Linkfest:Aug 22, 2013

Sir,
This post has reference to the article-“Indian Equities:The good,the bad and the risky”
According to me If you can withstand the volatility now there is a huge opportunity to invest in Bad Companies (Contrarian/DeepValue/Distress Investing). In support I am posting the following views/practice of the legendary Investors. It would be kind of you to put your views, experience & alpha ideas.
In 1939, when Hitler was ravaging Europe, Sir John Templeton bought $100 worth of every stock trading below $1 on the American stock exchanges. There were 104 such companies, 34 of which were bankrupt. When he sold these stocks four years later, his $10,400 had become $40,000!
Aswath Damodaran says : The excellent companies may be in better shape financially but the unexcellent companies would have been much better investments.
Swiss Finance Institute Research Paper Series says : Return anomalies(abnormalities) are most pronounced among distressed stocks. We attribute this finding to the role of misvaluation and investors’ inability to value distressed stocks correctly.
Number of researchers report that past losers (negative or lowest return-stocks) outperform past winners (positive or highest return-stocks) or vice versa over the subsequent three to five years not only in US markets but also in other stock markets. The returns from low equity base stocks are even higher.
When market recovers, during the 1st phase of bull run low quality stocks give outstanding returns (not only in Iindia). There is a chart published by Fidelity (Referance : alphaideas.in/charts) which shows the various phases of bull run & the price appreciation of various stocks like Leveraged, Deep Value, Momentum, Dividend Focused, High Quality, Mega Caps etc. Had it been possible; I would have uploaded that.
Thanks!