Archive for the ‘Quick thoughts’ Category.

 

I have a few thumb rules in investing which have helped me a lot of over time. These are not some universal  ten commandments but they have kept me out of trouble, especially the tenth one !

Thou shall not buy a stock on a broker or a TV channel’s advice

Thou shall not trade

Thou shall avoid predicting or investing based on short term forecasts or outlook

Thou shall not chase momentum stocks

Thou shall not invest in an IPO.

Thou shall not use leverage

Thou shall learn to live within means so as to have investible funds

Thou shall not buy gold, commodities or any kind of fancy and complicated instruments

Thou shall not chase returns – if it is too good to be true, it is a trap

Thou shall say ‘Yes Dear’ when asked by wife if she looks good in a dress  – most important rule to have  a happy married life 🙂 .

You can choose to ignore the first nine rules based on your personal style of investing, but if you ignore the tenth rule – do so at your own peril !!!

 
 

I was. If you are invested in midcaps or small caps, then it is likely that you would have seen some of your picks jump 5-10% in a day. I have seen some of my picks jump by that amount and some of the companies I was analyzing have gone up by the same amount and thus rise beyond my buy levels.

Feeling happy?
So how did you react to all this? happy?

I can bet that you must feeling good about it, unless you love self torture,. I was feeling good too, till I realized that the mid-cap and small cap index has risen by 100%+ in the last one year with several stocks going up by 200-300% percent in the same time.

When I saw this statistic, it poured cold water on my euphoria and reminded me of the following quote

‘A rising tide lifts all boats’

So there is nothing special in my boat or in other words, in my stock picks. I was lucky to be in the right place at the right time.

What does this mean?
If you are thinking – what makes this dude happy? A 100% rise in the midcaps and small caps and all he can do is whine about it!

Don’t get me wrong. I am happy that my picks and possibly yours have rise so rapidly in such a short time. If you had the courage to buy stocks a year back, then you have been justly rewarded.

The under pricing however got corrected some time back and now we may be entering a bit of a happy zone where everyone thinks that the future is going to be all bright and sunny and there will never be any problems.

The reality is that the future is never crystal clear. This risk we now face is that any negative news can cause the sentiment to sour and the midcaps or small caps to drop.

What to do?
As I said in my last post, I have started selling those stocks which I will not buy if they were to drop 20% from current levels. If I am not too optimistic of the fundamentals or think the stock is at fair value, I have started selling my holdings. I may be completely wrong about it and we may get another 50% rise. So be it.

I think in my case greed is more difficult to manage than fear. I did not second guess myself to load up on stocks last year when the market tanked. The decision to start selling now is more difficult.

 What am I selling?
I have started liquidating my smaller position like Denso, VST etc. I will however hold my long term holdings such asian paints, CRISIL etc. If the market tanks, I will load on them further.

Should you do what I do?
Think of it this way –

What incentive does Rohit have in mis-leading me? (Hint – none!). So you can listen to me.

What if I am wrong? Do I lose anything? No, I don’t. This is a personal blog, so I can write whatever I like. Hopefully I am not adding to the crap out there on stock markets :).

So please do your homework and think twice before taking free advice 🙂 (does not mean paid advice is any better)

 
 

I think the inflation risk is now obvious to most of us, even if we don’t read the papers everyday. Even if the government claims the inflation is 4% or so, buying a kg of potato or sugar gives a different view of reality. So what do we do in response or if we need to do anything at all.

As far as equities are concerned, I rarely do any top down analysis and so I frankly don’t have any specific plans for my current holdings based on the inflation risk. No logic of inflation resulting in an increase in interest rates, in turn driving down demand for cars and hence the sales of an auto company.

I personally plan to avoid investing in long term deposits or long dated debt funds. If the inflation risk persists and the RBI decides to raise the rates (I have no idea if it will or not), then buying long duration debt fund or a long term deposit (more than 1 yr) would lock you into lower interest rates.

I plan to put my surplus cash in short duration floating rate mutual funds such HDFC floater and others. I don’t have preference for any specific ones, as most are identical and there is not much difference between them. If the rates do rise, then these funds should cover the inflation risk on the cash.