InvestorQ : How to distinguish high quality and low quality stocks in such markets?
Nishant Chandani made post

How to distinguish high quality and low quality stocks in such markets?

3 years ago

The last thing you need to remember is that “cheap crap is crap anyways”. The wisdom is that don’t try to buy a stock clobbered for fundamental reasons even if the overall market has reached a bottom. Take a look at stocks like Punj Lloyd, Jaypee group, RCOM and Suzlon. They are so deep in debt that no amount of market undervaluation can make any difference to their fortunes. The danger in this bull / bear debate is that you may end up buying the wrong stock at the bottom and selling the wrong stock at the peak.

Typically you can have 2 examples of the kind of errors that investors commit in this process. At the bottom post the technology crash in 2002, an enthusiastic investor tried to heavily accumulate stocks like Himachal Futuristic, Pentamedia and DSQ Software which were 90% down. Needless to say, buying a worthless stock at the bottom of the market is no great idea. It is anyways worthless and can only go towards zero. In 2010 when markets had started picking up post the quantitative easing announced by the US government, many enthusiastic investors accumulated stocks like Kingfisher Airlines and Deccan Chronicle. Their argument was that either the banks or the government will bail them out. Well the government changed, banks wrote off the money and investors were left with worthless paper. Even today, some are holding on to the shares but there is no point anyway.