Future lies in past itself.
The thing about life is that one makes mistakes. Many mistakes were made in the second half of 2007 and those sins have to be washed away by blood, such is the way of financial markets. Some participants will go down under and never be able to get back to the market again but most will survive. The pain will linger for many months, maybe years but lessons have to be learnt. Every such debacle has lessons for us and the sooner we forget them the more we suffer.
The first lesson is not to let stock price performance become the sole reason for buying, a mistake which was made in abundance in the last 3 months. What couldn't be explained by fundamentals was credited to liquidity. The present lost all relevance as people chose to focus on the distant future, perhaps simply because the present could never justify those ticker prices; only a hazy dream of the future could. Traders and investors had no time for fundamental analysts, in many cases they were labelled "cribbing fools". Chartists became the most celebrated tribe on the street as only they could see and predict the one way run to glory for many of the hot stocks even as fundamental watchers cringed at valuations....till the music stopped. Don't get me wrong, charts do work in trending markets but once stock prices veer away completely from fundamental value, people need to get careful. But they never are.
Now that the blinkers are off, people should ask themselves why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. It is simply because their stock prices had snapped all connection with underlying business fundamentals, earnings and value. Their stock prices became the only reasons for buying them which works for a while but not forever. The other big lesson, one which should have been driven in earlier in May 2006, is the danger of overextending oneself in the futures market.
The lure of stock futures is easy to understand. Put in some margin, take a big exposure on a fast moving stock, make a killing when prices shoot up. Repeat exercise. Just that people forgot that prices may also come down and at a pace which noone can even imagine, maybe their friendly stockbrokers forgot to tell them that part of the story. The result : unbridled speculation that ran into lakhs of crores, excesses that we are paying for today. Even this fall will not cure investors of their love for futures speculation but if at least some amount of caution is injected it would have been a worthwhile learning.
Futures are not toys for amateurs, they are time bombs in the hands of inexpert and inexperienced traders, it's only a matter of when the fuse runs out. The other learning which I hope will play out in the future, as it has in the past, is that it pays to be brave in times of panic such as these. If I was allowed to invest myself , which I am not, I would have no hesitation in deploying serious money into the market today, knowing fully well that prices may fall more tomorrow. And I would be standing there tomorrow to buy more of the same, till my money ran out. India is going to be a terrific stock market story for many years to come, even an intermediate bearish patch cannot shake that conviction of mine. At best, one will have to wait a bit for the returns to follow. That's alright.
You are happy to put money in a bank FD and then wait for one full year to collect that measly 8%, aren't you? Then why does the stock market need to give you 20% every month? In the last one year, I haven't seen so many good stocks trade at such mouth watering levels. Forget trading, avoid the duds which were fuelled up by operators, just go out and buy those bluechips. They will deliver, even if there is a global market meltdown for a while, and if you are a bit patient you will be rewarded. But do remember January 2008, as history will repeat itself again in the future. Just that our memories tend to be too short and our greed too much.
Happy Price Menu @ Dalaal Street
Tuesday, January 22, 2008
Sunday, January 20, 2008
VALUE INVESTING :: BUFFET'S WAY
Price is what you pay. Value is what you get.
The dumbest reason in the world to buy a stock is because it’s going up,” says investment guru Warren Buffet.Trashing conventional principles of investing, Indian investors are on a shopping spree, buying all that is going up, without considering the price or the value of stocks. Price to earnings (PE) ratio, as a concept, appears to have lost its relevance for the time being as investors are busy trying to guess the next level that benchmark indices are likely to touch in the near term.
The 30-share Sensex soared to a new high of 21,000 as investors are counting on stronger foreign fund flows in the coming days, given India’s better resistance to a likely recession in the US compared with other emerging markets.A study on the trading volumes of topline stocks on BSE reveals that investors are accumulating ‘high PE’ stocks — trading in the range of 30-160 times — in large numbers.
PE ratio gives investors an idea as to what the market is willing to pay for the company’s earnings.The higher the PE, the more the market is willing to pay for the company’s earnings. PE, as a stock market indicator, helps the investor in deciding whether he should invest in a particular stock or not.A scrip trading at a PE of 15-18 times is generally regarded as a ‘fairly valued’ stock across markets, provided the company has decent earning potential. In the Indian context, with the Sensex trading at a PE of 22 times, stocks trading in the range of 18-20 times are not seen as overvalued.“PE can be a bit more higher in the case of high-growth sectors like realty and telecom,” said a fund manager.
Conversely, a low PE may indicate low investor confidence in the stock. It could also mean that the scrip is a ’sleeping multi-bagger’ that the market has overlooked. Known as value stocks, many investors made their fortunes spotting such stocks before the rest of the market.So, considering the current trend, how relevant is PE?Generally, in a uptrend, investors with a higher risk profile (those investors who are not investing for the long term) invest blindly without considering much about the fundamentals or value proposition of stocks. This is a dangerous trend, as stocks appreciating on ’sector-goodies” plummet once sentiments change, says experts.“PE, as an easy analytical ratio, is still relevant for investing in stocks.
But in a surging market, people generally don’t buy stocks by considering the PE ratio,” says Indiabulls Securities CEO Divyesh Shah.There is no simple method to spot the right PE for a stock. If an investor is willing to pay more for a particular company’s stock, he believes the company has good long-term prospects over and above its current position. “Though PEs don’t tell you the underlying story, it will give you an idea as to how the stock is valued.High-demand stocks, with low free-float, will also have high PEs. Therefore, along with the PE, investors should also consider the long-term growth prospects of the company they are investing in,”
The dumbest reason in the world to buy a stock is because it’s going up,” says investment guru Warren Buffet.Trashing conventional principles of investing, Indian investors are on a shopping spree, buying all that is going up, without considering the price or the value of stocks. Price to earnings (PE) ratio, as a concept, appears to have lost its relevance for the time being as investors are busy trying to guess the next level that benchmark indices are likely to touch in the near term.
The 30-share Sensex soared to a new high of 21,000 as investors are counting on stronger foreign fund flows in the coming days, given India’s better resistance to a likely recession in the US compared with other emerging markets.A study on the trading volumes of topline stocks on BSE reveals that investors are accumulating ‘high PE’ stocks — trading in the range of 30-160 times — in large numbers.
PE ratio gives investors an idea as to what the market is willing to pay for the company’s earnings.The higher the PE, the more the market is willing to pay for the company’s earnings. PE, as a stock market indicator, helps the investor in deciding whether he should invest in a particular stock or not.A scrip trading at a PE of 15-18 times is generally regarded as a ‘fairly valued’ stock across markets, provided the company has decent earning potential. In the Indian context, with the Sensex trading at a PE of 22 times, stocks trading in the range of 18-20 times are not seen as overvalued.“PE can be a bit more higher in the case of high-growth sectors like realty and telecom,” said a fund manager.
Conversely, a low PE may indicate low investor confidence in the stock. It could also mean that the scrip is a ’sleeping multi-bagger’ that the market has overlooked. Known as value stocks, many investors made their fortunes spotting such stocks before the rest of the market.So, considering the current trend, how relevant is PE?Generally, in a uptrend, investors with a higher risk profile (those investors who are not investing for the long term) invest blindly without considering much about the fundamentals or value proposition of stocks. This is a dangerous trend, as stocks appreciating on ’sector-goodies” plummet once sentiments change, says experts.“PE, as an easy analytical ratio, is still relevant for investing in stocks.
But in a surging market, people generally don’t buy stocks by considering the PE ratio,” says Indiabulls Securities CEO Divyesh Shah.There is no simple method to spot the right PE for a stock. If an investor is willing to pay more for a particular company’s stock, he believes the company has good long-term prospects over and above its current position. “Though PEs don’t tell you the underlying story, it will give you an idea as to how the stock is valued.High-demand stocks, with low free-float, will also have high PEs. Therefore, along with the PE, investors should also consider the long-term growth prospects of the company they are investing in,”
Saturday, January 19, 2008
Volatility ahead
It could be a volatile year at the bourses :::
The much-publicised public issue is just behind us and it is interesting to see how the market behaves after the mega event. If the public response to the Reliance IPO is any indication, equity seems to be the flavour of the season. The issue was a talking point at every cafeteria in the corporate sector and many investors ended up opening demat and trading accounts purely to catch the issue.
While a good response to equity issues from retail investors is a welcome sign, the frenzy makes one wonder whether the Indian investor has begun to get unreasonable with his returns expectation. In this backdrop, the recent correction in the market was a welcome relief as some of the over-heated stocks shed their superlative gains. On the other hand, the tech sector continued to be ignored by market men despite delivering results on expected lines. The results failed to boost the market sentiment, with investors chasing higher returns in recent times. While the short-term trend continues to be volatile and uncertain, investors with a long-term view can continue to hold on to their investments.
Sectors such as IT, pharma and technology may be used as defensive sectors. There are still no clear signs of reversals in the fortunes of this segment and instead, a further weakness is being feared in the light of a slow-down in the US. Hence, for short-term investors, technology may not be a safe haven in the coming days. On the other hand, sectors such as banking and financial services, infrastructure and power continue to hold promise with energy being the latest entrant to the list. In the case of infrastructure, fresh buying interest can be foreseen as nearly half-adozen funds have mobilised or in the process of mobilising funds for investing in the sector.
In addition, investors who have penchant for a contrarian view could bet on auto and auto components as action seems to have picked up in this space. The softer interest rate regime could boost the volumes story for the two-wheeler sector. On the other hand, the increasing competition in the fourwheeler segment has once again brightened the prospects of auto component companies. The fact that most of these stock prices have been stagnant in the last couple of quarters reduces the risk-reward ratio for these companies. If there is another sector which is a direct beneficiary of a lower interest regime, it surely is realty. The sector has been one of the most volatile sectors at regular intervals.
The signs of interest rate fall have offset the negative sentiments. Any sharp fall in interest rates will be a big boost for the sector, and hence, its fortunes are directly linked to the credit policy outcome. It may not be a bad idea to use market corrections to accumulate fundamentally good stocks for a long-term portfolio. Irrespective of the choice of sectors, it's time for investors to take a long-term view and the current year well prove to be one of the most volatile years in recent times. While the annualised yield may not be handsome, one can better their portfolio returns by being patient and using deep corrections to pick good stocks.
The much-publicised public issue is just behind us and it is interesting to see how the market behaves after the mega event. If the public response to the Reliance IPO is any indication, equity seems to be the flavour of the season. The issue was a talking point at every cafeteria in the corporate sector and many investors ended up opening demat and trading accounts purely to catch the issue.
While a good response to equity issues from retail investors is a welcome sign, the frenzy makes one wonder whether the Indian investor has begun to get unreasonable with his returns expectation. In this backdrop, the recent correction in the market was a welcome relief as some of the over-heated stocks shed their superlative gains. On the other hand, the tech sector continued to be ignored by market men despite delivering results on expected lines. The results failed to boost the market sentiment, with investors chasing higher returns in recent times. While the short-term trend continues to be volatile and uncertain, investors with a long-term view can continue to hold on to their investments.
Sectors such as IT, pharma and technology may be used as defensive sectors. There are still no clear signs of reversals in the fortunes of this segment and instead, a further weakness is being feared in the light of a slow-down in the US. Hence, for short-term investors, technology may not be a safe haven in the coming days. On the other hand, sectors such as banking and financial services, infrastructure and power continue to hold promise with energy being the latest entrant to the list. In the case of infrastructure, fresh buying interest can be foreseen as nearly half-adozen funds have mobilised or in the process of mobilising funds for investing in the sector.
In addition, investors who have penchant for a contrarian view could bet on auto and auto components as action seems to have picked up in this space. The softer interest rate regime could boost the volumes story for the two-wheeler sector. On the other hand, the increasing competition in the fourwheeler segment has once again brightened the prospects of auto component companies. The fact that most of these stock prices have been stagnant in the last couple of quarters reduces the risk-reward ratio for these companies. If there is another sector which is a direct beneficiary of a lower interest regime, it surely is realty. The sector has been one of the most volatile sectors at regular intervals.
The signs of interest rate fall have offset the negative sentiments. Any sharp fall in interest rates will be a big boost for the sector, and hence, its fortunes are directly linked to the credit policy outcome. It may not be a bad idea to use market corrections to accumulate fundamentally good stocks for a long-term portfolio. Irrespective of the choice of sectors, it's time for investors to take a long-term view and the current year well prove to be one of the most volatile years in recent times. While the annualised yield may not be handsome, one can better their portfolio returns by being patient and using deep corrections to pick good stocks.
Market Dynamics
Understanding the dynamics of market and meaning of investment :
It is always said that stcok market is driven by greed and fear.Common people (i mean retail investor) invest in stock for creating wealth which they think that it will fullfill their financial goal.But this natural desire for creating wealth ends in loss when they sell their holding in the fear of loosing their investment. It happens often when price start going down below the purchased price.This is what the dynamics of market is all about.
The word "greed". Greed defines the dynamics of market from Dalal street to wall street.
Money is definately a motivational tool but it can not solve all our problems. At the same time if we don't have passion for money we can loose our hope to achive ambitious GOAL . We need to have balance between "greed for money" and "motivation for money" in order to achieve our GOAL.
It is important to understand that Greed can be motivator but also a barrier. This can distarct our concentartion from focusing on our investment Plan. We can cosume so much of our time in persuit of money that we fail to appreciate the inherent rewards of value investing.
Investment is not just about puting your money in stock.It is about giving yourself a intellectual challange Physically, Emotionaly and Economically.You can develope your investment skill by practicing it in your life. Never focus all of your energy on money and the profit/loss. Instead, you should focus on develoing these skills and enjoying the process of learning irrespective of the fact that you made a profit or loss. because loss incured by you in your early days gives you lots of learning.
In the long term you will always enjoy your investment process and it will always give you a great feeling.
"A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price"
..The Intelligent Investor
by: Benjamin Graham
This is what mr. benjamin agrahan said 50 years back.but In today's world in spite of so much of information available around us,People are not ready to understand the meaning of investment.
"The secret to your financial success is inside yourself. If you become a critical thinker who takes no Wall Street “fact” on faith, and you invest with patient confidence, you can take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave"
..The Intelligent Investor
by: Benjamin Graham
People wants return, which are historically annual, over a span of months or even weeks. This is what make them "greed", the word which defines the dynamics of market.
..Contributed by -
Prem Ranjan Singh
Stock Analayst & Investor
It is always said that stcok market is driven by greed and fear.Common people (i mean retail investor) invest in stock for creating wealth which they think that it will fullfill their financial goal.But this natural desire for creating wealth ends in loss when they sell their holding in the fear of loosing their investment. It happens often when price start going down below the purchased price.This is what the dynamics of market is all about.
The word "greed". Greed defines the dynamics of market from Dalal street to wall street.
Money is definately a motivational tool but it can not solve all our problems. At the same time if we don't have passion for money we can loose our hope to achive ambitious GOAL . We need to have balance between "greed for money" and "motivation for money" in order to achieve our GOAL.
It is important to understand that Greed can be motivator but also a barrier. This can distarct our concentartion from focusing on our investment Plan. We can cosume so much of our time in persuit of money that we fail to appreciate the inherent rewards of value investing.
Investment is not just about puting your money in stock.It is about giving yourself a intellectual challange Physically, Emotionaly and Economically.You can develope your investment skill by practicing it in your life. Never focus all of your energy on money and the profit/loss. Instead, you should focus on develoing these skills and enjoying the process of learning irrespective of the fact that you made a profit or loss. because loss incured by you in your early days gives you lots of learning.
In the long term you will always enjoy your investment process and it will always give you a great feeling.
"A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price"
..The Intelligent Investor
by: Benjamin Graham
This is what mr. benjamin agrahan said 50 years back.but In today's world in spite of so much of information available around us,People are not ready to understand the meaning of investment.
"The secret to your financial success is inside yourself. If you become a critical thinker who takes no Wall Street “fact” on faith, and you invest with patient confidence, you can take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave"
..The Intelligent Investor
by: Benjamin Graham
People wants return, which are historically annual, over a span of months or even weeks. This is what make them "greed", the word which defines the dynamics of market.
..Contributed by -
Prem Ranjan Singh
Stock Analayst & Investor
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