Good morning my dear readers,

Holidays are boring in Bullish markets, am I right? 🤞😎

Today, we will discuss a super important topic, which will increase consistency in our wealth creation journey over the coming decades.

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The topic, I borrowed from a Tweet I saw online from Brian Feroldi and it completely resonated with me.

Buy Damaged Stocks stocks, Not Damaged Companies.

*Kindly spend 15 seconds just observing both the charts.

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The big picture:

The market is very smart. If a random company is consistently having a low P/e ratio or the stock has taken a beating over last few quarters, the market knows VERY WELL about the shortcomings of this company.

This is the mistake most Value Investors make. They buy stocks just because they are very cheap and often these randomly beaten down stocks belong to the second chart from the above image.

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The real winning edge in investing is to get your hands on a stock, which is like the first image.

(Revenue going up, but stock falling).

And this is THE STORY of Demergers!

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I have repeatedly come across stocks going through demergers where everything is fine with the company, but still the stock price declines as the old, legacy shareholders exit the non-core business.

Demergers/Spin offs are a classic case of image number 1, above.

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Because, at the end of the day, a BARGAIN is what we are all searching for while investing.

But if we buy a stock which is going down and if its a damaged company, we will make serious losses.

And I have noticed that this is a problem for retail investors.

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I have seen well known stocks fall in the past due to them being damaged companies, but what was disturbing, was that Retail shareholding almost always is seen increasing as these stocks steadily keep falling.

(Examples like Yes Bank some years ago, when it was in crisis).

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Conclusion:

Just screenshot and print the image above and stick it on some wall in your house.

(But as always, its very important to take permission from your wife/spouse first. Just giving advice from my learnings 😅).

On a very serious note, the above image is one of the most important things for investors to understand.

Thats the reason why in Bearish markets, we can accumulate future winners by buying companies which are growing at 20% but the stock is down -50%.

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I hope the above advice helps you in your journey as an informed investor my friends.

Now Sip your Blue Tokai Coffee, order some stuff from R for Rabbit for your kids and visit Burma Burma or Burger Singh for a meal =)

See you Friday, my dear informed investor.

My Best,

Neil Bahal

Founder

Negen Capital