PORTFOLIO MANAGEMENT
PRINCIPLES AND STRATEGIES
(PART 2)
Before you read this second Essay on stock Investment and Portfolio Management , you must have read the first Essay on the subject. at the link :
We will continue from where we left off in the first Essay.
1. Do you think , (1) knowing about your country's economy, (2) knowing about sectors which are growing vs those which are sluggish, (3) knowing about companies which are growing vs those that are not growing ...etc is tough? Not at all.It is easy. Read any economic News paper, or read on financial web sites, or listen to any TV business channels - very quickly you will understand all these things. A 10+2 student can understand all this very clearly. Some of the most successful investors started their most successful investments at the age of 11 or 12.
2. There are so many wonderful web sites, which specialize in stock analysis and investment advice - like Moneycontrol.COM, Rediff, SCREENER.IN, ECONOMIC TIMES MARKET, INVESTING.COM, LIVEMINT, NSEINDIA, BSEINDIA, ETC as below :
- Money Control (http://www.moneycontrol.com)
- Screener (https://www.screener.in)
- Investing (https://in.investing.com)
- ET Market (http://economictimes.indiatimes.com/markets)
- LiveMint (http://www.livemint.com)
- NSE India (https://www.nseindia.com)
- BSE India (http://www.bseindia.com)
3. Go to these web sites, thoroughly examine each feature and try to use them. You will in due course find great use in each of them for stock analysis, selection, buy and sell and so on. There are many other stock related APPs for your cell phone also like stockedge etc. All of them have wonderful features to enable you to make stock selection easy.You will in time establish some preferences. stick to them. They will be your friend, philosopher and Guide.
4. There are other tools also. I listen to all successful and established stock investors on YouTube. There again, you will like some better than others. Listen to them now and then. Don't go by their choices of stocks. But, their advice will be good. You must make your own personal choice of stocks to BUY and SELL always, even if you like some of your favourites' choices also.
5. You can also subscribe to some News Letters from reputed stock investors and Journals. If you like them,continue with them. Else,discontinue, if you find no real use.
6. Stock Market Operations can be clearly divided into the following segments : (1) Futures and Options (2) Initial Public offerings or IPOs (3) Margin Trading (4) short term Investing of less than one year (5) long term Investing of one year and more
7. I strongly advise you not to get into Futures and Options or speculative segment - unless and until you have sufficient money to bet and lose. Some people do succeed in them. But, most people lose their shirt in them. This is what some of the most successful stock Investors advise and I totally agree with them. But, you can always buy some good books and learn about them also - when you have some good gains in long term investing. Futures and options is - betting on the short term price movements with almost no regard for the fate of the underlying company's fate. Personally,I can predict long term trends of most companies but not their day to day trends and hour to hour trends. For me, that seems to be just Betting and pure speculation. Futures and Options traders use TECHNICAL ANALYSIS much much more than FUNDAMENTAL ANALYSIS. TECHNICAL ANALYSIS uses charts and Graphs of price Trends over a period of time and tries to find TRENDS. Then, the F&O TRADERS will bet on various stocks, based on these Trends.
For every Trader who feels the price will go up, there is another who feels, price will go down. Money gets transferred from one to another ultimately. Somebody has to lose and somebody has to gain. All may lose some times. Some times, you gain a few times in a streak and you feel like an expert - until you lose big. This happens often and on - until you realize that you are not an expert all the time. Huge Discipline to stay away from the trading when it is not opportune, discipline to book profits and losses in a timely fashion and huge amount of guts and patience (and luck) are required for success in F&O.
I am in stock market to make money, not lose money. I am willing to wait for an year and more for making money. No problem.
For every Trader who feels the price will go up, there is another who feels, price will go down. Money gets transferred from one to another ultimately. Somebody has to lose and somebody has to gain. All may lose some times. Some times, you gain a few times in a streak and you feel like an expert - until you lose big. This happens often and on - until you realize that you are not an expert all the time. Huge Discipline to stay away from the trading when it is not opportune, discipline to book profits and losses in a timely fashion and huge amount of guts and patience (and luck) are required for success in F&O.
I am in stock market to make money, not lose money. I am willing to wait for an year and more for making money. No problem.
8.INITIAL PUBLIC OFFERINGS : Long ago, the prices of the IPOs were controlled to ensure that investors have some initial gains at least on their purchase. I used to subscribe to IPOs till 2 decades earlier. Thereafter, the price control mechanism vanished. Today, most IPOs are highly priced and you never know if there will be some initial gains or huge losses on the very first day of listing. Some IPOs are good and predictable. Other than them, there is difficulty in predicting their future price trends. Therefore, readers are strongly advised to read all expert opinions, and assess if an IPO is worth subscribing for.
9. MARGIN TRADING : Some brokerages offer you the facility of Margin trading in which you pay just a small fraction of the amount for buying a particular company's shares, the balance amount being loaned to you by the brokerage. Buy first and then sell quickly, make your money with profit or loss and pay off the amount loaned to you by the brokerage.In general, I am averse to taking and using any LOANS for any share purchases - except in rare occasions. When you own a good company's shares already and the company is offering you a RIGHTS ISSUE at s very attractive price and you don't have money for buying the rights shares, you may go for a short term loan or pledging your original shares for the loan. Otherwise, never go for loans for share purchases.
10. SHORT TERM SHARE TRANSACTIONS : People Buy shares today and dispose off in less than one year for various reasons like (1) domestic urgent needs (2) after attractive price increase in the short term (3) to buy more attractive shares you discovered recently (4) to fund your rights issue purchases - and so on. Short term sales of shares with profits attract INCOME TAX and you must be prepared for it. Brokers like ICICI Direct give you complete details of your short term gains on which you are liable for tax and you can pay the tax on it. Some other brokers may or may not give the details in which case, you must keep track of them and pay the tax. This tax is called SHORT TERM CAPITAL GAINS TAX.
11.LONG TERM SHARE TRANSACTIONS : If you keep your shares for one year or more than one year and then sell, the profits are not liable for INCOME TAX. Most successful stock investors prefer to keep their shares for long term. They say, this is the MOST PROFITABLE WAY of stock investing. Make all your analysis before BUYING a good company's shares. Then, if you are satisfied BUY the shares with the amount you want to invest and just sit tight. Watch the quarterly and annual results, expansions and other important events of the company. Do not bother much about day to day price rises and falls. In the long term - of one year and more, the company will certainly move up well and give you wonderful gains.
The capital appreciation will be very satisfying. Now, Government seems to be toying with the idea of taxing the long term transactions also to some extent. Personally, I feel, these must not be taxed at all. Investors, who stay with a company for one year and more, give great stability to the company and its operations. They feel like real owners of the company and participate in its progress in many ways. The company's income is any way already taxed, which means, the income of these owners, is any way, already taxed. Above that, whatever, dividends are given, they are again taxed at source itself. So, already, owners are taxed TWICE. taxing them a third time through LONG TERM CAPITAL GAINS TAX is unwise, unjust and bad for the corporate health also. Any way, we will see what the Government will do in the Budget.
The capital appreciation will be very satisfying. Now, Government seems to be toying with the idea of taxing the long term transactions also to some extent. Personally, I feel, these must not be taxed at all. Investors, who stay with a company for one year and more, give great stability to the company and its operations. They feel like real owners of the company and participate in its progress in many ways. The company's income is any way already taxed, which means, the income of these owners, is any way, already taxed. Above that, whatever, dividends are given, they are again taxed at source itself. So, already, owners are taxed TWICE. taxing them a third time through LONG TERM CAPITAL GAINS TAX is unwise, unjust and bad for the corporate health also. Any way, we will see what the Government will do in the Budget.
12. Most of my advise relates to LONG TERM INVESTMENT in shares - which I consider as the MOST PROFITABLE WAY of investing. You will find that many great Investors keep their shares for several years and even decades and don't bother about day to day price trends. Their Net worth has been increasing 100 fold and thousand fold too in course of time. That has not been the case with either speculators or short term investors.
13. Well. Their share investments are lasting several decades and even a life time in some cases. I will hazard a Guess work here. Another secret of these successful long term investors seems to be - their marriages also are lasting a life time !!! Stable here. Stable there. Patience here and patience there. For huge long term gains.
14. So, while selecting your companies (shares) and while selecting your brides, exercise all caution - and then stay with them happily.
15. We will continue with our principles of stock Investing further in the next post.
* * * WILL CONTINUE * * *
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