{"id":5252,"date":"2021-10-21T17:03:17","date_gmt":"2021-10-21T11:33:17","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=5252"},"modified":"2022-09-07T11:59:36","modified_gmt":"2022-09-07T06:29:36","slug":"5-stock-picks-based-on-scientific-investing-style","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/5-stock-picks-based-on-scientific-investing-style\/","title":{"rendered":"Tired of Chasing Fantasy Stocks? Here Are 5 Stock Picks Based on Scientific Investing Style"},"content":{"rendered":"\n

This article is written by Dr Vikas V Gupta, CEO and Chief Investment Strategist at OmniScience Capital. He believes that \u201cChasing Alpha<\/a> leads to Risks and Chasing Safety leads to Alpha\u201d. Check out <\/em>smallcases created by OmniScience Capital<\/em><\/a>.<\/em><\/p>\n\n\n\n

There are many \u201cFantasy stocks\u201d or \u201cStory stocks\u201d which lure investors with their futuristic stories and how they are likely to grow. One class of these stocks have no profits and large losses. Another class of these stocks have good profits, but their valuations are at such a level that even if they perform as expected at heroic growth rates (20%-25%) for extremely long periods of time (read a couple of decades) without any problems in between\u2014which is highly unlikely\u2014they will still deliver somewhat below the Sensex<\/a> and Nifty returns.<\/p>\n\n\n\n

Consider a company with a PE of 80. Even if it grows at 20% for 20 yrs, it is priced such that the return to the investor, in the long run, at this price is 12%! (based on a DCF analysis with earnings fully retained with an ending multiple of 20.<\/em>)<\/p>\n\n\n\n

That is your typical fantasy stock. Don\u2019t get lured by the 20% growth rates and strong moats and think that the price doesn\u2019t matter. It matters.<\/em><\/strong> At this price, the short-to-mid-term returns might mirror the earnings growth of 20%, but the long-term returns are likely to be 12% or lower.<\/p>\n\n\n\n

If there is any reduction in the growth rate and it actually compounds at 15% instead of 20%, you are going to earn around 7.5%! This is if you are a buy-and-hold investor. The reaction of the market would be a drop of nearly 60% in the price once this fact becomes known! In Scientific Investing we call these stocks, Capital Imploders.<\/p>\n\n\n\n

A better way is following the Scientific Investing Style<\/a> which focuses on \u201cEnhance Safety, Enhance Growth, Enhance Returns\u201d<\/em><\/strong>, in that sequence. This means to focus only on fundamentally robust stocks, meaning, eliminate Capital Destroyers and Eroders. Furthermore, eliminate the fantasy stocks, i.e., Capital Imploders. What is left is the Capital Multipliers investment universe. From these companies, one can pick companies with SuperNormal profitability, which arises due to persistent competitive advantages, and which are available at SuperNormal prices.<\/p>\n\n\n\n

Let us look at some of the opportunities available today. However, do not consider this as financial advice and read the<\/em> disclaimer<\/em><\/a> properly. Before any investments, it is important to consider your investment objectives, risk profile and suitability of the product.<\/em><\/p>\n\n\n\n

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