The secret of the unicorn

Recently, I came across a YouTube video that you should all watch. It was a short speech by Deepak Bagla, the head of Invest India, the country's investment promotion and facilitation agency. In just about 15 minutes, Mr Bagla put into perspective the incredible pace and scale at which some truly significant things are happening in our country. In fact, our team picked inspiration from his great talk for the cover story of the last issue of our other magazine, Mutual Fund Insight.

However, the small part of the talk I felt some dissonance with was his pride in India's enormous production of 'unicorns'. If you look in the dictionary, a unicorn is defined as 'an animal that only exists in stories, that looks like a white horse with one horn growing out of its forehead'. Something that exists only in stories is an oddly appropriate term for startups that claim to have a valuation of more than a billion US dollars.

Once upon a time, articles in serious business publications would always mention the revenue and profits of companies they were writing about. It helped readers get an immediate sense of the scale and the business's success. Now, readers are often expected to get by with just the valuation. And what is this valuation? At best, it will be the total valuation at which the company last raised money. More often, it will be something even worse - the total valuation at which the company is trying to raise money.

This strange cult of the unicorn is founded on the belief that valuations have as much (if not more) of reality as sales and profits. In reality, this unicorn-thinking leads to a poor mental model for real investing, where bad times come but require a different mental model for managing them. Every investor sees bad days eventually. In theory, all equity investors know that such a day will come, but the theory can never teach us what the experience does. One day your investments will be worth, say, Rs 10 lakh. A few days later, it's nine. Then eight, then maybe seven. A certain kind of investor became attracted to equities or equity funds only towards late 2007. Then such investors became desperate to avoid missing the bus and invested substantial amounts of money into really pathetic investment ideas. Some of these investments lost 60-70 per cent, and a certain number never came up again.

The difference was that those who kept their eye on quality and practised diversification across companies and sectors recovered quite smartly. Some of them were confident enough during those days of the quality of their choices and did not sell. Some even bought quality stocks once the worst of the crash was over and prices were at rock bottom. For these chosen few, the 2007-08 crash eventually turned out to be a positive experience. Everyone saw a big failure in investments, but it was a temporary failure for those who had fundamentally sound investments and were diversified among them.

So where does Value Research come into this story? Value Research comes in by giving you the tools, the knowledge and the confidence to ensure that when you fail at some piece of investing (which is inevitable), it's a small and affordable failure, most likely a temporary one. Instead of a catastrophe that wipes out an investor, it's a small setback, and, in fact, is a good failure because it teaches a lesson instead of doing lasting damage.

Value Research Stock Advisor ensures that everything you buy today will look like a great decision and not become an embarrassment when the markets take the inevitable u-turn. Typically, if a stock is worth buying and is part of our recommended list, it is even more attractive when the markets are weak or even that stock itself is weak. This is contrary to general trader behaviour and, undeniably, to most human instincts. This is the point of time when the difference between just being a list of stocks and providing a genuine advisory service comes to the fore.

What you get with Value Research Stock Advisor

• Access to all our (currently 56) stock picks.
• Best Buy Stocks: 13 stocks selected from our recommendations. Use this set to start building your portfolio right away!
• The complete investment thesis for all recommended stocks to understand why you are investing.
• New recommendations as soon as they are released.
• Continuous updates and analysis on all recommended stocks straight from our dedicated analyst team.
• Tools and data to research and analyse any other stock.

So head over to Value Research Stock Advisor. You will find a total of 56 recommended stocks, of which 13 are 'Best Buys Now' and 11 are 'All Weather'. Take your pick and cook your dish. None of them are as fickle as the so-called unicorns.