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Time to buy 'fear'? Top 10 stocks based on Warren Buffett investment methodology

Although market gurus have time and again said that the best time to buy is when there is fear on the street, it is a difficult strategy to implement.

August 06, 2019 / 05:15 PM IST

Warren Buffett once said “be fearful when others are greedy, and greedy when others are fearful”.

Yes, there is plenty of fear on the Street, triggered by both global as well as domestic factors. The tax on super rich, muted corporate results, persistent selling by foreign investors, trade tensions between the US and China, no stimulus from the government to revive the slowing economy are among the sectors at play.

A combination of these pulled down benchmark indices below their crucial support levels. The S&P BSE Sensex gave up 38,000, while the Nifty50 closed below 11,000 last week.

The S&P BSE Sensex fell by about 8 percent, the Nifty50 9 percent from their respective record highs of June 2019.

The broader market is already bearish. The S&P BSE Midcap index is down 21 percent, while the S&P BSE Smallcap index is 28 percent from their record highs.


The most important decision to make at current levels is to buy when everything seems to be falling. More than 70 percent of the top 500 BSE stocks are in a downtrend.

Experts feel that the time is right to buy the “fear” because the market could be nearing a bottom, and could see a recovery soon. But, it is easier said than done.

Though market gurus have repeatedly said the best time to buy is when there is fear on the street, it is a difficult strategy to implement. The feeling of fear will not indicate whether the worst is over or whether more fear is in store.

“Investors have to become choosy about governance and capital allocation decisions made by the companies’ managements. Many smallcap and midcap companies may fail the test of survival in an era of constant disruption—be it owing to regulations or technology,” Deepak Jasani, Head, Retail Research at HDFC Securities, told Moneycontrol.

Once the economy picks up, experts feel that select mid-and-small-cap companies will keep throwing up surprises in stock moves, based on their small size/base, faster adjustment to emerging changes, financial and operational restructuring, etc. But, patience is the key.

“Yes, there is a famous quote by legendary investor Warren Buffet on that. But, in equity investing, one needs patience as well, to see true wealth creation,” Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance Company, told Moneycontrol.

“Presently, we recommend investors to systematically invest in the equities. Investors can consider making lump-sum investment on any large market dips/corrections but should have a sufficient long term investment horizon (five years and above),” he said.

Buffett is one of the most successful investors of all time. A former student of Benjamin Graham, Buffett is noted as a legendary value investor, though he is also believed to incorporate an emphasis on management quality and company growth prospects.

Buffett most likely would emphasise on stocks that are trading at reasonable prices. Making the job simpler for investors in picking stocks conforming to values of Buffett, we have taken data from MarketSmith powered by William O'Neil.

The following stocks were filtered with the highest Master Score and RS (Relative Strength) rating. Master Score is a proprietary filter created by MarketSmith that highlights great earnings potential and strong price performance of a stock.

The Master Score formula incorporates earnings growth, relative price strength, price-volume characteristics, industry group relative strength, and other factors—everything Buffet swears by.

On the other hand, RS rating is a technical tool that is the most popular way to see the market’s top performers. The Relative Strength rating is the result of calculating a stock’s percentage price change over the last 12 months.

A 40 percent weight is assigned to the latest three-month period; the remaining three quarters each receive 20 percent weight. All stocks are arranged in order of greatest price percentage change and assigned a percentile rank from 99 (highest) to 1 (lowest).

The filter is applied to look for companies with long-term past and potential future growth. Of the stocks returned by the screen, Buffett most likely would emphasize those trading at reasonable prices.

The stocks having market capitalization (crore) greater than 500 and Average Rupee Volume greater than 10,000 are considered to filter stocks for the list.

Here are 10 stocks according to above-mentioned parameters that one should look at (they are not any particular order):

Ratnamani Metals: Master Score 69


Indraprastha Gas Ltd: Master Score 66


Honeywell Automation: Master Score 64


Astral Poly: Master Score 64


Hexaware Technologies Ltd: Master Score 62


Nesco: Mater Score 62


Caplin Point: Master Score 61


L&T Infotech: Master Score: 56


Graphite India: Master Score 48


Balkrishna Industries: Master Score 46


Disclaimer: These stocks are for reference only and not buy ideas from MarketSmith.

The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Aug 5, 2019 11:13 am