Synopsis
As a set of stocks, mid-caps have done poorly in the last year. Some of this was, of course, due to business conditions. Others did poorly because of valuation readjustments. Some stocks were seeing readjustment for quite some time, and the bears just made sure it continued for longer. So, is the valuation adjustment over? When investing in mid-caps, investors need to be clear about three things. One is valuation. Two is the real business of the company. And three is the management. You can err on valuations, but not the other two. They are the key to investing, especially in the mid-cap space.
There are two kinds of risk and many kinds of risk-takers in the market. Let’s first look at the two risks. First: Buying bad quality stocks when the sentiment is bullish (as it was till September 2024), and then suffering capital loss as the market corrects. Second: Buying good quality stocks when the sentiment is extremely bearish, and then seeing them decline. In both cases, what is common is the decline in prices after buying the stocks. But
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