{"id":119079,"date":"2025-03-08T02:35:14","date_gmt":"2025-03-08T02:35:14","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/why-selling-strategy-is-as-important-as-buying\/"},"modified":"2025-03-08T02:35:14","modified_gmt":"2025-03-08T02:35:14","slug":"why-selling-strategy-is-as-important-as-buying","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=119079","title":{"rendered":"Why Selling Strategy is as Important as Buying? –"},"content":{"rendered":"


\n<\/p>\n

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The stock market is like a pendulum that swings from one extreme\u00a0to another. While it often comes to the center, rarely does it stay there for long before moving to either of the directions. This cycle of greed and fear is what generates attractive opportunities for value investors with a long horizon of 3-5 years. However, it is crucial to identify when the cycle for our stock is approaching the other extreme so that we are able to start taking money off the table. The absence of a disciplined selling strategy can lead to large drawdowns\u00a0and one can get stuck for longer with sub-optimal returns.<\/p>\n

The following few exit decisions illustrate how we emphasize this important parameter:<\/strong><\/h2>\n
    \n
  1. Gujarat Ambuja Exports:<\/b> The normalized operating margin for the maize segment has been between 12-14%, however recent margins were inflated at 18-21% due to an abnormal hike in product realization (starch) globally on account of supply cut from Ukraine as well as cheap maize inventory lying with the company ensuring\u00a0GAEL enjoyed\u00a0extraordinarily high spreads. While it is evident this is a one-off gain, the market generously took the stock to new heights as it even entered\u00a0high-quality\/coffee can portfolios. When you get peak multiple on peak margins, it is typically a good opportunity to start booking profits. We sold the majority of our position with 5x returns (held since 2017 translating into a ~38% CAGR) while\u00a0retaining\u00a0some to play the optionality (as the core investment thesis is intact).<\/li>\n
  2. Dhanuka Agritech: <\/b>We invested in Dhanuka in downcycle during late 2019 when nobody was interested in looking at domestic agro-chem, despite it being a good cash-rich business with high\u00a0RoCE. Operating margins were beaten down to a decadal low of 15% while the valuation multiple on those depressed earnings had fallen to 12x from a high of 37x. We anticipated the earnings cycle to turn and we got lucky to get all three levers right \u2013 sales growth, margin restoration to 19% as well as PE multiple rerating. The stock quickly moved\u00a0 2.6x within 18 months despite the pandemic. As our thesis played out and we saw headwinds from inflation and erratic monsoon to turn cycle again, we exited. Since our exit 18 months ago, the stock is down 25%, while we deployed proceeds to such newly emerged opportunities in companies\/sectors which were at a similar stage where Dhanuka was in late 2019.<\/li>\n
  3. Indian Energy Exchange: <\/strong>We opportunistically invested in IEX during COVID crash of March 2020 at an attractive valuation. In simple terms, our investment thesis in IEX revolved around the fact that this disruptive business had been leveraging technology to bring operating and financial efficiency in one of the most inefficiently run large sectors \u2013 power. The price discovery and operating ease offered by a power exchange stand to benefit the entire value chain \u2013 power generators, power distributors as well as power consumers. IEX has over 95% share in the exchange-traded power, which is 40% of short-term power which in turn is just 10% of overall traded power in the country. Rest 90% is still sourced via long-term (25-year) power purchase agreements (PPA). Over the next 18 months, the thesis started playing out with a 60-70% jump in sales and profits, however, market started extrapolating this to infinity and took the stock up 5x. We took most of the money off the table while retaining some position to play the long-term thesis. The stock is down about 50% since then.<\/li>\n<\/ol>\n

    The downside of this strategy<\/b><\/h2>\n

    No strategy is foolproof. In the case of APL Apollo<\/strong>, we exited on similar grounds as we thought operating margins had peaked and the market was\u00a0being generous\u00a0in\u00a0offering\u00a0high multiples on those elevated margins. We were happy with the 5x returns we had made in\u00a0a short span of 2.5 years. However, management continued to execute on that high base, grew sales, and maintained margins. As a result, the market continued to re-rate it further and the stock doubled even from where we sold it.<\/p>\n

    Tasty Bite<\/strong> is another case worth mentioning \u2013 we exited this at Rs 5,600 in 2017 (9x from our initial price of Rs 640 in 2015) despite\u00a0the acquisition by Mars, US as\u00a0the valuations seemed to have baked in all positives already leaving little scope of disappointment. Over the next couple of years, the stock continued to climb up to almost Rs 20,000. However, this wasn\u2019t backed by earnings growth, rather\u00a0entirely\u00a0via re-rating. The market cap went as\u00a0high as Rs 5,000 Cr for a 400 Cr sales company making Rs 40-50 Cr in profits. Although with no improvement in underlying fundamentals, the multiples have been coming down from the peak.<\/p>\n

    Key Takeaway<\/b><\/h2>\n

    The idea is to do what works best for oneself. For us focusing on the process rather than the outcome has worked. Following disciplined exits has kept us in good stead. From every five exit decisions, there can be one or two\u00a0cases like APL where we miss further upside, however, we also get saved from large drawdowns and opportunity costs of overstaying in other\u00a0investments.<\/p>\n

    \u2014<\/p>\n

    Check out Treasure Trove (TT), our research offering covering 15-20 stocks diversified across multiple sectors as well as large\/mid\/small caps.<\/p>\n

    Guest Dashboard:<\/strong> For select current investments like GAEL & Usha Martin, as well as all the exited stocks, all\u00a0our research\u00a0right from Initiation Note (Investment Thesis)\u00a0to\u00a0Management Meeting, AGMs, Quarterly Result Updates can be accessed for\u00a0FREE on the\u00a0Guest Dashboard<\/a>\u00a0\u2013 new users need to fill a small sign-up form, we hate to get spammed ourselves so rest assured\u00a0we\u00a0wouldn\u2019t do it to you. By becoming a guest user, you would occasionally be notified of new posts, with an option to opt out whenever you find them irrelevant.<\/p>\n

    Disclaimer:<\/b><\/span>\u00a0This is not a recommendation to buy\/hold\/sell. Please consult your financial advisor before acting on it.\u00a0<\/span>Read the complete\u00a0disclaimer here<\/span><\/a>.<\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"

    The stock market is like a pendulum that swings from one extreme\u00a0to another. While it often comes to the center, rarely does it stay there for long before moving to either of the directions. This cycle of greed and fear is what generates attractive opportunities for value investors with a long horizon of 3-5 years. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[96],"tags":[10958,6342,7846,11636],"dealstore":[],"offerexpiration":[],"class_list":["post-119079","post","type-post","status-publish","format-standard","hentry","category-investing","tag-buying","tag-important","tag-selling","tag-strategy"],"yoast_head":"\nWhy Selling Strategy is as Important as Buying? - Som2ny Network<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fivemor.com\/?p=119079\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why Selling Strategy is as Important as Buying? - Som2ny Network\" \/>\n<meta property=\"og:description\" content=\"The stock market is like a pendulum that swings from one extreme\u00a0to another. 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