Simple frameworks to generate new investment ideas effectively
In this week’s TOPICAL UPDATE, we’ll look at a couple of our Idea generation processes.
We all know that a great investment can do wonders for your portfolio, and a bad one can have the exact opposite effect on it. So, it’s not just a wish but a necessity. Now, the genesis of a good investment lies in a strong idea—one that you analyze and develop to reach your own conclusions. At Bastion, we believe that generating investment ideas should follow a well-structured, effective, and repeatable process.
Previously, we shared two idea-generation lists. In today’s newsletter, we’re updating one of these lists and introducing an entirely new one. And this new list was only made possible because of the recent market correction (a mixed blessing, depending on how you look at it).
So, let’s dive into our latest strategy for idea generation. This approach will help you kickstart your portfolio construction and take full advantage of the opportunities created by the market correction.
Framework 1: Resilience – Strength in the Face of Storm Â
In our context, resilience refers to stocks that didn’t decline significantly during the latest market correction. In fact, they moved in the opposite direction. Between September 23, 2024, and November 23, 2024, while the broader market fell by around 10%, the companies on this list grew by an average of 17% (potentially higher if we exclude flat returns) during the same period. This shows that when the market dropped, these stocks stayed steady and even performed well, unlike many others that suffered heavy losses. While these stocks may or may not have delivered massive returns during market peaks, they acted as a crucial shield during downturns, protecting the portfolios of investors who held them from significant losses—earning them the name “resilient.”
This list highlights stocks (colored green) that performed well during the recent market downturn. Now, as an investor, your task is to uncover why these stocks demonstrated such resilience. This requires putting on your detective hat and analyzing the company’s recent quarterly performance, corporate announcements, and management commentary. In most cases, you’ll be able to identify the reasons behind their strength. So, use this list as a starting point for deeper research and discovery.
Be sure to check it out —you’ll discover some fascinating insights!
Framework 2: The FD Test – Companies Underperforming in the Last 5 Years
The strategy here is to identify companies that have failed to outperform Fixed Deposit (FD) returns over the last five years. This is an updated version of the list we shared earlier. For those unfamiliar with this approach, the goal is to find companies that couldn’t even match the modest returns of an FD. These businesses often land on this list because the market has become overly negative about them due to challenges. As an investor, we need to identify companies where challenges are temporary in nature and their core fundamentals remain strong.
This creates an opportunity for value investors, as these companies are often undervalued despite their long-term potential. Below, we’ve attached the updated list of companies that have underperformed over the past five years.
If you want to read and compare the earlier list, you can check it out here.
Do your Own Due Diligence (DYDD)
Please note that this is just the starting step for idea generation and not the end in itself. We strongly encourage you to do your own due diligence while investing.
If you have a better understanding of any companies on the list, send us an email to conncet@bastionresearch.in and let’s connect to discuss. We would love to hear your insights and engage in a fruitful dialogue.
Thank you for joining us on this journey of discovery. We hope these insights spark new ideas and opportunities for you. Until next time, happy investing!
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