Today the January F&O series expiry and this is a tough start for the year .
From tomorrow new February series starts and expecting market to settle in this month. In last 10days FED cut interest rates by 125 basis points and Reliance Power refund should start from tomorrow which should bring new liquidity into the market . So I am expecting less downside compared to potential upside in this month.
In this post i want to discuss about managing portfolio. We can keep our portfolio either diversified or focused ( or concentrated) .
Diversification mainly helps in mitigating risk by external factors which we can not control . Many people will hold 30 to 40 different shares and think they are diversified but if all the companies fundamentals depends on same events then the diversification is of no use. For example if we hold 10 different banks,10 different auto companies and 10 different real estate shares and if the interest rate climbs up then most probably all the shares will loose their capital . And main drawback in this is we cannot track and act accordingly on all the companies at the same time. So what we get is potentially diluted returns and most of the time index will outperform us .
What warren buffet advices to the investor was to focus your portfolio in as less companies as possible . It is very tough to select 5 to 6 companies in 3000+ companies so you have to do a lot of home work before investing.
So my suggestion is Identify 4 to 5 sectors which are fundamentally different and invest in one company from each sector which can outperform the peers and pay reasonable price to it and hold it for longterm . If you cant identify which share can outperform its peers better to buy mutual funds than buying 4 to 5 companies stocks in all sectors .
In this process we may feel uncomfortable when our shares not performing and some junk shares or going up 20%-30% a day but believe in your conviction and hold the shares without churning portfolio at the end of the day you will be rewarded handsomely. And we also need to look at the returns on our portfolio as a whole and should not look at individual returns means some times some shares might not perform because of the macro factors of that sectors etc .
I suggest diversification in assets compared to diversification in stocks like build 3 - 4 businesses which can earn money irrespective of the economy .
RK
Thursday, 31 January 2008
Sunday, 27 January 2008
Mental Accounting
I want to share some concepts of behavioral economics from "Why Smart People Make Big Money Mistakes - Gary Belskey & Thomas Gilovich" which i am reading now.
Not all dollars are created equal :
A newly wed groom finds $5 and he goes to roulette table bets his money on number 17 and the ball stops on 17 and he wins $175 he continues playing and winning until the casino runs out of money,He rushes to some other better financed casino and continues betting on 17. He wins $262 millon only to loose it when the ball stops on 18 . When the bride asks about how he did in casino , he tells " not bad ,I lost $5"
He explains this as the human being will have separate mental accounts for earned money and gift money.We some how feel the earned money is more sacred than the casino money eventhough both can buy same amount of things.
What i feel the same applies to stock market also . We feel more pain when we loose our capital compared to the profit . For example if we invest 1 milloin and lost half million the pain will be more compared to loosing one million in 2millions profit.Upto some extent it will be fine but we should not be overwhelmed with the profits we earned in stock market and start taking riskier bets .
Even the spending boom in India can be partly attributed to this .. A young man working in IT or BPO industry earning more than what his father had earned after working for 20-30 years . Some how most these people are not believeing what they are getting as earned money and treating it as a gift money. They are compensating this either by spending more or taking riskier bets in share market.Some of them compensating this by working long hours than neccesary in office which is more dangerous .
RK
Not all dollars are created equal :
A newly wed groom finds $5 and he goes to roulette table bets his money on number 17 and the ball stops on 17 and he wins $175 he continues playing and winning until the casino runs out of money,He rushes to some other better financed casino and continues betting on 17. He wins $262 millon only to loose it when the ball stops on 18 . When the bride asks about how he did in casino , he tells " not bad ,I lost $5"
He explains this as the human being will have separate mental accounts for earned money and gift money.We some how feel the earned money is more sacred than the casino money eventhough both can buy same amount of things.
What i feel the same applies to stock market also . We feel more pain when we loose our capital compared to the profit . For example if we invest 1 milloin and lost half million the pain will be more compared to loosing one million in 2millions profit.Upto some extent it will be fine but we should not be overwhelmed with the profits we earned in stock market and start taking riskier bets .
Even the spending boom in India can be partly attributed to this .. A young man working in IT or BPO industry earning more than what his father had earned after working for 20-30 years . Some how most these people are not believeing what they are getting as earned money and treating it as a gift money. They are compensating this either by spending more or taking riskier bets in share market.Some of them compensating this by working long hours than neccesary in office which is more dangerous .
RK
Saturday, 26 January 2008
Trading in Options
Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a "call option" provides the right to buy a specified quantity of a security at a set strike price at some time on or before expiration, while buying a "put option" provides the right to sell. Upon the option holder's choice to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract.
Options can be effectly used to hedge the potential losses for the shares that we are holding . In F&O segment all the shares are traded in specific amount of quantities(or lots) so any transation can be done in that amounts only. There are two types of options call option which gives right to buy and put option which gives right to sell. I will explain put option as a hedging tool.
if you are are holding 700 RCOM shares and you want to insure the profits of that you can buy a put option for that for the specified month.
The important things in options are strike price which indicates price of the share( for selling ) and premium which we need to pay for that contract and expiry date which indicates the date of the expiry .
If the pirce of RCOM in cash market say 650 on 1st Jan . We can buy a put option for the series (which expire on last thursday of the month) of strike price 650 for a primium say 20 rs , by paying 14000(20*700) . We can execute the option anytime before the end of the month. By the time of expiry if the price goes up you will loose the premium amount ( but the same amount we will gain in cash market) . If the market crash in the middle of the month we can execute our right to sell at 650 and we can make money, If the price of the share say 640 we will loose 10rs of our premium money and we will get the remaining money back.
This is a general senarios , what we can do is , if we can identify some share which can outperform the index , for example buy a nifty share in cash market and buy a put options for nifty then the possibility of losing money will be minimal..
Note: Buying a put option without holding the share is too risky and not advisable ( especially in a bull market like india).
Call option will work in same way but gives right to buy the share..
RK
Options can be effectly used to hedge the potential losses for the shares that we are holding . In F&O segment all the shares are traded in specific amount of quantities(or lots) so any transation can be done in that amounts only. There are two types of options call option which gives right to buy and put option which gives right to sell. I will explain put option as a hedging tool.
if you are are holding 700 RCOM shares and you want to insure the profits of that you can buy a put option for that for the specified month.
The important things in options are strike price which indicates price of the share( for selling ) and premium which we need to pay for that contract and expiry date which indicates the date of the expiry .
If the pirce of RCOM in cash market say 650 on 1st Jan . We can buy a put option for the series (which expire on last thursday of the month) of strike price 650 for a primium say 20 rs , by paying 14000(20*700) . We can execute the option anytime before the end of the month. By the time of expiry if the price goes up you will loose the premium amount ( but the same amount we will gain in cash market) . If the market crash in the middle of the month we can execute our right to sell at 650 and we can make money, If the price of the share say 640 we will loose 10rs of our premium money and we will get the remaining money back.
This is a general senarios , what we can do is , if we can identify some share which can outperform the index , for example buy a nifty share in cash market and buy a put options for nifty then the possibility of losing money will be minimal..
Note: Buying a put option without holding the share is too risky and not advisable ( especially in a bull market like india).
Call option will work in same way but gives right to buy the share..
RK
Friday, 25 January 2008
The Biggest of them all
Today Sensex posted 1140 points gain which is the biggest ever absolute point gain.The participation is quite low as anyone can expect after the carnage we have seen in the starting of the week . Next week will be critical for me as all of my companies will be announcing Q3 results as well as RBI,FED and ECB meetings are lined up..
This week we have seen the biggest ever fall and raise (absolute) for the Sensex which is close to 1400(8%)and 1100(6%).
While taking the large positions in equity markets we should be prepared for the worst . But is this the worst that can happen?
History says not .. The Dow Jones lost 22.6% in a single session on October 19,1987 and S&P 500 lost 20.4% on the same day.
I am not telling this to threaten anyone , i am an outright bull in Indian equity market but it doesn't mean we can be careless and expect to get away from the market.
This is the article written on Black Monday in 1987 . The reasons seems pretty much similar to what we have seen this week.
http://hnn.us/articles/895.html
So be cautious and Happy Investing.
RK
This week we have seen the biggest ever fall and raise (absolute) for the Sensex which is close to 1400(8%)and 1100(6%).
While taking the large positions in equity markets we should be prepared for the worst . But is this the worst that can happen?
History says not .. The Dow Jones lost 22.6% in a single session on October 19,1987 and S&P 500 lost 20.4% on the same day.
I am not telling this to threaten anyone , i am an outright bull in Indian equity market but it doesn't mean we can be careless and expect to get away from the market.
This is the article written on Black Monday in 1987 . The reasons seems pretty much similar to what we have seen this week.
http://hnn.us/articles/895.html
So be cautious and Happy Investing.
RK
Thursday, 24 January 2008
Technical Vs Fundamental analysis
This is my first post in this blog . In this post I want to give my brief ideas about technical and fundamental analysis .
Today Sensex lost 372 points in a exteamly volatile session which witnessed more than 1100 points swing, But the improving global situations should bring stability to indian markets from tomorrow.
Fundamental analysis mainly deals with companies assets , liabilities , profits, growth etc etc. While technical analysis will deal with the demand and supply of the particular share.
The most confusing thing in stock market is both of these are contradictary to each other .
Fundamental analysis will tell shares will become attractive when the prices fall as they became cheap while the technical analysis will tell the shares will become attractive when the prices raise as there is more demand to the share.
Investing based on technical analysis is more risky as compared to fundamental analysis as they will change drastically and un-predictably ..
Technical analysis is more useful ( or meaningful) in trading rather than investing . While trading we should be more cautious and limit our potential losses by applying stop loss etc.
We should take any investment decision rationally , un-emotionally by considering only the fundamentals of the company rather than the price movements or technicals of the shares..
RK
Note: I have copied my previous posts from the old blog below, for the sake of continuity
Today Sensex lost 372 points in a exteamly volatile session which witnessed more than 1100 points swing, But the improving global situations should bring stability to indian markets from tomorrow.
Fundamental analysis mainly deals with companies assets , liabilities , profits, growth etc etc. While technical analysis will deal with the demand and supply of the particular share.
The most confusing thing in stock market is both of these are contradictary to each other .
Fundamental analysis will tell shares will become attractive when the prices fall as they became cheap while the technical analysis will tell the shares will become attractive when the prices raise as there is more demand to the share.
Investing based on technical analysis is more risky as compared to fundamental analysis as they will change drastically and un-predictably ..
Technical analysis is more useful ( or meaningful) in trading rather than investing . While trading we should be more cautious and limit our potential losses by applying stop loss etc.
We should take any investment decision rationally , un-emotionally by considering only the fundamentals of the company rather than the price movements or technicals of the shares..
RK
Note: I have copied my previous posts from the old blog below, for the sake of continuity
Mindless speculators
Wednesday, 23 January 2008
Mindless speculators
In this Savage correction which continued for 7 days many retail investors ( rather we should call them mindless speculators) had lost almost all their capital buy investing on margins and hot tips . How can we explain a counter like RPL which is still making losses having more market capitalizaion than the counter like infosys which is a 5 billion dollar company..
As told by sameer arora in CNBC yesterday people who have lost more than 50% this week should not come back to market or atleast go to mutual funds..
Some of the speculators who are damning the Govt. for the fall should understand that capital market is a free market which run through basic principal of demand and supply , And their losses are the nothing but the indication of their own greed and lousiness .
RK
Posted by Ravikanth at 11:40 0 comments
Mindless speculators
In this Savage correction which continued for 7 days many retail investors ( rather we should call them mindless speculators) had lost almost all their capital buy investing on margins and hot tips . How can we explain a counter like RPL which is still making losses having more market capitalizaion than the counter like infosys which is a 5 billion dollar company..
As told by sameer arora in CNBC yesterday people who have lost more than 50% this week should not come back to market or atleast go to mutual funds..
Some of the speculators who are damning the Govt. for the fall should understand that capital market is a free market which run through basic principal of demand and supply , And their losses are the nothing but the indication of their own greed and lousiness .
RK
Posted by Ravikanth at 11:40 0 comments
Is the worst over?
Is the worst over?
After 7 days of relentless fall in indian equity markets today the sensex recorded biggest ever intraday gain and ended up 864 (5.6%) points .
Does this means the worst is over and we can start buying at these prices.
The stocks which have fallen most were rallied most today and the stocks which fallen less posted marginal gain which indicates this is a technical rally (short covering rally) .
The volumes are very less and open intrest has came down with the price raise in the counters like RNRL ,RPL.Ispat etc so i think it is not advisable to buy any of these counter and also should reduce their exposure to this counters by booking losses ..
So I believe we are going to get good buying opertunities in next couple of weeks probably below 16K levels..
I am worried abt my holding to the Gujarat NRE as considering the US economic situation the commodity prices may fall which can hit its profitability , So looking to reduce the exposure to it and shift to fundamentally better counter..
RK
Posted by Ravikanth at 10:20 0 comments
After 7 days of relentless fall in indian equity markets today the sensex recorded biggest ever intraday gain and ended up 864 (5.6%) points .
Does this means the worst is over and we can start buying at these prices.
The stocks which have fallen most were rallied most today and the stocks which fallen less posted marginal gain which indicates this is a technical rally (short covering rally) .
The volumes are very less and open intrest has came down with the price raise in the counters like RNRL ,RPL.Ispat etc so i think it is not advisable to buy any of these counter and also should reduce their exposure to this counters by booking losses ..
So I believe we are going to get good buying opertunities in next couple of weeks probably below 16K levels..
I am worried abt my holding to the Gujarat NRE as considering the US economic situation the commodity prices may fall which can hit its profitability , So looking to reduce the exposure to it and shift to fundamentally better counter..
RK
Posted by Ravikanth at 10:20 0 comments
The bull climbs up the stairs of the building
Monday, 21 January 2008
.........while the bear jumps out of the window.
Today most of the equity investor might be feeling like this..
Today the Sensex lost 1408 points which is biggest ever absolute fall for the index at some point it had lost more than 2200 , Nifty , midcap and small cap indices lost 8-12%..
In NSE there were 9 advances while declines were more than 1200 ..
We may not see a day when most of the A group scrips falling 25-30% ..
I feel instead of struggling in finding fundamental following market etc etc, if you go out for a shopping in a day like this you cann't be wrong.
Most of the investors had lost the money they have made in last 6 months in this 6 days it self.. take the case of parsvnath developer , it has taken 6 months to go from 300 levels to 600 and in 6 sessions it has came down to below 300 again..It has fallen almost 30% in one day..
After seeing a day like this , can any body stay invested for longterm . This day might come when you need the money most..
If you think the same situation in another context , say you have bought a put option by paying some premium your loss considerably come down and even you can make money more quickly .
So my advice to any one wants to be in market they should know how to make money in both direction either up or down..
RK
Posted by Ravikanth at 11:10 0 comments
.........while the bear jumps out of the window.
Today most of the equity investor might be feeling like this..
Today the Sensex lost 1408 points which is biggest ever absolute fall for the index at some point it had lost more than 2200 , Nifty , midcap and small cap indices lost 8-12%..
In NSE there were 9 advances while declines were more than 1200 ..
We may not see a day when most of the A group scrips falling 25-30% ..
I feel instead of struggling in finding fundamental following market etc etc, if you go out for a shopping in a day like this you cann't be wrong.
Most of the investors had lost the money they have made in last 6 months in this 6 days it self.. take the case of parsvnath developer , it has taken 6 months to go from 300 levels to 600 and in 6 sessions it has came down to below 300 again..It has fallen almost 30% in one day..
After seeing a day like this , can any body stay invested for longterm . This day might come when you need the money most..
If you think the same situation in another context , say you have bought a put option by paying some premium your loss considerably come down and even you can make money more quickly .
So my advice to any one wants to be in market they should know how to make money in both direction either up or down..
RK
Posted by Ravikanth at 11:10 0 comments
Make a killing
Wednesday, 16 January 2008
Make a killing
This is the popular term used in stock market which means doing something that makes you a lot of money.
By following these simple principles in a disciplined manner we can also make a killing in stock market.
First thing we should look for in any scrip is the sector or the business of the scrip, If the underlying business is struggling even the best management can do little for the stock price, like in 2007 all the indices have given more than 40% returns while the IT, Pharma and Autos have given -ve returns because of the macro factors of those industries. So select 3 to 4 sectors in which growth is visible for next 2 to 3 years .
I feel in next couple of years power equipment manufacturing business (ABB, BHEL and Siemens) is going to give superior returns compared to any other sectors because of the investments taking place in power generation sector ( Reliance power alone is going to invest 75000 cr in next 5 years).
After deciding the sector we should look for the management which can exploit the opportunity available in that sector, Pay reasonable price (compared to peers) for that scrip add whenever correction( or opportunity ) comes .Do the homework and focus your investment in only one company.
Things you should look for before investing..
1) PE/Growth should be less than 1 .
PE = Share price / Earnings per share (which you can obtain from companies financial statements).
Only matured businesses and companies can be valued through PE value ( sectors or companies with future earning potential like insurance and private infrastructure companies can not be valued using this)
2) PE should be reasonable compared to peers.
3) Look for hidden value and possibility of value unlock .
4) For commodity stocks ( steel,coal,sugar etc) we should look for the commodity price cycle and various factors that can effect those commodity prices.
RK
Posted by Ravikanth at 07:53 0 comments
Make a killing
This is the popular term used in stock market which means doing something that makes you a lot of money.
By following these simple principles in a disciplined manner we can also make a killing in stock market.
First thing we should look for in any scrip is the sector or the business of the scrip, If the underlying business is struggling even the best management can do little for the stock price, like in 2007 all the indices have given more than 40% returns while the IT, Pharma and Autos have given -ve returns because of the macro factors of those industries. So select 3 to 4 sectors in which growth is visible for next 2 to 3 years .
I feel in next couple of years power equipment manufacturing business (ABB, BHEL and Siemens) is going to give superior returns compared to any other sectors because of the investments taking place in power generation sector ( Reliance power alone is going to invest 75000 cr in next 5 years).
After deciding the sector we should look for the management which can exploit the opportunity available in that sector, Pay reasonable price (compared to peers) for that scrip add whenever correction( or opportunity ) comes .Do the homework and focus your investment in only one company.
Things you should look for before investing..
1) PE/Growth should be less than 1 .
PE = Share price / Earnings per share (which you can obtain from companies financial statements).
Only matured businesses and companies can be valued through PE value ( sectors or companies with future earning potential like insurance and private infrastructure companies can not be valued using this)
2) PE should be reasonable compared to peers.
3) Look for hidden value and possibility of value unlock .
4) For commodity stocks ( steel,coal,sugar etc) we should look for the commodity price cycle and various factors that can effect those commodity prices.
RK
Posted by Ravikanth at 07:53 0 comments
Creative thinking
Sunday, 13 January 2008
Creative thinking
" The process of getting new ideas is a five step process ..
1) Gathering raw material .
2) Working over those material in mind
3)The incubating stage ( Let the un-conscious mind do the work of synthesis)
4) The actual birth of the idea stage .
5) Final shaping and development of the idea for practical use. "
Most of us follow the first 3 stages un-consciously and suddenly we will get the idea when we least expected . If we follow the above process we may get that magical ideas even quicker .
Some people wont follow the 3 stages and expect some inspiration or idea will suddenly strike-out out of vacuum which may not strike at all because of the in-conclusive work done in first 3 stages ..
" A technique for producing Ideas - James Webb Young"
Posted by Ravikanth at 02:01 0 comments
Creative thinking
" The process of getting new ideas is a five step process ..
1) Gathering raw material .
2) Working over those material in mind
3)The incubating stage ( Let the un-conscious mind do the work of synthesis)
4) The actual birth of the idea stage .
5) Final shaping and development of the idea for practical use. "
Most of us follow the first 3 stages un-consciously and suddenly we will get the idea when we least expected . If we follow the above process we may get that magical ideas even quicker .
Some people wont follow the 3 stages and expect some inspiration or idea will suddenly strike-out out of vacuum which may not strike at all because of the in-conclusive work done in first 3 stages ..
" A technique for producing Ideas - James Webb Young"
Posted by Ravikanth at 02:01 0 comments
First step
Tuesday, 1 January 2008
First step
Hi ,
Wishing u all happy and prosperous new year..
In this blog I am going to discuss abt my experiences in capital markets etc etc..
At last 2007 has came to an end with healthy returns to the investors of all caps .
This is 5th year in a row with +ve returns for the sensex..
In 2007 Sensex (47%) Nifty(53%) Mid Cap Index(74%) Small-Cap(87%) all the indexes have given healthy returns.
2008 seems to be extereamly challenging to the equity markets throughtout the world because of various global problems like sub-prime mortagage and US recession.. For indian equity markets eventhough there were no problems fundamentally,there might be problems with liquidity conditions and general elections etc.
RK
Posted by Ravikanth at 03:55 0 comments
First step
Hi ,
Wishing u all happy and prosperous new year..
In this blog I am going to discuss abt my experiences in capital markets etc etc..
At last 2007 has came to an end with healthy returns to the investors of all caps .
This is 5th year in a row with +ve returns for the sensex..
In 2007 Sensex (47%) Nifty(53%) Mid Cap Index(74%) Small-Cap(87%) all the indexes have given healthy returns.
2008 seems to be extereamly challenging to the equity markets throughtout the world because of various global problems like sub-prime mortagage and US recession.. For indian equity markets eventhough there were no problems fundamentally,there might be problems with liquidity conditions and general elections etc.
RK
Posted by Ravikanth at 03:55 0 comments
Welcome to 2008
In 2007 overall my inverstments have given good returns..
In my investments Gujarat NRE coke (150%) ,Punj lloyd (80%) and Reliance communication(60%) has given good returns while Mindtree(-20%) and Tech Mahindra (-30%) has given -ve returns..
In 2008 I am bullish on ..
Gujarat NRE coke as the coal prices on the raise in world market and china has again increased export taxes last week so the prices will increase more..
Reliance communication for its GSM foray and value unlock through tower bussiness.
ICICI Bank for its value unlock and interest rate scenario in india
Punj lloyd for its stellar performance.
GE Shipping for attractive valuations
Siemens for its valuations compared to peers like BHEL and ABB and bonus share
In 2008 I believe all these stocks will outperform their peers as well as all the indices
RK
Posted by Ravikanth at 03:18 0 comments
In my investments Gujarat NRE coke (150%) ,Punj lloyd (80%) and Reliance communication(60%) has given good returns while Mindtree(-20%) and Tech Mahindra (-30%) has given -ve returns..
In 2008 I am bullish on ..
Gujarat NRE coke as the coal prices on the raise in world market and china has again increased export taxes last week so the prices will increase more..
Reliance communication for its GSM foray and value unlock through tower bussiness.
ICICI Bank for its value unlock and interest rate scenario in india
Punj lloyd for its stellar performance.
GE Shipping for attractive valuations
Siemens for its valuations compared to peers like BHEL and ABB and bonus share
In 2008 I believe all these stocks will outperform their peers as well as all the indices
RK
Posted by Ravikanth at 03:18 0 comments
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