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As we kicked off our annual exercise taking stock of Investment World's equity recommendations, we knew it wouldn't make a pretty picture. In every way, 2011 was a year of nasty surprises. The economy went from a brisk trot to a slow amble, global markets collapsed. Corporate profits were bludgeoned by new risks every month — regulatory activism, inflation, interest rates and a weak rupee. The broad market index CNX 500 has collapsed by 24 per cent in the last one year. But we decided to brave the brickbats and go ahead with the exercise.
TAKING STOCK
To assess how our recommendations fared, we took into account all of our 380 secondary market, IPO, rights and open offer calls (based on fundamentals) given from January 1, 2010, to June 30, 2011. Recommendations made in the last six months have been excluded, as they wouldn't have had time to pay off. Here's what the exercise threw up.
18 PER CENT DOWN
The bad news first. The stocks that we asked investors to buy have lost 18 per cent in value in aggregate. That is, an investor who put money on every one of our buy recommendations since January 2010 would today be left with Rs 82 for every Rs 100 invested. But our ‘buys' fared no worse than the broad market. Investments made on the same dates in the CNX 500 index lost 18 per cent in value too. That's not a bad show considering that nearly 25 per cent of the stocks in the listed universe have shed 50 per cent plus in this market meltdown.
Some of our biggest laggards were Allied Digital, Lanco Infratech, Dishman Pharma and realty plays such as HDIL and Unitech. These companies took an unexpected hit to their prospects from regulatory changes, governance issues or de-rating by the markets.
In these cases, investors will be better off exiting and moving their money into alternatives, preferably blue-chips.
On most of our other buy calls, however, we remain positive. Investors should hold on as returns are bound to improve with a stock market revival, which we expect in 2012.
68 GAINERS
The dismal statistics above mask our successes. A total of 68 stocks we rated as buys managed a positive return for their investors in a falling market. These came from a wide range of sectors — FMCG, textiles, pharma, auto components and banks.
There were even a few multi-baggers. Sun Pharma (207 per cent gain), Page Industries (185 per cent), Lumax Industries (118 per cent) recommended in mid-2010 more than doubled from those levels. Seventeen stocks managed a 50 per cent-plus gain.
Many of our successful calls came from our early optimism on consumer plays such as Page Industries (185 per cent), Hindustan Unilever (up 68 per cent), V Guard (93 per cent) or Kewal Kiran Clothing (78 per cent).
SELECTIVE ON IPOS
The IPO market was a minefield for investors this year. Institutions gave it a wide berth and new listings saw wild price swings, thanks to price manipulation.
We navigated this segment quite well. The ‘avoid' calls on IPOs saved investors from losing a packet. IPO stocks such as Aqua Logistics, Bajaj Corp, Bhartiya Global, Cantabil Retail languish 85-96 per cent below their offer prices today. Selective buys Coal India, Mandhana Industries and Lovable Lingerie clicked to deliver gains to investors.
MORE SELL CALLS
Having learnt lessons from the previous bull market, we also flagged more opportunities for investors to sell stocks and lock into gains. After the ‘sell' rating, these stocks have lost an aggregate 31 per cent in value since, dropping much more than the market. Recommendations to exit ARSS Infrastructure (down 90 per cent from the ‘sell' price), Kingfisher Airlines (down 72 per cent), Spicejet (down 79 per cent) were our notable calls.
LESSONS LEARNT
While we may have bettered the markets on an aggregate basis, investors will have suffered some pain. We sure aren't happy about that. We take away two lessons from the experience.
One, it is best to stay away from companies with governance issues, no matter how cheap their stock looks. Two, while identifying new stocks to buy, follow up old recommendations at more frequent intervals. Through this, we hope to reduce the divergence between our best and worst performers in 2012, hopefully delivering a better experience to our readers.
Overall though, we would like to reiterate that equities remain the best bet for investors with the patience to wait out phases like the current one. Yes, direct equity investing is turning more risky and calls for a closer monitoring. That's why we have been advocating that investors shouldn't hold an equities-only portfolio. Instead they should work to an asset allocation plan, which combines stocks with safer avenues.
Apart from our stock market calls, we've handed out plenty of advice on mutual funds, fixed deposits, bonds, gold and insurance last year. Expect much more from us on these investment avenues in 2012, apart from stock market advice.
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