How could investors avoid losses in Paytm and Zomato?

“Learn to use the wisdom of the past and you’ll look like a genius, even if you’re really just a shrewd borrower.”

Robert Greene is a noted author, best known for his books on strategy, power, and seduction.

Now, the reason I liked the above quote is because it can save you from big losses in the stock market.

I explain how.

Would you invest in a company which has made a cumulative loss of approx? 2,000 crore in the last five years, not a single profit making year?

Hmm… Might depend on the assessment you said.

Well, what if the stock is available at a selling multiplier of 40x the price?

Loss-making stock with absurd valuation? You’d reject it outright, wouldn’t you?

Let’s take another example.

This is another loss-making stock, adding to the cumulative loss of more than 4 thousand crores and once again, not a single profitable year in the last four years.

Evaluation? Still, huge price to sales ratio in the region of 30x.

Now, if I tell you just a few months back, investors were falling head over heels to invest in these stocks.

Sounds incredible, doesn’t it?

However, it is true. These financials belong to no one else Paytm and Zomato,

Shares that have destroyed huge wealth for shareholders in the past few weeks have not received any respite.

Paytm shares are down. Since the beginning of this year, they have fallen by almost 60% from 1,335 546.

Meanwhile, Zomato shares are down 41% so far in 2022.

The reason why investors fall for these stocks is because they have forgotten the important lesson that I highlighted at the top of this post.

All he had to do to make him look like a genius was learn to use the wisdom of the past. These companies have had a bad past and a cursory look at the financials would reveal this.

Yes, there will be some companies where knowledge of the past may not work, but this will be more of an exception rather than a rule.

And you cannot build a portfolio using exceptions.

So, make it a rule that you should not invest in companies that have a huge loss making history, even if they are offered at attractive valuations and promise a very bright future.

This will save you a lot of trouble in the stock market.

Almost always use knowledge of the past. Trust me, you’ll look like a genius, even when you’re really only doing the most obvious things an investor needs to do.

By the way, Rahul Shah, Co-Head of Research at Equitymaster, shared this update on his Telegram channel last week.

Be a part of Rahul’s journey as he shares ideas that could potentially accelerate your profits. Join Rahul’s Telegram Channel – Quick Profit,

Happy investment!

Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

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