Monthly Archives: November 2015

Greatest Stock Market Crashes In the last Decade:

The following table gives you the big picture of how the market crashes during the last decade.

Markets        Date                P/E        P/B      Div.Yield     Nifty Index     % of Drop

Peak               11-Feb-00      28.47      5.11      0.90               1756                  30.29
Bottom          23-May-00    18.40      3.45      1.91                1224

Peak              12-Feb-01       22.73      4.71       1.08              1400                  26.78
Bottom         12-Apr-01       14.73       3.30      0.94             1025

Peak               2-Apr-04        21.53      3.64      1.70              1841                  24.60
Bottom          17-May-04     12.87       2.74     2.64              1388

Peak               21-Apr-06      21.01      5.41       1.26              3573                  26.33
Bottom          14-Jun-06      14.92      3.79      1.83              2632

Peak               8-Jan-08       28.29      6.55      0.82             6288                  29.25
Bottom          22-Jan-08     20.96      5.10      1.05              4449

Peak               11-Aug-08     19.49       4.25      1.20              4620                  45.36
Bottom           27-Oct-08    10.68       2.12      2.24               2524
Few Points we can learn and under stand from the great falls are:

Stock Market Crashes are inevitable: Stock Market crashes are   inevitable. Nobody can avoid the corrections and no one can  escape from the corrections by simply investing stocks.

Never commit 100 % of funds: Never commit 100% of the funds any point of time in the stock market. Always be prepared for opportunity (crash or correction) and also be prepared ready with cash in hand. At some point of time when market ends its fall you can start accumulating quality stocks at best valuations.

Buy Low Sell High: One has to under stand that market crashes can be used for accumulating stocks at cheaper prices. To achieve this market mantra “Buy low sell high” one has to be knowledgeable (He/she must know market dynamics or how the market works before investing his funds) patient and quick to seize the opportunity. Sir Claude Maxwell MacDonald British Diplomat once said Opportunity is a bird that never perches.”

Always check index PE ratio before investing Funds: Always remember there is a market risk involved for the money committed with stock markets. You may be best in picking stocks in the market , your skills are wasted when you put money in over heated condition. The index PE above 20 to be considered as over heated situation, at most caution to be taken to avoid new commitments with markets.

Don’t jump too quickly: Be patient during the crash time and wait for the dust to settle completely. Please do not take chances to invest funds during correction time. The above table tells you corrections usually last at least 3 months to 6 months period and you enough time to react and make decisions.

 No Charity Program from Govt: Government is there to earn money every day from the stock markets by charging Service Tax, Securities transaction Tax, Education Cess and stamp duty. There is no charity program available currently from the Governments any where from world for who lost their money in the stock markets, hence be prepared and manage the market crash with your own skills.

Tips for Investment Success:::

Yesterday, I have seen the best movie and Oscar Winner of the year 2004 “Million Dollar Baby” again and the Best Supporting Actor Morgan Freeman  explains the fundamentals of the boxing and which is closer to the markets too. In his words “Everything in boxing is backwards, sometimes best way to deliver a punch is step back”.

“Protect yourself at all the times” is the rule in the boxing and likewise

“Preserve your money at all the times” is the rule for investing game.

Whatever rules you formed for investing and filter through above rule gives you a very good frame work for long term investing. If you have greater time horizon then it is always safe to build defensive portfolio. There are far more ways to lose than to win in the market and what you don’t win can’t hurt you. Doing the right thing is really difficult. But not doing the wrong thing may be a bit easier, and a whole lot safer.

Some random tips for Investment success:

Usually a company or an investment theme decays little by little. You have ample time to get out, if you just start.

A good collection of smaller companies is usually more attractive than very big companies.

Catching a change is the most profitable of all investment strategies.

All good investors are contrarians.

An attractive level to buy first class growth stocks has been when PE ratio has been lower than the growth rate and they provide a comfortable yield. They rarely sell for less than twice the multiple of NIFTY.

If you stay with a collection of strongly growing enterprises year after year, you will in time become rich.

The investor should spend almost all the time on learning the facts of the company, not on the stock prices.

Eight Simple Rules for Investing:

  1. Do your own investing and don’t think mutual funds are the safe and sane road to riches.
  2. Don’t try to predict what the market will do, which is almost next to impossible. Even a vetern investor never knows ahead of time which stocks will be winners.
  3. Don’t churn too much or overtrade. Overtrade incur you lots of costs as well as attracts taxes.
  4. Don’t sell your winners too soon.
  5. Don’t worry every time one of your stocks drops a point or two. That is what stocks do. They go up, they go down over the long period they go up. But they do not do it every day.
  6. Avoid extremes in dividend yields (particularly lower side) also avoid extremes in PE or PB ratios.
  7. Take out tax, brokerage issues in your mind. Concentrate growth of the portfolios. Never hesitate to take a decision just because of tax or brokerage issue.
  8. Try to manage a small portfolio of stocks which should be easy to manage, hold or sell your stocks at any given point of time.

Trade : : : 1509 Buy BHEL Future


Entry

 05.Nov.2015 : Buy BHEL Future @ 199.3 

05.Nov.2015 : Buy BHEL Nov 200 PE @ 9.3

16.Nov.2015  : Buy BHEL Nov 180 PE @ 4.80

26.Nov.2015 : Buy BHEL Dec Future @ 174.50

26.Nov.2015 : Buy BHEL 180 DEC Put @ 10.80

 


 

Exit

16.Nov.2015 : Close  Bhel 200 Put @ 20.50  >> Profit : 22400

26.Nov.2015 : Close BHEL Future @ 173.5  >> Loss : -51600

26.Nov.2015 : Close BHEL NOV 180 PE @ 4.9 >> Profit : 200

 


 

Peter S. Lynch’s Fundamental’s of Investing

1.) Know What You Own – Most people don’t really know the reasons why they own a stock – you should. Ed’s Note: Similar to Ben Graham and Warren Buffet’s Businesslike Investing in your Circle of Competence.

2.) It is Futile to Predict the Economy, Interest Rates and the Stock Market (So Don’t Waste Time Trying) – “If You Spend 13 minutes per year trying to predict the economy, you have wasted 10 minutes” Focus on the “facts” now at hand rather than predictions about the future.

3.) You Have Plenty of Time – to identify and recognize exceptional companies. If you bought WalMart AFTER it rose 10x in its first 10 years, you got another 60x return over the next 30 years. Bottom line: Don’t be in a rush – look at plenty of stocks, but be patient. Note: Buffett’s “Wait for the Perfect Pitch”

4.) Avoid Long Shots – his record was ZERO out of 25 investing in companies with no revenues but a “bright future” to sell. His advice if you run across a company that falls into this category but still excites you – do nothing and write down the name. Look at it again in 6 to 12 months and see if you still think it is good. If it is one of the good ones and went from 5 to 15 while you waited, per point #3 above, you probably still have plenty of time. Note: Following this rule could keep you out of trouble. Benjamin Graham and Warren Buffett talked about avoiding Speculations and focusing on Investments instead.

5.) Good Management is Very Important and Buy Great Businesses – good management is very important – maybe even the most important consideration. It may also be the most difficult item on this list to get right. His advice: look for good companies because a good management in a bad business will probably fail. “Buy a business any fool can manage because eventually one will” Buffett has also observed that when a good management meets a bad business, it is the reputation of the business that generally prevails.

6.) Be Flexible – lots of unexpected things happen, some good and some bad. Many of his best nvestments happened for the “wrong” reasons, i.e. his original thesis was off, but the investment still worked out. Sometimes he was absolutely right about the growth but the investment was still lousy and he did not make any money. So be flexible and humble.

7.) Knowing When to Sell is Hard – before you make a purchase, you should be able to explain why you are buying/own it in terms that an 11 year old could understand – three sentences at most. Remember this reason and sell the holding when the reason no longer continues to hold. Investing well does not take a genius – only need 5th grade math – so math has nothing to do with being a great investor.

8.) There is Always Something to Worry About – and this makes things interesting. The 1950s were one of the best decades to own stocks, but from a geopolitical basis everyone was scared of nuclear war. In the early 1990s, everyone was scared about the Japanese taking over the world and beating America. Not coincidentally, more all-time worst market days occur on Mondays because people have the whole weekend to WORRY. His advice is to forget about all the global bad stuff because the key to good investing is not the brain/intellect, its having the stomach.