Category Archives: Stock Market

Use Stock Market Crash as an oppourtunity for Wealth Creation!

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Global stock markets have been sliding to new lows as the fear of recession is gripping the investor’s community. Since, China and US are big markets and any corrections in these markets create an impact on the Indian markets as well. The start of 2016 had already been negative and fearful for the Indian stock markets, as well so, how will you plan your strategy during the time of this global turmoil; let us understand:

Is this the time to review your investment portfolio?

Ideally, investors should not look at stock prices and markets on a daily basis and should stay away from the vagaries of markets movements. As long as you’ve paid a good bargain price and the company you’ve invested in hasn’t changed dramatically, there is no need to worry.

Should you invest now?

Though, it may take some time for the markets to stabilize but if you are sitting on cash or have invested surplus money in FDs or other fixed instruments then you should surely take this opportunity & start investing at regular intervals. The key is to deploy your money gradually in the market via mutual funds or direct equities.

Don’t miss the rally, which will come after market correction!

It has been seen earlier that whenever the markets have corrected beyond a reasonable valuations and more because of external factors, it had always provided a great opportunity for long term wealth creation, I would call it a blessing in disguise for investors to make money and one should not miss the rally, which normally comes after every big correction.

What about existing investors, whose valuation is in red?

As mentioned above, as long as the stocks or mutual funds you’ve invested in have not changed dramatically and it is a part of your long term financial planning then there is no need to worry at all. In fact you should sit tight and invest more to average out and use the next few months market volatility for investment by accumulating more units of stocks or mutual funds (SIPs) planned carefully.

Analogy: Baby & SIP!

I have recently come across a good analogy, which compares mutual funds SIPs/stock, market investments to a baby, let us understand.

Q.1 Can we expect a baby to crawl immediately after a birth?

The answer is; NO, isn’t it? Similarly we should also not expect our newly started SIPs, Mutual funds & equity investments to start giving returns from day one. Your investments will crawl in due course of time and then start running gradually to create long term wealth for you, the key is to be alert and vigil and let it grow on its own.

Q.2 What do you do when baby cries?

When they cries, mom usually feeds them and similarly when Sensex or Nifty cries and chips are down; we should also feed money in to it. Let us give time to our investments and it will eventually grow.

Concluding Note: 

Expect some tough times ahead for the stock market across the globe but I strongly feel that this is possibly the huge wealth creation opportunity lying in front of us and we all should take advantage of the current situation. So, let us not miss the bus.

Stay alert; stay smart. Happy Investing!

Time to review your portfolio & rebalance it!

 

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Due to Global Factors like fall in Chinese stock market and domestic issues like delayed GST bill and no immediate positive trigger coupled with insane valuation of many small cap companies has led to a very negative and å fearful start for the Indian Share Market; it has already sent shivers down the spine of investors and traders community.

Should Investor Review Their Portfolio?

Yes; an Investor should always review their portfolio from time to time, but first we really need to understand the meaning of review. An investor can look at the daily price chart; Highs & Lows and then try to predict the stock’s price one month away, one week away or sometimes even one Hour. Many times investors end up buying stocks on the basis of its current market price rather than focusing on its core strength and Business fundamentals.

An Ideal investor is one who do not watch the market daily and stay away from the wagaries of market’s up and down movements in a day to day life. As long as you have paid a good bargain price and the business you had invested hasn’t changed dramatically, then there is no need to worry about the future. So a proper review of portfolio is required and one have to exit from overvalued stocks of his portfolio.

Should you stay invested in Medium to Longterm?

Yes; looking at the Indian economy and a fact that it is on growth track along with a political stabality, falling crude prices, increasing GDP and along with other positive factors; one should not remain invested based on their long term financial planning. We may become the largest economy among emerging markets and outshine China in growth terms.

This particular phase is unlike 2008 where negative sentiments were way too higher so keep investing money at every good correction you see and take a review of your current holding to incorporate some bluechip stocks as most of them are undervalued and avaialable at a great price; you may expect some correction in mid and small cap stocks.

GLOBAL factors affecting us?

US and China are Big markets. So any correction in these economies always have a big impact on Indian market. Like the recent fall in Chinese market has affected Indian market as well but we need to keep this in mind that this impact is short term in nature and focus on internal growth of our country which is improving. In fact if Indian markets correct at a reasonable valuation because of these global factors then it will provide a wonderdful opportunity to enter in the market.

Advice to Retail Investors & Which other instruments can they look at? 

Most of Indian retail investors speculate than buying fundamentally solid Stocks and depends more on tips but considering the fact that equities are one of the best asset class which tends to outperform other investment avenues an investor should always remain cautious while picking stocks.

Falling Rupee, volatile stock market and even the erstwhile safe haven options like gold & property market has also shown a bumpy ride. The question, which most people have, is about whether they should invest in Gold/Property market or Share market right now. Gold and property market had its run already and does not command strong positive sentiments in the near present and whereas stock market also is in a correction mode yet with a strong positive outlook in the near term.

So you should invest more in equities for the next 3 to 5 years and then make aim to make good money via stocks or mutual funds and then book profit and redeem capital and invest in gold or property to convert virtual money to a real money; so right now; go invest in mutual funds and stocks at every market fall and build a good portfolio.

Should you invest in High valued Stocks?

Have you ever wondered that why the price of certain stocks like MRF or Page Industries are so high, you might have thought that it is overpriced, like if you see, one share of MRF is close to Rs. 40,000/-.

Or is it that the promoters do not want to opt for a stock split or what exactly is the reason? Should a retail investor think of investing in these kinds of stocks also? Let’s understand: –

So, if an investor is having a good risk appetite and can invest for a long-term period then yes, they one can think of buying these high valued stocks as well. In the last five years, MRF stock had given around 5.4 times returns, PAGE had generated 17 times & Bosch around 4 times. The returns have been astonishing and mouthwatering for any investors but if you look at the history, you will find that a retail investor usually stay away from such stocks because of its high price, they completely ignore the fact that there are many other factors to decide before buying a stock like its face value, MOAT, Fundamentals etc.

Since stocks like these have an earning visibility and an investor mostly prefers its MOAT, Earning Visibility & Monopoly as associated with these companies over their valuation as per PE multiple; which leads to its higher valuation. MOAT is a term to define a competitive advantage one company has over other companies in the same industry. For e.g. Page industries, which manages Jockey brand and is the market leader in its category. And as per market rules, people pay a premium for such MOATs, which made its share price look overpriced, but it is not a bubble but the quality of a company, which is reflecting, in stock price.

With regards to earning visibility & growth, companies, which can grow at the rate of 20 or 30% annually for the next 15 to 20 years and are trading at a PE of 30/40 will be an attractive buy. The founders or investors of these companies are assured and confident of the company’s growth and does not part away with their holdings unless there is some negative news or effects.

In Contrast: Charm of penny stocks!

In contrast to high value stocks, there are many Penny stocks in the market, which looks very attractive to invest because of its low pricing, and most investors believe that it cannot go further down or even if it goes, the loss would not be much. That exactly is the trap as the amount of loss should be calculated in percentage terms, for e.g. if your 10 rupee shares falls to Rs. 2 and another 100 rupees share falls down to Rs. 20, in both cases loss is 80%. Your investment of say Rs. 10,000/- in any of these stocks would come down to the same level irrespective of its initial price. We have recently seen the same trend with Kingfisher stock. Apart from this, penny stocks also suffers from high manipulation and susceptible to fraud.

What should a retail investor buy in the current market scenario?

Currently we are in a bull market but that does not mean that market will only move in the upward direction. In fact bull market also has its timely correction, which we have seen recently. So as a retail investor, always buy a stock backed by strong fundamentals and a good management & corporate governance.

When is the right time to invest in the Market?

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Financial Planning for investing in Gold, Property & Equities!

Falling Rupee, volatile stock market and even the erstwhile safe haven options like gold & property market has also shown a bumpy ride. The question, which most people have, is about whether they should invest in Gold/Property market or Share market right now. Let us understand the changing dynamics in today’s world and how should you plan your investments in the next few years.

There are three best asset class (apart from fixed investment options) to invest in, Gold, property market and equity i.e. share market/mutual funds. If you see the gold and property market, both had given tremendous returns in the last few years; gold had a dream run from the year 2006 till 2013 and similarly property market across India had shown massive returns from the year 2000 till date.

But if you closely observe it, now the juice is already extracted from both of it and gold had started giving negative returns and property prices are also slowing down and in fact if you see the trend there are many unsold inventory means unsold flats & buildings lying across India. One can really make a good deal with a builder if they are looking forward to buy a property, my advise is don’t rush to buy property more specially if you are looking to buy it for investment purpose. You should wait for few more months to years and make a great deal.
Whereas if you have seen the equity market in the last one-year it had given more than 50% returns and before that form the year 2008 till early 2014 the returns were only range bound and almost negligible. With the last year’s outstanding performance and looking at the growing Indian economy which is now one of the best placed economy in the world, I suggest that investing more in share market directly or via mutual funds makes sense and you will be able to make good money in the next 4 to 5 years.

Friends, gone are the days when financial planners used to advice about having a balanced plan; we are living in a world, which is changing every minute rather every second, all the equations have changed and we really need to plan keeping these fluctuations in our life. When the entire balance in life had become imbalance, we cannot have a plan, which is based on the next 20-25 years, which are totally unpredictable.
However I do not meant to say that you don’t plan for long term and in fact child education/marriage and retirement planning are long term goals only but your planning to achieve your goals should be split up in to a short span of 5-5 years and the same should be aligned to the current time period you are in to. All you need to do is to be aware and alert for any dynamic changes, which will happen and adapt your financial plan accordingly.

In fact in one of my earlier column published on 15th September 2013 in various newspapers and online media (Topic- Shuddh Desi Investments) I have advised readers for buying stocks of pharma/export and IT companies which have given astonishing returns during last one and half year. All due to their earnings in dollar, the share market index which has went up by more than 50% since last year is comprising of 45% of these sectors and the rise in it had nothing to do with any political changes which people believe it to be. All these because of strong US economy and increasing dollar prices and we can see the same trend for few more years now. I advice you to invest more in equities for the next 3 to 5 years and then make good money via stocks or mutual funds and then take it out and invest in gold or property to make virtual money to a real money, go chase this acche din before they fade away, happy investing.

Top Stock Market Investing Mistakes: Part III

Learn how to invest in stock market and get better returns

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Lack of investment strategy

Investing in stock market should be a part of your overall financial planning and you should invest in shares based on your risk taking ability. But most of the time it has been observed that people invest in the stock market without understanding about what is the purpose for which they are investing for and why? You should always analysis your short term/long term financial goals and your risk taking ability which ultimately helps in formulating a strategy for your stock market investments.

Not Booking Losses

Haven’t you seen people telling you that they will come out of their share market investment the moment they break even? For e.g. Mr. ‘A’ has invested Rs. 100000 in XYZ Company’s stock around one year back and current market value of his investment is down and trading at Rs. 80000. So to reach at the breakeven point his market value should become Rs. 100000 again and till the time it does not happen he will not sale his stocks. Now this precisely is the problem because it is a proven fact that human brain cannot accept losses and this particular trait would make it difficult for Mr. “A” to liquidate his investments at a loss. Moreover if the share price continues to fall, let’s say from Rs. 80000 to Rs. 70000 and further, Mr. A’s attachment towards this stock will become much stronger and will make it practically impossible for him to sale the stock and he will keep hoping and wait for a time when his capital would be restored. This may or may not happen so with respect to your stock market investments, it is always prudent to accept your mistakes (wrong investment) as early as possible and invest the proceeds in a better stock as suggested earlier.

Not using Stop-Loss Orders

The above mentioned situation of not booking the losses arises when people do not use a simple yet a very important tool i.e. stop-loss order.  It work either ways and is very instrumental in preventing losses to go beyond a limit or booking profits. One of the most important benefits of stop loss order is that it will make your decision making free of undue emotions. Because over a period of time investors may get emotionally attached to their stocks which ultimately cause delays and may result in losses.

Conclusion

As stated earlier personal finance is more behaviour than strategy, especially when it comes to stock market investments. Share market is a place which truly tests your patience and the key is to stick to your financial goals and invest accordingly rather than hearsay and emotions. With this last part in the three part series of stock market investing mistakes and how to learn from it, I have attempted to highlight the most common but critical mistakes. So stay tuned for more and till then trade smart.

Top Stock Market Investing Mistakes: Part II

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In continuation to my previous article on “Top Stock Market Investing Mistakes: Part I”, let us see the second part and understand the other critical mistakes which investors make in the stock market and how you can avoid the same.

Timing the market:

Investors often enter the market during its peaks and mostly exit at its lows. During good times i.e. a bullish phase, investors mostly invest in shares which are overpriced. Since everyone else is buying, investors fall prey to herd mentality and become more optimists and assume share prices to increase further. On the other hand, during a bearish phase, investors tend to sell rather than buying and forget the fact that the market moves in cycles and good years are followed by bad.

Putting too many eggs in one basket:

This holds true especially with reference to the stock market investments and you should be extra cautious not to invest all your money in a single company. But the same analogy also works the other way round which means that you should not have a separate basket for each egg. You should have a well diversified and a balanced portfolio which ultimately depends on your risk appetite and financial goals.

 

Tips: SMS/ Emails/Messages

You must have come across different packages of share market tips via sms or mails, all thanks to the cheap bulk messages and mail marketing system. Investors really need to understand that these freely or easily available tips can never get them big returns as promised. Investors should rely only on tips which are based on solid research or their own detailed home work.

 

Following TV Experts

Similar to SMS tips you should also avoid blindly following the experts who comes on TV and should not buy stocks as recommended by them without proper homework. And in case you want to buy the stocks recommended by them, then you should keep your expectation minimal & realistic as the biggest problem is the expectation mismatch. They can never help you hit a jackpot as If at all they know how to make millions out of nothing then they themselves would have become multi millionaires by now, rather than coming on TV and shows.

Secondary Income

Investors should never treat the stock market returns as a main source of income except in case the main business itself is of a stock trader. Always treat stock market investments as a secondary source of income by using only the surplus funds as available. Invest the surplus money which you can afford to lose and which will not hamper your financial life in anyway. One of the main reasons is market volatility which can work either ways and create a dent in your portfolio during an unfavorable market conditions.

 

I will conclude this article in the upcoming  third part, till then stay tuned.

Top Stock Market Investing Mistakes: Part I

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Investing in the stocks is one of the best things for your portfolio but only if you know the tips and tricks of the trade. Investors blame stock market for manipulation and speculation but it has more do with how people invest as personal finance is all about behaviour than investing. I will cover the crucial points in an ongoing three part series to provide a deeper clarity, let’s understand some of the common mistakes people make and learn from them to take better control of your stock investments.

Charm of penny stocks

Penny stocks looks amazingly attractive due to its low pricing and most investors believe that it cannot go further down or even if it goes, the loss would not be much. That exactly is the trap as the amount of loss should be calculated in percentage terms, for e.g. if your 10 rupee shares falls to Rs. 2 and another 100 rupees share falls down to Rs. 20, in both cases loss is 80% . Your investment of say Rs. 10000 in any of these stocks would come down to the same level irrespective of its initial price. We have recently seen the same trend with Kingfisher stock. Apart from this, penny stocks also suffers from high manipulation and susceptible to fraud.

Lack of research & taking uninformed decisions

Investors rarely do research before investing in stocks and many times simply go with the name of a company, they also blindly follows their friends advice which again could prove disastrous as each person’s investment sensibilities  are different and you should always do your homework before investing.

Investing in Stocks than Business

People make a mistake of investing in stocks rather than investing in business they understand. Understanding how any company operates and earns gives you better control over your investment in its stock, always invest in business than stocks.

Averaging

Another critical mistake is to believe that averaging would bring down your cost because if you don’t want to own the stock at a specified price then what is the purpose of averaging when you already own that stock. It is a wrong notion to believe that by doing averaging you would be able to cut down your cost and would be able to sell your stock at a nominal profit or closer to your buying price. As averaging might help you to exit the stock but that could be a rare opportunity and might be available only for a time being, which further makes it difficult to time your position.

When it comes to stock market investments, it is always prudent to accept your mistake as early as possible. Book your loss by selling a wrongly purchased stock and use the proceeds to invest in better stocks which would be more sensible than averaging.

 

To be continued…