Saturday, November 28, 2015

The 10 Commandments Of Investing

Courtesy : Investopedia

The biblical Ten Commandments were intended to act as a driver's manual for the road of life. "Thou shalt not kill." "Thou shalt not bear false witness." These are life's versions of the stop-at-the-red-light-and-advance-when-safe rules of the road. In other words, they are all guidelines to keep people out of trouble. Because life's highways are full of potholes, blind turns and bad drivers, the investing world also suffers from scandals, scams and dishonest companies. Here are 10 commandments for the investing world designed to help keep investors - and their money - safe.

1. Thou Shalt Set Clear Goals If you don't have a purpose or a set of clear goals to guide your investment strategy, don't invest. This sounds harsh, but there are so many types, styles and flavors of investing that, without a particular destination, you will be lost at sea.
2. Thou Shalt Put Thy Financial House in OrderTo become a successful investor, you have to make sure that your personal finances are in order first. Investing without a purpose is bad, but investing when you have high-interest debt is much worse. If you are drowning in overdue bills and credit card payments that you can't meet, take care of those more serious problems before getting too deep into investing.

3. Thou Shalt Question AuthorityInvesting is more about the art of asking and answering the right questions than it is about deciding when to buy and sell. CEOs, CFOs, CPAs, CFAs and all the other acronyms that we use to classify Wall Street's professional caste can't hide the fact that they are human, and that humans sometimes lie. Analysts get kickbacks, CEOs get stock options and recent accounting scandals, show that impartial accounting is not guaranteed.
To question authority, you will need to educate yourself, especially on the subject of financials. Press releases are flakes of snow that rain down on investors and melt away, but financials stick around. Although financials can be tampered with, there is always a trail left behind.

4. Thou Shalt not Follow SheepHerd mentality leads to destructive rampages down Wall Street. Investing passively by sticking to funds, indexes and other mainstays of the coach potato portfolio is a perfectly acceptable practice. The danger comes when people move from being a passive investor to an active portfolio, but they continue to stick with the behavior of being a passive investor.


There is a lot of available information for such investors - much of which is true - but accepting it with an uncritical eye and neglecting to check it yourself is what leads to herding. This includes getting the latest and greatest stock tip from your Uncle George.
A person can effortlessly become one of the investors that the analysts shepherd into various "must-buy stocks" after they have become overpriced. This is how investors find themselves in the herd when skittish investors flee, causing the stock to plunge farther than it should have (whereupon a more astute investor buys a bargain off of your loss).When people buy cars, they try to find the best value for the lowest price; when people buy stocks, they only see the price and, ironically, gravitate towards rising prices. If you are going to invest, you have to check things for yourself in order to find the true value and get the bargains. This takes more time, and it could even cause you to miss out on early gains, but it will tell you when to stay out or when to sell well before the herd hears the bell. 



5. Thou Shalt Be Humble

If you take the first four commandments to heart, there is a good chance that you will perform better than the majority of individual investors and many of the professionals. But sometimes, particularly during a bull market, gains are not dictated by investor actions as much as by having money in the market, so don't allow yourself to become overconfident. Overconfidence often leads to overtrading, taking unnecessary risks and eventual losses when the bull turns bear. Also, remember that you incur commissions every time you trade - this expense can often erase profits or increase losses.
6. Thou Shalt Be Patient


Patience is a virtue for a good reason: It pays for itself. When the market dips, or even when a particular stock dips, there are always investors who panic and sell. Selling should be treated just as seriously as buying. If it is just a bump, ride it out. If there is truly a problem with the stock, take your time as well - you may find a way to use it in a gain-loss transaction that will save you taxes. By the time you hear it, bad news has already settled in - taking your time isn't going to make it much worse.


7. Thou Shalt Show Moderation

Investing too much is not a problem many people have, but it can happen. It is said that the pain of a loss has twice the emotional strength of the pleasure of a gain. For some people, this results in pulling out of the market prematurely, as mentioned above.

For others, losing propels them into successively riskier ventures in an all-or-nothing attempt to win those losses back. Losses are hard to take, but look on the bright side: You can sell a loss to offset a gain in another sector or, if it is in a retirement account, you can use it as a tax write-off. Concentrating your money too much in one area, either by sector, risk level or even keeping it all in the stock market, is a sure way to see more of nothing than all in an all-or-nothing game. 

8. Thou Shalt not Ogle Thy Investment

There is nothing like a market correction or a general upswing to change perfectly normal investors into fanatics who have market updates text messaged to their cell phones every five minutes. As with Fidelity, the axiom, "look, don't touch" is insufficient because the more you look, the more you want to mess around with your investments. It is not clear if it is a symptom or a cause, but this rabid over-monitoring almost always leads to unnecessary churning in sufferers' portfolios


9. Thou Shalt not Court or Spurn Risk

You should never put everything you have into futures, but you also shouldn't hold everything in Treasury bills. There is an appropriate level of risk for investors of every age and creed. 


10. Thou Shalt not Make Heroes of Mere Men

There is no perfect investor. Warren Buffett, George Soros and Peter Lynch have all slipped up from time to time. That doesn't stop them from being great investors who are worth studying and learning from. That said, you should never mimic an investing strategy that you do not fully understand.

There is too much guru-ism going on among investors - so much so that credentials are often lost beneath book titles in which the word "rich" is prominently featured. As with the early caution against trusting authority, you have to question everything. Even if a strategy works for a certain period of time, once it becomes widespread, it skews the system. For example, the publication of Lynch's tenbagger strategy has led to too many people searching for those stocks, leading prices to become inflated to adjust for the non-market driven demand. Skeptics survive on Wall Street much longer than believers.

The Bottom Line

Praying or getting behind the wheel expecting everyone else to follow the same rules you do are both acts of faith. Investing, in contrast, requires practice. To be a good investor, you have to make doubt a part of your creed and make double-checking a ritual. These guidelines should help you on your way. Happy driving.


Saturday, November 21, 2015

Three reasons patience is essential for stock market investing

 Courtesy : esignal.com

 
In stock market investment, patience is necessary. If you don’t demonstrate patience, you will either miss out on opportunities to buy securities at the right price, or you will sell prematurely and lose money in the market. Whether you are new to stock market investing or have been doing it for years, taking your time and making smart, well-thought out decisions will help you achieve greater success. Accordingly, here are three things you should focus on to cultivate patience when investing:
1. Knowing when to buy
Determining when is the best time to purchase new securities should involve lots of research and careful consideration. You will have likely studied past performance, fundamentals and identified the ideal entry point. If, however, as you wait for the price to come down, it suddenly starts edging upwards, you should not panic and place an order in haste. By doing this, you not only give up potential profit, but you also nullify all the research and planning you have done up till that point. The point is that once you set a purchase price, you should stick to it. The whole reason you do research is to avoid guess work and impulse decisions. Emotional stock market investing will eventually lead to disappointing returns. Investopedia explained that investors who violate their discipline can end up in ruin. As such, that’s why sticking with a predetermined investment strategy will help mitigate the losses that result from emotional investing, lack of patience and failing to look ahead. Exhibiting patience is not always as easy it sounds, but the best investors and traders are able to trust their own discipline. By using sound methodologies and allowing your research to serve your strategy, you avoid buying prematurely. Remind yourself that patience is the most important investment discipline.

2. Knowing when to sell
Zentrader pointed out that private equity is consistently one of the highest performing asset classes because investors buy and sell when prices are optimal. They purchase companies and securities at a bargain and then hold them for a full business cycle. When the investment has appreciated enough, the investors sell them. Selling when conditions have improved substantially is how to make a huge gain. What retail investors should learn from this example is that, having bought a security at the right price, the next thing to do is wait. If you have done your research, then you have determined the best time or conditions to sell. You should hold steadfast in that decision. According to Investopedia, there are times when you can stick to your strategy diligently and the price of the security does not move. This is when patience will serve you the most. You can go back and re-examine your strategy and look for something you may have missed, but don’t sell impulsively. If the outlook for the security has changed, then you can set a new price at which to sell. Alternatively, you may find that your analysis is on track and that the security will eventually get to where you want it to be. In that case, continue to hold your position. Many institutional investors lose money in the market because they don’t know how to be patient. They will make sudden decisions that limit their ability to make a real profit. Knowing when to sell is essential.

3. Knowing yourself
The most important thing when cultivating patience is knowing yourself. If you are aware of your tendency to be impulsive and can react emotionally to volatility in your investment portfolio, then you can implement certain safeguards to ensure that your temperament doesn’t get the best of you. Zentrader mentioned that most studies done on the behavior and results of individual investors reveal that they routinely underperform the stock market over time. The main reason for this is that retail investors are too focused on the short term and don’t put enough time into forming strategies and waiting for them to materialize. It is also important to highlight that most of us aren’t experienced day traders. Making money with short term positions isn’t easy. The only people who really make money from frenzied buying and selling activity are brokers. However, long term strategies allow investors to capitalize on the simple fact that markets appreciate over time. Institutional investors who spend their days studying and predicting market fluctuations may be able to play the arbitrage game, but for the retail investor who wants to invest in the market as a hobby or as part of a retirement plan, the best way to make money is be patient.

Ultimately, like in any field, study or discipline, hard work pays off. Many investors operate under the assumption that making money through stock market investing is easy, but the truth is that it requires research, analysis and patience. Zentrader also pointed out that while it seems obvious, the best way to invest is to buy low, hold on to securities for a long time and sell high. This is what investment gurus like Warren Buffet advise individual investors to do.

Saturday, November 14, 2015

NCL INDUTRIES - RESULT UPDATE

NCL INDUSTRIES Declared its second quarter and half year result as follows .


Link to latest interview with MD of NCL   HERE

Wednesday, November 11, 2015

DIWALI WISHES ..

First of all , wish you a very happy Diwali and a prosperous year ahead.I believe many of my readers made decent return in last 1-2 years mainly due to overall better sentiment in small and mid caps.Generally, retail investors become active in a bull market and there is no exception this time too. From the mails I am receiving from my readers , I feel lot of first time investors entered in market during this period. But unfortunately only a very small fraction of these investors are serious about investment and remaining considering stock market as ground to play for ‘ time pass’ . My following two cents are for this newbie friends who always suggest me to give the name of few stocks for investment.

Like any other profession , to succeed in investing , lot of hard work and patience is necessary. Controlling emotions is very important and we must ready to accept our faults and willing to correct it. “ I am a new investor , please suggest some stocks to me" is the common message I am getting from at least 25 % of mails receiving in my mail box. I have only one suggestion to such friends, before jumping into the market first of all we must realize what kind of investor we are, based on our temperament,expectation, risk taking capacity..etc .One stock suitable for a person may or may not suitable for another .Another point is , ‘ a good company’( based on balance sheet and related equations) always never means as a ‘Good Investment’ and the entry price is very important in investing and rate of return from it.On the other side, a bad company ( with a poor balance sheet so far ) may turn as a wonderful investment if our entry is at right point and things develop as per our calculation and expectation. Of course the risk and reward in both these cases will be always different.So , defining our own aim and selecting the way suitable for us is most important for our investing journey. Generally we can classify stocks into three categories ( This is my personal view and never expect the copy book meaning for the terms used ) – Value Stocks , Growth Stocks and Dark Horses.

Value Stocks 

Generally a stock termed as a value stock if it trade at a lower price compared to its known fundamentals. One common mistake lot of new investors making while selecting value stock is their inability to assess the reason for lower valuation and taking investment decisions based only on certain pre-defined valuation methods like P/E ratio..etc.Personally I don’t think a lower P/E never guarantee good return,instead to a certain extent, it may give a cushion against sharp fall.At certain point of time ,outdated businesses may seems attractive if we follow lower P/E alone as a benchmark for stock selection. Such business may attractive till date but ends in big loss in the years to come due to changing trend, technology ..etc.
So , while selecting value stocks we should also consider future prospects, promoter quality,dividend distribution policy ..etc along with cheap valuation . One can expect steady return and good dividend from such stock with less risk but don't expect multiple times returns from such stocks in short period .


Growth Stocks

As per definition , 'Growth Stock' is the stock of a company whose earnings are expected to grow at an above-average rate relative to the market.These type stocks may always look expensive based on conventional valuation parameters but remain as expensive till their growth trajectory ends which may last for many years .While value stocks are selected mainly based on the current performance,growth stocks are practically selecting based on the anticipated business growth in future and hence the later is riskier than the former.


Dark Horses :

Please don’t search for the meaning for such stocks , you may not find it anywhere :)
These type stocks are only for daredevils but may change our fortune on either side . Generally lesser known with poor fundamentals at present but potential to grow multi fold over a period of time due to some unique features like niche technology,patented products, possibility to emerge as a winner due to changing trend of people in favor of company’s product ..etc. Risk is very high in such stocks and any error in calculation and assessment may wipe out entire investment in such stocks . They are not suitable for newbies and better to avoid in the initial stage of investment journey, at least till we gain something from stock market itself.

 So, before investing in any stock it is always better to study whether that particular stock is suitable for you considering your style of investing  , even if everyone around you claim it as a wonderful one. 

 


Once again ,Diwali wishes to all my readers .

Saturday, November 7, 2015

RESULT UPDATE - IL&FS ENGINEERING

IL&FS ENGINEERING reported poor numbers for the quarter ended September .( Link HERE) . Though there is no meaning in finding excuses, working capital scarcity may be the key reason for slow execution . Earlier company planned to raise fresh funds but it not materialized so far . As per reports, one big corporate house is in talks to take over its parent company ( Read report HERE) . Uncertainty over possible sell out of its parent  may be one reason delaying its fund raising plans.Some clarity in such issues and a revival in infrastructure sector is the  need of the hour .

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