Portfolio Check Up: My Investing Strategy

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My Investing Strategy

Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Portfolio Check Up
Forum Discription: Members may put forward their portfolios dor comments from other members. The final call will obviously be taken by the investor himself.
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=177
Printed Date: 26/Apr/2024 at 6:02am

Topic: My Investing Strategy

Posted By: basant
Subject: My Investing Strategy
Date Posted: 15/Aug/2006 at 9:16pm

continued from:

http://www.theequitydesk.com/forum/forum_posts.asp?TID=162&PID=714#714 - http://www.theequitydesk.com/forum/forum_posts.asp?TID=162&PID=714#714

Thank you Vivek

I think that you have not been able to understand my strategy so let me repeat my investing strategy for you:

A) I never hold any large caps. In fact I sold out Bharti once it hit Rs 120 (Market cap Rs 20,000 crores) after getting in at Rs 25 (Market cap Rs 4000 crores) because it was approaching a market cap I was not comfortable with. That eliminates all the established blue chip from my portfolio. I am constantly in search for emerging blue chips and not the established ones. That is why I invest in small/midcap companies. I believe that http://www.theequitydesk.com/forum/forum_posts.asp?TID=113 - you can get the next Infosys in a small cap only.

B) I hold at most between 3 and 5 companies in my portfolio. Yes only 3 to 5. Once I finish analyzing a company I ask myself one question “Is the company good enough to take 20% of my portfolio. When ever I get an answer as yes the next question is OK what can I replace it with. If I get another yes I would buy that stock. I prefer putting all my money into one company but just for the event risk I have divided it into 3 to 5.

Since I hold http://www.theequitydesk.com/forum/forum_posts.asp?TID=364 - concentrated portfolios 3 to 5 companies I forecast a best case scenario with only the target price of 2 to 4 companies assuming that one will go bust and get me a zero value in the defined time span. If still the overall result looks exciting I would invest taking the mathematical premise that errors will cancel out each other (I do not know which one will under deliver and by how much).Robert Hagstorm the author of a book on Warren Buffet did http://www.theequitydesk.com/diversification.asp - a study where he found that concentarted portfolios give out better returns

I have lost many 30% to 100% returns by missing on opportunities because those companies did not fit my style of investing. But I have no regret because the ones I hold have more or less made up for that.

It takes me hardly one hour to analyze a company but making up my mind (the second part of B above) takes a few days or a even a few weeks at times. This is so because I believe in concentration.

C) This is how I like to zero down on a company.

1) I look at the management first. The management is the most important and lest talked about aspect of a company.

2) I like to know what business the company is into and then look at whether it is scalable. I prefer new sectors since the growth is highest there. I avoid cyclical because I cannot predict the peaks and troughs.

3) I then look at the market cap. If it is below Rs 1000 crores I think we could pay a higher PE to that company

4) I would then look at the RoE to see if the company is using its capital efficiently. RoCE is a better concept though because you could hike the RoE by using debt but not the RoCE

5) I would then compare the PE with the growth and the RoE. If there is a big difference between RoE and growth then the company does not merit investments. This is so because for a company to grow at higher rates of growth compared to its RoE it would have to dilute capital. That hurts

6) Dividend, book value is something that I look but do not base any of my decisions upon. I think that they tell you what the company has done and not what it will do.

D) Once a stock is bought and the price falls without any change in fundamentals and if I have the required cash I will buy at each fall.

Now I do not stop at step 1 of phase C above. I do look at steps 2,3,4 and 5 of phase C above but there is a difference in priority. That is all. For instance I like Financial technology. MCX could be HUGE but I am worried by valuations so each time I want to buy the stock I think in terms of phase B above and give it a pass.

So it is just a matter of prioritizing the tools of analysis. No analysis is complete without putting all tools at work. In none of my reports will you find the valuation parameter missing because irrespective of the strategy you use the final objective is to make the stock price a slave of its earning. The question is which one are you more comfortable using when compared to the others i.e. prioritizing the tools.

And finally, I have made my 30 baggers this way so I have become used to investing in this fashion.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Replies:

Posted By: Vivek Sukhani
Date Posted: 15/Aug/2006 at 10:05pm

Gentleman, I am comfortable with this style. Its objective and hence has clarity. A model answer and I stand convinced.But I have got one question.I beleive you use tremndous amount of maths in ur analysus, so I dont understand your dislike for mathematicians?I admit, I take it more as a science than art, and value investing is something which has made wonderful returns for me. For instance, at this stage I am extremely bullish on tata coffee. I understand that coffee, is facing some problem on the robusta side.Vietnam is reporting less crop for exports this year.And I dont see major coffe plantations companies in the listed space. I will never touch Harrison Malayalam, so it leaves me with few players like tata coffe (Nestle, doesnt have its own plantation).I am comfortable with this PE and EPS.Its coming up with rights, which should be also seen as a good cause to enter.Any comments?

Posted By: basant
Date Posted: 15/Aug/2006 at 10:15pm

I have an eye on Tata Coffee. WIth coffee we might see the same demand supply situation as we have with other commodities. China's Coffee consumption is rising and no one is talking of it. Sooner or later coffee prices will move far far ahead then what it used to be.Coffee is getting into the modern day culture and hence more demand. Supply constraints are temporary may be in one or two years things might change but the point is about demand and there lies the big opportunity.Tata coffee could be a four digit stock.

I use maths never said I do not. But what I said was that maths has to be used in conjunction with a lot of other things. I do not use maths in isolation.Also the priorities of using the various tools differ!

Posted By: basant
Date Posted: 15/Aug/2006 at 12:11pm

Coffee is the only commodity that has not moved much. The next few years could be very interesting for coffee producers.Jim Rogers owns a lot of coffee futures in his commodity fund.

Posted By: manishdave
Date Posted: 16/Aug/2006 at 5:30am

Basant,

Can you name names of 30 baggers and what did you see in them early? You dont have to answer if you dont feel comfortable.

Posted By: basant
Date Posted: 16/Aug/2006 at 8:51am

Pantaloon retail - How I have managed to hold on from Rs 7(rights/split/dividend adjusted).

Manish:

You know I bought Pantaloon Retail at Rs 50. Today Rights adjusted I am getting Rs 1850 for that the journey between Rs 50 and Rs 1850 is listed below:

1) Since I did not have enough money or expertise to start something on my own I wanted to buy the right company in the high growth sectors. Retailing as a sector was poised to grow so the question was getting into the right company in the sector.

2) At that Pantaloon traded at a market cap of Rs 80 crores against a sale of Rs 450 crores and traded at a PE of 7 times so it was a case of value with growth.

3) In 2003 Kishore Biyani had declared that he would do a sale of Rs 1000 crore in 2005 and I believed in what he said. In fact I always believe in the management’s projection unless they have failed in their previous targets.

4) AT that time Trent sold for Rs 150 with Rs 60 on its balance sheet as cash, paid good dividend 2.5% yield and was backed by the Tata.

5) Pantaloon had an inventory problem analysts said that there could be inventory write downs. I figured that could be about Rs 8 to 10 crores so while the issue was significant the amount was not. The problem remains till date

6) I must confess that I was not aware that this stock could go that long this fast. I did write an article on value notes stating that this stock could go up 40 to 50 times but the time zone was 2010 and not 2006.

7) The Management was not considered honest and trust worthy but I had no option. The retailers could only be played through pantaloon and Trent. Moreover the blemishes on the management were more subjective in nature. I saw that Kishor Biyani had mortgaged his personal property to take a secured loan for the company. Thought that he could not do any thing wrong intentionally – showed seriousness of the promoter.

8) This is the most interesting of it: I used to stand outside the Pantaloon showroom for 30 minutes and count the number of people who walked out with Shopping bags from both Pantaloon and Westside .They are located adjacent to each other.

9) Whenever I used to take a Taxi, I used o tell the driver to take me to Westside. He showed ignorance then I would tell him to take me to pantaloon and he would immediately respond. I knew people were going to pantaloon more often then Westside.

10) I used to bite the head off the ladies in our family as to which store they shopped more from Pantaloon or Westside.

11) I used to get excited when I saw a Pantaloons bag being carried by any of the commuters and I often remarked to a friend that one day when we see this bag all around this stock could be at Rs 2000+

12) Was never worried about what happens Kolkata might not happen elsewhere. Rather I used to extract feedback from acquaintances in other cities.

Now these were the triggers for buying. How I managed to hold on is more interesting:

13) When ever I met an analyst he would tell me 3 different reasons as to why pantaloon should be sold. I panicked at 3 price levels

14) When it hit Rs 250, Rs 500 and Rs 1200. I panicked because I had never made that much money from one stock and the chance of losing what I had earned was one of the reasons to sell then anything else.

15) At each point I used to evaluate my down side and upside potential. For instance I thought that if Trent could double in 3 years and Pantaloon go down by 50% I would not look that stupid. I constantly evaluate my portfolio as a basket of stocks since it is a high risk high reward game.

16) Many times over the past three years the stock has got expensive but the sheer pace of growth is such that it kind of gets cheap a few months later. For this I must thank Fisher for his book “Common Stocks and Uncommon Profits”

17) For instance last month it traded at a PE of 20 times FY 07. Today after having recovered 50% from that price it trades at a pE of 30 times Fy 07.

18) I think once you have the downside levels in mind you can handle the situation much better.

19) I never looked for an ultimate target on pantaloon. That is because the company was constantly evolving. I was prepared to sell at any price if the signals were discomforting.

20) Even today I have no targets on pantaloon, just plan to take each year as it comes.

21) All through out I used to look at the market cap. The size of the opportunity is even today 300 times the market cap. In the multiplex business it is only 3 times the market cap. By the size of opportunity I mean the total sector sales for a particular year. For instance the pantaloon, Big Bazaar Food bazaar brand could be sold at a certain percentage of their market cap and also the roll out of stores will make it an ideal acquisition target.

22) There are talks of reliance getting into retail but then there are two ways to look at it.

a) The market is huge so it could absorb another 3 to 4 reliance

b) Try and see that if Pantaloon is marginalized the stock could come down to Rs 800 or Rs 1000 if they carry along at their pace then the upsides are open. So it is a question of risk & reward. I do not believe that we will have a Kmart in India before 2011.

23) Over the years http://www.theequitydesk.com/forum/forum_posts.asp?TID=135 - the set up at Pantaloon has changed they had taken in a lot of new talent . People were leaving Rel Info and Bharti to join this company. I thought that may be these guys could not be foolish.

But there were several factors the biggest being the “Buy what you see” that made me buy and hold it the others were only supplementing.

PS: I exited Pantaloon Retail in Novemeber 2008 after making a 35 bagger!

Posted By: manishdave
Date Posted: 17/Aug/2006 at 10:27pm

Basant,

Thanks for sharing.

Posted By: Ajith
Date Posted: 17/Aug/2006 at 7:47am

Your investment in Pantaloon was classic Peter Lynch-'How is the business faring?' That was the question throughout.I think the stock can be held on to patiently for a long time but to be watchful is very imortant.

Posted By: basant
Date Posted: 17/Aug/2006 at 9:47am

Thanks. I would put Peter Lynch above all the others. his style is very simple no discounted cash flows, no risk analysis. I mean the triggers that you can get by simply following Lynch's style is amazing. Once you have identified a business it becomes a lot easier for you to analyse the financials.

I must have read One up on Wall Street over 15 times. I have underlined the important lines and prefer reading them again and again. My advise is that biographies of the best guys in business should be read like a text book not like a novel.

CLearly I am too obsessed with Lynch but I like it that way since it has helped me pick some outstanding investments.

Posted By: Ajith
Date Posted: 17/Aug/2006 at 10:06am

No doubt Peter Lynch is best suited for our markets.But it is important for a small cap investor to read Ralph Wagner's book on investments.

Posted By: basant
Date Posted: 17/Aug/2006 at 10:21am

Thanks. Ralph Wagner - DO you know the name of the Book?

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: Ajith
Date Posted: 18/Aug/2006 at 2:43pm

A Zebra in lion country.I think Ralph Wagners book on investments can give superb insights into picking and holding stocks.

Posted By: basant
Date Posted: 18/Aug/2006 at 4:38pm

Never read his book but I did read about him somewhere. WIll try and put in a write up on him. He has compared zebras to institutional fund managers. He says Both seek profits without takinng any risks and both prefer moving in herds.

Phenomenal concept!!!

Posted By: prashantmohta
Date Posted: 18/Aug/2006 at 4:50pm

this book is not available at amazon,pl. tell me where i could find it.

Posted By: Vivek Sukhani
Date Posted: 18/Aug/2006 at 4:57pm

well, I would like to ask just 1 thing...Dont you think the suitability of style depends a lot on the market conditions? I agree fully that first you need to make money than to protect money... however, as you make money dont you think we should get across more conservative bets. Colgate was a wonderful play in the mid-eighties, lever in the mid-nineties but for the last 5 years they have not been very kind to their investors.I beleive, one has to constantly revolve with one's trading strategies. At the beginning of a bull market, one should have Peter Lynch as his/her guru but if you become a bit concerned, you should have Buffett-like or Benjamin Graham-like investment guru.people tend to think of business when the going is very good but they start worry about finacials when the going gets a little bit uncomfortable.I am not trying to sound pessimistic, but I am getting not so good signals on the charts.

Posted By: basant
Date Posted: 18/Aug/2006 at 5:34pm

Vivek it is very tough to change strategies. I am not aware of anyone who has been successful changing styles. Once you make money in a particular style it kind of gets into your blood.That is because you develop conviction in that style nothing else. Finally the style that suits the mind is the best. Also either you are value or growth or blended does not matter as long as you stick to your strategy. For instance value investors may not significant lose money in any stock but their ability to make 10 and 20 baggers is limited, Growth investors may be wiped out in cretain companies but they hope to make that up some where else.

The icing on the cake with growth is if you have 90% of your bets going with you. It is not difficult as long as you have a plan - written or oral does not matter.

I have developed an excel spreadsheet model that tells me the fair market price of ANY stock The parameters that I use are

1) Market Price

2) Number of shares

3) EPS forward (if it can be projected)

4) PE forward

4) Market Cap/Sales

5) Dividend yield

6) price to Book

7) Management - I assign subjective marks here for instance Infy would get 10 out of 10 and an RPG co. may get 4 Tata 8 etc etc

8) Growth

9) Industry leader or not - Subjective marking is assigned here

10) Bank rate of interest

11) RoE

12) Ability to be around for 10 years - Again subjective marking.

13) Market cap

The weightages differ for each of the parameter. Now this is as much math as you can do. But inspte of all this I use this model as a second line of analysis. This model told me Bharti as a sell when it was Rs Rs 25 and I made a 4 bagger from thereon.That was because there was no EPS for Bharti.It told me a target price of Rs 75 for Pantaloon when it was at Rs 50. But I just saw it but never listened. this is because this model could not think 3 years ahead which we as humans can.

As for your question of wealth protection. Ships are most protected at the harbour but still they are made to take on the high seas.

Posted By: Vivek Sukhani
Date Posted: 18/Aug/2006 at 6:33pm

Basant, I see your portfolio( rather I see you )being more inclined towards the services sector. I believe, thats a good approach but dont you think you should balance it with some some very strong manufacturing plays where you can use your excel sheet. I will be extremely glad if you can throw some light on this spreadsheet. As I am knowing you more and more, I am feeling fascinated by your approach to equites.

Posted By: Ambarish
Date Posted: 18/Aug/2006 at 8:52pm

the book Zebra In Lion Country: The Dean Of Small Cap Stocks Explains How To Invest In Small Rapidly Growing is available at amazon or you can put it as a search in google, you'll find it there

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www.halwasiya.uni.cc
“Wining is not everything, it is the only thing”

Posted By: basant
Date Posted: 18/Aug/2006 at 10:23pm

Vivek:

India is a service economy, it is known more for its services then manufacturing also if you see the gdp break down the service sector grows at 10% + each year. That is for the broad macro part on the other hand you will get new and high growth sectors (Retail, Media, Insurance, telecom, Pvt Baking)in services only. Also manufacturing is very much cyclical and you have to be nimble footed not so in services. You could buy an HDFC Bank and become Rip Van Winkle for 20 years and the company could grow 100 times (@26% CAGR) you will rarely get those kind of opportunities in manufacturing.

The spreadsheet is an inbuilt collection of ratios that tend to balance each other out. Let us take 4 ratios

Mkt Cap to sales

Growth

Price to Book

Dividend yield

RoE

For growth companies the Mkt cap to sales would be higher and so would be the growth rate but they would lose out on Price to book and dividend yield

Some companies having high book value will have low RoE since RoE = EPS/BV so they lose out there but would make up in the price to book category.

I have devised it in such a fashion that I do not remain dependent upon any single ratio

Posted By: Ajith
Date Posted: 18/Aug/2006 at 11:13pm

Mr. Basant,I too like the services sector the most .Services as a percentage of GDP IS SHOWING A RISING TREND and that really shows the tremendous oppounities.Now it is necessary ideally to find a company with ecompettive advantages that will not necessarily constant requirements of large amonts of cash or at the most for a period of 3 years by which time it should sustain itself for cash.Perhaps banks,print media,TV channels,Tourism could throw up multibaggers.

To take 3 instances.Transport Corporation would need to update its fleet but does it really have a strong competitive advantge?I maybe wrong but I think not.So it may not be a good buy even if market cap looks appealingly low(it will take a lot of effort on the part of TCI to do well).NDTV does not require a huge amont of cash to grow exponentially from a relatively small base,it has its audience for a decade or more and so high PE is justifiable and it may be a decent multibagger.ICICI Bank will probaby grow organically to a giant banking entity in 10 years because of its competitive advantages.(I do not have ICICI Bank.The only large cap I have is ITC)This is my way of thinking.

Posted By: basant
Date Posted: 18/Aug/2006 at 11:18pm

Great. Could not agree more. And even if one or two ideas fail the rest should make it up. SOmething like errors cancelling out each other. All service led economies have a amtrket cap to GDP of more then 100% some run even as high as 500% .

If you could get a high PE investment right it pays you in later years as well suppose NDTV trades at aPE of 40 and next year also at 40 and the year after that at 40 while ACC trades at a PE of 15 for 3 years. Invariably if you notice NDTV would have given you a 40% return while ACC 15%. the trick is to look at PEG and not PE in absolute numbers as most people do.

Posted By: basant
Date Posted: 18/Aug/2006 at 11:31pm

This should make the services argument clearer

http://www.theequitydesk.com/biggest_macro.asp - http://www.theequitydesk.com/biggest_macro.asp

Posted By: BubbleVision
Date Posted: 19/Aug/2006 at 3:04pm

This is an absolutely amazing summary of Why to buy any stock and the courage and the conviction required to stay on when one is right. That Conviction only comes with detailed Research. For Me fundamental or Technical research does not matter as long as one is honest and he knows why is he buying. This Summary should be included in the book "ONE UP ON DALAL STREET" By Mr Basant. One can only learn from your experiences. This is on lines on your "Hope and Hype" article which was also amazing. Any one who has not read that must read that. Mr Basant can u link this to that article//

Amazing...

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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: BubbleVision
Date Posted: 19/Aug/2006 at 3:21pm

Mr Basant

With regards to Market Cap to GDP ratio.. Dont you think that we should look at the Number of company listed also, as In HK most of the Companies are listed, while the same is not the case in India. Also HK contains two of the biggest construction companies in World.. Cheung Kong, Hong Kong (M CAP: $24.89 billion) and Sun Hung Kai Pro, Hong Kong ( M cap: $24.67 billion), while India is waiting for its Big construction daddy.

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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: basant
Date Posted: 19/Aug/2006 at 4:04pm

I guess you are referring to the percentage of the GDP that is not represented for instance agriculture is hardly represented whereas you have about more then 25% of GDP coming from there. SO these are additional kickers and need to be screened. But just think we have hardly any representation from Retailing, Insurance and Media whereas most of the developed markets are over weighted with these sectors. Once that happens the Market cap to GDP shall go up further. Hong Kong is a place which is too skewed I would think I do not follow Hong Kong but there isn’t adequate sect oral representation either in their indices or in their GDP. But even if you take the US they are at a market cap to GDP of 100%.

India's GDP is at present Rs 30 lac crores and should grow to about Rs 40 lac crores by the year 2010. The market capitalization of the BSE is at Rs 27 lac crores, which is 90% of the GDP. The previous high tested by the Indian system has been 67%.

Moments!	Market Cap to GDP ratio at the peak	Market Cap to GDP ratio post the peak
The Harshad Mehta boom	56%	32%
Ketan Pareikh tech boom	52%	21%
During this structural boom	90%	Take a guess?

But on the whole service sector companies trade at a multiple of market cap to sales and market cap to GDP is a macro extension of that tool. That is something that economies and stock markets in the South east Asian countries tell us. When ever we go above 100% we are in dangerous territory. This is because there are a few sectors that are being reflected in the GDP but not in Market cap.

Posted By: basant
Date Posted: 19/Aug/2006 at 4:07pm

Thanks Vikrant for your suggestion

"One up on Dalal Street"

I feel overwhelmed. We are already into that process except that in this case there are several authors and each one brings to the table a different perspective.

Posted By: basant
Date Posted: 19/Aug/2006 at 11:56am

We as investors are always concerned with the returns that we can make. If we could concentrate on minimizing the downside then even nominal returns from the other and one big multibaggers would make the portfolio look very pretty. My sense is that downside could be captured in two ways

1) Buy stocks with high book value and reasonable dividend yield. these stocks would protect the downside but upsides are not guaranteed because a cheap stoclk could remain cheap for years.

2) Buy companies that are growing at more then 25%. I will illustrate this case with an example. HDFC Bank has gone up some 25 times over the last decade. the stock always traded at a premium to its peers and will continue to trade that way. Many invetsors feel that HDFC Bank's PE is high and should come down. This has not happened for 10 years. even if you misjudged the pricing and got in you would have been put in a waiting period of one year and as the EPS grw the pE would have become reasonable. So stocks like these become cheap every six months.

I like capturing the downside risks from stocks that tend to grow year after year and not by buying high Book value/ high dividend yield stocks.The former assures that after a waituing period your downside will become capped and then there could also be upside lickers.

The growth investing strategy is very dangerous though and that is why you need to understand the companeis very carefully before investing.

Posted By: reema
Date Posted: 21/Aug/2006 at 9:07am

Mr. basant why don't you list out ideal 10 stock portfolio for each of the following types. You cud include stocks that u have already discussed or some other that you wud like to Please do not include cash since that is like timing the market.

Value

Growth

Midcaps

Large Caps

Multicaps

Dividend yield.

Let the portfolio duratiin be 10 years and then we can have quarterly evaluations or when ever some news hits these shares.

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You should try to add wealth not multiply it

Posted By: basant
Date Posted: 22/Aug/2006 at 7:44pm

Good idea but would try and put it in but for the time being we can use the stocks that we have already discussed.

http://www.theequitydesk.com/forum/forum_topics.asp?FID=4 -

Posted By: dhanaji
Date Posted: 23/Aug/2006 at 11:32am

i am really appreciated on your investment style because its very simple & understandable. i am regularly following your stocks & ideas.

please let me know the short term stocks to invest at currrent level.

looking for your positive reply.

Regds,

Dhanaji.

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dhanaji

Posted By: basant
Date Posted: 23/Aug/2006 at 11:57am

Thank you Dhanaji. I am a great follower of http://www.theequitydesk.com/peter_lynch.asp - Peter Lynch and that is what introduces me to many ideas. Over the short term < 6 months it is very difficult to make money. let me illustrate this by an example.

If I tell you to buy 3 stocks A, B and C for 3 months chances are that you would make money in only one or at most two. Also the money that we make will be in direct proportion to our luck (market sentiments, psychology etc) rather then our skills.

FOr some one who is starting to invest the greatest urge is to make some quick money and then organise the investing startegy. But that quick money is never made. I am sharing an experience with you when I say this and do not think that i started to give you a lecture class. I used to do that day trading when I started early with far less resources each day appeared to be a new opportunity but then I realised that it was all an illusion. In fact opportunitiues in markets come once a quarter or maybe less then that.

Try to build a long term portfolio of about 10 stocks from the stocks that we keep discussing on the forum or otherwise and that should do very well over a period of time.

Posted By: reetesh
Date Posted: 06/Sep/2006 at 10:33pm

Mr. Basant let me ask you a generic question if you were to start a new business what kind of business that would be and second one if you were to buy a company to run it which compnay that would be?

Regards,

Reetesh.

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When going gets tough, that’s when tough (people) gets going.

Posted By: basant
Date Posted: 06/Sep/2006 at 10:58pm

Great question. Thank you so much for asking me this question. I do not think that there would be much of a difference between what i would want to start and what I would like to run so I am giving one answer for the two questions.

1) I do not want to be in a cyclical. Earn for 3 years and then cry for two and then earn for three. I want sustained growth.

2) No manufacturing. They always need cash. I am more interested in something that does not need fresh cash. SOmething like a software product company where you do not need additional doses of cash.

3) Ity should be consumer centric it helps in two ways

a) Cuts down the recession part at least in India

b) consumer centric companies do not face bad debt

4) There has to be scale. I should be able to increase revenues very fast without any time lag.

5) Do not prefer much use of technology as in technology any new product could wipe me out without a noise!

That is exactly the way I look fo stocks! I think of myself as owners of pieces of business in the stocks that I own.

On a lighter note my dream job is to sell "kachauri sabji jalebi to morning walkers at 6.30 in the morning." Never heard a sweet shop/kachauri sabji walla close down!

Posted By: reetesh
Date Posted: 06/Sep/2006 at 11:25pm

Wow we have something in common because even I want to star this sabji kachauri business in Bangalore there is huge demand for that people like me there are many try and find shop where we can find these things, like in Calcutta there is a shop called NASTA I dont know weather you are aware of this like that only, frankly this business in my mind if done properly would be Indias answer to Mc.Donlads.

But when you said there is no difference in 2 of my questions there is one. one you will start from ZERO and another you are buying so initial pain is negated. Anyways you must have gazed from my most of the questions that I am also interested in business which is directly related to consumers.

That is why if you have money then investing is also a great business, say for example Sayaji Hotel is more or less same thing that we are talking about management is doing all the hard thing, but investor like Rakesh will equally reap the benifit when the business matures. But in no way I am saying that Investing is easy, but something is life is natural.

regards,

Reetesh.

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When going gets tough, that’s when tough (people) gets going.

Posted By: investor
Date Posted: 07/Sep/2006 at 12:58pm

Hi Basant, just wanted to point out something here. You mentioned

2) No manufacturing. They always need cash. I am more interested in something that does not need fresh cash. SOmething like a software
product company where you do not need additional doses of cash.

this is a big myth....the biggest problem in sw companies is manpower,
and for product companies you need very good and experienced people,
for which you need to pay a lot. So as compared to a software services
company, product companies will always keep buring up a lot of cash,
and will need regular inputs of cash from their VC investors to keep them
going, coz until and unless their product finds a buyer/market, they will
not have any revenue stream at all. So unless the product based companies
already have some prospective customers lined up, it is extremely risky.

Posted By: basant
Date Posted: 07/Sep/2006 at 1:14pm

Hey Software product was just an example if you would have read through the next point I have indicated that technology is a very complex issue and managing over 50,000 smart skilled work force is no small job.

ANy way good product companies do not need additional manpower/cash. Something like an http://www.theequitydesk.com/forum/forum_posts.asp?TID=142 - EDucomp where the ramp up could happen very fast .

Now VC companie are generally below the US $ 10 million range and most of them are not consumer centric. The moment you become consumer centric the business model will become very easy and deliverable. More so majority of VC companies are tech oriented.

Posted By: omshivaya
Date Posted: 08/Sep/2006 at 11:33pm

Basant jee, I think I saw somewhere that you wrote that you would sell off tv18, pantaloon around 2010? Then, from today in 10 years, what stocks would you hold?

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: basant
Date Posted: 08/Sep/2006 at 12:05pm

Yes, 2010 was the final point and in between we would assess the situation in 2007 -08 that would tell us as to what is coming. this is very interesting. About 3 years back I had read Jim Roger's book and there I was told that Jim retired at the age of 37- In 2010 I will aslo be 37 years old. You could call me a copy cat but co-incidentally retailing and broadcating would have reached their peak at that time or slightly before.

You would agree that it is too soon to take a call as to what we would do after that since we live in an ever changing world. I would be in some growth stocks or some where where the risk reward ratio is high but favourable. Inspte of liking http://www.theequitydesk.com/forum/forum_posts.asp?TID=277 - HDFC Bank and http://www.theequitydesk.com/forum/default.asp - HDFC from the core of my heart I would not be able to buy them and rest in peace as many of my friends keep telling me.

Internet could be very very big by that time. too early to take a call. but just look at this

1) Broadband could grow by upto 15 times from 1.3 million to 20 million subscribers in 2010

2) The total internet users will be 20 crores - up by 10 times till 2010.

That is why I fancy http://www.theequitydesk.com/forum/forum_posts.asp?TID=29 - TV 18 .

Posted By: omshivaya
Date Posted: 09/Sep/2006 at 10:50pm

So why sell TV18 then in 2010? If these are going to become the largecaps of tomorrow, dont you think holding onto them would be a good a safer bet, for a good 25-30% growth from thereon?

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: basant
Date Posted: 09/Sep/2006 at 11:18pm

Very difficult to take a decision looking so far into the future

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: omshivaya
Date Posted: 09/Sep/2006 at 11:44pm

Yes that is true too. But please be sure of one thing. This forum should stay alive for the next 20-25 years at least. Remember, we may have to face a crash sometime in the future, 5-10 years down the line and if that happens, we should be here helping each other out and at least TRY TO ANALYZE BEFOREHAND that a crash is on the offing! It is not easy, but at least we can try and create "crash-management" techniques. Something like when there is an intelligence that some kind of bomb threat could be there on the Red Fort, the "Disaster-management" team formulates a possible scenario and finds out a solution. In case of an explosion, still a "disaster-management" group finds out solutions.

I think it would be best to formulate strategies of what to do in case of a crash, so that we can all be ready for it mentally to some extent.

We should try at least!

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: basant
Date Posted: 09/Sep/2006 at 11:55pm

I do hope so and you seem to have some very unique terms to describe things "Crash management" techniques.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: omshivaya
Date Posted: 10/Sep/2006 at 2:24pm

Well. I dont know of the terms. I just speak what comes naturally to me. I think if we open up a topic asking people of what "crash-management" techniques they have put in place to handle a crash in their portfolio, we could all learn something from each other and maybe refine our own strategies in the process to handle a crash. Who knows? The mind should always be open! We may think there is not a solution for a crash, but maybe somewhere somebody has thought of something. Who knows?

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: basant
Date Posted: 10/Sep/2006 at 5:45pm

Great idea can you elaborate on that so that we could have a discussion startiing on it.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: omshivaya
Date Posted: 10/Sep/2006 at 12:00pm

I usually buy a stock fully or at best what I do is this:

50% now and then 50% later on when it falls off 15%. Then I just wait for years on the stock.

Of course I do my research on my stock before even thinking of buying it. I dont want to average a stock which I dont think has a great future and good fundamentals.

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: basant
Date Posted: 10/Sep/2006 at 12:59pm

Yes, personally I would never buy something after it moves because since my choice is so limited I am already invested into the things that I like - if the stock does not move then I keep on buying more of it. Each time in my portfolio I want at least one stock not to move because that helps me to keep loading up with incremental cash.

I will tell you a very interesting thing. i first bought http://www.theequitydesk.com/forum/forum_posts.asp?TID=29 - TV 18 in October 2003 at Rs 145 from then on it moved within the range of Rs 140 to Rs 150. Each time it moved to rs 240 I would think that now it will break out but it would not it would come back to Rs 150....

At that time I had a good exposure to http://www.theequitydesk.com/forum/forum_posts.asp?TID=95 - NDTV at Rs 85 (July 2004 apprrx) and suddenly NDTV started moving up but TV 18 would not budge from Rs 160.

AT that time I met Pronoy Roy who was taking an afternoon walk with his wife "Radhika Roy" near the Taj Bengal hotel at kolkata. I walked out of the car and we started a conversation. Initially I thought that he might not respond but he seemed more then eager to communicate.

I asked him as to how he saw CNBC and he replied "CNBC is powerful” That was enough for me to make up my mind and I thought of switching since http://www.theequitydesk.com/forum/forum_posts.asp?TID=29 - TV 18 was getting cheaper and cheaper. At Rs 115 I sold off all my http://www.theequitydesk.com/forum/forum_posts.asp?TID=95 - NDTV and converted it into TV 18 at Rs 160 odd.

In 3 hours the stock was a Rs 120 and people who had sold out with me were now feeling the heat "takdir kharab hai 3 gghanta mei itna nuksan etc etc"

Since I deal in single transactions I had no NDTV left to sell at Rs 120 and the stock rocketed to Rs 140 in 2 weeks TV 18 refusing to move.

Soon http://www.theequitydesk.com/forum/forum_posts.asp?TID=95 - NDTV overtook TV 18.

Now from October 2003 to February 2005 TV 18 could have been bought at Rs 160 - Rs 180. I kept buying with each stock that I sold and soon I had taken a meaningful position. Suddenly the bump up came in March 2005 and in one year the stock was a four bagger with NDTV not having doubled from a price of Rs 115.

What I want to say that value with growth is a deadly combination and once you have got that then take a position such that it makes a meaningful difference to your balance sheet.

Posted By: kulman
Date Posted: 10/Sep/2006 at 1:08am

Excellent interpretation of events (meeting with P. Roy), great conviction, patience!!

There is a lot to learn from this experience. Combination of what Buffet and Lynch would do.

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Life can only be understood backwards—but it must be lived forwards

Posted By: basant
Date Posted: 10/Sep/2006 at 1:17am

Yes, it did happen http://www.theequitydesk.com/globe_troting_macro_players.asp - Peter Lynch style I still remember how Pronoy pointed his thumb towards the sky and.....

But I would like to give due credit to him also for speaking out the truth, imagine what a normal management would have said. When I asked Pranoy that since we have four financial news papers surviving in india can we have two business channel (Profit was being launched) to survive he said yes, and we may at some later date have some regional channels doing business talk.

In fact that 4 minute meeting has made me richer by quite a few. Who knows what would have happenses had I not met him on the ROAD!

Posted By: omshivaya
Date Posted: 10/Sep/2006 at 1:50am

Excellent post basant sir! Your posts are really inspiring truly! Thanks again for being candid enough to share it

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: basant
Date Posted: 10/Sep/2006 at 11:26am

Why it does not make sense to get into cash partially

Of late there had been a lot of chatter about booking partial profits – get 25% into cash and keep the balance 75% into equities. This strategy essentially indicates two piquant flaws:

1) that the investor is unsure about the future

2) That he is broadly bullish (75%) and partly bearish (25%)

I did this calculation when many of my acquaintances went into this 25% cash business and this is what I got:

1) No one sold off at the top the chatter started well before we had made the top at around 11,000 or thereabouts

2) I have taken an investor who sells out at an index level of 11,000.

3) The portfolio size is assumed to be Rs 500,000.

4) It is assumed that:

Case A: He missed the bottom. That is exactly

what happened

Case B: He entered at the rock bottom level of

the index at 8800

Case (A)

	Investor A: Switching between cash and stocks	Investor B: Remaining fully invested
Portfolio Value at an index level of 11,000	Rs 500,000	Rs 500,000
Strategy for A :Get 25% into cash:
New Asset allocation:
Cash	125,000
Equity	375,000	500,000
Subsequent fall to 8800	20%	20%
Portfolio value at 8800:
Cash	125,000	0
Equity (375,000x 80%)	300,000
Equity (500,000 x 80%)		400,000
Total Value at 8800	425,000	400,000
Loss from the top	15%	20%

Therefore by getting 25% into cash you were able to relatively out perform the other person by only 5%. That is not what we are in the markets for.

Case - B

Now assume that the investor has caught the cycle correctly (next to impossible)

Portfolio value at 8800:	Investor A: Switching between cash and stocks	Investor B: Remaining fully invested
Cash	125,000	0
Equity (375,000x 80%)	300,000
Equity (500,000x 80%)		400,000
Total Value at 8800	425,000	400,000
Take a ride back to the sensex at 11,000 425,000x125%	531,250
400,000 x 125%		500,000
Initial capital	500,000	500,000
Net gain made in the entire process	31,250	0
Percentage of net gain made	6.25%	0

Now why would I do all this for a mere 6.25% gain in my portfolio when the chances of missing the entire rally are far more then the odds of getting back in.

What has gone wrong in the above computation? The above computation reflects a confused investor. Who is predominantly bullish (75%) and partially bearish (25%). The market never pays for confusion and chaos. More often then not this investor will never heed to his mistake and always justify why prices should fall a bit more. When prices do start moving finally he would feel comfortable in getting into those stocks that have not moved – that would disturb matters further.

I normally like to look at stocks that I hold not the markets. If the stocks that I hold appear trifle over valued but the next year's growth is strong enough I wait for the stock to remain cheap.

Where does the problem lie? The problem does not lie because the markets are going down. It lies in our choice of stocks. The real crash management system will have 20% of the portfolio dedicated to solid long term secular growth stories like HDFC, HDFC Bank. These stocks are least effected at the times of a crash and do recover back very fast. Investors are normally undecided as how much to allocate between the different companies. The third grade B!/B2 scrip from the BSE find more exposure then is warranted. This falls faster and harder while the recovery is slow..

If investors get worried about an impending crash the best way is to sell out of these speculative buildups and get into solid blue chips which will out perform the markets in case it decides to tank.

So I would suggest that crash management systems lies in enhancing the quality of the portfolio rather then changing the asset class per se.

Conclusion: Even a best case scenario would have made a gain of 6.25%. Now people did tell me that some stocks went off 50% from the top and we could have made 50% in them so in that case our existing portfolio (75%) would have been affected by 50% as well.

No one, I repeat no one can extrapolate the market’s behavior because the markets run on the collective wisdom of all the participants. This “collective wisdom” is influenced by subjective factors of fear and greed.

As long as participants try to measure the tendency they would succeed but it is only when they set out an inflexible mathematical formula (like many of them did in June) they will fall to the ground.

Posted By: kulman
Date Posted: 10/Sep/2006 at 11:38am

Basantjee

Your calculation shows that there is not much of difference in gains by trying to book partial profits.

Now keeping this "crash management" discussion aside, I would like your opinion on cashing out partially when our price objectives are met.

You may see my earlier post on this. Await your response.

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Life can only be understood backwards—but it must be lived forwards

Posted By: kulman
Date Posted: 11/Sep/2006 at 12:05pm

Basantjee

Reproducing the extract of what I want to say. This is not about "crash managment" or "cash strategy" but about selling when we achieve objective:

As for me, I never said we should time the market. Nobody can and will be able to time the market. You are NEVER allowed to buy at bottom or sell at tops.

My point was to have profit booking strategies. Human mind goes back to the history and tries to link events. That's what lands us in trouble most of the times.

RJ may not sell Pantaloon because of various reasons, his dividend yield (at his cost of acquisition) still may be more than RBI bond! By just selling a small portion, he has all the balance shares FREE!

Again let me emphasize that we're all mortals and have limited resources, it is a good idea to emulate these legends. But can we control our emotions and buy when everyone is selling? How many of us bought when there was down circuit on exchange?

Having said that, I have no doubts on fundamentally strong companies in India, they would continue to deliver 15-20% CAGR over the next 4/5 years and I am happy staying invested in them.

My suggestion is just as you have "buy" strategies, have a disciplined "sell" strategy.

It could be partial profit booking, with which your cost of acquisition also comes down and you would be able to ride further boom in that particular stock if there is steam left or if by chance you are exiting early.

The "sell" decision could be based on your having achieved expected rate of return on that stock, or the markets over-pricing having run-up too much.

For example, hypothetically, as per this forum's analysis AB Nuvo's fair value is Rs. 1600 against CMP of Rs. 850 taking into account value unlocking due to Idea etc which may happen in next 12/18 months. If due to irrational exuberance, market discounts the view now itself and price shoots up to Rs. 1600 before Diwali, wouldn't it be wiser to book partial profits, take our capital out?

Just listen to real-life stories of "investors" whose portfolio value crashed to almost zero from Crores during dot-com bubble.

We all admire Buffet, Lynch, Jhunjhunwala and wish to emulate them. They are extra-ordinary gentlemen. We, as small investors (I do not know about others in this forum), have limited resources. We need to have disciplined "exit" strategies.

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Life can only be understood backwards—but it must be lived forwards

Posted By: basant
Date Posted: 11/Sep/2006 at 1:16pm

Thanks for organizing everything so well.Some how I have never tried to do a partial profit booking. Essentially that is because of these reasons:

1) You would partially book profits only when you do not know why the stock has gone up.

2) In case you do the stock has become over valued. Many stocks become overvalued and remain there for the entire length of the bull cycle. We did a discussion on http://www.theequitydesk.com/forum/forum_posts.asp?TID=264 - infosys traded at a PE of 50+ for 3- 4 years .

3) Again if you hold a concentrated portfolio you would be able to follow the stocks in such detail that each movement in stock price could be explained whether it is being fundamentally led or market led. Please do not confuse this with trying to explain movements - I am trying to say the origin of the movement.

4) If you have a diverse portfolio then tracking each stock becomes difficult in that case we should follow the sell on each rise strategy.

5) Normal convention says not to have more then 10% in each stock and 25% in any sector. So we would need to sell when prices go up to follow the convention. But a skewed portfolio will move faster both ways.

6) I assume that normally people would like to hold 15 – 25 stocks across different industries and companies. In that case we should get into a partial profit booking mode.

7) In case we hold only a few and are planning for an event CAS or Retail boom then just think that had I started selling from Rs 100 I would have been out of the stock at Rs 500; average selling price Rs 250. Today it is about 7 times more.

8) I could hold on since I could research well and I could research well since I had no other stocks to research. SO you see it is a chicken and the egg race. Once you research you develop conviction and hold a few and vice versa.

9) Never followed the historic pricing method. Always thought that our purchase price becomes irrelevant the moment the trade is executed.

10) I doubt if http://www.theequitydesk.com/rakesh_jhunjhunwala.asp - Rakesh jhunjhunwala is playing for dividends . If Pantaloon gives dividend it will make an EPS if it does that stock will go up or at most remain so there is nothing to worry on the downside or about getting an RBI return. Once we start thinking on those lines then it means we are waiting for the stock to go down.

11) Personally I would wait for fundamentals to show negative strain before selling rather then wait for prices to rise. Yes, If they rise abnormally by say 50 times forward then one could think but with growth stocks the story gets cheaper if can get the visibility correct and stay with the sector leaders. http://www.theequitydesk.com/philip_fisher.asp - Read about Fisher to know more on this

12) Finally in investing we should do only those things that suit our mental make up

Posted By: omshivaya
Date Posted: 11/Sep/2006 at 1:28pm

12) Finally in investing we should do only those things that suit our mental make up

I feel this is one the best points you made!

Nice post as always!

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: investor
Date Posted: 11/Sep/2006 at 4:03pm

your meeting with Prannoy is very siginficant - remember in Peter Lynch's book, how he talks about finding more about the strenth of a company's
potential when its competitors talk highly of it.
In fact he even mentions a case where he went to meet the management
of one particular company in which he wanted to invest, came out after
that meeting and called his broker to buy as many shares as possible
of their competitor, simply because the mgmnt he went to meet kept
talking a lot about that competitor. So your case is also something like that!

Posted By: Ajith
Date Posted: 11/Sep/2006 at 5:35pm

Booking profits-that is usually bad unless valuations have gone way ahead of reality(because good stocks usually run up in the long run and as Phil Fisher Says something like- unexpected good news keeps coming up) unless you are sharp enough to be able to latch on to something better consistently and that is very difficult but achievable for a period as I know it.

Posted By: basant
Date Posted: 21/Sep/2006 at 1:55pm

I try to read a select set of books on a consistent basis. those names with a bit of write up are available at the section http://www.theequitydesk.com/forum/forum_posts.asp?TID=323&PID=3011#3011 - Investment resources .

Posted By: India_Bull
Date Posted: 12/Nov/2006 at 8:54pm

Thanks Basantji....this is really a nice analysis.I do believe in being fully invested at all the times, just was thinking for long that I didn't have enough cash to ride the crash....

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: basant
Date Posted: 13/Nov/2006 at 10:26am

I would share another thought that crosses my mind each time a stock that I hold rises or falls. After looking at the stock in absolute terms I also look at it in PE or PEG terms for instance at Rs 377 http://www.theequitydesk.com/forum/forum_posts.asp?TID=142 -

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: xbox
Date Posted: 15/Nov/2006 at 4:28am

Earlier I posted in wrong forum...

Fundamental never works alone. It neither works in bear market nor in bull market. But it a great enabler. I helps analysing the stock. Stock picking is the most important factor. Under stock picking, only 2 factor are important ..

1. Right Sector

2. Right pick under 1.

Even a bad company in good sector will outperform the markets (bear or bull). so if one picked right sector, assume he is almost done with it. There are very people who picks emerging stocks (though bottom up app) in good sector.

So if u pick good sector, u are 90% done. but if u get good company in good sector then it is called life time pick.

Stocking picking is not as difficult as various discussion/experts make it. It is fairly simple process. But as sombody said that stock picking is art and science. we all can learn science (picking right sector) but art portion (picking right stock in right sector) is not everybody's cup of tea. As we all can not become painter of singer.

Disclaimer: It is my personal view. I take no responsibility on any damage incurred based upon this thinking

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Don't bet on pig after all bull & bear in circle.

Posted By: PrashantS
Date Posted: 15/Nov/2006 at 6:15am

Basantji, after reading your posts imust say your are a veyr good investor with a target inyour mind, but that has confused me to ...you have seen my portfolio should i concentrate it ,i like the idea of retiring but i did have something like that in my mind............Stick to value investing ...that is pick up small caps and stay invested ...........and invest only in 5 or 6 stocks...I am learning fast but really still have to pick up a lot .

What do you think....any advice ???

Posted By: Equity Buff
Date Posted: 15/Nov/2006 at 8:18am

Originally posted by vipul

Earlier I posted in wrong forum...

Fundamental never works alone.

Dear Vipul,

I agree with your above statement now, the operative word being alone.

Sometimes the stock market takes time to recognise Fundamentals. That is the reason many stocks which are fundamentally strong hardly move for months/years but then as soon as market recognises the fundamentals the stock moves upwards very fast giving multibagger returns. As they say Conviction and Patience pays. Also sentiments in the stock market play a big part.

I also believe a lot in the top down approach to investing. Identify the sector first and then the right stock in that sector.

Rgds.

Posted By: basant
Date Posted: 15/Nov/2006 at 9:31am

Originally posted by PrashantS

Basantji, after reading your posts imust say your are a veyr good investor with a target inyour mind, but that has confused me to ...you have seen my portfolio should i concentrate it ,i like the idea of retiring but i did have something like that in my mind............Stick to value investing ...that is pick up small caps and stay invested ...........and invest only in 5 or 6 stocks...I am learning fast but really still have to pick up a lot .

What do you think....any advice ???

FOr the initial years it is advisable to be diversified and once conviction develops it is only a concentrated portfolio that can generate BIG returns. A diversified portfolio would give more of an index related return really but one needs to be cautious before concentrating it too much since it cuts both ways.

Posted By: basant
Date Posted: 02/Dec/2006 at 7:25pm

hello basant ji, i really like theway u invest that is to remain fully invested but it requires lot of belief and courage ...you the funny part is that young age there is lot of panic and you feel you could have added some more if u had the money in mind .....

wanted to ask you this question ...how did you react when the market went down...you must have got your stocks at a good price but still .....what do you do in such situations ...it is not the worry whcih causes the problem but when u see the history 1930.....when the streets went buy buy buy......u know what hapened ........ofcourse risk is there in any field .........but how do u react to this ..........you must have read lots of books to draw the power of conviction in yourself..........
__________________________________________________________

Prashant when the stocks went down like nine pins in June 2006 I was scared like a wet rabbit. Yes like every one else no matter how much experience you have accumulated there must be something wrong if you are not scared when the markets fall and you are 100% invested. I would like to confess that hwen I saw Tv 18 tank to Rs 328 I switched off my mobile and the Tv and started to divert my mind off from the market. But that cannot be done. Invariably people call up and say this has gone up to that and so on. Meanwhile that RD theory of getting into cash added to the panic. Most of my acquintances are from the RD fan club and they were laughing all the way at the Bank - I told them Ok you are in cash 35% what about the other 65% but still they appeared smarter at that point in time.

I remember whjen Pantaloon went to Rs 1175 one of my inlaws called up and said " lo yeh toh ab Rs 100 ho gaya". I immediately cheacked up and found that we were still some hours/minutes from that price. he had sold at Rs 1500 odd when you sell a stock at Rs 1500 and it falls from that level you think that you are too smart not realising that it is becoming cheap with each rupee that it falls - that was my source of conviction

At all points in time I decided to maintain my position I sat back and thought that let us assume that these prices stay for a year then the sheer EPS growth would make these stocks very cheap and it would have to move up again.

At that time I had lost almost 45% of my portfolio from the peak and today it has recovered all of that and a few more but the point is with each passing year the recovery in price is higher then the fall so invariabily we build a "castle of mental strength" because with rising EPS the stocks can get only cheaper.

But the main point is I was worried, panicky, afraid, fearful, surprised, amazed, thunderstuck but al;l of these were a little less then my conviction so I managed to hold on.

In 2004 when the markets fell in May I experienced the same thing but at that time I had not made that much money from the markets so the feeling was one of not that much to lose.

One striking similarity was that in both the cases I read the October 1987 crash of the Dow Jones in One up on Wall street.

And for those investors who were holding cash nothing has changed except that the cash has been deployed in dud stocks or is at the bank - safe from the vagaries of the market.

Posted By: PrashantS
Date Posted: 02/Dec/2006 at 7:35pm

Hmm i agree everyword you say basantji .........Now i really understand TIme is the market is important ...and to have a lions heart and stick to what you think ...

I think sharing such views is more important ...and again nothing is safe in life ....so i agree with peter lynch.....

But really when things go up eveyrone is happy and when things go down people condemn u a lot ...

Btw Rd sold 60% of his portfolio in May ..it came on Tv18....

Nice to hear your views Basantji

Posted By: basant
Date Posted: 02/Dec/2006 at 7:41pm

Btw Rd sold 60% of his portfolio in May ..it came on Tv18

______________________________________________________

That should be the trading portfolio or whatever but then even now I have heard that he is very very light since 13k levels. SOme one told me that the index has made an ostrich pattern maybe bubble would know what that means but to me it means that Tv 18 could go down to Rs 600 and Pantaloon to Rs 1500 and I should not lose sleep when that happens but irrespective of all that big talk when prices fall I do get worried (when I am 100% invested - which I always am) because it appears that I have become poorer the fact that they could go up again makes it easier to live off those times.

Posted By: BubbleVision
Date Posted: 02/Dec/2006 at 7:48am

Absolutely great experience shared BasantJi.....

The seminal line in your that post according to me is ..... "castle of mental strength"....once again signifying all those posts of ED Seykota.

and I DONT know what is an ostrich pattern.... I guess i come from a compeletly different school of Technical Analysis.... i dont watch those Bulls, bears, pigs and Now an ostrich.

However there is a different pattern in "Elliot Wave theory" called a "Bow-tie" pattern. I heard from an elliotician friend that Nifty is in one such pattern. The confusing part of this pattern is that it could break on either direction, hence he was neutral on the market. May be he will always he neutral beoz if the market breaks "up", then it would be "overbrought" and if it breaks "down" it would be "oversold" to do anything.....

I would rather stay with the trend ....

Note : everyone would call a Dow rally from 1000-12000 (1982-2000)....12x, however I call it from 500-12000 (1977-2000) ....24 Times.

The sensex at 3000 was Dow 500 ....Sensex at 7000 (break from a Long term rising channel -- Monthly line chart) was Dow 1000

If sensex were to follow the Dow ...I guess one can easily call the target.

I guess one can easily see the difference in my perspective....

Investing and trading ....is a life long journey...Not an eventual destination.

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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: basant
Date Posted: 02/Dec/2006 at 8:42am

Investing and trading ....is a life long journey...Not an eventual destination
________________________________________________
If this is not copyright then we could add it to our list of memorable quotes!

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: BubbleVision
Date Posted: 02/Dec/2006 at 9:14am

That quote was made up by me ... just for this great forum, and because of this great forum. One only only learn from all the experiences shared by everyone (particularly BasantJi) on "The best forum in the world"-- www.thequitydesk.com

Note that i am also a Regular at GV as i told to OM ... but this is definately as good as that one.

It would be my privilage if you add that to the list of memorable quotes...

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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: s_praharaj
Date Posted: 02/Dec/2006 at 9:36am

And for those investors who were holding cash nothing has changed except that the cash has been deployed in dud stocks or is at the bank - safe from the vagaries of the market.

I also regularly see the chat transcrips of RD. I took his advise and liquidated around 40% of my stock including SBI, Reliance etc. Kept the cash for some time and then invested in some safe stocks like Tata Chemicals and Tata Tea.

I also remain 100% invested and you can see the loss I made. But you don't know, had the market gone down the way it was predicted, we would have thought otherwise.

The lesson learnt is not to panicky, to have a long term horizon and slowly built conviction based on financials and day-to-day devolopments.

Of course this forum is of great help to devolop these.

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Shashi Praharaj

Posted By: Ajith
Date Posted: 02/Dec/2006 at 10:23am

The May/June crash was O.K for me because though my portfolio suffered,luckily now I had the cushion of cash to fall back on.But I could not take huge advantage of low prices because I was focussed on value stocks.At no point in the crash did I worry, for 2 reasons,one -the lucky cash factor,Two-I am playing the stock market game from the 4-6 year view(weeding out the certain non-performers or companies suddenly facing competitive forces which adversely disturb the balance sheet and picking new potential multibaggers) because of high degree of visiblity of GDP growth and rising per capita income which should double the sensex in 4-6 years throwing up huge multibaggers.The cash cushion will be maintained for unexpected events and picking new multibaggers after some time.

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Ajith

Posted By: catcall
Date Posted: 02/Dec/2006 at 10:29am

In a stock market, as in any other investment, in order to evaluate how you are faring, it is important to take into consideration "opportunity loss". This is not to say that you benhmark your investment in comparision to the high flying stocks of the market and crib over it. But if one needs to compare whether one is balancing the risk to return ratios rightly. Often, we tend to concentrate too much on stock picks rather then reviewing our overall investment strategy before commencement of investment.

Secondly, when I started my investments in the markets, I used to mark up each individual investment (and trade) where I lost money and try and analyse where I went wrong. I came to the conclusion that whereever I had invested on heresay and especially where I did not understand the working of the company, I ended up loosing money, principally as I did not understand why the stock was going up and when to exit. Over the years, this has made me tune up my investment methodology to an extent wherein I avoid any investment wherein I can myself a understand the fundamentals of that sector and stock.

...think it over.....

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There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing!

Posted By: basant
Date Posted: 02/Dec/2006 at 11:06am

whereever I had invested on heresay and especially where I did not understand the working of the company, I ended up loosing money, principally as I did not understand why the stock was going up and when to exit

___________________________________________________________

Golden words Catcall but not many follow this. People want to have new ideas each week rather the hold on to their ideas for weeks. I have made the maximum money of my life in ONLY 3 ideas - so it is better to understand the stocks and hold on rather then try something new by selling the older ones each time someone whispers something new.

Posted By: Equity Buff
Date Posted: 02/Dec/2006 at 11:16am

Originally posted by basant

whereever I had invested on heresay and especially where I did not understand the working of the company, I ended up loosing money, principally as I did not understand why the stock was going up and when to exit

___________________________________________________________

Very well said Basantjee. I 100% agree. I guess people find it difficult to practice because of the greed factor to make a quick buck and also because people do not want to be left out of the next momentum stock.

Catcall, also very well said. It is extremely important to understand the business behind the stock to develop CONVICTION.

Rgds.

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"Time is on your side when you own shares of superior companies". Peter Lynch.

Posted By: Vivek Sukhani
Date Posted: 02/Dec/2006 at 11:38am

Basant, its also because sometimes we want to show the prowess of our intellect...its not only about hearsay.... its also caused by doing analysis day-in and day-out. The problem is in arriving at a few which are likely to be the biggest multibaggers...so, in order to seek that elusive goal we go on adding new and new companies....sometimes its the appetite of knowledge which always force you to add more and more companies.....say for instance, like your team.... given a choice I will never be able to boil down my selection to 11 companies.... thats because I have conviction for too many companies...earlier I used to have a chessboard like approach with pawn, bishops and knights.... but I gave that up... as I could not arrive at just 16 companies. Sometimes, its too much conviction that leads you to building up unnecessary diversification in your portfolio. But I must also admit here, that this style has worked for me, although I beleuve the real test will come in a bear market...... but I am glad to feel that I was the only client at my broker's desk when this crash happened....for someway down the line I have immense belief on my companies....

Posted By: vip1
Date Posted: 03/Dec/2006 at 5:37pm

People want to have new ideas each week rather the hold on to their ideas for weeks

Golden words Basant, that is why this site is Different .

Posted By: kulman
Date Posted: 03/Dec/2006 at 7:08pm

These few posts on this particular thread are very very good. It makes one look-forward, eagerly, to the the next correction/panic selling/crash for pouring more money.

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Life can only be understood backwards—but it must be lived forwards

Posted By: omshivaya
Date Posted: 03/Dec/2006 at 9:52pm

Basant ji, you mentioned something about an "ostrich pattern" that RD may have heard by some chartist. Can you find out if there is any fire in this smoke. What's an ostrich pattern and how reliable is it?

Just curious...Thanks!

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: PrashantS
Date Posted: 03/Dec/2006 at 11:08pm

it is a signal for big problem...but again the pattern can change....

Posted By: basant
Date Posted: 03/Dec/2006 at 11:30pm

but again the pattern can change - A very appropriate answer!!!

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: BubbleVision
Date Posted: 03/Dec/2006 at 10:28am

A pattern does not exactly repeat also and it is also very very difficult to conclude when the pattern has failed.

Then above that.... making a trade bcoz of a pattern failure adds to the confusion.

I guess one can see that I am not a big pattern follower.

BTW, a very very good discussion in the last few days over here.

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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: prosperity
Date Posted: 04/Dec/2006 at 7:54pm

If i am made to pick my favourite topic in whole of theequitydesk.com..... then this is the one !

Basantji, Boarders,

Keep the words of wisdom on investing strategies coming in ......

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Posted By: catcall
Date Posted: 04/Dec/2006 at 8:04pm

Trends and patterns become important when you wish to get in and out of stocks frequently , not if you're in it for the long haul. I guess the age old axiom still holds

"Use Fundamentals to decide what to buy and technicals to decide when to buy and when you made both the decisions and acted upon it, try to sleep over it for some time"

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There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing!

Posted By: PrashantS
Date Posted: 04/Dec/2006 at 8:28pm

yes catcall........the numbers are very good...thats what you got to see...see the demand and believ in that story and people get in and out of stocks withought understanding how well it could do..........so this is done through technical charts...get in and get out.......no point in doing that....in reall world and the technical charts are found

CNbc how ..".this stock has been doing well on this chart what do you think"

answer from charts "keep stop loss and pray god to loose money "

this is what happens.............Tv18 stocks are good but the channel says all sorts of things,,,,,,,,,,i mean people on that channel........

Posted By: omshivaya
Date Posted: 04/Dec/2006 at 2:05am

Hey new one on equitydesk at: http://www.geocities.com/graphic_indian/ - http://www.geocities.com/graphic_indian/

Just some small stuff...having fun! Many flashes more to be added. For now only two. Lemme know Basant ji.

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: kulman
Date Posted: 04/Dec/2006 at 6:09am

OM jee

You're good at flash animations. Keep it up!

I request you to do some using TAU's pictures as well......

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Life can only be understood backwards—but it must be lived forwards

Posted By: omshivaya
Date Posted: 04/Dec/2006 at 11:50am

With photos, we cannot animate those in Flash.We can animate only vector shapes and sizes. What kind of thing would you like to see on TAUs kulman ji. Btw, did you understand the 2nd animation? What were those 2 circles humping? Hope I was able to convey the message.

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: monu_duggad
Date Posted: 18/Dec/2006 at 6:55pm

I dont know if this is the right thread to post ...

Did u guys read EcoTimes on last monday...that ET investor guide....

It says the rise of 1000 points especially from 13 to 14k was manipulated...as in the brokers use to place orders for index stock (reliance etc) at higher levels deliberately at the opening bell...and stage-managed the rally by pushing few stocks in index to overstretched levels....

Also..the sudden crash of 1000 points is told to be unnatural...as in some MF pressed the panic button to depress prices so that it cud buy it at lower prices for its newly launched midcap fund...

...never knew even after so many reforms and penetration...our markets r still susceptible to manipulation et al by few punters/operators...

As udayan says "It can be true..but who knows it can be false also,Mitali...."

not that it scares me/anyone..but it does raise an alarm

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If you think you can,You Can

Posted By: basant
Date Posted: 18/Dec/2006 at 6:58pm

Originally posted by kulman

Incidentally I re-read some chapters of P. Lynch's book over this weekend. Just wanted to re-produce one interesting thought from him (may not be relevant on this thread though):

Even the most thoughtful and steadfast investor is susceptible to the influence of skeptics who yell ‘Sell’ before it’s time to sell…We’ve all been taught the same adages: ‘Take profits when you can,’ and ‘A sure gain is always better than a possible loss.’ But when you’ve found the right stock and bought it, all the evidence tells you it’s going higher, and everything is working in your direction, then it’s a shame if you sell. A fivefold gain turns $10,000 into $50,000, but the next five folds turn $10,000 into $250,000. Investing in a 25-bagger is not a regular occurrence even among fund managers, and for the individual, it may only happen once or twice in a lifetime. When you’ve got one, you might as well enjoy the full benefit.

-- Peter Lynch, in One Up on Wall Street

Modestly I accept to having been an investor to these 25 baggers but believe me apart from money they give you a sense of tremendous joy and satisfaction. They also carry a silent message about the relationship between the investor and the stock and that relationship is termed "conviction". In all the time that I held on to that sacred 25+ bagger I never looked at it like most people do "my cost price is so low what can it take away from me but at all points I looked at the current market price to understand the potential loss in case the stock falls". That helped me in not being overconfident (arrogant) and also to understand the risks a bit more closely.

Any one can sit on a big multibagger with the thought that the purchase price is so low but in that case there are two possible scenarios

a) They stock has a small percentage to the portfolio

b) He is looking backwards rather then forward.

I am interested in my cost price only as much as I am interested in the 2003 EPS of the big Multibagger that I am setting on.

Posted By: kulman
Date Posted: 18/Dec/2006 at 7:09pm

Any one can sit on a big multibagger with the thought that the purchase price is so low but in that case there are two possible scenarios

a) They stock has a small percentage to the portfolio

b) He is looking backwards rather then forward.

Hmm....Sage from Salt-lake is at it again!! and words of wisdom have started flowing again....I'm listening/reading very very carefully......

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Life can only be understood backwards—but it must be lived forwards

Posted By: xbox
Date Posted: 27/Dec/2006 at 11:11am

In this market if you give someone Rs 5 lacs and if he is smart he would be a crorepati in 5 years and also vice versa.

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Basant jee, tell address of this 'someone'. I have business for him. Or please pass some scripts that I (we all) can buy and become business for somebody.

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Don't bet on pig after all bull & bear in circle.

Posted By: basant
Date Posted: 27/Dec/2006 at 11:52am

Vipulji: These things just happen. I have done a lot better then that but at the time of investing I did not think that I could make a 55 bagger in Pantaloon or a 9 bagger in Tv18. But generally my process has been expedited by the stream of multiple multibaggers. For example I made a three bagger in HTMT then made 40% in NDTV then a 9 bagger in TV18 so the final answer looks very good. I doubt if anyone could say with a great deal of surety whether his investments would become a 20 bagger in 5 years but for me it has been a lot better then that and if you ask me whether I can do it again my answer would be - I hope so but the last time it just happened and the next time it happens I will tell you. Cannot be sure on this.

In my initial days I was expedited by leverage which http://www.theequitydesk.com/forum/forum_posts.asp?TID=290 - I had explained in this section. .

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: basant
Date Posted: 09/Jan/2007 at 10:27am

Over the past few years I have realised a particular thing. That no body just no body in this world will buy you a free lunch. SO even you are interacting with some of the better known fund managers across the world please be sure that while all that conversation could make you feel proud of your contacts they are actually worth nothing.

1) They would never tell you what they are bullish on until the stock has moved at least by 50%.

2) When they sell out they would raise an alarm only after exiting their position.

This applies irrespective to how close or far you are to them.

Posted By: kulman
Date Posted: 09/Jan/2007 at 10:54am

Yeh zindagi ka kadwa sach hain! Naa baap bada naa bhaiyya....sab se bada rupaiyya!

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Life can only be understood backwards—but it must be lived forwards

Posted By: BubbleVision
Date Posted: 10/Jan/2007 at 12:20pm

That no body just no body in this world will buy you a free lunch.

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Absolutely true.....This world of markets has NO FREE LUNCH...

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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!

Posted By: basant
Date Posted: 10/Jan/2007 at 12:26pm

I think that it is important to know this concept of "no free lunch". My strategy revolves around not in trying to know what they are buying (because that in any case would not happen) but in trying to sell them what you are bullish on.If the logic makes sense then the person at the other end would be interested and interest for a midcap could drive prices like crazy.

Posted By: vip1
Date Posted: 10/Jan/2007 at 10:48am

Basant ,

But people like you do help people like us in getting Free Lunches(TV18 etc.)

Posted By: basant
Date Posted: 10/Jan/2007 at 11:04am

Originally posted by vip1

Basant ,

But people like you do help people like us in getting Free Lunches(TV18 etc.)

Thanks a lot. See everyone has an agenda for some it could be money for some it could be passion for the others it could be something that he also does not know. My agenda is to have have an online community of serious investors who can do their own research and share thoughts on investing. It is a kind of a situation where the user himself creates the content and benefits from the content that others have created.

Now I could have started in a pay mode tried to come on TV and spoken the same thing but sometimes money is not the end all of everything. I like talking to people who want to dream big. That dream could be about anything.

Equities have been a passion for me so much so that even when I meet a completelty unknown stranger on a train or in flight the first advice I give him is to start investing in equities (SIP) through the MF route.I doubt if anyone starts doing that but people who keep money in Bank FD's or PPF are actually doing sin with their money.

A monthly investment of Rs 500 (Rs 17 per day) for 30 years @21%CAGR can create a wealth of Rs 1.5 crores.

That means all the rickshawwallas, taxiwallas, peons,servants and chowkidaars can retire crorepatis

As a MF distributor I love selling SIP plans to investors who have a longer term view.

No wonder CK Prahalad says "We are not resource poor. We are only imagination poor."

Posted By: vip1
Date Posted: 11/Jan/2007 at 3:12pm

Basant ,that's Conviction at work .

Posted By: kulman
Date Posted: 11/Jan/2007 at 8:05am

Following sentences are just extra-ordinary. Great ones, Basant jee!

See everyone has an agenda for some it could be money, for some it could be passion, for the others it could be something that he also does not know.

My agenda is to have have an online community of serious investors who can do their own research and share thoughts on investing

sometimes money is not the end all of everything.

I like talking to people who want to dream big. That dream could be about anything.

CK Prahalad says "We are not resource poor. We are only imagination poor."

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Life can only be understood backwards—but it must be lived forwards

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