Letter # 89 | 7 June 2022 |
We spend countless hours trying to find a great company (sector analysis, conference calls, management meets, research reports and analyst conversations). That is essential, but from there, we often leap to ‘a good company is always a great investment’; as if valuations do not matter!. In today’s ET article, we break down the Nifty returns (20 years) between earnings and valuation rerating and conclude how earnings growth is only one variable to stock performance (both for Nifty and a few stocks). Investors that have chosen to ignore valuations (by becoming ‘buy at any price’, or absolute ‘value’ investors) have had a pay a heavy price. We end it with an unintuitive, but effective suggestion of an alternative valuation paradigm. Read here:Market Investors: Look at valuations but don’t get trapped by that alone – The Economic Times (indiatimes.com)
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