Thursday, January 19, 2012




Is it the time to Invest or Book Profits, or keep off the Markets altogether?

The answer to this question - depends on a number of Parameters. If you are a trader (or speculator) – you will not be resisting the temptation to be doing that – now and ever.

But, a daily trader / speculator – has to watch market movements all the time; and forecast its short term movements – based on a number of parameters.

This Blog is of very little use for such day traders - except indicating the performance of the company. 

This Blog gives better assistance to medium to long term Investors.

I am a strong believer in Warren Buffet’s philosophy of selecting GOOD SCRIPS with sound track record, Buying them and then,  watching their Performance – not their price movements - but their sales and financial performance from quarter to Quarter.

Markets move up and down for short term reasons. But, company performances move up or down based on other reasons. If Europe sneezes, Indian stock market may catch pneumonia. But, a company like TCS may still be performing robustly. Some companies whose whole market is within India – may not be affected at all.

So, judging a company’s performance – is slightly different from predicting its Price movements.

So – how do you invest for medium to long term? My medium term is a minimum of 2-3 years and long term is about 5 years. All fluctuations do get evened out in that period – and you will be seeing at least one BOOM period in that cycle.

There are solid Rules for Investing in the manner of Warren Buffet. These have been dealt with in this Blog very early. Readers are advised to go through them periodically.

But – remembering a few Rules will still do good for investing right Now. 

Is it a good time to Invest? Yes. It is.

Enter, when other people are hesitant and market is somewhat LOW. This CONTRARIAN behaviour is essential for successful investing.

Select Companies with reasonably good track record. They should have been growing their sales and Profits, at least for the last 5 quarters. Many Investors look at 2-3years, which is also preferable. Companies which are Growing Sales but not Profits, or Growing Profits but not sales – are always suspect.

In India, we do have companies which have consistently grown at a double digit growth rate. Many have grown at around 20% or more a year for last several years. When such companies are available,  is there a need to select companies without track record, or with suspicious track record?

Now, look at their Prices and Price earning Ratios. If a company has a too high PE ratio of above 20, leave it and prefer one with slightly lower PE ratio.

Look at current prices, the 52 week Highs and 52 week Lows. Some of the best scrips are now available at midway between the above 2 extremes or slightly lower. Select them.

Now – just ask your self – what is the future of this sector? Some sectors are undoubtedly having huge scope for expansion. Some have lesser scope for expansion.

Some are periodically subject to Government Controls.

Select a sector – which is free from such disturbances – or one which can withstand such disturbances.

Do You think, it is a tall order to select such sectors and companies in such sectors? It is not that difficult a task.

What are respected analysts saying about such companies? This also is a parameter to look at. Do they say, Buy, Hold, or sell. But then, some analysts give recommendations on short term considerations. Some specifically give for medium / long term. Be very careful to understand the analyst’s recommendation.

Look at the recommendation and the reasons therefor. These arel essential.

Now, Invest. Invest only those funds which clearly you do not need in the medium to long term.

After Investing – do not panic, if shares fall down in the short term. It happens to the Best of Investors. It has happened to Warren Buffet. It has happened to Rakesh Jhunjhunwallah and many others. 2011 was one such year. 2008 was one such year. But, people who invested in 2008 are smiling today – despite the 2011 happenings. Their Portfolios are dented – but it is all loss of some earlier Profits – not loss of capital. 2012, to my mind, has glimmerings of hope, though there are some worrying aspects as well.

Is it a time to Invest? Yes. It is a time for wise Investing – for medium to long term Investors.

Banking is one sector which can always maintain their margins – and Grow. Some of them are growing dizzyingly FAST. Some of them can be REAL STARS of the future.

INFRASTRUCTURE should also be one such – for a country like India – but Government is not really planning all aspects for Infrastructure growth. Industry leaders have met the PM – and let us hope this will move some critical things at least. Look for Green signals from Government. If they do – then, Infra is a 
sector to ride on.

2 wheeler sector is performing extremely well. But, there is no proper demand forecast right now. So, how much growth India can absorb is unknown. If country grows, if economy grows, this sector can still grow at current rates for about a decade.

IT services sector is another. There are huge Geographies which are still untapped. Our IT leaders are tapping them aggressively. One Geography which must be tapped vigorously – is India itself. Somehow, our Governments are not looking at what  developed economies are doing with IT.

There are many such sectors – which have huge Potential. This Blog will try to present relative strengths and weaknesses - of various sectors in some of the Future Posts.

In the sectors with Good Potential for future, select good companies with adequate track record of good performance. Among them select companies whose Price-earning ratios are reasonable.

Now, the RESULTS TIME is in full swing. Many companies are declaring their results. Some of the results are great. Some are moderate. Some are dismal. You can select a company which has PROVED itself. 

But, if you are a slight risk taker, select an equally good company in the same sector, which is yet to declare its results. 

For example, IndusInd Bank and HDFC Bank have declared results which are heartening. Axis,Yes bank and many other stars are yet to declare results. One can hope for reasonably good results from them as well - judging by results already declared.

I would not advise you to touch a company whose profits have fallen badly in current quarter, but which is promising the skies in the coming quarters. if you are interested in them , wait till they prove in future quarters.

Select Good companies by these criteria.

Then go ahead and Invest.

Read Warren Buffet – periodically – either in this Blog or elsewhere.

Happy Investing for all readers.

*  *  *   E  N  D  *  *  *

1 comment:

  1. One of the best money making ideas recently is to participate in community banking. Banks are losing their roles as intermediate in providing loans to their participants (clients) from their own money. People start to help each other by helping with money directly. More information at