The trouble with buying low!

The trouble with buying any stock low is just that – the stock is low. Many a times I have looked at a stock which is at its ‘year high’ and wished that I would have bought it at its ‘year low’. However when it came to its year low all I could think is what went wrong! 

This kind of emotion is the biggest barrier to value investing. It becomes quite difficult for an investor to buy into a stock when everyone else is selling. But that is the oldest maxim on Dalal Street – Buy when everyone else sells, and sell everyone else buys! 

I have personally gone ahead and bought a stock which is at its annual low when the markets are scaling all time highs! (which is the trigger for this article too) The stock in question is Crew BOS a leather accessories export company from India which I had been buying from a long time and when it had reached 293 some time ago, was wishing that I had bought it at 93 which was its yearly low. 

Last week I bought this at 95 and while there have been many stocks that have found their place in my portfolio when they were low none of them were at their yearly lows when the market was at its all time highs and that’s why the apprehension. 

Being a company that is involved in exports the rupee appreciation has hurt it, but at a P/E multiple of just over 5 this stocks looks like a great bargain now. Even if it were to take a substantial hit over the next few quarters because of the appreciating rupee, over a longer term (2 -3 years) there is a very good chance of it rebounding. The diluted EPS for last year was 16.97 and at a P/E of 10 which is not very ambitious the stock would be priced at 170. 

If one is a long term investor, one has the luxury of time on one’s side and can wait for the tide to turn. The rationale behind CREW BOS is that if any time in the next three years it reaches Rs.160 which is just 10 bucks lower than its present 10 P/E price that would earn a cool 30% CAGR which is enough for any investment. When one thinks about a company with a turnover of Rs.186 crores last fiscal then the chance of its stock touching 160 from 95 in the next three years doesn’t sound all that far fetched. 

Whether this happens or not only time will tell, but for value investors it is important to sometimes ignore the market wave or rather benefit from it and buy into stocks when no one else is doing and take advantage of the anomalies in pricing that are sometimes the nature of the markets. 

Manshu Verma  October 26, 2007