Long-term investment strategy

ravi_s_ghosh · #1 8th November 2007, 01:21 PM

Today, the meanings of a trader and an investor has converged to great extent. After looking at the historical price chart, a typical middle-class Indian enters the stock market with the illusion of earning a lot more than MFs (even knowing that he is not allowed to go back in history and trade at those prices) and eventually ends up day trading and loosing a lot of money. Probably, the only gain s/he makes is in the knowledge of financial terminology to impress uninitiated. In such a scenario, this thread is being initiated to bring back the idea of investing for long term (and that's not 1 year) and sitting back relaxed probably enjoying "sas bhi kabhi bahu the" rather than ogling at some odd ndtv profits and likes and checking where the hell Sensex is every 10 minutes.

I know there are people here at traderji with immense knowledge and are involved in active trading. This strategy may not be for them, but I request them to contribute their opinion and suggestions in order to make life easy for many people (including me) who have confused investing with trading.

I will keep on editing the first post as per the recommendations and suggestions so that we have a complete system for long-term investment.

Subsections Of This Strategy:
1. Money Management.
2. Stock Selection For Buying.
3. Stock Selection For Selling (From The Portfolio, Not Short Selling).
4. Timing The Market.
Money Management:
A typical portfolio should contain about 20 stocks from different sectors.

Stock Selection For Buying
More weightage should be given to sectors which are beaten down by factors which are of temporary nature (contrarian approach) since they will be available cheap compared to the market and in long term that anomaly will correct. However, much thought must be given before buying cheap stock (not sector) among peers since there must be reasons for its low valuation which must be known and understood before buying it. Such stock may very well continue to be cheap forever.

Stock Selection For Selling
If one decides to sell a stock giving losses, then that sale should be done before 1 year so as to book short-term capital loss which can be set off against short term capital gain.

Timing The Market
Timing the market does not mean predicting the future trend of the market or procrastinating about how much your net worth would have been had you invested in x company on y date. Let the newspapers do all that calculation and increase their circulation. Timing essentially means deciding whether the "present" time, neither tomorrow nor yesterday, is perfect for investment or not. In general, when the market (not a particular stock) trades below its long-term EMA (100-day EMA is good enough to qualify for long term in Indian market) on the "monthly" chart, then its the "best" time to enter the market; when it does the same on "weekly" chart, then its "better" time to enter the market; and finally when the same happens on "daily" chart, its a "good" time.

azeetnarayan · #2 8th November 2007, 01:45 PM

thnks for starting this thread
this will really help new comers in a big way but experts need to put in some effort in this thread. i would request other experts to make this thread a big success
best

lvgandhi · #3 9th November 2007, 07:51 AM

Quote:

Originally Posted by ravi_s_ghosh

Today, the meanings of a trader and an investor has converged to great extent. After looking at the historical price chart, a typical middle-class indian enters the stock market with the ellusion of earning a lot more than MFs (even knowing that he is not allowed to go back in history and trade at those prices) and eventually ends up day trading and loosing a lot of money. Probably, the only gain s/he makes is in the knowledge of financial terminology to impress uninitiated. In such a scenario, this thread is being initiated to bring back the idea of investing for long term (and thats not 1 year) and sitting back relaxed probably enjoying "sas bhi kabhi bahu the" rather than ogling at some odd ndtv profits and likes and checking where the hell sensex is every 10 minutes.

I know there are people here at traderji with immense knowledge and are involved in active trading. This strategy may not be for them, but I request them to contribute their opinion and suggestions in order to make life easy for many peple (including me) who have confused investing with trading.

At present, I can think of 3 subsections of this strategy:
1. Money management.
2. Stock selection for buying.
3. Stock selection for selling (from the portfolio, not short selling).

I will keep on editing the first post as per the recommendations and suggestions so that we have a complete system for long-term investment.

Good effort Ravi. I am also eager to learn what you desire.

ravi_s_ghosh · #4 13th November 2007, 07:00 PM

No suggestions yet...waiting for your inputs.

kuriako · #5 13th November 2007, 09:22 PM

Quote:

Originally Posted by ravi_s_ghosh

Probably, the only gain s/he makes is in the knowledge of financial terminology to impress uninitiated.

Used to sanction my trading capital!!!

Wish you good luck! As a novice may I add-

Please look also for "dividend" payout. People start killing golden goose if she dont lay eggs, rather than waiting patiently still she matures

May be a newbie muse, but has read it somewhere!

ravi_s_ghosh · #6 15th November 2007, 08:46 PM

Timing The Market
Timing the market does not mean predicting the future trend of the market or procrastinating about how much your net worth had been had you invested in x company on y date. Let the newspapers do all that calculation and increase their circulation. Timing essentially means deciding whether the "present" time, neither tomorrow nor yesterday, is perfect for investment or not. In general, when the markets (not a particular stock) trades below its long-term EMA (100-day EMA is good enough to qualify for long term in Indian market) on the "monthly" chart, then its the "best" time to enter the market; when it does the same on "weekly" chart, then its "better" time to enter the market; and finally when the same happens on "daily" chart, its a "good" time.

sudoku1 · #7 15th November 2007, 09:04 PM

Quote:

Originally Posted by ravi_s_ghosh

Timing The Market
. In general, when the markets (not a particular stock) trades below its long-term EMA (100-day EMA is good enough to qualify for long term in Indian market) on the "monthly" chart, then its the "best" time to enter the market; when it does the same on "weekly" chart, then its "better" time to enter the market; and finally when the same happens on "daily" chart, its a "good" time.

.....

if people would have followed this 100ema formula in 2001 ketan parekh crash....they would have been stuck with hfcl ,pentas ,global ,near 500 levels .....in those days....people used to say.....the price of reliance is not even equal to the daily intraday swing of pentamedia.....today the same penta is nat even equal to the buy/sell bid difference of reliance !!!!!!

dont take my comments otherwise my friend....but this has happened

regards,
sudoku1

honeydew38 · #8 15th November 2007, 09:09 PM

Dear Ravi
First new comers like me do not know what sectors are presently available. Just to learn this trade and proceed with online trading I have sat in a trading office from Oct 30th till today and has been observing what is happening there. No big experts a small branch with minimal investors. As far as I know I have identified certain sectors Let me list them so that we can identify the good scrips in these sectors. I leave the list to my seniors to complete the same. My suggestion is we can add multibaggers in each sector along with segregation according to the present value of the scrips, so that new comers like us can invest in those multibaggers with lesser value at present
My contribution
1. Power
2. Oil & Gas
3. Communications
4. Information Technology
5. Infrastructure
6. Banking
7. Brokerage
8. Textiles
9.Textile Machinery
10. Chemicals
11. Films and Advertising

I know i have left out many. I leave it to the forum