Unbiased Strategies Can Lead to Unexpected Gains
Have you ever heard the saying, “never judge a book by its cover”? It implies that things may not always be what they seem at first glance. This concept holds true not only in life but also in the stock market. Some stocks, often referred to as “ugly duckling stocks,” may surprise investors with remarkable gains despite their unimpressive appearances. In this article, we will explore the fascinating case of two energy companies, Power Finance and Rural Electrification, and how their unpredictable price movements have defied conventional wisdom.
Rural Electrification (Rec) has been fluctuating between Rs30 and Rs80, seemingly trapped in a frustrating cycle. Nobody could have anticipated that after a decade of such repetitive movements, there would be a sudden surge from Rs80 to 374.
In just one and a half years, REC has experienced a nearly six times increase in value. Such a remarkable growth rate was unimaginable considering the long-standing pattern established by the stock’s past performance.
Similarly, Power Finance Corporation ( PFC ) has followed a similar oscillating pattern between Rs80 and Rs40. Anyone who invested in this stock likely got stuck at one of the peaks and, out of frustration, may have sold near Rs80 or Rs100.
Since covid bottom, PFC has gone on to record a humongous 10x gain in just about 3.5 years compensating for the lost time.
The nature of these stocks, as taught by their historical movements, has conditioned investors to have fixed expectations. What we fail to realize is that any stock can surprise us at any moment, defying our preconceived notions. These examples demonstrate the beauty of following unbiased strategies that take into account all possibilities.
An analogy can be drawn to a popular TV show hosted by Anupam Kher, “Kuchh Bhi Ho Sakta Hai” (Anything is Possible). The stock market operates in a similar manner, where any stock can do anything. This unpredictability is what makes the market both exciting and challenging. It is essential for investors to avoid fixated views or biases towards certain stocks, predicting their behaviour based on past performance.
Keeping an open mind and adhering to an unbiased investment strategy is crucial. If your strategy generates a particular stock pick, do not override it simply because you hold biases against that stock. When it comes to non-discretionary investing, it is essential to remain open and allow the stock to hit a stop loss if necessary. By following the decisions of your system rather than your biassed judgement, you increase your chances of benefiting from unexpected winners.
The key takeaway from these examples is that anything can happen in the stock market. The past performance of a stock does not guarantee future results. Ugly duckling stocks may have hidden potential that could lead to substantial gains. By maintaining an open mind and avoiding fixed views, investors position themselves to capitalize on opportunities that others may overlook.
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