-term liquidity needs, you need not stress.
India is marching ahead as one of the highest growing and most promising economies, with a young population and emerging themes enabled by the government’s policy push.
Any correction in the near term could bring with it an opportunity to capture high potential businesses at a bargain price.
Keep your watchlist ready.
Wondering where to start?
Check out the articles under the Profit Hunter section where we have written about multiple front-end and ecosystem players riding different emerging themes.
If you have been following our articles, one of the things we track for watchlists is insider action.
Unlike in the case of IPOs that flourish in overvalued markets, allowing promoters to monetize their stake at the best price possible, open-market purchases by promoters in listed companies amid a market correction is a good starting point to dig further.
As owners of the business, they are the majority stakeholders with the longest-term horizon in most cases. If they are willing to buy a meaningful quantity of stock from their personal money at market price, it signals confidence.
However, there are a few important points to keep in mind while keeping track of this data on an ongoing basis.
First, the quantum of buying. The higher, the better. The greater the percentage increase in the promoter’s stake post-buying, the stronger the signal.
Second, this data tends to be more meaningful in the case of smaller firms, which are less tracked.
Third, avoid conflicting signals. If there is both selling and purchasing happening the same day or in a short period of time, it is a weak signal.
On the other hand, if you see recurring buying action, even as stock price inches up over time, it is a good clue to dig further. Similarly, if multiple insiders are buying in a short period of time or around the same time, it is a strong signal.
Fourth, look for trends. For instance, if you see insider buying happening across multiple companies under the same industry or sector, it could be a sign of a turnaround or promising growth prospects for the sector itself.
Let’s now look at some insider purchases this month.
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Now do note that this article does not imply any view or recommendations on the stocks mentioned above.
Fundamentals, valuations, and management quality remain the key parameters for picking stocks for the long term. And every long-term investment idea needs conviction on these fronts.
That said, in this volatile market environment, insider activity is a good point to start digging further into these stocks.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.