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Action Time To Buy 0811-011P
Action Time To Buy 0811-011P
EXIT Time for Bull Market; ENTRY Time for Bear Market
Now that we are in a bear market by all means, the question is whether it is right time to enter in
this bear market or bulls are still being slaughtered? Whenever you try to buy, you become a bull
and when you try to sell, became a bear.
Whenever the market goes down, they call it “Profit Taking.” No one ever says “Loss taking.”
Right now, the damage is more like Katrina. Rubble, rubble everywhere. You have to find
something valuable available virtually free.
In investment, an Investor usually asks the following questions (some they are explicit, some
they ask within themselves)
If above questions are answered, the investor loosens the purse and starts investing.
However, during this market collapse, especially in India, the investors have started asking the
following questions. Our comments are given immediately below in Blue.
1. Oh my god? How low the SENSEX will go to?
We are in worst ever credit crisis. It is specific to USA, and has spread to Europe and UK. It
is limited to a financial sector. No one knows how low will SENSEX go, so let us not involve
in prediction game. Further, we are going to invest into individual stocks, so why dwell too
much in the big talks like Index movement?
2. Are we finished or washed out with the market?
The market never gets finished or washed out completely. The market lives on. So use steep
correction as suitable investment opportunity
3. When will the market revive? Will it go to 21000 again?
Again, predictions game. Whether the market goes up or down, we are concerned whether
the stocks that we have invested in will give us suitable return. Yes, any sizable gain in a
short term will be a bonus. Focus on one to two year’s horizon. The target of 21000 is not
achievable in a medium term (next five years or so). The losses are so much, that the
investors will be keen to take profit, if the stock makes a gain of 10% to 30%. No one has
more patience now.
4. Will the market go to 5000?
When the market was at 21,000, the brokers were talking about the index going to 50,000 to
60000. Now that, the same brokers are talking about 5000, and if it goes to 5000, they will
talk about 3000. There is no end to it. To be quite honest, individual stocks do not
necessarily track indices. For instance, when the market was near 12000, Hotel Leela comes
down to Rs. 21.85 and with the present index of 8500 (35% down), same stock is trading at
Rs 26.50. You therefore better worry about the stock you are going to invest in rather than
talking about markets that will lead you nowhere.
5. How much we should invest? Should we invest all now?
It depends on your risk taking abilities. Do not invest more than you cannot afford to lose is
the principle of stock market investment. Not everything is going to zero. There are values in
the stocks when they are battered. The present opportunity is on a golden platter. So use it.
To give you an example, take Arvind Mill that has collapsed into Rs 13.10 today. Even a yard
of Arvind Mill fabric cost over Rs 30 to 45 per meter, or one shirt cost over Rs 150 to Rs 300.
With this amount one can buy about 10 to 20 shares of same Arvind Mill.
The stocks today are so cheap that even toilet paper often cost more. Do one exercise. Take
the inventory of items of your household that you have not used for more than 12 months.
Sell it out in open house or garage sale or sell it out to some hawkers who buy such stuff in
barter trade. Ask them to pay cash instead. Use that money to buy above quoted cheap
shares. You will be able to reduce dead inventory in your home; make enough space, clean
up the excesses and got some really valuable shares, that may double or triple in less than
one or two years. Please note that when the confidence returns in the marketplace, these
stocks multiply in less than five trading sessions.
If they have come down very fast, they will climb up with equal speed. Please be practical.
You: Great, I now understand the game. I will take reasonable risk. So pick up some stocks for
me and advise me. I am buying on two year’s horizon at least.
Me : That’s my boy. Now I will tell you what should you do. Remember, this is a stock market
and this time it is tough. If you are not made of steel, try to become one.
6. Growth in Housing
a. This will be engine for growth. Home Mortgage and Home finance industy will
prosper as the default rate will be minimum.
b. The sytem of mortgage in India is diametrically opposite to what is found in USA.
They are incomparable.
c. Home furnishing industry will prosper.
7. Precious Metals and Diamond
a. Gold and Silver will outperform diamond industry for at least 2 to 4 years. Future
currency regime in the West will be relatively gold and silver based. This will
cause demand to outpace the supply.
b. Growth in diamond demand depends on countries like USA, Japan, Europe and
UK. The Japan will be major customer for diamond due to rise in Yen which will
be perennial feature for next 7 years
8. Banks and Financial Sector
a. Banks will underperform especially private sector banks due to dearth of capital
b. Stock market will revive but still under perform.
c. Debt market will prosper due to high interest rates
d. Insurance sector in India will be more stable than rest of the world
e. Much depends on Taxation policy. There is strong case for lower corporate tax
and also personal taxation. Interest rate and CRR policy will take a back seat.
However, these are politically dependent, so anything could happen.
9. Growth inTextile and Garment sectors
a. They will be more domestic and Asia dependent
b. Garments will outperform textiles.
10. Growth in Music and Entertainment industry
a. Music, TV, Video, Audio and multimedia industry will have huge growth for next
decade
b. Bollywood will emerge as challenging center to Hollywood
11. Growth in Sports industry
a. Cricket as usual
b. Followed by Football, Tennis and Gymnastics
c. Sports related Advertisement industry will have maximum growth
Based on above concepts, the following is the basis of industry, sector and stock selection.
1. Select The industry
2. Narrow down to sectors within that industry
3. Select companies having least debt
4. Select Two top tier companies, One middle tier and One small cap with innovative
technology.
5. Select the popular companies. It is more like a fashion parade or beauty contest, where the
most popular
6. Stock selection will be on following basis:
a. The defensive sector will under perform
b. The stocks that have dropped most will rise fastest
c. The stocks that have not fallen much (less than 30%) will under-perform
d. Mid Caps will outpace main Index stocks and also small caps
5. Swap stocks from higher value to lower value. Never swap from lower value to higher value.
6. Do not go for stocks for less than Rs 5 as there is chance that there will be reverse split or
consolidation of shares.
7. Make a recent inventory in your home. Chose the items that have not been used for last 12
months. Sell them out and raise cash whatever the amount for buying some mid cap stocks
that have become small caps.
8. Be prepared to withdraw money from Provident fund (taking a loan), borrowing against Life
Insurance policy and and Bank’s fixed deposits, and postal savings. That money will be used
to buy new stocks when the market has almost stabilized or drops another 30% from current
level. This may happen, do not be surprised.
a. The thinking is that when the stocks rebound from very low base, they could have huge
% returns. Some stocks may rise 4 to 5 times. (400% to 500%) in two years. Even if you
part with higher deposit interest rate of 10% per annum or 20% in two years, the % gain
of about 400% to 500% will more than compensate loss of interest income.
b. Do not go for stocks which have not fallen much. When the market recovers, these
stocks will fall because the investors will go for stocks having fallen most.
c. Under current environment, the stocks having moderate level of debt are more
acceptable. Capital intensive stocks may not perform well.
I have given the following 5 stocks as selection list. There will be 15 more that will be added on
daily basis @ 5 stocks per day.
ADDED 4/11/2008
ADDED : 4/11/2008
Other stocks will be appended here @ 5 stocks per day for next 2 days. This PDF file (and also
the html file in the browser on the blog) will be revised every time, so that you can discard the
previous one and use the latest one.
Do not be guided by Dow’s sucker rally of 889 points yesterday. There are two possibilities:
1. A massive rally is rigged a few days before the bad news come out. The stocks then retreat
but still above desired support level. For instance, if Dow had fallen before 8000 and the bad
news were released, there could be massive fall. If the market is pushed by 1000 points, and
then the bad news released, the market will remain above key level and the collapse avoided.