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Stocks

Biggest Losers: Marksans pharma

I’ve invested in stocks, on and off, for a while now and while I tend to talk about some of the stocks I’ve liked and have done well, let me tell you about the investments that have resulted in losses for me. I’ll start with Marksans Pharma.

Some fundas: Open means I still own the investment, Closed means I’ve sold everything at a loss. And my losses are based on the average buy price and the average sell price of a stock.

Stock: Marksans Pharma
Lost: 50%
Period: 6 months
Status: Closed
Why I invested: Sharekhan, where I have a brokerage account, released a report on this company stating the growth prospects in March 2006. I purchased the stock around Rs. 230, for a target of Rs. 360 according to Sharekhan. The company was formed merging Tasc Pharma and Glenmark Labs, with huge manufacturing orders from companies abroad, in bulk drugs. The company also had a research model that was working on a male contraception molecule. At a P/E of 42, it was expensive, but the growth looked like it would contract the P/E and result in a revaluation.

What happened:
The stock hung around Rs. 230 level for a while, and in the big kahuna crash of May 2006, plummeted down to Rs. 100 or so. I held on, because I was stupid enough not to have a sell rule, plus I called it “long term” since I only bought in july. A sell rule would have helped me exit the stock at about 190 but I didn’t do that.

Then the stock held on for about three months in the 100-140 zone. It announced dismal results in Q4 2006, after which Sharekhan released an update effectively telling me not to worry and that growth was still intact. I held on.

I then configured my sell rules for a 20% loss (max). This prompted me to look for an exit for this stock, which I decided would be around 120, and the stock was quoting at 115 at the time. Within a few days I managed to sell out all my stock at 118.

The situation today:
The stock is at Rs. 56 today. It has had a series of mediocre results and has never rebounded. Sharekhan still has it on their “recommended” list but has not provided an update since July 2006. Here’s the stock chart.

Biggest Losers: Marksans pharma

Fundamentals wise: the last four quarters have been very ordinary, and the last quarter 07 has actually shown a loss. The current P/E is 20, and income has dropped massively. Does not look attractive even at this rate.

What I learnt:
While you might think I blame Sharekhan, I don’t – the mistake was entirely mine. I did not have a proper stop loss rule. When the stock runs away downwards, you should sell it. My problem was – isn’t this is a buying opportunity since the prices are lower?

That was mistake no. 2: Fundamentals had changed. The company showed a bad quarter and the stock went spiralling down. I ignored the fundamental changed based on Sharekhan’s report, but I should have done some research myself.

One other thing I did was ignore this stock. In the May-June 2006 period, stocks were hammered down so I was looking at buying opportunities (I had cashed some of my stocks already). I completely ignored this stock because it was “for the long term”. When you make 50% losses, the stock has to rebound 100% for you to just break even! I should have sold this stock immediately – “long term” is just running away from booking the loss.

That’s investing psychology, actually – that people hate to say they have lost, so they stay in the game hoping that they will, at the very least, break even. The market is a great leveller – you have to learn to be humble, accept your mistakes and move on. And, as I learnt the hard way, much before you lose your shirt.

  • amit says:

    >Hi Deepak,

    It seems that when you sold your lot at 118 i was the one to buy them!!!.I bought it at 118 and am holding it at 57.And i guess now at this price there should be no significant downside,second thing as you said is the psychology and yes i dont want to carry that blemish of having gone wrong!!though i have and that too terribly.

    Anyways what would you have done in this situation.I think you have already answered this one but still i will like to hear it once more from you.Please.

    Deepak what is your feeling about the Bajaj auto stock,the stock has fallen over 33% from its all time high.What do you think will it be wise to buy it keeping in mind the demerger.Because my plain experience has been that almost all worthy or worthless that go for a demerger or a stock split there is some value unleashed.And then this comes in that worthy category.

    What do you think about it.Please enlighten us with your wisdom.Also if if if possible do throw some light on mahindra and mahindra.There sems to be a lot of value in terms of subsidiaries.

    Regards,
    Amit.

  • Mumbai Journo says:

    >In the past five-six months since I have begun to trade actively, I look for sudden intra-day dips (as much as 4 to 5 per cent) in blue-chip stocks. I buy at such levels and sell when the price rise by 8 to ten per cent.

    In recent times, I have picked Tata Steel, ICICI Bank and managed good returns. Over a six-eight week period I look for abt 10 to 15 per cent profit.

    Frankly, I feel such a strategy will work only when markets are volatile and end upwards. I can’t imagine what will happen to my ‘strategy’ when the mood turns bearish!

    Also please tell me how to do this trailing stop loss. I have an hdfcsec account and don’t have any trailing stop loss feature. There is only a stop loss button.

  • Sujit says:

    >Hi Deepak

    I was thinking about investments, but one prominent thought that comes to my mind is about balancing my home loan payments.
    I would like to know what your thoughts are on making prepayments for home loan, and balancing it with regular investments.

    Thanks
    Sujit

  • Deepak Shenoy says:

    >Amit: Ouch. I can sympathise with you mate. My feeling is: sell this share. Whatever money you get you can put into some other stocks that are good and will help you recover at least part of your loss. This share won’t, I think.

    mumbai-journo: Good show! I have done that with two stocks recently – a target of 10% in a month – Maruti and Shipping corporation. Both succeeded. In fact I went in on a plan and wrote a put option as well, and got about 7% in a week.

    You’re right this will work only in bullish conditions. But if you have a strict stop loss , in your case 5%, you can make more than you lose.

    Trailing stop loss has to be manual – you can’t set this up in any brokerage account. what you can do is to manually calculate the loss every day from the high and if the price reaches your loss limit place an order to sell.

    sujit: Not sure what you mean – are you saying that you want to evaluate investing versus paying off a loan? In that case I’d say pay off the loan. You should never use borrowed money for investing unless you are a full time investor.

  • Deepak Shenoy says:

    >About Bajaj auto: I will post a new entry but I think the big problem is a call option that Allianz has on the insurance businesses that affords them shares at around Rs. 60 per share for upto 74% of the companies. This is valid till 2016. Reduces the value of hte insurance bits, and therefore the sum of parts will be lower than 2500. I still need to analyse this bit.

  • Rohit Chauhan says:

    >hi deepak

    i have had similar experiences with other stocks where the valuation was high and i expected the fundamental performance to catch up. however i still hold on to stocks and if the price drop below a certain point, i try to evaluate my investment thesis.

    if your analysis is sound, will a trailing stop loss not cause you to sell a stock which is only undervalued temporarily ?

  • Deepak Shenoy says:

    >rohit: I would still say sell. it’s a very rare stock that falls so bad that it hits your trailing stop loss and still retails fundamentals.

    I have a 20% trailign stop loss to avoid any small knee jerk reactions. But when a stocks is 20%(!!) below your buy price there is no reason to keep holding it.

    Sell, and you may discover a fundamental change you did not konw about but the market did, or you may find teh stock at a way lower price with good fundamentals – a better price to buy.

    The worst scenario is if the stock retraces to JUST below your stop loss and comes back up. I don’t know of many such instances but it’s rarely happened that a stock I tracked went down only 20%.

    You can use smaller stop losses if you don’t like to lose 20%. Sincemy upside target is 50% annualised I have to stretch the downside as well.

    Btw, i reduce my trailing loss limit to 10% once my 50% upside target is hit.

  • Rohit Chauhan says:

    >hi deepak
    i think it is a question of personal investing philosophy. so i understand where you are coming from, although i dont follow the same approach.
    i have had some stocks fall more than 20%, but yes not as much as 50%. in addition, i agree there can be a flaw in the analysis and not accepting and curtailing the losses would be foolish and stubborn.
    however on the upside my ceiling is generally the intrinsic value (self calculated conservatively) which i keep updating regularly. i would not sell a stock till it exceeds the intrinsic value by a certain margin. selling at a 50% upside with a 10% stop loss may cause an automatic sell when the stock dips momentarily and maybe you would miss out on a multibagger.

    but this is just my approach and not really any universal prescription

    i had checked on bajaj sometime back and could not see the sum of parts value greater than the whole. however my analysis is a bit dated

  • Ritesh Kamath says:

    >Hi Deepak,

    A similar trend is seen in Gokaldas exports.. a very good stock . It split sometime back & is going down ever since.. now that its PE is 13 & the peers like Bombay rayon is at PE 45 . Isnt it a time to buy ? but as u say this cud also be a warning that the stock is losing its lustre in the stock market.

  • Deepak Shenoy says:

    >ritesh: very weak stock. Fundamentally, apparel exporters are being hit by the dollar fall (their margins are under pressure). Gokaldas has also not shown great EPS growth in the last five qtrs (it’s EPS is about the same as in Sep 2005!). Also the promoters have decreased their holding from 77% to 70%.

    On the price action this chart looks weak. the fall has been continuous on increasing volumes.

    The results are out on the 24th. Around that time if there is a gain with much higher volumes you might see a rebound. But unless the EPS growth changes rapidly upwards and teh dollar recovers, there is no point considering this stock.

  • Ritesh Kamath says:

    >Hi Deepak,

    Thank you , I hadnt analysed it from the EPS point of view. I have a small doubt . Can you please elaborate on how the volumes of shares in a trade can signal a pattern of rise or fall ? I do not know much on how to analyse based volumes of shares traded. Even a link to a doc could help .

    Thank you,
    Ritesh 🙂

  • hari says:

    >Hi Deepak,

    I would like to bring to your notice a company that I read about in the newspapers about a couple of months ago. They seemed to give an outperformer rating for this stock.That brokerage was of the view that this stock would multiply by atleast 3-4 times. The companies name is Shreyas Inter.Its CMP is 50.But they said that this company will grow by leaps and bounds in the coming years. I would like to get your views on the same. There has been some fundamenatal change in the company,that is why this huge optimism. Is it ok to buy it now.

    Also the pharma comapny that you have said.Can anyone enter it now since it has been completely battered,is there a greater downslide in it?

    Regards
    Hari

  • Deepak Shenoy says:

    >hari: Shreyas inter doesn’t look good. Firstly never buy BSE only stocks – if a stock can’t list in both exchanges it is probably not worth the effort (plus NSE is bigger).

    Second, this company hasn’t dramatically shown EPS changes. Third, there is very little interest – the stock is going down a lot with lower volumes. What fundamental change are you talking about?

    Marksans pharma: As I’ve said the most recent quarter has shown a loss. That is a reasonably big fundamental chagne to look at…

  • hari says:

    >Hi Deepak,

    I apologize first for making such a stupid suggestion.From what I remember Some broking agency(I think DSP ML) had given a buy rating on this stock,and said that in 2 years time the price could multiply by 3 – 4 times.They had cited some reason for this.I dount remember it properly.Anyway I will check out vey well before I add a comments hereafter. I asked because this case was similar to the article you have mentioned about the Marksons Pharma.

    Also thanks for the warning. I did not know before now that it is not worth buying a scrip thats not listed in both the exchanges.
    Regards
    Hari

  • Anonymous says:

    >Hi Deepak,

    I am fairly new in this trade.I am in the learning stage.But I am going to take as a full time trade in a month or so.I want to do intra-day trading.Could you give me some tips before even I consider to start itfor being a new trader ? And also please could you give some ideas on two stocks one is Hindusn Motors and the second one is Indo Borax for both short term & long term.

    Thanks

    Hazari,Kanpur

  • raja says:

    >i bought 180 marksans when it started moving up @86 what do my senior investors have to say?
    shall isell off the up moving stock?i am new to this market pla advice!!

  • mohd asif says:

    >if now ican buy the stocks of marksons at high quantiy it will up again atleast 15 rs.

  • Srinath says:

    Hi..guys,
    I brought mp – marksans pharma @ 10/-…will it moves to 300 above..
    is it still fundamentally strong….to buy…please provide your suggestion.