HIGH voaltility,sharp rallies,unexpected market direction,extremely fickle sentiments and high influence of the international markets-this are but a fewofthe stock markets tanturms in thepast few months. some analystsexpect this bear-turn to continue for some moretime. the million dollar question now is "how to make money?"
It's not an easytask in the bear marcket. Market strategies have to be weel thought out; those that worked in the past may notwork thistime. thereis no single strategy that can give you profits,but a combination of the tactics and ploys that will win you this"investment Game".We would now look at 10 strategies that may be used in isolation or in combination to come outwith a winning plan that will make money in the market:
Accumulate fundamentelly goodstocks
Thriving on chaos it's a pancil situation and many fundamentelly strongs scrips are experiencing a bear hammer.A good way to judge if the stock is under valued is if it is quoting near its 52 week low. A stop loss at the 52 week low would be desirable to restrict downsiderisk.
Price volume data
Ifyou are an active trader and open to taking short term position.A thoroughtracking of the price volume data will be worth your while before entering sectors and stocks where a significant rice in volume is being accomupanied by a psitive prise movemont. These trading calls can some times make you earn a fast buck.
Sell out of money calls of the stock that you hold
likely to remain range bound of some times. this strategy restrict the up side potenial but ganerates good, consistent returns in a bear marcket.
Buy out of money puts and sell out of money calls of nifty
this strategy helps to protect down side risk of portfolios when there is uncertainly about the future direction of the marckrts. this strategy can also generate profites if nifty falls rapidly and there is pancil in the marckets as we saw in january,march and then in junethis year.sellings calls would help you in financing the cost of the puts.
Sell deep out of money calls and puts near the expire
selling calls and puys which are deep out of money can ptovide you with a limited profit when sold near the expiry date. Only time value exists in thes options but to earn limiteed profite you have to block money in the form of margins and though a rare chance but you could end with an unlimitedloss. this,needless to say is not a very good strategyforrisk anverse investors.
Trading in futures
for shotr termand active tradersit may be better to trade in future instead of buying stocks and holding in depository account. this is because one has towait for deliver to come on T+2 so as to sell those stocks.Eg. if somebody bought 100 shares of reliance on10th august 2008 then he has to wait till 13th aug. 2008 to sell them back to the market, otherwise there exists a risk of auction in case of short delivery.
Book profits,when you can
this is a bear market. buy and hold strategy is not likely towork.it is better to book your profits as and when you earn.this is not thetime to be greedy.
The "OPTIONS" option
for risk averse in vestores it is brtter to trade inoptions in order to minimise risk .buy calls of stocks or nifty if you're bullish on some particular shares or the market as a whole in the short term. conversly buy puts of stock or nifty if you are bearish. unlimited profit can be earned by incurring limited cost with no risk in this strategy.
Money calls and puts
if the markets are volatile a useful strategy is to buy both at money calls as well as puts. whichever direction the markets take in the short run, you are quite likely to make good returns in the short run.
overtrading can spoil the party
Do notover trade and take extra risks. Remeber cash is king in uncertain times. You are likely to continue getting panic situations goingahead; where cash can be very gain fully deployed. Based on the risk appetite and investment capacity one may use the above in different permutations or combinations.
Thursday, October 9, 2008
Friday, August 15, 2008
Shattering the myth behind commodity trading
The commodity market has emerged as an exciting asset class providing opportunities for investors to diversify their investments. Many investors are, however, reluctant to trade commodities due to a variety of myths or misconceptions by general public.
Commodity trading increases speculation
Though portrayed by physical traders as a can of worms, commodity trading serves the economic objective of making the field agriculture liberalized by reducing government invention/government dependence to a large extent.
Commodity exchange provides a platform where traders and investors from various parts of the country can participate in the price discovery of any listed commodity. As in the case of all financial markets, commodity price is also a function of demand, supply and market sentiments. The future, markets provide estimates of the demand/supply situation of a particular commodity in the near future. This information is very important for policy makers as it enables them to take appropriate action so that the demand – supply gap can be filled in time.
Too Much Volatility
Many investors consider volatility as the biggest problem when investing in commodities. Normally, one has to put up about 4-10% of the total value of a commodity future contract in margin; that is far less then the required amount of margin for stock futures. Also, many new commodity traders don’t know the way to handle the new-found gift of incredible leverage. In reality, commodities are no more volatile then stocks as an asset class if we remove the leverage factor.
The problem with many investors is that they tend to overtrade. They might buy the maximum number of futures contracts that they can buy from their money as margin therefore, if the price moves up a little in value, they even end up doubling their investment but if the commodities move down a little in value, their investment wiped out. To be successful, one should not trade more than what the margin requirements allow. This removes the extreme leverage factor that gets so many new commodity traders in trouble.
Delivery of Commodity
This is something that gives nightmares to many investors but you really don’t need to worry about it. Only the commercial players are involved in taking and making delivery on commodities. If you close your futures contract before the first delivery notice day, which usually occurs a five- six days before the contract expires, you should have a absolutely no worries about this. If for some reason you forget about the first notice day, your broker will certainly monitor it and contact you, preventing you from entering delivery process.
Not Enough Money
You do not need fortunes to enter commodity trading; it can be started with a bare minimum amount of Rs. 1000 also from which you can trade in gold guinea(8gram gold coin).this money should be risk capital as commodities can be risky investment. The problem with account of this size is that investors take on too much risk for their account size. They tend to roll the dice and bet it all on one trade. Don’t fall into that trap. If you are looking for a respectable return of 25% a year, you will do much better in the long run as opposed to trying to hit a home run.
Nobody Makes Money
The fact is that many people do lose when trading commodities. However, the losers are usually ill prepared investors who jump into the commodity market and lose within six month, never to return again. Other gets addicted to the markets, while trying again and again to make a killing with the same strategies and just keep losing.
So, who makes all the money? It is normally the professional commodity traders and money managers that consistently make money year after year. Also, disciplined commodity traders learn how to trade commodities properly and they follow a strict trading discipline, which most losing traders never adopt.
Even you can make money from trading commodities whether you are a novice or very experienced investor. I will not say it is easy, but if you do your research and use a good trading strategy with sound money management skills, you stand a much better chance of success.
Commodity trading increases speculation
Though portrayed by physical traders as a can of worms, commodity trading serves the economic objective of making the field agriculture liberalized by reducing government invention/government dependence to a large extent.
Commodity exchange provides a platform where traders and investors from various parts of the country can participate in the price discovery of any listed commodity. As in the case of all financial markets, commodity price is also a function of demand, supply and market sentiments. The future, markets provide estimates of the demand/supply situation of a particular commodity in the near future. This information is very important for policy makers as it enables them to take appropriate action so that the demand – supply gap can be filled in time.
Too Much Volatility
Many investors consider volatility as the biggest problem when investing in commodities. Normally, one has to put up about 4-10% of the total value of a commodity future contract in margin; that is far less then the required amount of margin for stock futures. Also, many new commodity traders don’t know the way to handle the new-found gift of incredible leverage. In reality, commodities are no more volatile then stocks as an asset class if we remove the leverage factor.
The problem with many investors is that they tend to overtrade. They might buy the maximum number of futures contracts that they can buy from their money as margin therefore, if the price moves up a little in value, they even end up doubling their investment but if the commodities move down a little in value, their investment wiped out. To be successful, one should not trade more than what the margin requirements allow. This removes the extreme leverage factor that gets so many new commodity traders in trouble.
Delivery of Commodity
This is something that gives nightmares to many investors but you really don’t need to worry about it. Only the commercial players are involved in taking and making delivery on commodities. If you close your futures contract before the first delivery notice day, which usually occurs a five- six days before the contract expires, you should have a absolutely no worries about this. If for some reason you forget about the first notice day, your broker will certainly monitor it and contact you, preventing you from entering delivery process.
Not Enough Money
You do not need fortunes to enter commodity trading; it can be started with a bare minimum amount of Rs. 1000 also from which you can trade in gold guinea(8gram gold coin).this money should be risk capital as commodities can be risky investment. The problem with account of this size is that investors take on too much risk for their account size. They tend to roll the dice and bet it all on one trade. Don’t fall into that trap. If you are looking for a respectable return of 25% a year, you will do much better in the long run as opposed to trying to hit a home run.
Nobody Makes Money
The fact is that many people do lose when trading commodities. However, the losers are usually ill prepared investors who jump into the commodity market and lose within six month, never to return again. Other gets addicted to the markets, while trying again and again to make a killing with the same strategies and just keep losing.
So, who makes all the money? It is normally the professional commodity traders and money managers that consistently make money year after year. Also, disciplined commodity traders learn how to trade commodities properly and they follow a strict trading discipline, which most losing traders never adopt.
Even you can make money from trading commodities whether you are a novice or very experienced investor. I will not say it is easy, but if you do your research and use a good trading strategy with sound money management skills, you stand a much better chance of success.
Wednesday, July 23, 2008
How you can beat inflation
As summing a fixed income, an increase in price of good and services that are consumed by us in our daily lives reduces our purchasing power, forcing us to adjust our living standard and spending pattern accordingly.
People say that the current inflation is a temporary phenomenon and the government is taking various measures to control it. I hear that the monsoon is going to be good and food prices will come down. However, I would still like to take a few steps to combat the current price rise.
Cut the Avoidable Expenses
I love spending money and most of my purchases are impulsive—a shirt I spotted in shop windows,
And interesting coffee table book…… the list is endless. I know I have to keep my monthly spend constant. It can be done without making too many sacrifices, with a bit of discipline and smart spending.
I now look for bargains, defer expenses that are not necessary and just bit more conscious of what I am spending my money on.
Avoid Long Term Deposits
Rising prices are often accompanied by rising interest rates. It has not happened as yet due to RBI’s continued intervention but there is always a like lihood that happening. This means that if ones savings are locked up in deposits or securities based on current interest rates, one will lose out when interest rates rise on such instruments. Hence for the time being, I will avoid long term deposits and stick to shot term deposits.
Don’t Let the Saving Idle
I am prone to having a cash-heavy savings account which earns a nominal interest, not enough to beat inflation. I have started putting my savings in to fixed deposits which gives me a higher return. I have also put some part of my savings in to 12 months fixed maturity plans as they generally give return higher than fixed deposits and relatively safe investment.
Invest in Equity
Generally, the returns from equity have beaten inflation. While the current state of the stock market does not generate too much confidence, I am considering going in for a systematic investment plan and divert a small portion of my saving into equity.
As an old saying goes, “A stitch in time saves nine”.
People say that the current inflation is a temporary phenomenon and the government is taking various measures to control it. I hear that the monsoon is going to be good and food prices will come down. However, I would still like to take a few steps to combat the current price rise.
Cut the Avoidable Expenses
I love spending money and most of my purchases are impulsive—a shirt I spotted in shop windows,
And interesting coffee table book…… the list is endless. I know I have to keep my monthly spend constant. It can be done without making too many sacrifices, with a bit of discipline and smart spending.
I now look for bargains, defer expenses that are not necessary and just bit more conscious of what I am spending my money on.
Avoid Long Term Deposits
Rising prices are often accompanied by rising interest rates. It has not happened as yet due to RBI’s continued intervention but there is always a like lihood that happening. This means that if ones savings are locked up in deposits or securities based on current interest rates, one will lose out when interest rates rise on such instruments. Hence for the time being, I will avoid long term deposits and stick to shot term deposits.
Don’t Let the Saving Idle
I am prone to having a cash-heavy savings account which earns a nominal interest, not enough to beat inflation. I have started putting my savings in to fixed deposits which gives me a higher return. I have also put some part of my savings in to 12 months fixed maturity plans as they generally give return higher than fixed deposits and relatively safe investment.
Invest in Equity
Generally, the returns from equity have beaten inflation. While the current state of the stock market does not generate too much confidence, I am considering going in for a systematic investment plan and divert a small portion of my saving into equity.
As an old saying goes, “A stitch in time saves nine”.
Thursday, July 17, 2008
Entrepreneurship & Role of Family
Recently, I was reading an interesting blog post that listed several reasons for not becoming an entrepreneur! One reason amongst the top five was ‘sacrificing quality time with family and friends’ indeed, many entrepreneurs do say that they had to sacrifice their family life to make it big in the world of business. And quite naturally since setting up a business, taking care of it and then growing it takes away a substantial amount of time from a persons life living very little for friends family and other personal pursuits. The initial period is almost always difficult but some entrepreneurs do learn to bring in a balance after achieving reasonable stability in their businesses.
Although family life and business life are distinctly different from each other there is an element of commonality between the two both need a fair amount of emotional investment quality time means nothing but the period when we are involved at some emotion level. Thus, family life invariably demands emotional participation. At the same time, most entrepreneur will also agree that they are extremely emotional about there work.It is not surprising therefore that a lot of entrepreneurs do not get much support from their families, particularly at the beginning. In fact, at times there is a position various reasons including emotional as well as financial ones.
Although family life and business life are distinctly different from each other there is an element of commonality between the two both need a fair amount of emotional investment quality time means nothing but the period when we are involved at some emotion level. Thus, family life invariably demands emotional participation. At the same time, most entrepreneur will also agree that they are extremely emotional about there work.It is not surprising therefore that a lot of entrepreneurs do not get much support from their families, particularly at the beginning. In fact, at times there is a position various reasons including emotional as well as financial ones.
Wednesday, July 16, 2008
Just Play it Safe
Dare to bare your wisdom in the current market in the current market situation? You better shelves the idea if you have the faintest clue of the factors behind the negative sentiment.
Defensive Positioning
No investor likes a ranged bound, highly volatile market marked by spikes and falls at regular intervals. And if you believe industry analysts, there is no let-off in the second half as well. They hold the view that bears and bulls will continue to punch each other to gain supremacy in the capital market over the next six months and losing bout probably will be you – the investor. Thus, it is better to go for a defensive positioning.
Stay with Cash
If you think you don’t belong to the first category, are cautious about your investments but still you want to get the best out of the equity markets, and then you should better spend the next six months pilling up cash. Over the near term markets will remain volatile due to multiple factors such as policy responses to rising inflation ahead of the national elections, absence of FII flows until the global scenario improves and earning growth moderation. In this scenario we think it won’t be a bad idea to stay with cash.
Capital Protection
If the first two themes don’t excite you, and you are investor who wants to enjoy the best of both equity and debt markets, then you should opt for structured products with capital protection. The advantage of investing in a capital protection product is that it allows participation in the stock markets without the accompanying worries of capital erosion.
Value Investing
If are an aggressive investor, then probably your investment outlook should be to do value picking in the stock markets. In the current market scenario, analysts believe that quality stocks across sectored will clock relatively good performance as investor focus returns to fundamentals. You should slip into the contrarian investing style, buying stocks that are currently trading below their net asset values.
Systematic Route
Last but not the least, your investment theme should be one which includes are disciplined approach to investing. Markets are expected to be cyclical and in such a scenario analysts recommended that either you can reduced the risk of equities by increasing your holding period or invest regularly through systematic investment plans.
Defensive Positioning
No investor likes a ranged bound, highly volatile market marked by spikes and falls at regular intervals. And if you believe industry analysts, there is no let-off in the second half as well. They hold the view that bears and bulls will continue to punch each other to gain supremacy in the capital market over the next six months and losing bout probably will be you – the investor. Thus, it is better to go for a defensive positioning.
Stay with Cash
If you think you don’t belong to the first category, are cautious about your investments but still you want to get the best out of the equity markets, and then you should better spend the next six months pilling up cash. Over the near term markets will remain volatile due to multiple factors such as policy responses to rising inflation ahead of the national elections, absence of FII flows until the global scenario improves and earning growth moderation. In this scenario we think it won’t be a bad idea to stay with cash.
Capital Protection
If the first two themes don’t excite you, and you are investor who wants to enjoy the best of both equity and debt markets, then you should opt for structured products with capital protection. The advantage of investing in a capital protection product is that it allows participation in the stock markets without the accompanying worries of capital erosion.
Value Investing
If are an aggressive investor, then probably your investment outlook should be to do value picking in the stock markets. In the current market scenario, analysts believe that quality stocks across sectored will clock relatively good performance as investor focus returns to fundamentals. You should slip into the contrarian investing style, buying stocks that are currently trading below their net asset values.
Systematic Route
Last but not the least, your investment theme should be one which includes are disciplined approach to investing. Markets are expected to be cyclical and in such a scenario analysts recommended that either you can reduced the risk of equities by increasing your holding period or invest regularly through systematic investment plans.
Tuesday, July 15, 2008
How long is this bear market going to last?
A key indicator has been the market staying below its 200-day moving average and forming successive lower tops and lower bottoms.
In the three bear markets of the last 20 peak, Indian benchmarks have already fallen close to 40% from their record highs seen in January this year. But the moot question here, according to Morgan Stanly, is how long this bear phase will last, and not how much further prices are going to fall.
Macro fundamentals could take 18 month to bottom out. Based on this, the bear market may have another 25-50 weeks to go, the pace of fall in stock prices will decline going forward.
“The markets will likely bounce back as it does in bear markets the trigger this time around could be a sanguine earnings season, benign action from the RBI and weak sentiment,” the report said. But the brokerage maintains that it will use the opportunity to book profits.
In the three bear markets of the last 20 peak, Indian benchmarks have already fallen close to 40% from their record highs seen in January this year. But the moot question here, according to Morgan Stanly, is how long this bear phase will last, and not how much further prices are going to fall.
Macro fundamentals could take 18 month to bottom out. Based on this, the bear market may have another 25-50 weeks to go, the pace of fall in stock prices will decline going forward.
“The markets will likely bounce back as it does in bear markets the trigger this time around could be a sanguine earnings season, benign action from the RBI and weak sentiment,” the report said. But the brokerage maintains that it will use the opportunity to book profits.
Thursday, July 10, 2008
Good product or Good advice?
Yes the current markets are in bearish phase on account of several global and domestic factors. High crude price is single biggest factors of meltdown.
Firstly, let us understand the current behavior of the stock markets is not unprecedented. In history both domestic and global markets have moved in both directions over a short period of time. So do not panic.
Let us assume that there are two types of investors: investor A invested in equity mutual fund at the peak of the market in January 2008 and has now witnessed erosion of his capital. Investor B was more risk averse and preferred to keep his money mostly in fixed deposits.
What should investor A and B do in this choppy market? If investor A has balanced his investment across different asset classes such as equity or equity funds, fixed deposits or equivalent and liquid cash or build funds then he has less to worry. Asset allocation as a disciplined activity must always precede investment.
The fall in equity market by over 35% provides a good opportunity to enter the markets through a regular, disciplined manner over a period of time. This allows taking advantage of the market upside over a medium term perspective. Mutual funds are very convenient and efficient vehicles to execute this type of investment.
If investor A over invested in equity or mutual funds but does not need immediate liquidity, I would advise him to stay invested he should not keep moving in and out of market. This would further erode his wealth, from higher incidence of taxes and increasing his transaction costs through entry and exit loads.
Investor B should consult his financial advisor who can assist him in allocating his investible surplus in an efficient manner. He must ask question and be satisfied about the process. If there is a choice between ‘good products’ and ‘good advise’ choose the later.
Seek the right kind of advice.
-Bapa Sitaram
Firstly, let us understand the current behavior of the stock markets is not unprecedented. In history both domestic and global markets have moved in both directions over a short period of time. So do not panic.
Let us assume that there are two types of investors: investor A invested in equity mutual fund at the peak of the market in January 2008 and has now witnessed erosion of his capital. Investor B was more risk averse and preferred to keep his money mostly in fixed deposits.
What should investor A and B do in this choppy market? If investor A has balanced his investment across different asset classes such as equity or equity funds, fixed deposits or equivalent and liquid cash or build funds then he has less to worry. Asset allocation as a disciplined activity must always precede investment.
The fall in equity market by over 35% provides a good opportunity to enter the markets through a regular, disciplined manner over a period of time. This allows taking advantage of the market upside over a medium term perspective. Mutual funds are very convenient and efficient vehicles to execute this type of investment.
If investor A over invested in equity or mutual funds but does not need immediate liquidity, I would advise him to stay invested he should not keep moving in and out of market. This would further erode his wealth, from higher incidence of taxes and increasing his transaction costs through entry and exit loads.
Investor B should consult his financial advisor who can assist him in allocating his investible surplus in an efficient manner. He must ask question and be satisfied about the process. If there is a choice between ‘good products’ and ‘good advise’ choose the later.
Seek the right kind of advice.
-Bapa Sitaram
Tuesday, July 8, 2008
Success secrets of entrepreneurs
Entrepreneurship begins with a business idea and the success of an entrepreneur and his/her enterprise depends on how well the idea is executed and built upon. Of course, success doesn’t come instantly and Many times idea is abandoned due to challenges and initial failures but there is a class of entrepreneurs that emerges triumphant against all odds. So what is it that actually makes idea click and entrepreneurs successful? What are the various qualities that successful entrepreneurs possess? If you study the stories of successful entrepreneurs then you will find certain common elements. True, each entrepreneur is unique in his/her own way but there are some characteristics that bind them together.
To start with, you need to have a really good idea. “You have got to have a business idea that is unique. To say, I want to do that because I have seen other people do it and it works, is enough. You need to have something that isn’t obvious, and you have got to have faith in it and stick with it”. Says Shashi Reddy founder and CEO, Applabs. Indeed having faith in the idea and being passionate about it is a very important. Successful entrepreneurs are extremely passionate about there idea; they are almost obsessed with there business goal and single mindedly
Pursue their vision Swami Vivekananda the great spiritual entrepreneurs has describe the way to success very succinctly and it has relevance across domains. He says,” take up one idea. Make that one idea your life-think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. That is the way to success….” Every entrepreneur’s success can be said to be a reflection of this insightful thought.
-Bapa Sitaram
To start with, you need to have a really good idea. “You have got to have a business idea that is unique. To say, I want to do that because I have seen other people do it and it works, is enough. You need to have something that isn’t obvious, and you have got to have faith in it and stick with it”. Says Shashi Reddy founder and CEO, Applabs. Indeed having faith in the idea and being passionate about it is a very important. Successful entrepreneurs are extremely passionate about there idea; they are almost obsessed with there business goal and single mindedly
Pursue their vision Swami Vivekananda the great spiritual entrepreneurs has describe the way to success very succinctly and it has relevance across domains. He says,” take up one idea. Make that one idea your life-think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. That is the way to success….” Every entrepreneur’s success can be said to be a reflection of this insightful thought.
-Bapa Sitaram
Saturday, July 5, 2008
Seven Things to Avoid in Choppy Markets
Avoid extremes – fear & greed
August-September 2007 had been the investor’s delight due to the booming IIP numbers, 8.5% GDP expectations and the sub 5% inflation. The markets had reached a zenith on hope, and greed prevented investors from selling. The party poopers arrived in the form of a steep rise in crude prices, lingering and massive subprime mess in the US financials and the recent spike in domestic inflation. With fear gripping the markets in the changed scenario of continuing volatility and short-term bearish outlook, investors should take a balanced view and refrain from extremes... greed and fear
Avoid timing the management
The volatility associated with the see-saw battle between bulls and a bear is unlikely to declare the winner in the near term. Under such circumstances, long-term investors should avoid the temptation of timing the market by selling defensively at the top and buying at lower levels. Let us avoid hypocrisy. Even though everybody agrees on the futility of timing the markets. Most of us still try to do it with dangerous consequences.
Look Long Term
Investors with a long term horizon should avoid getting despondent with the short term moves aberrations in the equity markets. The present volatility on low volumes seems to be a temporary phase and we expect the markets to improve, albeit after a few months. Once the disturbing factors settle down. Investors should use this phase to fine tune their portfolio and avoid taking short term trading calls. The current valuation provides them an excellent opportunity to selectively cherry pick value stock across sectors.
Keep off worst hit sectors
Investors should avoid getting emotionally attached to sectors which are expected to be laggards in the medium term; the rising crude prices are likely to hamper the profitability of the airline industry. Similarly. In the rising interest rate scenario, one would be well advised to temporarily avoid interest rate sensitives like auto and realty and should use every rally to lighten their commitments.
Avoid exiting the markets
One should systemically build one’s portfolio by accumulating stocks at various falls across time instead of deploying the entire cash in one go. The same methodology should also be flowed while booking profits. Investors have traditionally ended up buying near peak and exiting near bottoms. A case in point is the TMT sector which was deserted by investors after the dotcom bubble burst in March 2000, only to find the sector rebounding in March 2003 when equities began to rally.
Don’t put all eggs in one basket
With the index swinging up and down, steady performers in solid sector remain the best bet. But this isn’t to say that one should completely avoid mid-cap stock and switch everything to large-caps. One should keep in mind that mid-cap stocks should be a part of any balanced portfolio, regardless of the current economic picture. Their growth potential is simply too great to ignore. Amongst the mid caps stocks, one should look for stocks with high insider ownership, strong balance sheet, solid business model and a compelling valuation.
De-risk by mix
The current bearishness is likely to attract new-comers who had missed the previous Bull Run. One of the hardest things for them would be identify the right picks in the market mayhem. Hence avoid direct exposure to equities and instead participate via good quality mutual fund schemes as equity investments are a full-time activity backed by research and analysis.The ongoing global crisis and the domestic economic situation have made it difficult to take short-term call. We don’t foresee an adverse change in the fundamentals of the Indian economy and still believe that the economy is likely to maintain a stable growth rate of 7.5% upward over the next three years. With that economy expected to grow at 7.5-8%, we see no reason why long-term investor should not enter the market at every fall.
-Bapa Sitaram
August-September 2007 had been the investor’s delight due to the booming IIP numbers, 8.5% GDP expectations and the sub 5% inflation. The markets had reached a zenith on hope, and greed prevented investors from selling. The party poopers arrived in the form of a steep rise in crude prices, lingering and massive subprime mess in the US financials and the recent spike in domestic inflation. With fear gripping the markets in the changed scenario of continuing volatility and short-term bearish outlook, investors should take a balanced view and refrain from extremes... greed and fear
Avoid timing the management
The volatility associated with the see-saw battle between bulls and a bear is unlikely to declare the winner in the near term. Under such circumstances, long-term investors should avoid the temptation of timing the market by selling defensively at the top and buying at lower levels. Let us avoid hypocrisy. Even though everybody agrees on the futility of timing the markets. Most of us still try to do it with dangerous consequences.
Look Long Term
Investors with a long term horizon should avoid getting despondent with the short term moves aberrations in the equity markets. The present volatility on low volumes seems to be a temporary phase and we expect the markets to improve, albeit after a few months. Once the disturbing factors settle down. Investors should use this phase to fine tune their portfolio and avoid taking short term trading calls. The current valuation provides them an excellent opportunity to selectively cherry pick value stock across sectors.
Keep off worst hit sectors
Investors should avoid getting emotionally attached to sectors which are expected to be laggards in the medium term; the rising crude prices are likely to hamper the profitability of the airline industry. Similarly. In the rising interest rate scenario, one would be well advised to temporarily avoid interest rate sensitives like auto and realty and should use every rally to lighten their commitments.
Avoid exiting the markets
One should systemically build one’s portfolio by accumulating stocks at various falls across time instead of deploying the entire cash in one go. The same methodology should also be flowed while booking profits. Investors have traditionally ended up buying near peak and exiting near bottoms. A case in point is the TMT sector which was deserted by investors after the dotcom bubble burst in March 2000, only to find the sector rebounding in March 2003 when equities began to rally.
Don’t put all eggs in one basket
With the index swinging up and down, steady performers in solid sector remain the best bet. But this isn’t to say that one should completely avoid mid-cap stock and switch everything to large-caps. One should keep in mind that mid-cap stocks should be a part of any balanced portfolio, regardless of the current economic picture. Their growth potential is simply too great to ignore. Amongst the mid caps stocks, one should look for stocks with high insider ownership, strong balance sheet, solid business model and a compelling valuation.
De-risk by mix
The current bearishness is likely to attract new-comers who had missed the previous Bull Run. One of the hardest things for them would be identify the right picks in the market mayhem. Hence avoid direct exposure to equities and instead participate via good quality mutual fund schemes as equity investments are a full-time activity backed by research and analysis.The ongoing global crisis and the domestic economic situation have made it difficult to take short-term call. We don’t foresee an adverse change in the fundamentals of the Indian economy and still believe that the economy is likely to maintain a stable growth rate of 7.5% upward over the next three years. With that economy expected to grow at 7.5-8%, we see no reason why long-term investor should not enter the market at every fall.
-Bapa Sitaram
Sunday, June 29, 2008
Ten golden rules of dalal street -2
Rule 6
Keep the winners, sell the losers. Stay on top of your investment. Check constantly for stocks that are not performing and eliminate them from your portfolio if the outlook does not seem promising. The way, you will have all winners left in your portfolio to take you to your goals.
In exuberant times, we all tend to believe that the good times will last longer than they actually will. And before D-day, we will be able to sell our investments that were bought at unjustified level. Just then, it happens that the markets turn and before we can sell out, we are left holding the bag. For this reason.
Rule 7
Avoid being the “Bigger fool;” it is imperative that you recognize the difference between price and value. Buy value not momentum.
When investing in stock your head should prevail over your heart. Resist the urge to get consumed by market chatter. Ignore hot tips from dealers and friends. It is advisable to do your own home work. As the result
Rule 8
Pick stock with your brain, not your heart.
Large-caps are the ones that have already proven themselves over longer periods of time and have balance sheet acumen, strong cash flow and brain to manage business effectively according to prevailing situations and realistic opportunities available.
Rule 9
Prefer large-cap stocks to small and medium-caps. Investment in small and mid-cap stocks requires expertise and strong tracking abilities, that without, your portfolio will underperforms.
Do not short sell a stock just because it is going up, and thus, one day it must come down. Newton’s law is not applicable to the markets. What goes up does not necessarily come back down! If companies are able to sustain earnings’ growth for long periods, then its stock may go up, up and up, or it can ever remain high without any reason for a long period of time. Because of this,
Rule 10
Markets can remain irrationally up, or continually climb for the right reasons. Therefore, never go short. It will expose you to unnecessary risk
Keep the winners, sell the losers. Stay on top of your investment. Check constantly for stocks that are not performing and eliminate them from your portfolio if the outlook does not seem promising. The way, you will have all winners left in your portfolio to take you to your goals.
In exuberant times, we all tend to believe that the good times will last longer than they actually will. And before D-day, we will be able to sell our investments that were bought at unjustified level. Just then, it happens that the markets turn and before we can sell out, we are left holding the bag. For this reason.
Rule 7
Avoid being the “Bigger fool;” it is imperative that you recognize the difference between price and value. Buy value not momentum.
When investing in stock your head should prevail over your heart. Resist the urge to get consumed by market chatter. Ignore hot tips from dealers and friends. It is advisable to do your own home work. As the result
Rule 8
Pick stock with your brain, not your heart.
Large-caps are the ones that have already proven themselves over longer periods of time and have balance sheet acumen, strong cash flow and brain to manage business effectively according to prevailing situations and realistic opportunities available.
Rule 9
Prefer large-cap stocks to small and medium-caps. Investment in small and mid-cap stocks requires expertise and strong tracking abilities, that without, your portfolio will underperforms.
Do not short sell a stock just because it is going up, and thus, one day it must come down. Newton’s law is not applicable to the markets. What goes up does not necessarily come back down! If companies are able to sustain earnings’ growth for long periods, then its stock may go up, up and up, or it can ever remain high without any reason for a long period of time. Because of this,
Rule 10
Markets can remain irrationally up, or continually climb for the right reasons. Therefore, never go short. It will expose you to unnecessary risk
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