Never Judge a Book by its Cover !

4 min read

In this nugget, we discuss some of the Railway stocks that have busted the narrative that Govt owned stocks are slow moving in nature, etc. and have truly surprised many with their remarkable moves in the recent past.

There is a popular saying that goes, “never judge a book by its cover.” This phrase holds true for many stocks too that have experienced an unexpected surge in recent times. These stocks, which were once overlooked and under-owned, have taken investors by surprise and delivered substantial returns. In this article, we will focus on rail stocks, specifically government-owned stocks, to shed light on their remarkable performance and what it means for investors.

Let’s begin by examining the chart of RAILTEL Corporation of India. Upon its listing, the stock saw a significant spike, soaring from Rs 96 to Rs 178 in just 21 days. It later experienced a period of consolidation, dropping to as low as Rs 80. However, in recent months, the stock has taken off once again, climbing from Rs 140 to its current level of Rs 238. This sharp move in just four months is quite remarkable.

The usual narrative surrounding government-owned stocks is that they are slow-moving, with poor decision-making and an unfavorable future outlook. However, the charts of these rail stocks tell a different story. They demonstrate that these stocks can experience significant growth and challenge our preconceived notions about their performance.

Similarly, IRCON International exhibited a range-bound movement in the Rs 20-40 range from 2019 to 2022. It was unexpected that this stock, which seemed to have a natural range, would jump to Rs 120. This breakout is indicative of a transformation within the company or the sector. When a stock breaks its all-time high or the 52-week high, it suggests that it is no longer willing to stay within its previous range and is seeking new heights.

Another example is IRCTC, which witnessed an initial surge, jumping from Rs 250 to Rs 1250 within a short period of time. Since then, the stock has been consolidating, but it may gradually start to move up again. Considering its base around Rs 250, the stock has delivered almost a three-fold increase over three years, demonstrating its phenomenal growth potential.

The stock of IRFC also experienced a significant breakout after simmering within the Rs 20-25 range for a considerable period. Once it moved beyond Rs 25, it quickly climbed to Rs 35 before consolidating and forming a cup and handle pattern. In just one month, the stock surged from Rs 35 to Rs 66.

Avoid Personal Biases

These instances of surprising bull runs in rail stocks highlight the importance of avoiding personal biases and considering the future potential of a stock rather than its past performance. It is essential to have a clear vision that nothing can be preempted in terms of both upside and downside potential. Instead, we must strictly follow the momentum of a stock. If it is moving upward, it is essential to ride the upward wave, and if it is moving downward, it is wise to exit the position.

Investors should not fall into the trap of assuming that a stock’s range will persist indefinitely. Breakouts like the ones observed in these rail stocks demonstrate the potential for extraordinary gains in a short period. It is crucial to remain open-minded and base investment decisions on current market trends rather than previous biases.

It is worth noting that surprising bull runs can also occur in the opposite direction. Stocks that were once considered blue-chip investments, such as Yes Bank and IL&FS, experienced significant declines of 80% to 90%. Narratives are often formed after price moves have already unfolded, creating justifications based on hindsight.

In conclusion, the recent bull runs in rail stocks, particularly government-owned stocks, have challenged conventional wisdom about their performance. These stocks have delivered substantial gains in a short period, contrary to the prevailing narrative. Investors must remain unbiased and follow the momentum of a stock, whether it is moving upward or downward. By doing so, they can efficiently manage their portfolio by holding onto winning stocks and cutting losses on underperforming ones. It is essential to stay vigilant and adapt to changing market dynamics to maximise investment outcomes.

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    Never Judge a Book by its Cover !