This is the first post in a 5 part series bringing to you the Worst 5 stocks of 2008.
Between 8th January 2008 and 10 October 2008, the key global indices on an average fell by 41% from their highs. The Sensex tanked to 10240 from a high of 21207. Every investor in the market bled including the ones who had remained invested for the past 6 years. But there were a few who happened to pay a little more than the others. Out of this lot, a majority consisted of investors who had picked high beta stocks and had invested in sectors such as Real Estate and IT.
So what's the big deal with Beta? During the Sensex crash of 2008, 91 of the worst hit stocks had all a beta of greater than 1.4 and combined, they constituted over 92% of the total market cap of BSE. Of these 91, the top 10 had four stocks from the Anil Dhirubhai Ambani Group. But I am here to talk about the worst of them all.
Had you invested in this stock in late 2007 or early 2008, then by the middle of October 2008, you would have lost over 92% of your investment. It was the worst hit stock of the 2008 crash and the one also with the highest beta of 2.08
HDIL (Housing Development and Infrastructure Limited) was the worst pick of 2008. A reduction in CRR meant that the cost of funding by the company kept increasing and this ate into the profitability. Rising inflation and interest cost meant that their current projects were unsaleable. The company was witnessing such a severe cash crunch that it borrowed money at a shocking 36-48% from the financiers. Worst of all, the company has a promoter stake of over 60% and still could not prevent the blood fest. I hope you did not buy this stock...
Beta at times of severe correction can be the worst measure to pick a stock. A stock with high beta will be the first one to be punished when a correction happens. So decrease dependence on beta as a decision making tool while picking up a stock.
Between 8th January 2008 and 10 October 2008, the key global indices on an average fell by 41% from their highs. The Sensex tanked to 10240 from a high of 21207. Every investor in the market bled including the ones who had remained invested for the past 6 years. But there were a few who happened to pay a little more than the others. Out of this lot, a majority consisted of investors who had picked high beta stocks and had invested in sectors such as Real Estate and IT.So what's the big deal with Beta? During the Sensex crash of 2008, 91 of the worst hit stocks had all a beta of greater than 1.4 and combined, they constituted over 92% of the total market cap of BSE. Of these 91, the top 10 had four stocks from the Anil Dhirubhai Ambani Group. But I am here to talk about the worst of them all.
Had you invested in this stock in late 2007 or early 2008, then by the middle of October 2008, you would have lost over 92% of your investment. It was the worst hit stock of the 2008 crash and the one also with the highest beta of 2.08
HDIL (Housing Development and Infrastructure Limited) was the worst pick of 2008. A reduction in CRR meant that the cost of funding by the company kept increasing and this ate into the profitability. Rising inflation and interest cost meant that their current projects were unsaleable. The company was witnessing such a severe cash crunch that it borrowed money at a shocking 36-48% from the financiers. Worst of all, the company has a promoter stake of over 60% and still could not prevent the blood fest. I hope you did not buy this stock...
Beta at times of severe correction can be the worst measure to pick a stock. A stock with high beta will be the first one to be punished when a correction happens. So decrease dependence on beta as a decision making tool while picking up a stock.
1 comment:
Rahul, Good practical insights.
Will be waiting to see the next series here.
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