BARGAIN HUNTING

The best time to buy is when there is blood in the street.

Warren Buffet

Bargain hunting as an investment strategy is hard to follow. But results are extraordinary if you execute it with engineering precision and with some sort of discipline. The bargain hunter searches for stocks that have fallen in price and are priced too low relative to their intrinsic value. Typhically the best opportunities to capture these bargains come during periods of highly volatile stock markets. The bargain hunter searches for situations in which a large misconception has driven stock prices down, such as the arrival of near term difficulties for a business that are temporary in nature and should correct over time. To put it in different words, bargain hunters look for stocks that have mispriced as a result of temporary changes in the near term perspectives of sellers. The bargain hunters always investigate stocks when the outlook is worst according to the market. Bargain hunters always seek volatility in stock market to find investing opportunities. Bargain hunters seek misconception, and panicked selling because of the overwhelming presence of fear. Generally, investors’ fears become exaggerated in a crisis and so do their reactions. The typical reaction is to sell in a crisis. Bargain hunters look to take advantage of temporary problems that are exaggerated in the minds of sellers because of the sellers’ short term attitude. History clearly shows us that crises always appear worse at the outset and that all panics are subdued in time. When panic end, stock market bounce back with vengeance.

Bargain hunters must have right perspective and temperament to gain from these market events. Buying when the market goes down in panic can fetch you handsome returns to your portfolio. These kinds of panics are wonderful gifts to the bargain hunter.

Usually bargain hunters go exactly where the masses are not because that is the best place to spot bargains. Bargain hunters should be always mindful of the relationship between value and price and always seek to exploit it. Recently there were four classic bargain situations in the form of KS Oil, Ruchi Soya, IRB Infra and Karuthuri Global. These stocks were hammered badly because of the news of price rigging by promoters. SEBI also issued notice to the promoters. The market responded with panic and sends the stocks to the southward direction as if there is no bottom. These are fundamentally sound companies in the promising sectors like food and infrastructure and the fall is nothing to do with fundamentals. Particularly KS Oil and Ruchi Soya are very good companies with wonderful management. KS oil share price dropped from Rs 60 to Rs 28 and Ruchi Soya decreased from Rs 140 to Rs 81. This is really wonderful opportunity for bargain hunter.

Time and again market throws cheap stocks at you, we should exploit such situations to create wealth.