Saturday, July 9, 2016

Having A Plan: The Basis Of Success

Courtesy : Investopedia

"To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework." Warren E. Buffett 

Any veteran market player will tell you that it's vital to have a plan of attack. Formulating the plan is not particularly difficult, but sticking to it, especially when all other indicators seem to be against you, can be. This article will show why a plan is crucial, including what can happen without one, what to consider when formulating one as well as the investment vehicle options that best suit you and your needs.

The Benefits

As the "Sage of Omaha" says, if you can grit your teeth and stay the course regardless of popular opinion, prevailing trends or analysts' forecasts, and focus on the long-term goals and objectives of your investment plan, you will create the best circumstances for realizing solid growth for your investments.

Maintain Focus

By their very nature, financial markets are volatile. Throughout the last century, they have seen many ups and downs, caused by inflation, interest rates, new technologies, recessions and business cycles. In the late 1990s, a great bull market pushed the Dow Jones Industrial Average (DJIA) up 300% from the start of the decade. This was a period of low interest rates and inflation, and increased usage of computers, all of which fueled economic growth. The period between 2000 and 2002, on the other hand, saw the DJIA drop 38%. It began with the bursting of the internet bubble, which saw a massive sell-off in tech stocks and kept indexes depressed until mid-2001, during which there was a flurry of corporate accounting scandals as well as the September 11th attacks, all which contributed to weak market sentiment.

In such a fragile and shaky environment, it's crucial to keep your emotions in check and stick to your investment plan. By doing so, you maintain a long-term focus and can assume a more objective view of current price fluctuations. If investors had let their emotions be their guide near the end of 2002 and sold off all their positions, they'd have missed a 44% rise in the Dow from late-2002 to mid-2005.

Sidestepping the Three Deadly Sins

 
The three deadly sins in investing play off three major emotions: fear, hope and greed. Fear has to do with selling too low - when prices plunge, you get alarmed and sell without re-evaluating your position. In such times, it is better to review whether your original reasons (i.e. sound company fundamentals) for investing in the security have changed. The market is fickle and, based on a piece of news or a short-term focus, it can irrationally oversell a stock so its price falls well below its intrinsic value. Selling when the price is low, which causes it to be undervalued, is a bad choice in the long run because the price may recover.


The second emotion is hope, which, if it is your only motivator, can spur you to buy stocks based on their past performance. Buying on the hope that what has happened in the past will happen in the future is precisely what occurred with internet plays in the late '90s - people bought nearly any tech stock, regardless of its fundamentals. It is important that you look less at the past return and more into the company's fundamentals to evaluate the investment's worth. Basing your investment decisions purely on hope may leave you with an overvalued stock, with which there is a higher chance of loss than gain. 

The third emotion is greed. If you are under its influence, you may hold onto a position for too long, hoping for a few extra points. By holding out for that extra point or two, you could end up turning a large gain into a loss. During the internet boom, investors who were already achieving double-digit gains held on to their positions hoping the price would inch up a few more points instead of scaling back the investment. Then, when prices began to tank, many investors didn't budge and held out in the hope that their stocks would rally. Instead, their once-large gains turned into significant losses. 

An investment plan that includes both buying and selling criteria helps to manage the three deadly sins of investing. 

The Key Components 


Determine Your Objectives
 
The first step in formulating a plan is to figure out what your investment objective is. Without a goal in mind, it is hard to create an investment strategy that will get you somewhere. Investment objectives often fall into three main categories: safety, income and growth. Safety objectives focus on maintaining the current value of a portfolio. This type of strategy would best fit an investor who cannot tolerate any loss of principal and should avoid the risks inherent in stocks and some of the less secure fixed-income investments. If the goal is to provide a steady income stream, then your objective would fall into the income category. This is often for investors who are living in retirement and relying on a stream of income. These investors have less need for capital appreciation and tend to be risk averse.

Growth objectives focus on increasing the portfolio's value over a long-term time horizon. This type of investment strategy is for relatively young investors who are focused on capital appreciation. It's important to take into account your age, your investment time frame and how far you are from your investment goal. Objectives should be realistic, taking into account your tolerance for risk. 

Risk Tolerance
 
Most people want to grow their portfolios to increase wealth, but there remains one major consideration - risk. How much, or how little, of it can you take? If you are unable to stomach the constant volatility of the market, your objective is likely to be safety or income focused. However, if you are willing to take on volatile stocks then a growth objective may suit you. Taking on more risk means you are increasing your chances of realizing a loss on investments, as well as creating the opportunity of greater profits. However, it is important to remember that volatile investments don't always make investors money. The risk component of a plan is very important and requires you to be completely honest with yourself about how much potential loss you are willing to take. 


Asset Allocation

 
Once you know your objectives and risk tolerance, you can start to determine the allocation of the assets in your portfolio. Asset allocation is the dividing up of different types of assets in a portfolio to match the investor's goals and risk tolerance. An example of an asset allocation for a growth-oriented investor could be 20% in bonds, 70% in stocks and 10% in cash equivalents.

It is important that your asset allocation is an extension of your objectives and risk tolerance. Safety objectives should comprise the safest fixed-income assets available like money market securities, government bonds and high-quality corporate securities with the highest debt ratings. Income portfolios should focus on safe fixed-income securities, including bonds with lower ratings, which provide higher yields, preferred shares and high-quality dividend-paying stocks. Growth portfolios should have a large focus on common stock, mutual funds or exchange-traded funds (ETFs). It is important to continually review your objectives and risk tolerance and to adjust your portfolio accordingly.
The importance of asset allocation in formulating a plan is that it provides you with guidelines for diversifying your portfolio, allowing you to work toward your objectives with a level of risk that is comfortable for you.

The Choices.

 
Once you formulate a strategy, you need to decide what types of investments to buy as well as what proportion of each to include in your portfolio. For example if you are growth oriented, you might pick stocks, mutual funds or ETFs that have the potential to outperform the market. If your goal is wealth protection or income generation, you might buy government bonds or invest in bond funds that are professionally managed.If you want to choose your own stocks it is vital to institute trading rules for both entering and exiting positions. These rules will depend on your plan objectives and investment strategy. 


You may also consider professionally managed products like mutual funds, which give you access to the expertise of professional money managers. If your aim is to increase the value of a portfolio through mutual funds, look for growth funds that focus on capital appreciation. If you're income-orientated, you'll want to choose funds with dividend-paying stocks or bond funds that provide regular income. Again, it is important to ensure that the allocation and risk structure of the fund is aligned with your desired asset mix and risk tolerance. Other investment choices are index funds and ETFs. The growing popularity of these two passively managed products is largely due to their low fees and tax efficiencies; both have significantly lower management expenses than actively managed funds. These low-cost, well-diversified investments are baskets of stocks that represent an index, a sector or country, and are an excellent way to implement your asset allocation plan.

Summary

 
An investment plan is one of the most vital parts for reaching your goals - it acts as a guide and offers a degree of protection. Whether you want to be a player in the market or build a nest egg, it's crucial to build a plan and adhere to it. By sticking to those defined rules, you'll be more likely to avoid emotional decisions that can derail your portfolio, and keep a calm, cool and objective view even in the most trying of times.

136 comments :

  1. Dear VP Sir,

    Kindly let me know your views on Pankaj Piyush Trade & Inv.

    Thanks & regards

    Sreejith G

    ReplyDelete
  2. Sir, Your views needed on Rane Holdings post ZF-TRW merger and Muthoot Finance.

    Rgds

    ReplyDelete
  3. Dear VP sir ,
    What's ur view on GM breweries after bonus & Q1 results

    ReplyDelete
  4. Dear VP Sir,

    What's your view on PTC India Financial service

    ReplyDelete
  5. Sir, kindly share your views on Kesar infrastructure & terminals ltd

    ReplyDelete
  6. Sir,
    SKM Egg products is showing robust exports as seen in the first week of July 2016 ( around 117 tonnes amounting to 6 crores of exports in the first week compared to an estimated 30 crores of exports in the first quarter). Is there a possibility that it is on a path to revival and it can regain the 80 crores of exports like in the corresponding quarter last year.
    Rajeev

    ReplyDelete
    Replies
    1. What margin a company earning is also important

      Delete
  7. Dear VP, pls give your views on Srikalahasthi Pipes Ltd

    ReplyDelete
    Replies
    1. Srikalahasti Pipes ( Formerly Lanco Insutries ) suggested earlier @ Rs.65 which is currently trading around Rs.280, neutral at CMP.

      Delete
  8. Hi Value pick,

    what is your view on Eros...do you track it after Wells Fargo highlighted issues with this company

    ReplyDelete
  9. Sir...what about ITD cementation......
    ??

    ReplyDelete
    Replies
    1. Potential is there in sector , no comment about any specific company .

      Delete
  10. Hello Sir,
    I am holding ITC at 330 (prior to bonus) from around 1.5 years. Wanted to know if I should continue to hold or sell and look for better opportunities. What worries me is the cigarette business facing regulatory troubles and all other business not being profitable.

    Thanks

    ReplyDelete
  11. Generally tracking only small-mid caps.

    ReplyDelete
  12. VP sir future retail demerge into 2 entities 1. Future enterprise and 2. Bharti retail
    Out of this two future enterprise is listed but after two months when bharti retail list?

    ReplyDelete
    Replies
    1. Not sure why you are asking this question to me ! . Dear , please ask this question to the company secretary of the concerned company .

      Delete
  13. Dear VPji,

    Greetings! How r u doing sir?

    Hindustan Tin Works has come up decently recently....do u think it is recovering and ready for long term growth or is it by chance a one-off incident?

    Is Shree Digvijay Cement a good pick in the cement industry...zero debt etc.?

    Can Poddar pigments and Gokaldas be still considered with their recent run-up?

    Thanks as always
    Narasimham

    ReplyDelete
    Replies
    1. After suggesting to exit , I am not tracking Hind .Tin.

      Delete
  14. Any changes in previous views on kreb bio sir?

    ReplyDelete
    Replies
    1. No change in views , but it may take more time than earlier expected to start production .

      Delete
  15. Sir what about IFB industries,please comment

    ReplyDelete
    Replies
    1. More money in the hands of public is positive for the sector as a whole.

      Delete
  16. Sir,

    ur views on old recommendation?? Panacea Biotech and Ramky Infra.

    Regards,

    ReplyDelete
  17. sir
    please share your views on JM financial & Bajaj Finance @ CMP.
    are you positive on L&T Infotech IPO ?

    ReplyDelete
  18. Hi Sir your View On Bhageria Industries and Sector overall and also on Amulya Leasing.
    Thanks in Advance..

    ReplyDelete
    Replies
    1. Dyestuff industry is a cyalical one in which Bhageria is present. Entry and exit at the correct point of cycle is important in case of such a business.

      Delete
  19. Hello Sir,

    I am holding kitex garments at Rs 800 and vaibhav global at Rs 500, bought them after reading Prof. Sanjay Bakshi's blog :(.

    Kindly help.

    Also, I hold adi finechem at 310. Should I sell it off after the recent surge.


    Thanks

    ReplyDelete
  20. Replies
    1. Stock appreciated about 550% since recommendation. ( http://value-picks.blogspot.in/2013/11/balaji-amines-limited-working-hard.html)

      Nothing new to add at CMP.

      Delete
  21. Sir,
    Your view on selling of shares by veto promoters please...

    ReplyDelete
    Replies
    1. who is buying such large quantity in such a counter is also a question :)

      Delete
  22. Hi Sir,

    Money control has published a report on stocks that have increased more than 2000 times in past 3 years. Majority of them like Arrow Greentech, Cupid etc. were identified at a very low market price. That's a record par excellence. Great job!

    ReplyDelete
    Replies
    1. Hi Sir,

      Correction: Stocks that have returned over 2000% in last 3 years not 2000 times as mentioned above.

      Link: http://www.moneycontrol.com/news/market-edge/stocks-that-have-returned-over-2000last-3-years_6943521.html?utm_source=ref_article

      Link http://www.moneycontrol.com/news/market-edge/stocks-that-have-returned-over-2000last-3-years_6943521.html

      Delete
  23. Sir please share your views on following for long term
    Ceat
    NIIT
    Kakatiya Cement
    Tara Jewels
    R Systems

    ReplyDelete
  24. Sorry , not tracking any of these.

    ReplyDelete
  25. Sir your present view on MiC V2 and lakshmi energy which are your old recommendations?

    ReplyDelete
    Replies
    1. Companies are starting to declare their first quarter result. It is better to re look and analyse any changes needed only after result declaration.

      Delete
  26. VP sir, with more money in hands of people consumer durable sector is likely to do well. Would like to know your opinion about BPL as they have started to put efforts for regaining its lost glory !

    ReplyDelete
    Replies
    1. It seems company is trying to push sales through online channels . For any consumer goods like the one's produced by this company after sales service is an integral part . Let us wait and see how they are succeeding in that part.

      Delete
  27. Suven life 199 i have 2000 share what can I do?

    ReplyDelete
  28. Sir your views over subex now as major fccb conversions are over and showing strong consistency over trade everyday and with good cash reserves and consistent over bagging awards for innovative products and reliance jio in the pipeline

    ReplyDelete
    Replies
    1. Business is expected to improve . Lot of FCCB converted shares dumped into the market straightaway and it may create excess floating stock issue till at least part of it absorbed by long term investors.

      Delete
  29. Ncl and Sarada energy up by 50 % in last few months from my buy price..do you think partial booking profit makes sense..thanks a lot for ur suggestions

    ReplyDelete
  30. vP sir- seems your one old recommended stock HEG will start performing. Your view - should we add at this level.

    ReplyDelete
  31. Dear Sir,

    Sir, your view on Valiant communication and Lakshmi energy & food long term view

    ReplyDelete
    Replies
    1. Please see the reply given above to Sharath, which is applicable in this case too.

      Delete
  32. Dear Sir,

    Could you please share your view on Digjam if you are tracking it? Can it be a potential turnaround after it has been merged now?

    ReplyDelete
  33. Sir, your views on Superhouse Ltd and the Govt likely to give SOPs for leather products.

    ReplyDelete
    Replies
    1. Need to wait and see the impact of banning of cow slaughter on the availability of raw material for the companies operating in leather processing.

      Delete
  34. What's going on in dlink India ?

    ReplyDelete
  35. Sir, your views on Saksoft? Good quarter in quarter results and seems well valued

    ReplyDelete
    Replies
    1. Saksoft suggested @ Rs.82


      https://value-picks.blogspot.in/2014/01/saksoft-ltd-buy.html

      Neutral at CMP Rs.236

      Delete
  36. Sir,some biz channels and experts are openly reccomonding stocks on television (multibaggers ideas). So why you have stopped discussing potentional multibaggers ideas?please start if possible :)

    ReplyDelete
    Replies
    1. Lot of people doing the same even without disclosing the registration status , anyway I don't like to violate a rule implemented by authorities.

      Delete
  37. Dear sir, your views about mirza international sir..

    ReplyDelete
  38. Sir/Madam, Your views on Majesco?

    ReplyDelete
  39. Hi Sir,

    After going through several bolgs, responses to queries we are able to identify upcoming/trending themes like solar energy, organic food, packaging/plastics etc. However, not sure how to identify the best investment opportunities by assessing the management quality and when the business would be able to show it in financial numbers. We are solely dependent on internet for information. Seek your guidance in this matter. Thank you very much - Kumar

    ReplyDelete
    Replies
    1. Whenever you are planning to invest good amount , you should at least participate in AGM and interact with officials of company to clear your doubts . ( Buy some small quantity earlier to get the privilege of a share holder). Information available in websites are equally available to everyone which may not help to generate any extra- ordinary gain. Channel checks with company's raw material suppliers, stockists,customers ..etc will help to get better understanding about the company and their products and future of business.

      Delete
    2. Thank you for your valuable insights. Your responses are precise and always above our expectations.

      Delete
    3. Dear Sir,

      Related question, if someone is unable to attend the AGM, then based on your experience, can someone email the questions in advance to the company secretary to be put forward in the AGM, and request a response after the AGM over the email?

      Is there any SEBI guideline on this, or it depends on company to company?

      Thank you,
      Kumar

      Delete
  40. like to know your opinion about lycos internet ltd

    ReplyDelete
    Replies
    1. Already expressed my negative opinion.

      Delete
  41. Dear VP,
    Which pharma companies you are tracking effectively and you realised any scope there??

    ReplyDelete
    Replies
    1. From small caps space ,tracking companies like Panacea Bio, Krebs .etc .

      Delete
    2. Krebs reached to 52 wk low. Do you suggest to buy at CMP?

      Delete
  42. Dear VP sir,

    Dic india, We have seen flat top line for the last few quarters. Is it a turn around story?

    ReplyDelete
    Replies
    1. It is already in profit, how it can be termed as a turn around company ?

      Delete
  43. Sir i have nbcc shares at 255 , i know company has good orders but as govt announced 15 percent stake sale, share fell 10 percent and now recovered back still not sure what will happen if govt announces lower selling price. although citi suggeated 300 target but govt is saying pricing will depend on market conditions. so my question is shall i wait or sell ?

    ReplyDelete
    Replies
    1. NBCC is a stock suggested @ Rs.95 before stock split .

      http://value-picks.blogspot.in/2012/04/national-buildings-construction.html

      Adjusted to stock split it already appreciated more than 10 times .

      Since nobody can predict the price fixation of government , it is difficult to comment anything at this juncture.

      Delete
  44. Sir, what's your opinion on Vikas Ecotech Limited? Kindly reply
    Regards

    ReplyDelete
  45. Dear Sir,

    Whats you take on MIC electronics. Can I buy it at this level for long term investment.

    what's you profile name on money control.

    Regards
    Preeti

    ReplyDelete
  46. Sir,what's your view on Asian graneto and poddar pigments.

    ReplyDelete
    Replies
    1. No change in previous views on the above companies.

      Delete
  47. Sir , I am considering skm egg, Krebs, panacea bio and suzlon for investment.. What is ur view on these companies growth prospects.

    ReplyDelete
    Replies
    1. Growth will be there , time period may vary.

      Delete
    2. Are you positive on SKM. This is with reference to Anoop query above.

      Delete
    3. Still I am tracking it .As of now SKM facing some difficulties but it never means it is a bad company.

      Delete
  48. Sir, do you track SETCO AUTO? If so your views please thanks

    ReplyDelete
  49. Sir

    Kindly share your view of Aimco pesticide.
    Excel Crop care has sold their entire stake.
    Is this stock is worth holding now.

    ReplyDelete
    Replies
    1. The sold stake acquired by the original promoters of company itself.

      Delete
  50. Dear VPg, please comment on Suzlon specially they recently had a investor and analysts meet. What do you think about Suzlon ?

    ReplyDelete
  51. VP Sir, any views on Modi Natural.. I can remember once you mentioned positive view on it ! Pl share your views as you are our "Guru" in share market " Happy Gurupornima"

    ReplyDelete
    Replies
    1. This stock suggested @ Rs.14 which is already turned as a ten bagger. , neutral at CMP.

      http://value-picks.blogspot.in/2010/02/modi-naturals-pe-players-may-change-its.html

      Delete
  52. Sir,Thank you very much for Lakshmi Energy

    ReplyDelete
  53. Sir, do you track Piramal Phytocare?

    ReplyDelete
  54. VP sir what is it opinion on it recommendation Himalaya international after its asset reconstruction plan announced today

    ReplyDelete
  55. Dear VP,

    I remeber that you have suggested Orchid sometime back. It is now trading at 42, requesting your suggestion on this stock.

    ReplyDelete
    Replies
    1. No change in views , may take some more time for a turnaround

      Delete
  56. Hello,

    Any views on Castex Tech?
    Holding 7000 shares @ 7.50.

    Regards,
    Abhishek Anand

    ReplyDelete
  57. Hi Dear VP,

    Do you track Royal orchid?.. @cmp what's your take?

    Thanks..BJA

    ReplyDelete
  58. Dear Sir,

    Thanks for Lakshmi Energy :)

    Is there any issue about merger of Tree house Education and Zee Learn?

    ReplyDelete
    Replies
    1. Check the announcement made by these companies in exchange websites.

      Delete
  59. Thanks VP sir for your view on Laxmi energy, Caplin , lotus chocolate. Your guidance and patient paid off. God bless you.

    ReplyDelete
  60. Sir, Is still Godavari drugs a turn around story. Company is not responding on the expansion related queries

    ReplyDelete
    Replies
    1. It is already making profit for past three years.

      Delete
  61. Vp Sir,Thanks for bringing Lakshmi Energy to our focus. Any views on results.

    ReplyDelete
  62. Sir what's your view on Ravalgaon sugar farm?
    Thanks in advance.

    ReplyDelete
  63. Dear, VP sir as Amulya leasing is going for merger with appolo pipes which may lead to huge value unlocking.I saw your comment on mmb regarding they have already filed scheme of arrangement with sebi. I Wanted to know normally how much time is taken for such approval.Also please share your views on Amulya leasing and appolo pipes.

    ReplyDelete
    Replies
    1. Difficult to predict , but I hope it may happen in another six months or so.

      Delete
  64. Sir, ur view on manaksia industries ltd..

    ReplyDelete
  65. Dear VP sir,

    Firstly you are doing a great job. Was curious to know why you feel the sebi regulations restrict you from making recommendations. I understand the regulations should not apply in your case as there is no fee being charged by you.

    ReplyDelete
    Replies
    1. I do had same kind of questions? When you are doing honestly free service, why do worry about this SEBI regulations

      Delete
    2. There is no exception mentioned in SEBI circular for those not charging anything .

      Delete
  66. whats your view on holding VIP industries, HDIL,mawana sugars?

    ReplyDelete
  67. Sir, Can we have your views on GHCL

    ReplyDelete
  68. sir i bought 200 vikas global eco,10 control print,10sukhijit starch,10 alicon cast alloys. i am not a big investor. your views in this will give a chance to enter in the stock market . your advise required sir

    ReplyDelete
  69. Please let me know your suggestion on buying following shares?
    - Country club
    - Panama petro

    ReplyDelete

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