Friday 27 August 2010

Indian Market Cap


Indian Market Cap
Market cap movement of different countries over the past five years is given in this interesting write-up:
As always, two diametrically different possibilities emerge from this piece of data:
  1. Long-term India Growth Story is a certainty. Hence we ought to remain invested in the Indian stock markets
  2. Short term risks - Can India sustain the pace? Is it realistic and apt that India ought to be ahead in Market Cap vis-a-vis countries like Germany, Brazil, Russia, etc.?
Or, perhaps, the possibilities are not so diametrically different, after all!

Regards,
N

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Wednesday 25 August 2010

Why we ought to depend on our own research


Why we ought to depend on our own research

Just came across an article in an old Business Line giving some info about the limited number of people who virtually control our markets in India:
Apparently,
  • As many as 451 client identities accounted for about 50 per cent of the average daily turnover in the cash equity segment of the National Stock Exchange in the first quarter this fiscal. This was stated by the Minister of State for Finance, Mr Namo Narain Meena, in a written reply to question posed by Mr Sukhdev Singh Dhindsa in the Rajya Sabha.
  • The number is even more intriguing in the derivatives segment, with only 106 clients accounting for 50 per cent of the average daily turnover.
What are the implications for lesser mortals like you and me who invest in shares? Here are some of my thoughts:
  • First, these few persons, through their sheer weight, can take a share up or down by a significant percentage in a short span of time
  • Secondly, they don't give advance notice to you and me about their planned course of action
  • Therefore, we ought to be aware about the fact that a sudden spurt or tanking of an index or, more likely, a specific share can very well be exclusively due to market actions by these limited number of persons.
  • Accordingly, before we decide to buy or sell a share, we must do our own research rather than depending on:
    • Research recommendations
    • Tips
    • Rumours
    • Sudden and / or violent movement in prices
  • Most importantly, retail investors must very clearly understand the risk involved in investing in equity and take care of themselves by:
    • doing meticulous research PERSONALLY before making investment decisions
    • knowing our own risk appetite
    • adhering to our asset allocation strategies meticuously
    • limiting leverage to the extent to which we are ready to lose 100% of the capital that is deployed in derivative and / margin products
    • having a long term orientation while investing in shares
    • using very strict stop losses in accordance with our actual risk appetite
    • being willing to book profits the moment our targets are reached
      • irrespective of the time horizon
      • and whether or not the stock continues to move further in the predicted direction
    • not being too greedy - If you are getting anything more than twice the return on safe bank deposits, it is either too risky or you've just been lucky. 
Take care and happy investing!

Regards,
N

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Friday 20 August 2010

Bad Credit Card Customer!

Don't know whether I've posted this pic before, but it is worth repeating once every few weeks for the benefit of all our readers!




Do take the hint, of course!


Regards,


N
Bad Credit Card Customer!SocialTwist Tell-a-Friend

Tuesday 10 August 2010

Prashant Jain of HDFC Mutual Fund

Do take a look at this write-up about Prashant Jain, in case you've not read it already:
A couple of lessons that I would like to learn from the article:
  • Be ready to contradict opinion of Experts (Like Prashant selling out IT stocks despite contrary views of people like Bharat Shah [who was a big guy already vis-a-vis Prashant at that point of time]
  • Be willing to be a loner while choosing stocks
  • Be eager to do thorough research
  • Be perfectly willing to be an underperformer in the short term
  • Follow the process, don't yield to temptations
  • Train your key family members to at least pick the right mutual funds if not the right shares and how and when to book profits
Regards,
N


Learning from Prashant Jain of HDFC Mutual Fund
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Wednesday 4 August 2010

Investors Beware - Chinese Real Estate Bubble is coming next!


Investors Beware - Chinese Real Estate Bubble is coming next!

Or, effectively, so says this article:
I'm reminded of the story of the boy who cried wolf. And of the Great Depression of 1929-33.

And of the Tulip Mania that preceded it several decades earlier.

And the dot com bust that came along a decade back. And the sub-prime crisis.

After every bubble, a few interesting things happen:
  • Every economist, every "expert" and every central bank governor claims that he / she had predicted the bubble a couple of years earlier. And, in all probability 99% of them are lying
  • People start seeing bubbles everywhere around them
  • Experts predict the next 237 bubbles out of the next 2 bubbles with absolute certainty and total accuracy, especially within the next couple of years.
  • And, the general public does not know which ones among the 237 referred to above are the 2 real bubbles!
The only thing that I can say with certainty is that all these predictions make interesting reading!!

Regards,

N

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Sunday 1 August 2010

Listen to the "Shoe-shine boys"


Listen to the "Shoe-shine boys"
(to know when the market reaches the top!)
Here's an anecdoctal piece from the famous Bernard Baruch.
No, markets reach their top when "shoe-shine boys start asking for stock tips" - Bernard Baruch

There's this famous story about how the US markets had soared very high-up when Baruch had gone for a shoe-shine. The shoe-shiner upon learning that Baruch was an investor, asked him questions about the markets with unbridled enthusiasm. Baruch got a very uncomfortable feeling over this enthusiasm, that was indicative of a mass-hysteria (which I am sure he had discerned in other places as well), so later during the day he exited all his positions.

The next day the market crashed !!!

I had a personal encounter with the "Baruch Indicator" shortly before the Jan 2008 crash, when waiters at this restaurant I used to frequent, came up to me and started asking for stock tips and what mutual funds they could invest in. They knew for a long time that I played the markets because usually I'd go to the restaurant with a copy of the DSJ magazine or some trading-related books. But that was the very first time when a large group of them cornered me for advice !

Well in a few days time the market tanked !!!

The Baruch Indicator is timeless I think - you can't go wrong with it   :)
Everybody and his brother is sounding cautious about "overheating markets around the world" and an impending correction.
  • There's talk of the European crisis - Am not mentioning any individual nation, because a different nation grabs the attention every other day.
  • Folks are worried about the recurring danger of deflation in US.
  • And the China scare
  • And the wars of Gulf, Kashmir, South China sea, etc.
  • And the potential spike in Oil
As long as enough people are freaking out buying puts, writing calls, shorting high beta stocks, etc., we can have a reasonable degree of confidence about not being at a new peak.
Enjoy the run while it lasts.
But buy puts to hedge yourself. And keep booking profits whenever you can, as regularly as you can.
Irrespective of what experts, self-proclaimed experts, business journalists, blog writers, etc. tell you.

Regards,

N

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