Why We Love Stock Market Volatility
- Rupam Deb
- Apr 5, 2022
- 5 min read
While February was a month where most of us would have seen our stock portfolio bleeding, March is likely to have been a kinder month.
Over the past 30 days, both the S&P 500 and tech-heavy Nasdaq gained by around 8% each.
Popular stocks have rewarded shareholders even more. For instance, shares in our latest Multibagger Research Series company Meta Platforms (NASDAQ: FB) has soared by 13% since we last spoke about it.
Having said that, we admit that a one-month timeframe is extremely short to draw any conclusions. We like to focus on the long term (think decades) with a fervent focus on the business fundamentals.
The only time we look at stock prices is to see if there’s an opportunity to buy shares at a deep discount to our calculated intrinsic values.
If there is, we pay attention and get our war chest full of cash ready (oh, we even have a strategy to generate cash when we need it during market crashes; more on that at the end of the newsletter).
An investor we admire, Warren Buffett, once said (emphases ours):
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.”
We are not worried about share price volatility as we know that as net buyers of stocks, crashing stock prices benefit us over the long run, provided the business fundamentals are intact.
We gain the conviction by researching the companies deeply and trying to understand every aspect of it intimately.
Customers Win, Business Wins, Investors Win
One such company that we’ve researched recently as part of the Multibagger Research Series is Wise (LON: WISE), a global money transfer firm.
The mission of this incredible company is to allow instant, convenient, transparent, and eventually, free money transfers (did someone say “free”?).
Wise has a strong focus on bringing down its costs for customers, which is similar to how Amazon.com (NASDAQ: AMZN) runs its business.
Called the scale economics shared flywheel, as a business grows in size, savings are given back to the customer in the form of lower prices, which increases the value proposition to the customer.
The customer then reciprocates by purchasing more products, which provides greater scale for the business to pass on the new savings as well.
And this cycle, when repeated, becomes a flywheel, providing the business with a much lower cost base structure than its competitors. This allows the company to outcompete its peers and earn outsized returns on capital in the long run.
Wise clearly has provided value to its customers, allowing it to enjoy a high 75% net promoter score, and with 2 out of 3 new customers joining it based on recommendations from friends (talk about strong word-of-mouth marketing).
Customers joining through endorsement is the best form of customer acquisition for a company, since the firm doesn’t have to spend a single marketing cent.
Since hitting a share price high in September 2021, Wise’s share price has crashed by over 50%, making it look more attractive as a business.
We have covered Wise in detail, including its valuation, in our Multibagger Research Series program.
But if you would like to check out a summary overview of the company for free on YouTube, we’ve got you covered as well!
Who Doesn’t Love Stock Market Discounts?
With the stock market volatility of late, many stocks are selling at discounted prices.
One such business is Prosus (AMS: PRX), which is a global consumer internet group and one of the largest technology investors in the world.
Prosus owns around 29% of Tencent and we all know that Tencent is a great business in China, and that the Chinese can’t live without Tencent’s products in their everyday lives.
Many famous investors like Mohnish Pabrai, Rob Vinall, and Guy Spier had bought Tencent indirectly via Prosus with a steep discount.
Since we last discussed Prosus in August 2021 with our subscribers of Multibagger Research Series, the share price of Tencent and Prosus has gone down even more, widening the discounts to intrinsic value and net asset value.
In this YouTube video, we discuss the business of Prosus, Naspers & Tencent, and their valuations.
How to 10x Your Money in 10 Years
Relaxo Footwear (NSE: RELAXO) is an Indian footwear company that has delivered an astounding 7,000% share price return over the past 10 years or so. In terms of compound annual growth rate (CAGR), it translates to a mind-boggling 54% per annum.
The growth in share price clearly dwarfs that of Amazon, which has gone up by “only” 1,400% during a similar time frame.
Source: Tikr
Relaxo was a case study that our guest speaker for our Knowledge Series Discussion, Saurabh Mukherjea, took on in his sharing.
Saurabh is the Founder and Chief Investment Officer of Marcellus Investment Managers.
He has also written several bestselling books such as:
The Unusual Billionaires (2016),
Coffee Can Investing: The Low Risk Road to Stupendous Wealth (2018), and
Diamonds in the Dust: Consistent Compounding for Extraordinary Wealth Creation (2021).
To find out how Relaxo managed to create massive shareholder wealth and how you can discover “boring” companies that can go on to become multibaggers, here’s a recording of Saurabh’s sharing.
(P.S. We also conducted an investing quiz, with the top two joint winners walking away with Saurabh’s book each. We will conduct more of such quizzes, so stay tuned!)
Updates on JD.com, StoneCo, and Pax Global
For the month of March, we also provided updates on JD.com, StoneCo, and Pax Global on our blog – companies that are currently trading at valuations below our estimated intrinsic values. These companies are part of our Multibagger Research Series program.
If you missed out on any of them, you can catch up here:
Free Resources: Learn to Generate Cash Flows When You Need it the Most
There are a vast number of discounted opportunities available in the stock market right now. But one stumbling block could be the lack of cash to take advantage of them.
Fret not!
At our Option Series Program [Free Preview], we teach you how to generate cash when you need it the most.
In the course, you will learn:
Ways of using options to fund your long term investments
How to position yourself to be able to acquire more shares of your chosen businesses at attractive prices
And many more
Get started now and generate the cash flows when you need it the most!
P.S. If you have enjoyed, or learned something from, this article, do subscribe to our newsletter to be informed of our future articles, and share this with your friends so that they get to benefit too!
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