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Hope Investing in Small cap stocks!

Often in Bull markets, Small cap stocks send retail investor into frenzy. Steep gains in matter of months lure them into allocating more and more funds on their next bet. Lets say, a newbie starts with 10,000 in a stock on friend’s advice and the stock doubles. He regrets betting just 10,000, next time he makes up his mind to bet more. Next 2-3 occasions tend to be equally rewarding. Then one fine day when he bets 10,00,000, a big chunk of his savings, the markets dooms and most of those stocks never seem to recover for years. This is typically happens near new all time highs. He gives up on equity investing calling it a gamble and equity since then becomes something close to social stigma. The joy of instant gratification is what we seek. However, investing is more about delayed gratification. You put away small sums now, and […]

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Nifty@MRP Dec 2016-1

Nifty@MRP Suggest Markets Are Overvalued, What Should Investors Do?

What is Nifty@MRP? As investors, we constantly track the Nifty movements. To make investing more profitable and not a game of mere chance, we need a solution, a solution which could help us identify whether the market is grossly depressed or irrationally exuberant. This is exactly what Nifty @ MRP is for! What is the latest value of Nifty@MRP? For Dec’16, considering the free float market capitalization at the MRP of individual stocks and the share price data as of 28 February, 2017, the Nifty@MRP is at 8693. On 28h February, NSE Nifty index closed at 8879.6, which is ~2% or 187 points above the Nifty@MRP. It indicates that the index is slightly overvalued. As of 7 March, 2017, closing index value of 8946.9, Nifty is ~3% overvalued. Future Outlook Nifty has gained almost 2.3% since we last released our last Nifty@MRP on August 31, 2016. However, with the December […]

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Did you enjoy Snakes & Ladders in childhood, then why not Equities?

Did you enjoy Snakes & Ladders in childhood, then why not Equities?

In our childhood, we all enjoyed Snakes and Ladders. Snakes and Ladders is a board game with 100 blocks numbered 1 to 100. Pointer is placed at 1st block. To win the game, one has to roll a dice to reach 100th block. Few Blocks in between have ladders and a few have snakes. Ladders help to skip multiple blocks and jump to a higher number. Snakes throw the pointer back to lower numbered block. But if one plays long enough, he would reach his goal i.e. 100th Block. We can draw an exact analogy in Equities. Markets are always volatile, going from new high to lows and lows to new highs. But what we believe is, if we hang around in equities for long term, we would certainly reach our goal. Why do we say that?  See the following table: (Source: BSE Sensex; HDFC MF) If we see rolling […]

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Multibagger returns for how long? What process? Is it repeatable?

Thousands of stocks have jumped to unjustifiable levels in last 1-2 years. ‘Experts’ or Social Media buffs come up with 10 new stocks every week or month and take pride in 5-10% price movements. On asking what they see, they confidently answer, “It is a value buy.” Most ideas are not exactly an outcome of a process. All that goes in is 10 minutes of financial statement analysis, that’s it. No management analysis or reading annual reports or history of business/industry. Lately the new fantasy is to track some ‘renowned’ investor and follow him into some small cap company. Everyone seems to believe that this will generate great returns for them. They buy it for a month or so, retweet every news related to recommended stocks and when the stock crashes, they simply claim they exited the stock long back! Classic pump and dump tactic. So much for long term investing? […]

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High returns won’t make you rich, BIG bets will

We had an interesting email exchange with one of our customers. He raised an interesting question and made us think hard. His question goes like this: Can you suggest business/stocks growing more than 25% CAGR? I want compound my portfolio above 25% CAGR over long term. Edited answer: There is no way to find in advance which stock may yield 25% CAGR. As stock essentially follows earnings growth, we are sceptical whether there would be many businesses growing above 25% CAGR over long periods. In past quite a few business grew at stellar rates as inflation was 10-12% and GDP growth was 8% (Market returns approx ~ GDP growth + inflation). Penetration was low and higher inflation made it easy to pass on the prices, earnings grew faster than volume growth. Currently, inflation levels are at ~5-6% and GDP growth rate is likely to be 5-6% over 5-7 years (Market […]

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Category:Learn