Category Archives: Stocks

Personal Finance Website Update

Nine months ago I did not know what a blog is? Stuck up at home due to a back injury, I was casually chatting up with a geeky friend asking him about how to create a website, purely in jest. “Why don’t you begin with a blog and then see if you can make it bigger”, he said and gave me a link of Blogger.

300 posts later, the dream of translating it into a website seems plausible. Just take a look at what I’ve created without knowing html code! (Well, I can figure out the a href link code, but just!!) Now you know why there’s no post here. I have exported these posts to my website blog

RSS readers are requested to take this feed please:

Personal Finance 2.01: It’s a one stop personal finance website and I urge you to take a test drive. Feedback will be of immense help.

Discussion Forum: It’s a forum where you can discuss all your doubts and questions about personal finance, planning and various products like insurance, stocks, mutual funds, etc.

PF 2.01 Blog: I have started a blog focussed on personal finance and I would invite you to share your thoughts. Let’s have a real conversation of PF going on here.

Weblinks: I am regularly out on the web. When I find a great site I list it here for you to enjoy. From the list choose one of my weblink topics, then select a URL to visit.

NewsFeeds: We have some great news feeds to take a look at. Suggestions are welcome.

Financial Advisors Directory: We invite professional and net savvy advisors to register and provide the information needs. This one is a first in India to the best of my knowledge.

The design stage will take another two months after which I’ll be ready to go live. The real action begins only after then. Wish me luck.

You need to be Lucky and brave!

As an asset class, Equity stocks offer the best returns. But so many of us have burnt our fingers in the process?

How is it that very few investors can make real profits, grow their networth and consistently beat the market? That’s because it often takes one or more of the following rare traits…

The vision to identify breakthrough products, leaders, and brands
The knowledge to spot an undervalued gem in a sea of glass
The courage to buy and hold when others are running scared

Occasionally, you’ll come across an investor with one of these valuable characteristics. And it’s likely that person does quite well. But I can’t imagine a person who can offer all three.

That would take two very different and even contradictory approaches…

Sounds scary? But fortune favors the brave only!!

Picking up stocks: Real Estate/ Construction

One of the questions to my earler post was how to pick stocks? It is allright to say that, ” You can start with identifying a list of 10-15 companies out of 3-5 sectors which you know or which interests you. You can keep a tab on their management team, financials and future outlook and over a period of time, you will be able to take a call on them.”
But I guess, it’s good in theory. How about doing an analysis of a sector and then take a look at some stocks of that sector. Let’s take a look at the Real Estate/Infrastructure sector which is so much in the news.
So when we do an industry analysis, what are the things we look at? Companies producing similar products are subset of an Industry/Sector. For example, National Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to the Power Sector/Industry of India. It is very important to see how the industry to which the company belongs is faring. Specifics like effect of Government policy, future demand of its products etc. need to be checked. At times prospects of an industry may change drastically by any alterations in business environment. For instance, devaluation of rupee may brighten prospects of all export oriented companies. Investment analysts call this as Industry Analysis.
To start with, let’s look at some macro facts and observations about the industry.
The Tenth Five Year Plan has estimated a shortfall of 22.4 million dwelling units in the country. According to one estimate, over the next 10 to 15 years 80 to 90 million housing units will have to be constructed.
The investment required for constructing these dwelling units and for providing related infrastructure during this period will be of the order of $666 billion to $ 888 billion at roughly $33 billion to $44 billion per year ($ 1 billion = Rs 4,400 crore).
There is a steady growth in Housing Finance sector of approx.30 % over last four years.
The rate of interest for housing finance has become reasonable and affordable which has resulted into more credit offtake and subsequent maturing of the housing industry. Even though there is an increase, the rates are still reasonable to my mind after factoring in the tax benefits.
Fiscal benefits provided by the Government of India have encouraged the end users and investors alike.
Income of the urban buyer has grown substantially.
There is tremendous scope and growth in the Infrastructure Development.
Foreign investment by way of FDI has been approved.
Emergence of professional builders in the market with proper accounting standards.Emergence of rating systems for building projects.
The high growth of the real estate sector has led a lager financial institution to launch a dedicated real estate fund. These funds are simultaneously enticing large institutional investors as well as High Net worth Individual (HNIs) to expand their portfolio.
The award of ultra mega power projects and privatisation of airports demonstrates a committment at the highest level. So the momentum to build up roads, ports and urban infrastructure is building up for sure.
The JawaharLal Nehru Mational Urban Renewal Mission (JNNURM) initiative in 63 cities and urban transport projects will also drive up Investments in Infrastructure. Water Supply projects and sewerage projects would be part of the JNNURM.
So what do you think about the future of Infrastructure stocks in India? Ready to take a call?

There are three major stocks in the Infrastructure sector which is worth talking about. 1. Nagarjuna Construction (NJCC) 2. IVRCL and 3. HCC

Remember, do not go by the order book size alone, which is what many people do without understanding the intricacies. We need to understand the execution period of the order book, and the kind of margins that the company would make, given the kind of raw material prices at which it has booked these orders.

Even though it may look daunting, a lil bit of research helps you in understanding the stocks as well as improving your general knowledge.

Derivative for Dummies: By a Dummy

Yes, it’s for Dummies and by a dummy on Derivatives. So here’s what lil’ bit of Derivatives I understand(or pretend to..). Read on….

Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Derivative products initially emerged as hedging devices against fluctuations in commodity prices.

In India, BSE created history on June 9, 2000 by launching the first Exchange traded Index Derivative Contract i.e. futures on the capital market benchmark index – the BSE Sensex. The exchange commenced trading in Index Options on Sensex on June 1, 2001. Stock options were introduced on 31 stocks on July 9, 2001 and single stock futures were launched on November 9, 2002. September 13, 2004 marked another milestone in the history of Indian Capital Markets, the day on which the Bombay Stock Exchange launched Weekly Options.

Types of Derivatives:
Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today’s pre-agreed price.

Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts, such as futures of the Nifty index.

Options: An Option is a contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price.

Facts: The daily trade of commodities futures market is expected to rise by another Rs 5000 crores from the Rs 15000 crores being traded currently.

With increasing interest from investors, the basket of 120 commodities currently being traded is likely to touch 250 by 2007-08.

Options offer three significant benefits: Versatility; High Leverage and Risk Management. (I bet I didn’t understand this, but I’ll pretend I did)

Last Word: Warren Buffet sees derivatives as “time bombs” and a weapon of mass destruction!!

25 Golden Rules of Stock Investing

I don’t remember the source, but here they are:

1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Don’t take the market home.
5. Forget your College degree and trust your instincts.
6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Continually strive for patience, perseverance, determination, and rational action.
9. Limit your losses – use stops!
10. Never cancel a stop loss order after you have placed it!
11. Place the stop at the time you make your trade.
12. Never get into the market because you are anxious because of waiting.
13. Avoid getting in or out of the market too often.
14. The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success.
15. Always discipline yourself by following a pre-determined set of rules.
16. Remember that a bear market will give back in one month what a bull market has taken three months to build.
17. Don’t ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point.
18. Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.
19. Split your profits right down the middle and never risk more than 50% of them again in the market.
20. The key to successful trading is knowing yourself and your stress point.
21. The difference between winners and losers isn’t so much native ability as it is discipline exercised in avoiding mistakes.
22. Speech may be silver but silence is golden. Traders with the golden touch do not talk about their success.
23. Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long.
24. Accept failure as a step towards victory.
25. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker!

Too much to follow or remember? Don’t get into stocks then.

Become a Crorepati in 30 months

Gaurav’s post on the 30 things he wanted to do before he’s 30 was a brave one. I wondered at his bravery and wished him all the best only to land up in trouble myself 🙂 He wants a way to build a Networth of 1 Crore before he’s 30 and now wants me to find it. 😦

Gaurav’s target of becoming a crorepati is brave but also bordering on being foolhardy, I think. To top it, he wants to start with a seed capital of only Rs 2 lacs and a monthly infusion of Rs 20000! This way he will need to grow his money at an outstanding rate of 200% annually!!

Impossible. Or could be there some way? Legal, ofcourse.

Very recently I read a book, The Big Idea, which ends with the following Goethe’s couplet: Whatever you can do, or dream you can, begin it. Boldness has genius, power and magic in it.

Here in this blog I have been talking about Mutual Funds, Real estate, Bonds, ULIPs and ETFs. All of them do not pass muster when it comes to giving a return Gaurav wants. What about stocks? Yes, there are stocks that have given that kind of return in the past. But how to identify those stocks who would do the same in the next 30 months? Nobody knows those stocks. So is there still a way?

Now Gaurav says that he has avery high risk appetite. That should essentially mean that when he has invested in shares that he expects will zoom and those share prices drop 30% soon after he buys them, he will average his cost by buying more. Letus assume that he is willing to take the volatility for the desired growth and he is confident of his decisions.

Moving on that assumption, Stocks can give you that growth. But since we cannot identify the 5-6 stocks that will give a growth of 150-200% over a period of 30 months, we need to ride the waves on the stock market.

The first magic happened today morning when I looked at a blog/site that I had been avoiding (Because I understood little of that). It’s EagleEyeTrade by Rajeev Mundra.

Talking to Rajeev who runs a Technical Trading seminar too, I did some number crunching. Assuming a challenging but realistic goal of 10% growth every month, a starting amount of Rs 6,25,000 will become Rs 1.09 crore after 30 months. Vow!!!

Atleast, theoretically it’s possible. Ofcourse it will take a lot of guts (time & energy too). It depends on Gaurav’s risk appetite. And Rajeev’s expert guidance. If you ask me, the guys can do it. I wish them Good Luck.

For the first time I’m putting a disclaimer. Here it is: Ideas posted on the blog are educative in nature and must not in any way be construed as advice or recommendations. Investing/Trading in financial instruments is risky. This blog cannot be held liable in anyway for losses incurred.

Ride the Stock Market Wave to Grow your Money

I have been following the EagleEyeTrade blog and even though I don’t understand technical analysis, I find this blog very credible. I am delighted that Rajiv found time to answer some of my doubts/questions which have been reproduced below:

Technical analysis is the study of the trading history to attempt to predict future prices. What qualifications make you confident of doing that?

  • The only qualification which works in Stock Markets is real life experience. A college degree, BTech or on MBA all are helpless unless one can think for himself and be able to risk money. The experience does not comes easy and coupled with the fact that normal human “good” qualities and emotions tend to hamper rather than achieve good results in technical trading.
  • Do you have a detailed training kit for beginners. Tell us more about that.

  • We donot have a detailed kit for beginners. What we sometimes do conduct seminars which are for focused traders.The trader should be familiar with markets for sometime and have some trading experience to benefit from our seminar.Our focus in seminar is to establish new lines of thinking or to give the trader new ways of looking at things. We focus on Elliott Wave, Classical technical analysis, risk management and position sizing. All of which are important pillars of technical trading.We also talk a little about using fundamental scanning for swing trading.
  • What is Elliott wave analysis? What benefits it brings?

  • Elliott Wave is a method to analyze market movements. It shows how market movements are related to each other and how here is pattern in chaos.Its a unique theory which gives the user insights which no other technical theory does. Its is vast and deep and any trader wishing to use this needs 1-2 years of experience to be able to use it effectively.
  • Critics of technical analysis include well known fundamental analysts. Warren Buffett has exclaimed, “I realized technical analysis didn’t work when I turned the charts upside down and didn’t get a different answer” What do you say?

  • I am a fan of Warren.Probably Warren is right about Classical technical analysis, I also find it useless.But Elliott wave is a different class and is very useful.Having said that, i would add that technical analysis of any kind are short term tools, while fundamental analysis is much more long term
  • .
    The time and energy required is very high. Dou you agree/disagree? Why

  • Time is required to excel in anything.
  • You provide the knowledge/information/calls. How much time do you expect your clients to put in?

  • We expect clients to read carefully what we write. This may take 15 mins to 30 mins.Also before they take a trade, they should commit to memory the entry exit stops and other things we say about a trade.
  • As an asset class, Equity stocks offer the best returns. But so many of us have burnt our fingers in the process?

  • Equity will offer the best returns always in long term. The simple reason being that it is companies which move the world and it is companies which earn the money which flows into everything else. Thus other asset classes which depends upon money generated by companies cannot outperform the companies itself. Like say you want to buy a gold ring, thus you send gold prices up. But how did you get the money to buy the gold ring?Some company you work for, or your own company made the profit from which you paid for the ring. Thus stocks would always lead by a far margin in long term
  • Greed and fear is the axis around which stock market rotates and its a dangerous axis to rotate around unless well prepared.Action motivated by greed and fear will result in losses always and the way the market works though greed and fear it makes sure most people remain on the loosing side.
  • Unless you’re working full-time in the financial world, you don’t have the skills, tools, information, time or interest in playing the market. Comment.

  • This is not always true. Long term investment is relatively easy. An index fund and term insurance would help most people.The more short term oriented you become, to try to extract the most profits, the more tools you need to make sense of the madness and more is the time consumed.
  • What is the average monthly return an investor can expect from your trade calls?

  • I try to generate 10% returns a month for myself. In this 75% of trades are in cash and 25% in futures and options.While this is a high target to achieve every month, we have done that in most months.
  • I found the answers insightful and reassuring. What do you say? Check out EagleEyeTrade