Dear Friends,
With the recent developments on the ceasefire and ceasefire violation, the financial markets are going sharp up and down.
We have been witnessing the markets opening huge gap ups and downs and trading itself is a very difficult thing to do.
I have been receiving various questions on whether the gap up/down would be happening tomorrow.
Honestly speaking, I don't have no idea whether a stock will "fill the gap" or not. Nor is that something I require.
All my concern is that by what percentage is a company growing today, and is the price that I am paying for is fair?
Will the company's current revenue and profits have grown, or not, but three years from now, compared to where they stand today?
And what steps is the company taking to ensure that sustained growth?
That is the pure extent of my thinking. If I purchase a share at a specific price today, my sole expectation is that from this point onwards, it should never again trade at a lower price again. That is all I seek.
Beyond that, I do not really concern on what the stock market might do tomorrow:
Will it be "gap up"? tomorrow
Will it be "gap down"? tomorrow
Will it "fill the gap"?- that found in the chart!
Will it open in the green? by next day
Will it open in the red? by next day
I do not waste my thoughts on any of these simple matters; They are entirely irrelevant to my investment strategy.
One more important think is that:
While analyzing stocks, within the "Growth at a Reasonable Price" (GARP) framework, the primary strategy that I follow would involve analyzing two metrics in tandem: 1) EPS growth and the 2) P/E ratio.
If a company's earnings are consistently on an upward direction, but its P/E valuation remains comparatively low, this serve as a super signal that the market has not yet fully priced in, this is the underlying growth.
The critical factor once again is the market sentiment.
A particular sector may experience a period of weakness;
Their valuations might be down due to specific news of events or broader macro-economic factors.
But if earnings growth within that sector remains robust during this same period, it attracts an investment opportunity.
Once market sentiment shifts, there is a high probability that these stocks will undergo a "re-rating," subsequently delivering attractive returns as well.
Therefore, one should not look only at the growth perspective alone. Just try to make investment decisions based solely on valuation metrics.
It is only by understanding the interplay, the gap between these two important factors that one can truly realise the full benefits of the "Growth at a Reasonable Price" in all your investment approach.
Happy Trading and Investing!
