Valuations matter, but stories sell better

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)

Disclaimers:
Information in this letter is not intended to be, nor should it be construed as investment, tax or legal advice, or an offer to sell, or a solicitation of any offer to make investments with Buoyant Capital. Prospective investors should rely solely on the Disclosure Document filed with SEBI. Any description involving investment examples, statistical analysis or investment strategies are provided for illustration purposes only – and will not apply in all situations and may be changed at the discretion of the principal officer. Certain information has been provided and/or based on third-party sources and although believed to be reliable, has not been independently verified; the investment managers make no express warranty as to its completeness or accuracy, nor can it accept responsibility for errors appearing herein.