When you sell shares or book profits and are sitting on cash, you want to find ideas within a reasonable time. When the market keeps rising, this becomes a challenge. It becomes increasingly difficult to find ideas where you have the comfort of valuations. While you may find interesting ideas, you may not be able to reconcile them with valuations. This puts pressure on you to compromise either, on your ideas to fit with your comfort of valuations or on your valuation comfort to stay within the ecosystem of the ideas you like. Either way, you are prone to compromise.
The question is whether an investor should compromise on quality or valuations. The answer is simple. You should not compromise on quality. In fact, you should never compromise on quality. But, comprising on valuations is a grey area. Such compromises don’t work most of the time. An investor must know when these compromises work and when they must be averted.
The one secret sauce in making this decision is the growth trajectory of the company. Companies usually deliver on valuations where growth trajectories are higher. In cases where growth trajectories do not support, you will see drawdowns. This is the time to clearly understand that investors must manage their reinvestment anxiety responsibly and avoid compromises on quality while making decisions. The valuation compromises you make should be justified by the business performance and should turn your anxiety into a positive driver of decision-making.