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Why you should ignore stock market experts on TV


Its been a while since we sent our last email. In our previous emails we had talked about banking sector which was looking very undervalued but almost all stock market experts were making dire predictions about the banking sector. Most banks were selling at bargain prices because the experts on TV and Moneycontrol said that banks were not a good choice for investment due to high NPAs. (Non Performing Assets). We had specifically talked about 2 banks in particular in our previous emails.

Axis Bank which was selling at around 850 Rs which was around 6 times earnings.

Oriental Bank of Commerce was selling at around 130 Rs which was around 3 times earnings.

In simple words what it means that if you buy all the shares of OBC which was selling at 130 Rs per share and its earnings per share remains constant at 45 Rs for the next three years, its PE(Price to Equity Ratio) would be 130/45=2.8, for simplicity we will assume its 3. It means that you will break even on that investment in 3 years. ie. In 3 years you would get back your initial investment of 130 Rs.

When you buy good companies for 3 times earnings you are guaranteed to make money. Of course the catch is how do you know if the company is good or not. That is why you need to look at 10 year financial charts which would tell you how the company has performed for the last 10 years.

The same experts are now saying to buy banks after the stock price has appreciated significantly. Axis bank is up by almost 50% and OBC is up by 60%.

The IT sector specially Wipro was looking like an ugly duckling in June and July 2013. It was significantly undervalued compared to its intrinsic value. The experts said that the IT sector was not good sector to invest because of problems like uncertainty in Euro Zone and US, the FED policy, the exchange rate and other macro economic factors. There was a massive rally in almost all IT stocks after July 2013. The same experts are recommending to buy IT stocks now.

The moral of the story is that you should ignore all those so called stock market experts on TV and Moneycontrol. Do your own research by looking at the financial charts and valuation models on and invest in good companies directly. If you don't have the time or tenacity to do your own research just buy Nifty Bees and you will still make money.

A quick note to all the new members, we occasionally send such emails to enlighten our members but we do not offer investment advisory services. You would be surprised by the number of calls we get for stock market tips from India, US and UK. Please do not call us for investment advice/tips.