Research Files

phillipcapital

pdf site:motilaloswal.com/


https://sensibleinvestingblog.wordpress.com

https://oreng.co.in

https://equitylensman.blogspot.com - @chiragdashj


https://www.plindia.com/LatestReports.aspx

https://dialwealth.wordpress.com/

https://investorpicks100.blogspot.com


https://valuationinmotion.blogspot.com

https://eightytwentyinvestor.com

https://www.rupeeiq.com

https://finception.in

https://www.munafasutra.com/nse/intradayTipsBTST/

investorzone.in

http://stocksandbiceps.com

https://www.ipoandmore.com

financial Planning Blogs

http://bachhat.blogspot.com/2010/11/should-life-insurance-be-taken-from.html

http://www.tflguide.com/2011/03/best-term-insurance-plan-india.html

http://www.onemint.com/2011/03/09/claims-data-for-life-insurers-in-the-december-2010-quarter/

http://freefincal.com/ - good financial calender

www.fundsindia.com - mutual funds 

Stocks
http://kiraninvestsandlearns.wordpress.com/tag/sanjaybakshi/

How much can you lose in equity?

How much can you lose in equity?
 
 
Posting in Full :
 
People, sometimes, have no rules, limits, and have no clue on how to invest in equities. These people can, should and do lose their shirt, pants and undergarments and full well deserve it.



Let us say you are a well qualified, sensible, boy or girl and wish to invest in equities. Well if you do not want to be an active participant, you could choose a mutual fund. If you do not trust fund managers (I trust only 5 out of the 100 odd that I would have met), choose an index fund – the cheaper (and with lesser tracking error too) the better.
But if you want to be a little more adventurous and wish to invest in direct equities follow these rules so your losses are limited to the minimum.


Let us say you are 35 years and wish to create a portfolio. You are a woman, earning Rs. 8 lakhs, and are not the primary provider of the house. So you can take a little more risk than a man, who is the primary provider.
So let us say you have Rs. 10 lakhs to invest, and influenced by this site, you decide to put Rs. 8 lakhs in equities.



Rule No.1: NOT more than 80% of the SECONDARY earner’s portfolio will be in equities.


Rule No. 2: NOT more than 5% will be invested in ONE Company, as an initial investment. In case the share does well, we will LET it go up to 25% of one’s EQUITY portfolio. Anything in excess will be constantly sold off.
Let us say you are able to add Rs. 20,000 to the equity portfolio every month, and this share is also going up every month, it will take a real long time to breach the upper limit (unless you have picked one diamond and all other duds!).


Rule No. 3: Industry diversification I will learn or copy from a good fund manager’s portfolios, and I will buy only in group A, or B1. I will NOT touch a share in group B2, or T2T….even if someone says these are future blue-chips.


Rule No. 4: I will keep a 25% trailing stop loss. Let me explain. You have bought Rs. 40,000 worth of Carborundum Universal (my examples are obviously from my portfolio, and my cost of this share is Rs. 3.59 per share, thanks to split and bonus, so if you want to copy me, go to 1990, or create your own portfolio). Suddenly the shares value falls to Rs. 30,000. You will do nothing. However on the day it falls below 30,000, you will sell. Knowing how to cut losses is as important as knowing how to let profits run.

Rule No. 5: I will review my portfolio on a quarterly basis. I have no business managing my own portfolio unless I can beat the index. Clearly if you beat the index for the first year, then the second year, then the third year…you are doing well. If you do not beat it for the first four quarters – and are trailing by a huge margin, sell and go to a good fund house.



Now, With all these rules in place how much can you lose?

Rs. 800,000 is the total investment, Rs. 40,000 is the maximum exposure to one stock, 25% is the trailing stop loss- so you can lose about Rs. 10,000.

Considering your liquid net-worth is Rs. 10,00,000 you stand to lose about 1% of your net-worth. Not an amount you need to lose sleep over.

Investment in stocks- An old fashioned way

Investment in stocks- An old fashioned way

Gist of the Post

In other words, I rule out companies with these characteristics:
  1.Absence of dividend. A genuinely profitable company should pay out dividends. If the company does not pay dividends in spite of showing profits year after year, I avoid it
  2. Non-tax paying or low tax paying. A company that pays no tax or very low tax year after year is ruled out. If the profit is real, the company ought to be paying taxes;
  3. Companies with very high debt worry me. In a good year, the business will earn a rate of return higher than the interest cost, but could be in trouble in a bad year. If the company passes muster on all other criterion, then maybe I will probe further, but in general, high leverage is a red flag;
  4. Third generation family owned and managed companies. Indian companies are generally family owned and are passed down from father to son, like heirlooms, corporate governance be damned. Typically, in the third generation, the number of claimants increase and lead to a combination of poor management, siphoning and lack of focus;
  5. Companies that show profits year after year, but do not pay dividends and yet keep raising equity regularly;
  6. Change of auditors is a red flag.
 Investigate thoroughly. If not satisfied with the reasons, avoid the company;
  7. Companies that keep advertising even if they are not in the consumer space;
  8. Companies that are managed by so called professionals, but treat it like a fiefdom, engage in random diversifications that do not make any sense and award huge stock options;
  9. Companies where the promoter has several other unlisted companies which siphon profits. (I believe most Indian companies do this, so the level of check required to ascertain this may not be possible for everyone);  10. Suspect management integrity. This is the most subjective one and in most cases, it would be turn out to be a question of degree rather than one of principle. I have hardly come across any company which will pass total muster on this score, so have decided to be a bit practical and take my chances; 
11. Super normal profitability is another worrying sign. In most cases, this happens at a nascent stage, just around the time a company goes public and is planning further fund raising. If the whole industry is making 10% of sales as profit and someone is making 25%, my first instinct is to be sceptical. This is certainly a ‘red’ flag;
12. A ‘me-too’ company is one to be avoided. The company I choose should be clearly number one or two in its business. Only when you pick up companies that are in new segments (so called ‘sunrise’ industries like bio technology etc) can you look at small players. There is no point in looking at a small player in the textile business or in the FMCG business;   13. Companies in industries that are overly regulated by government. This is a debatable point, but I believe that given the circumstances, it will not be possible to dismantle controls on industries such as fertilizer, oil etc., Whilst ultimately it should happen, I prefer to keep away. In general, government interference (like in PSU banks) generally makes an investment less attractive whereas the event of government getting out completely from any company would make it more attractive.  14. In today’s funny accounting world, I am also wary of this thing called “consolidated’ accounts, when it includes profit shares of entities that are not 100% owned by the company. And, the companies do not even show the accounts of the subsidiaries on their websites!

After this, I use some financial screens of which I hold the ROE (Return on Equity) to be perhaps the most important criterion. I would like it be steady to improving. Generally, my attempt is to focus more on cash flows rather than mere earnings. For instance, in any industry, you can NOT provide for bad debts and show earnings. However, the cash flow picture would be terrible. I give high importance to management in terms of competence and integrity. I also like to see companies that have the potential to grow at more than the pace at which economy grows. For instance, if we expect industry to grow at 10% and inflation to be 5%, then the company has to grow at more than 15%. Financial analysis is simple, but needs time and effort. I usually like to sit with at least three years annual reports. Unfortunately, today I see the annual reports getting more opaque. Financial information shared with the investors is getting less and less. I get a lot of useless diatribe from the management under the head “management discussion”. Here, no company is going to openly admit its faults. You will get to read only good things or blame on external factors for poor performance. Real issues are buried. 

Picking Stocks

Good Method Site

If you want to study findamental analysis this is how I do

Findamental Analysis
1. Capial expenditure < 50% of profit is good.
2. Positive Free Cash FLow to The Firm is good.
3. ROE>20, GPM>50, OPM>NPM, NPM>15 is best.
4. Debt should not be more than 3 times of profit.
5. 5 year EPS Growth > PE