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A roller coaster ride called Jindal Steel


In our previous two emails we said that the market looks undervalued specially the banking sector. Premium Members who bought stocks in good companies should be sitting on at least 20% to 40% gains. Free members who bought Nifty Bees ETF should also have a decent 12% to 15% gains. The Banking sector as predicted gave a spectacular return in just two months. We had added Axis Bank and Oriental Bank of Commerce to our portfolio back then. We will be adding case studies on the website soon so that you will learn why we added those two companies.

Back in Sep 2012, Naveen Jindal, the CEO of Jindal Steel bought 500,000 shares of Jindal Steel. You can see this information in the Insider trading report which we send at night. The financial charts would have told you that Jindal Steel is a good company although going through a down cycle. The Steel industry usually goes through periodic up and down business cycles. The valuation models at that time indicated that the then current market price of 340 Rs. was undervalued compared to its intrinsic value of around 470 Rs. So we bought Jindal Steel for our portfolio.

Unfortunately we bought it from a different demat account which we rarely monitor which played a spoil sport later. Early Jan 2013 the price reached 450 Rs. a gain of 32% in 4 months. Since we are not greedy and the market price had come near its intrinsic value we decided to sell next day.

Guess what happened next day we forgot to sell and we forgot to check it for the next 6 months. In June 2013 the Jindal Steel was 250 Rs. and we were sitting on a hefty 30% loss. Now this is what separates serious and amateur investors. Most investors would have been spooked by a 30% loss and would have immediately sold the stock thinking it's not worth taking more loss. An intelligent investor on the other hand knows that the financial condition of the company is still good so patiently waiting for the stock price to go up would make more sense than selling it for 30% loss.

Two months back the market price crashed to 190 Rs(and our paper loss was a massive 45%), which was extremely undervalued compared to its intrinsic value so we bought it again with average price of 200 Rs. We bought more to compensate for our loss earlier. We eventually sold Jindal Steel for a small profit but we learnt our lesson. Don't be lazy.

What can you learn from this?

1) Invest in good companies, imagine what would be the situation if you had invested in a bad company like Kingfisher or Suzlon.

2) Invest at the right price, always buy a company when its market price is undervalued compared to its intrinsic price. If we bought the stock in early Jan 2013 for 450 Rs we would have been sitting on a spectacular loss.

3) Don't panic, if you believe you have done all the due diligence about the company, have faith in your decision, don't sell the stock if you are in a loss. You should be buying more since you are getting it at a much cheaper price now.

This email was sent to our members on 19-Oct-2013

Note - We do not offer investment advisory service.