Hope you are doing well.
As an investor in stock market, our primary aim is to create wealth in the long term. The wealth gets created by making profitable investments and ultimately booking profits at an opportune time.
Our strategy of identifying profitable investment opportunities is based on 'Growth at reasonable valuations'; however we don't believe in buy and forget or buy and hold forever.
To improve our selling, we have started using Trailing Stop Loss or you can call it Profit protection strategy and we will discuss it briefly here with an example at the end.
Before that, if you are interested in investing in our Latest Stock Recommendation which could benefit from the massive growth expected in the CNG segment and still available around 10 times earnings, you can read about it here - LINK
Trailing Stop Loss/Profit protection strategy
As a value investor there comes a point when you start finding the valuations high or start thinking in terms of selling.
However, valuations are very subjective and we have come to realize that in a good market a 25 PE stock can start trading at 40 PE or say 50 PE.
We believe, trailing Stop losses can be helpful in such cases.
So, what you do is, suppose you start finding the stock expensive at 100, yet you believe the earnings trajectory is good or the market is in an uptrend, you put a SL at 90 or say 80 depending on your comfort level.
If you have some knowledge about charts or patterns, you can determine the SL level based on the same as well.
If the stock corrects to 90, you sell out; however, if the stock moves to 130, you move the SL up to 117 or 110 and keep repeating the process as the stock moves upwards without hitting your SL.
Pros and Cons of this strategy - In rising markets, trailing SL strategy looks good as the stocks continue rising above your SL point. This way, instead of getting sold out at 100, you may end up selling at 150 or even higher depending on the momentum in the stock and the overall market
In bad markets though, you will feel bad as the stock breaches your SL level and you decide to sell.
Why will you feel bad?
Because now you will be selling at say 10-30% lower price than the peak price depending on your SL.
As a value investor, it would be counter intuitive to sell a stock which is down 20-30% because we are attuned to think in terms of finding value as the stocks correct.
Also, a lot of times there would be cases wherein the stock hits your SL and then starts moving upwards.
However, the bottom line is to bring in discipline in selling because this is what most investors lack.
It's not easy to follow it to the tee because of our own biases, but surely something to work on.
Let me share with you an example - We recommended Maithan Alloys to our members in Jan'20 around 550 odd levels. In May'21, while evaluating the stock, we believed the potential for growth is limited due to capacity constraints and therefore suggested SL of 700 when the stock was quoting around 750.
Post that the stock moved upwards and in our next review we suggested SL of 900 when the stock was quoting around 935. Luckily the stock continued moving upwards and in our Feb'22 review we suggested SL of 1050 when the stock was quoting around 1,150. Finally, in May'22, our SL got executed around 1,040 and we closed the coverage on the same.
If you are looking for investment opportunities do check out our premium subscriptions.
Disclosure: I don't have any investment in Maithan Alloys.
SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Details of Associate: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.
We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.
Disclaimer: You can access it here - LINK
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No