Strike gold in times of financial crisis

Sometimes finding a great investment starts with going through several balance sheets and discovering something. Such type of research is usually very time consuming and intensive, and to be honest, not meant for everybody.

Someone who is a doctor or an engineer might not have so much time to browse through the financial statements of companies. But the rewards that you get when such companies are found are truly incredible. It is almost like someone mining for gold for several months and then one fine day striking gold. I spend much more time on research each time the markets correct as this is the best time to strike gold. I have discovered a handful of great companies which can do wonders to my portfolio in the coming few years. The feeling of finding such assets is blissful. 

Let us say there is a candy shop and it has Rs 4 lying in it’s cash box. Now let us say this entire candy shop has zero debt and the entire business is being sold for Rs 4. Would you buy it? Still thinking what you would do?

Well, if I was in your place, I wouldn’t think for a second and would immediately buy it for Rs 4 before anybody else gets it. Because all I need to do is put Rs 4 to buy the business and take my Rs 4 from the cash box back, and the entire business is mine for free.

I’m sure most of you might be thinking which fool would sell their business for just Rs 4 even though they have Rs 4 cash with them. Well in the real world nobody would do it, but stock markets are irrational and no wonder we can actually find people doing such things. In fact, we have a candy shop that has reserves more than Rs 11,000 crore being sold for just around Rs 4,000 crore. And this isn’t even considering other fixed assets or net current assets.

With the recent correction and global sentiment of doom and depression, people seem to forget that things change very fast. The very people who were buying the same companies seven-eight times the price until six months ago, aren’t even looking at them today. This is great news for all those who want to buy and create wealth. I think the times of crisis are the best opportunities to create wealth. No matter how bad things get, every single business isn’t going to shut down and we aren’t going to become a barren desert. 

Now this company which I have started buying into not only has assets and cash much more than its market cap, and not only does it have a book value which is almost three times its current share price. But It also has zero debt – which means it doesn’t have any interest burden. In times like now cash is king, queen, prince, everything!

Whenever I discover such companies and look at their balance sheets, it brings a big smile on my face and gets me extremely excited. I know most normal people don’t get excited looking at balance sheets and seeing the cash and book value. But then as I always say people who create wealth do things that others don’t. Being friendly with financial statements and understanding business is very important to succeed as an investor – and even as a business person or a business head. Even if you are the CEO of a media house, you can’t survive for too long if you don’t understand the financials of your business. 

A part of me wants to jump in and buy as much as I can with whatever money I have, as such opportunities don’t come everyday. But of course experience (losses in the past due to over exposure) have taught me to never do that and to always buy gradually and never ever allocate all your funds to a single stock, because more often than not, after you buy it, there are chances of it going down.

However, I feel that every investor should invest time, effort and dedication to finding such companies and see how assets truly get mis-priced. A regular investor can buy these assets at much cheaper prices than even what big Mutual Funds and FIIs have bought it at. Anybody who calls himself an investor and hasn’t noticed or studied such companies yet, will probably read about such companies three to four years down the line and how they were a great investment picked up by a few during the stock market crash of 2008.

Study history -- it has always been this way. At the moment a quality stock might be ignored and down in the dumps, but one of these days it is going to have every Tarun, Dinesh and Harjeet running after it. That day will be the time for me to start thinking about selling it and making a nice hefty profit.

Investing isn’t about listening to what is being said on TV by analysts, but about listening to your own heart and using your own logic. If it was as simple as listening to the idiot box, everyone would be a successful investor. Today Buffett, Rakesh and me, we are all buying quality assets – knowing that things can go down even more from here, but then that would just give us even better opportunities. 

 

People who fail are the ones who stop trying and give up on their dreams and beliefs. Keep digging for gold and don’t give up. I’m sure if you are persistent and dedicated you will strike gold! 

 

Happy wealth creation!

 

Yogesh Chabria is an investor and author. You can find out how he uses economic slowdowns and depressions to invest and create wealth in his bestselling book Invest The Happionaire™ Way. You can find out more by visiting www.happionaire.com. You can write to him at yogesh.chabria@moneycontrol.com

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