Investors Carnival: Jatin Khemani Says Watch Out For Three Things Before Investing In A Stock

Investors should buy in bad times and sell in good times, suggested Jatin Khemani, founder and chief executive officer of Stalwart Investment Advisors. “Investors should not extrapolate earnings,” he said at the Investors Carnival event In Goa. “A timely exit is very crucial to protect gains.”

Khemani lists out three categories to watch out for while investing:

Business

• There are risks which are known as well as unknown while investing.
• External environment, including competitive scenario or government policies can change.
• The continuous flow of new information pushes investors to revisit their original thesis.

Management

• First corporate mis-governance should trigger an immediate exit, followed by capital allocation.
• Investors should invest only in companies where promoters treat minority as part-owners.
• Shareholders should track management actions closely to identify early signs of wrong-doing.
• Investors should exit the stock immediately when there is an alleged fraud in one of their portfolio companies.

Valuations

• Investors should broadly estimate earnings per share five years down the line depending on the industry growth, market share gains and much more.
• Investors should further assign price-to-earnings multiple based on long-term growth prospects, predictability, business model resilience and return ratios.
• Shareholders should never look at earnings multiple like price-to-earnings or enterprise value-to-Ebitda in upcycle as they are misleading optically.

Watch Jatin Khemani's full presentation at Investor Carnival here.

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