Investment Strategies (Post your ideas here)

Hello Friends,
I am working as a clerk in a public sector bank. I am 43, married and my wife is also a Bank clerk. We have a ten year old daughter. We are settled at Trichur in Kerala

I started investing in 1988.My first investment was in IPO of Ispat Profiles and Esab India. I got allotment of 200 Ispat Profiles and 100 Esab. Sold Ispat profiles at 17/- immediately on listing and Esab at 36 within 3 months. Cool profit of 4000/- .Then my salary was 1200 pm and Sensex just crossed 800 points. That night I had dinner at Windsor Manor Sheraton.

Those were the days of CCI (Controller of capital issues, many new investors may not know) and all IPO s were at par. I was making multiple applications for all good issues and book profit immediately on listing.

Later CCI was abolished, and market pricing started .Mardia chemicals was the first company to issue shares at 90 Rs. People started losing on IPOs. And many issues undersubscribed. Infosys was firm allotment. All the applied people got allotment. I had 500 original allotted shares of Infosys. All shares were sold when it doubled within a fortnight. If I didn’t sell it, now including bonus shares it is worth many crores. ”Mother of All Losses”

When IPO s became less attractive, I started playing secondary market. Did all sort of short time speculation and made a lot of money during the Harshad Mehta Bull Run.
Then lost almost everything on the Big Bulls fall.

A lot of changes took place after that. NSE was established. Screen based trading replaced the open outcry system where the brokers shouted and auctioned the shares on trading floor . Investing became transparent and now you can trade through the net sitting comfortably in your drawing room.

I was desperate and depressed after the wipeout, and quit the market for a year or so. During the period I happened to read some books on stock market and learned the importance of proper research in investing. I was acting blindly on hot tips. When I wanted to buy a 1200 worth mixer-grinder I consulted many friends and checked the various brands and their prices. But I was committing 25000 without even knowing what the company is making.

I started investing in secondary market again. This time doing research about the companies where I invest. Slowly I developed my own style of stock picking which I improve upon constantly. I have done so many things foolish and lost money in the market. But I learned something from those mistakes. On an average I could get a return of around 25% which is not bad I think. I have pulled out money from my investment to purchase a house plot and to construct a small house.



From my experience what I learned are

1. Never speculate
2. Never Play the market with borrowed money
3. Market will( in the looooong term )always move up
4. Nobody can predict the direction in the short term
5. Don’t listen to experts and their tips. Must do our own research
6. Invest only what you can afford to lose
7. Open mindedness and willingness to admit and correct mistake is a must
8. Always play for a meaningful stake
9. Invest in individual stocks .Market is not relevant. You can find some stocks moving up in a bear market and some falling in bull market.
10. A stock qualifies either as a buy or a sell. Hold a share only if it qualifies as a buy.
11. If you cant find any undervalued shares ,leave the market and sit pretty on cash
12. You need not be correct all the time. 5 out of 10 is enough to beat the market
13 When.the guys who approached you for tips starts giving you tips, it is time to
Worry and get out.
14. Fundamentals move a stock in the long run. In short term it may move in the opposite direction.

Now let me continue the story. I did my own research and picked up stocks. All were fundamentally sound companies. But most of them did not appreciate as I expected. After holding for a long period I lost patience and sold out. The very next day they started moving up

I learned that in order to move up, apart from fundamentals market sentiment is also important. Market should also recognize the value of stocks you own. It may take time and my limited funds are locked up in them without any return till then.

So I identified the shares but didn’t buy till it started moving up. This dramatically improved my performance as an investor. I was using financial analysis only but decided to learn TA to time the market. A combination of TA and FA, I believe can give you better returns. Now I am learning the ABC of TA from Traderji.

Here is my method of investing (May change again)

Basic Strategies

1. I invest for a period of 6 months ie I give the company two quarters to prove itself. If it is not showing improved financial results I sell




2. My target is 20% appreciation in 6 months. I review it after six months and will only hold if I believe it can appreciate 20% from the current level. If it gains 20% before six months, I will do the research again and hold only if I am confident that it will gain 20% from the new price level or else I will sell

3. When in doubt get out. I constantly watch the invested company. Any adverse development should be researched. If I think some factors will affect its bottom line
adversely I get out (Even at a loss)

4. Always remain invested .never skip watching the market .If you skip your routine morning walk for a week, chances are that you will discontinue it for ever. So be active in the market always

5. I limit my portfolio to a maximum of 10 stocks. Very difficult to follow more than that

6. I fix and earmark an affordable amount for investing in stock. Whenever my portfolio value exceeds the limit, I sell and pullout the excess money from the market.(don’t sell winners)

For example I had 100000 in index stocks. When the index went up to 12000 from 8000 my portfolio appreciated 50% and I pulled out that 50000.Now index fell 25% from the peak to 9000. And my portfolio is now 75000+ the 50000 which I withdrew. Even after the crash I am up 25 %

7. Be prepared to accept losses. Profit and loss are two sides of the same coin. Do your homework and try to shift the odds in your favour.

8. I prefer shares priced less than Rs 200/ as I am looking for % gains. Small companies make big moves.

9.I do not bother about the number of shares I buy. I invest an amount say 10k,25k etc. and always play for a meaningful stake.

10. I keep away from derivatives and don’t know how to sell short. And no stop losses so far
11.I Consider investing as a hobby and I enjoy it.


Dear friends, I have just started learning and a long way to go. I request the Traderji family members to post their stock picking ideas here so that we can learn together.

I will post the method which I follow to select the stocks for investing on next Sunday.

Regards
Niranjanam

Hi Niranjanam ,

Good stuff . Keep it up .

Thanks

sachin

That was a reall good account of your stock saga. I sincerely wish you again get on a stock like infosys and stay put this time.

Regards
Satish

Hi!

I want you to research GHCL, gujarat heavy chemicals limited. I think it is a long-term story. It earns about 78% revenue from sodium bicarbonate or alkalies you can say. Some six months back it bought DAN River a textile company in USA and started manufacturing there orders here in india. Now, today it bought another retail textile chain company in UK. Now in textile it has everything from manufacturing to stores to sell their products to directly to common people in developed countries. I think no firm like Arvind Mills or other textile firms have this. Moreover stock has gone quite cheap with this fall.

Niranjanam, it's been a fantastic presentation for the less experienced direct equity investing souls like me.

One thing I couldn't understand, can you please clarify?

Aren't these two contradictory?! I wonder adherence to (8) will keep me away from the bluechip companies like BAJAJAUTO, HDFC, ACC, BHEL, BEL, GLAXO Pharma - that have been able to consistently carve a great growth path in their bottomlines year-after-year. It is also that they are well poised to demonstrate a decent capital appreciation over the upcoming 3-5 years due to their inherent fundamentals. At the same time, if what matters is only the investment amount than the number of shares held (per 9), should the share price matter at all?

Or, are you saying that, you prefer small/mid-cap companies quoting at prices less than Rs.200/- for a faster rate of capital appreciation?

- Sarath.

Yes Sarath... he means exactly that.

Its an acknowledged fact that mid/small caps present more high-risk / high-reward opportunities, regardless of which country you invest in

Putting it differently, they have a higher Beta than the large caps.

So obviously Niranjanam has a higher appetite for risk than many others (and why not .... some prefer stocks quoting under Rs 50 ... one man's meat is ... etc etc)

AGILENT

Hello Sarath,

I prefer Fast growing companies to blue chips. Fast growers are the big winners in stock market. These are relatively new, aggressive, small companies. They grow at double digit compounded annual rate. If one could identify at an early stage, one or two can make a career. Remember Infosys story.

As Agilent observed, there is plenty of risk in such companies. Failure rate is high in investing long term in fast growers. Very difficult to identify them at an early stage.
So better to go for companies quoting around 200 which have a track record of consistent earning growth.

All fast growing companies eventually slow down. Remain invested till the growth slows down. Infosys is a fast grower with an annual compounded growth rate of 30% .How long they can continue this?. To grow earnings at this rate they will require a turnover of 36000 crores in 2010 and 144000 crores in 2015…..!!!!.They will go as far as they can and inevitably slow down.

In stock market there is always a tendency to think that things will never change. But they do. Colgate Palmolive, Cummins, Ingersoll Rand, Hindustan Motors etc were considered as the bluest of the blue chips. Now they have lost the shine.

As regards to 9 now.Price of the share is the most important thing.If I think it is under valued and has the potential to appreciate 20% in six months I invest a portion of my available funds.I do not bother about the number of shares I get for the amount.

Regards
Niranjanam

Got it. Agilent, Niranjanam - thanks a ton for your kind, detailed explanations!

Regards,
- Sarath.

Hello Mr.Niranjanam,
Very well said sir, never play on borrowed money,is what we also suggest to our friends and clients.
I must say you have in-depth knowledge of how to Invest in stock markets,i appreciate that and also its educative.
However,there is one thing about investing in 200/- stocks, its not that Rs.2000/- stock doesnt give you good percenatge returns,they will give you that kind of return only if you buy them cheaply, and this true for all kind of stocks be Rs.10,20,100,1000 or more.
Buy when nobody wants to buy them,like we had crash last month,GRASIM,RIL,BHEL,SIEMENS,INFOSYS, they have given over 15% return if bought at that time,and they have given this return over the last 10 days,its fantastic return indeed.
So one must give away this illusion that only 200/- give % returns.
All the best.
You can read my post:- TIME FOR CAUTION
Gaurav Sapra
gausap23@*****.com

Can you please forward me your newsletter of the previous dates in which you suggested your clients to buy at the turning points,i.e., at the bottoms.

Eagerly Waiting,

Best Regards,
--Ashish

P.S. : In another thread you have advocated long term investing, can you please suggest how to catch such moves if a person is looking for long term??