Workmen's Long only trading in Equities

Are we investing in only low priced scrips? No way.

Here I am with another link

http://www.motilaloswal.com/stock-market-research/Wealth-Creation-Study.aspx

Keep lot of money aside until a big correction happens in the market. Our money management does it automatically for us. When the time arrives, we go hunting for brilliant stocks at the price what we intend to pay. When Nifty PE hovers around 15-16 we start our hunting.

This is the chart we refer when we see headlines in the newspapers such as "Market crashes", "Market in Bear Grip" etc..etc.
http://craytheon.com/charts/nifty_pe_ratio_pb_value_dividend_yield_chart.php

Hope my posts are really communicating what we intend to do in longer TF.

Hi Guys,

Today I am discussing one practical trade I am into.

Total Capital Outlay. Rs.2,00,000
5% of capital = Rs.10000.
Divided into 3 equal parts. Each part is of Rs.3333/-


Syndicate Bank.

Entered with first part of Rs.3333/-

Calculation
Price as on 31/10/2014 is Rs.126.10

Capital divided by price gives = 26 shares.
Reduce it by 3 shares for brokerage ie 26-3=23

Entered with 23 Qty on 31/10/2014.

Price did not come up and it crashed like a hell.

I am ready with my second entry money ie Rs.3333/-
We need to double up the Qty ie 46.
To discount brokerage issues, we consider it as Qty 49.
Now, new calculation

Rs.3333/49 gives the price at which i am going to buy ie Rs.68

So, release my second instalment and bought 46 Qty on 29/1/2016.
Now the average comes to Rs.96.60 for qty 69

Presently the share is quoting around Rs.75. (Today if i sell the share i will incur a loss of Rs.1500.)

So, I will release my last instalment of Rs.3333 to buy a qty of 138 at the price of Rs.23.30.

Now, syndicate has some choices to make.
1. Go down and fill 3rd instalment at 23.30 with qty 138 thus making total qty 207 at an average price of Rs.48.30.
2. If it goes further down and vanishes from market I lost 5% of my corpus.
3. If it goes up from here ie Rs.75 and hits initial entry.. i will make Rs.1800 on investment of Rs.6666.
4. If it goes up after releasing 3rd instalment and if it reaches 2nd entry level then i will make Rs.9200.

Only 3 choices.
1. Profit of Rs.2000
2. Profit of Rs.9200
3. Loss of Rs.10000 (Let us assume Syndicate Bank has vanished).

Have a look at the chart and you will get some idea.

We can sleep well, if we choose Fundamentally strong company to invest.

How to choose a fundamentally strong company and high growth company?

Condition one

1. EPS should be stable or rising continously. Make a mind map to see its graph.


If condition one is satisfied go to

Condition Two

2. stable/rising dividend paying company.

If condition two is satisfied go to

Condition Three

3. Operating cash flow should be positive for last 5 or 10 years.

If condition three is satisfied go to

Condition Four

4.Return on equity should be above 10% for last 10 years.

If condition four is satisfied go to

Condition Five

5. Debt to equity should be less than 0.5 or 50% for latest year.

We should feel confident of investing in companies which satisfy all the five condition in order. If the company fails to qualify in any of these tests, we should just ignore them.

But how to find and where to find such companies.

Simply follow the instructions of this video.

https://www.youtube.com/watch?v=iOZMv7Pfp10

A combination of your last 2 criteria

What is the average rate of interest the company is paying on the debt as compared to net return on equity . . .

if you through this light on them lots of stars stop shinning

For e.g check out Tata Steel

Happy


EDIT:

Hope you will also discuss where / how to park the rest of the uninvested sum, for e.g. liquid debt funds etc.

20:80 Formula of Fund Management

You at the most invest in equities 80% of your money at any time. A minimum of 20% should always be in bank Savings, FDs, Debt MF at any time.

If your corpus is Rs.200000. Simply make an FD of Rs.40000 (I call it in cash). Whatever manipulation we do it is with remaining Rs.160000. Spread this amount to 16 equal parts. ie each part is of Rs.10000. This each part is to be deployed across different times and different levels.

If Nifty PE ratio is 14 and below, 16 parts go invested.
If Nifty PE ratio is between 15 and 20, 12 parts go invested and remaining 4 parts should be encashed.
If Nifty PE ratio is between 21 and 25, 4 parts go invested and remaining 8 parts should be encashed.
If Nifty PE ratio is above 25, get rid of remaining parts.

Latest PE ratio is around 24.

As on today, we should be holding a maximum of 4 parts in equities ie Rs.40000 out of total corpus of Rs.200000. So, remaining Rs.160000 should be in cash equivalents.

Can you see where is the bubble now?

Good idea to invest keeping PE in mind. Once in a while, when the market goes into a massive breakout or bull run, one will surely be out, but in the longer run, the system is surely bound to be positive and not provide any heartbreaks.... Investing more in good quality scripts when the overall market PE is low is in my mind a winning strategy. :thumb::thumb::thumb:

Paradoxically, good scripts with greater chance of appreciation will have higher PE, while the opposite will be true of low PE scripts. So having decided the amount to invest in, the other question to be addressed will be which companies to invest in....

Thanks for your post. :thumb::thumb::thumb:

Taking the example of Syndicate bank: What if the stock continued to rise after first entry? Do we average 'high' also? OR we just stay put with 33% original investment?
And while price move down, we wait for entry at double qty(Half first entry level)when we average and not before that?

The entire thread looks super interesting. Must thank you for spending so much time for others! :thumb::clap::clapping:

One can check this link too !
http://www.screener.in/

Thanks for pointing the above.
Elaborating further and also taking previous posts ( Suri's Post #15 above), 1 query..
If syndicate bank is just 10% or so above or even near breakeven and the Nifty reached near or above the 24 PE, then in this case should the investment in Syndicate be liquidated or hold on. What if the investment is currently trading in loss when Nifty nears or rises above 24-25 PE?

OMG! So many querries !

Syndicate is the worst investment I have ever made. It was bad in terms of entry due to wrong PE ratio. Fundamentally it was showing bad numbers. Unlike many, I start discussing with the worst case first and gradually move to the sunny side. I was trying to show that how a bad investment can possibly made positive.

Second thing is........I was talking about Nifty PE ratio but not of individual stocks. The PE levels discussed above was of Nifty PE ratio. Hope the doubt gets cleared.

If Syndicate moved positive, there is some criteria how to exit it which I will explain in the days to come.


Golden Rule. We always keep the list of brilliant stocks handy. We update it as required basis from time to time. Our investment process is broadly guided by Nifty PE ratio coupled with MM talked with elsewhere in this thread.

There is another important method which I have not yet discussed here and through which we build wealth and pass it on to our next generations.

Investing profitably is a complex task which I am trying to decipher in its simplicity for our wealth building. Remember its a process but not a goal to reach.