Diversify
As one enters the market, one accepts certain risks. Thus the investment strategy calls for risk mitigation. One of the most simplest and common strategy is diversification.
Diversification should aim at balancing exposure to market across different sectors, market capitalisation (company size by its total market value), stock characteristics (dividend stocks, growth stocks, long term investments, momentum stocks,etc).
Although there is no clear formula known to me, I am sure there wouldn't be dearth of material on portfolio diversification. I think a retail portfolio should be diversified to hold at least around 15 different stocks and not more than 10 % of the portfolio value in a single stock. This means that your portfolio is fairly diversified and yet you have a few concentrated bets to gain from price momentum. Generally higher diversification means lower risk, however the tendency to diversify too much should be avoided. The problem with over diversification is that while risk is lowered, returns may also be lower.
Wednesday, June 18, 2008
Wednesday, May 28, 2008
The stock market survival guide - III
Take your own decision.
As a beginner, once you have set aside an amount for investment, the simplest thing is to ask for experienced investors for tips. Its ok to ask for such tips, but the final investment decision should be yours. You should do your own research on the stock and decide the amount and timeframe of investment. After all its your own money thats getting invested. The person who gave you the tip won't compensate you if the investment goes bust.
Another point to bear in mind is to not fall for tips of companies who's daily trading volumes are very low. Those may be penny stocks whose price movements are huge. Such stocks if picked at right time might bring in huge returns. However these are exactly the kind where you might loose all money invested.
As a beginner, once you have set aside an amount for investment, the simplest thing is to ask for experienced investors for tips. Its ok to ask for such tips, but the final investment decision should be yours. You should do your own research on the stock and decide the amount and timeframe of investment. After all its your own money thats getting invested. The person who gave you the tip won't compensate you if the investment goes bust.
Another point to bear in mind is to not fall for tips of companies who's daily trading volumes are very low. Those may be penny stocks whose price movements are huge. Such stocks if picked at right time might bring in huge returns. However these are exactly the kind where you might loose all money invested.
Sunday, May 25, 2008
The stock market survival guide - II
Research.
As a novice the temptation, to listen to tips from experienced investors or brokers and then buy those stocks, is huge. Nothing wrong in listening to the tips.
However its important to do your own research.
Some of the criteria to consider while researching are as follows
- Results posted by the company. Look at quarterly as well as yearly. Look for consistent growth. A simple number to look at here would be EPS (Earnings per share). A continued increase in this number generally indicates that the company is in good health.
- Graph of the stock price over a long period of time ( About 6 months to a year is decent ). The trend in the stock price should typically be consistent with market conditions and the earnings growth. Any significant deviation would be indicative of some news around the company or its industry sector.
- Check price to earnings ratio (P/E) of the stock. This ratio generally indicates how costly or cheap the stock is. If its very low but greater than 0 then there is a good chance that the price of the stock may have been hit due to certain factors. However for companies with strong potential its generally a good time to buy.
A corollary to above rule is that a high P/E is generally a good time to sell.
- Check news. Although the 3 parameters mentioned above can help one in making judgement about any stock, news is what really causes stocks to move in a big way and in a relatively short time frame. Its usually difficult for a novice to make good judgements about stock movements based on news. This is however something that only can come through experience. Therefore it is worth keeping abreast news and its impact on the market.
As a novice the temptation, to listen to tips from experienced investors or brokers and then buy those stocks, is huge. Nothing wrong in listening to the tips.
However its important to do your own research.
Some of the criteria to consider while researching are as follows
- Results posted by the company. Look at quarterly as well as yearly. Look for consistent growth. A simple number to look at here would be EPS (Earnings per share). A continued increase in this number generally indicates that the company is in good health.
- Graph of the stock price over a long period of time ( About 6 months to a year is decent ). The trend in the stock price should typically be consistent with market conditions and the earnings growth. Any significant deviation would be indicative of some news around the company or its industry sector.
- Check price to earnings ratio (P/E) of the stock. This ratio generally indicates how costly or cheap the stock is. If its very low but greater than 0 then there is a good chance that the price of the stock may have been hit due to certain factors. However for companies with strong potential its generally a good time to buy.
A corollary to above rule is that a high P/E is generally a good time to sell.
- Check news. Although the 3 parameters mentioned above can help one in making judgement about any stock, news is what really causes stocks to move in a big way and in a relatively short time frame. Its usually difficult for a novice to make good judgements about stock movements based on news. This is however something that only can come through experience. Therefore it is worth keeping abreast news and its impact on the market.
Tuesday, May 13, 2008
The stock market survival guide - I
Try not to get a heart attack.
As a novice investor I am biased towards deposits as safe investments. The reason is that the chances that my invested principal is lost are virtually zero. (Those who don't know what principal here means, do 10 sit ups as punishment for not paying attention in high school mathematics class). However with the market there is always news about people losing a fortune and falling ill when the market crashes. I remember a friend of mind telling me about an uncle who got a heart attack after suffering loses in the market. Thus I think most of these people would be the ones who are so highly invested in the market that it is a little beyond the comfort zone.
Thus given the risk of loss, I think it is best to invest only as much as one can afford to lose without falling ill (or metaphorically speaking - "getting a heart attack").
As a novice investor I am biased towards deposits as safe investments. The reason is that the chances that my invested principal is lost are virtually zero. (Those who don't know what principal here means, do 10 sit ups as punishment for not paying attention in high school mathematics class). However with the market there is always news about people losing a fortune and falling ill when the market crashes. I remember a friend of mind telling me about an uncle who got a heart attack after suffering loses in the market. Thus I think most of these people would be the ones who are so highly invested in the market that it is a little beyond the comfort zone.
Thus given the risk of loss, I think it is best to invest only as much as one can afford to lose without falling ill (or metaphorically speaking - "getting a heart attack").
Sunday, May 4, 2008
The stock market survival guide for dummies.
Its been 4 years since I bought my first ever stock in the market. The Indian market has been in a phenomenal bull run since. In between it has seen quite a few bear phases too. Naturally as an investor I have learn't a few things. I therefore decided its time for publishing a few survival tips for a first generation novice investor like me.
First what does survival really mean?
As a dummy with the market my known modes of investment are at best fixed interest income instruments. These include bank deposits, saving certificates, provident fund, pension funds. Thus my investments can be expected to grow about 8 % annually as per current fixed deposit interest rates. This of course is virtually zero risk. Thus this marks the benchmark for my expectation of returns from any investment. With this background I consider that one has survived the market if over the long term (per current Indian rules a period greater than a year is considered long term for investments in stock market) one has achieved a return better than the benchmark mentioned above. Thus anything significantly better than 8 % and one would have more than just survived. In such a case consider comparing your returns to a more realistic benchmark (e.g. Market Indices like Sensex, nifty ). That comparison is of course not for the novice so for the posts in this series I'll stick to the benchmark defined before.
First what does survival really mean?
As a dummy with the market my known modes of investment are at best fixed interest income instruments. These include bank deposits, saving certificates, provident fund, pension funds. Thus my investments can be expected to grow about 8 % annually as per current fixed deposit interest rates. This of course is virtually zero risk. Thus this marks the benchmark for my expectation of returns from any investment. With this background I consider that one has survived the market if over the long term (per current Indian rules a period greater than a year is considered long term for investments in stock market) one has achieved a return better than the benchmark mentioned above. Thus anything significantly better than 8 % and one would have more than just survived. In such a case consider comparing your returns to a more realistic benchmark (e.g. Market Indices like Sensex, nifty ). That comparison is of course not for the novice so for the posts in this series I'll stick to the benchmark defined before.
Tuesday, April 29, 2008
My first mobile blog.
I am falling in love with google again. First they brought gmail to mobile. The mobile blog thing has also been around for some time. I know shag tested it long time ago.
However in here in India GPRS internet ain't that good. My first attempt of sending an MMS to go@blogger.com didn't quite yield the desired result. Then I chose to send email to the same address. This time it worked. So here is my first one on mobile. Hopefully bus rides to office and back will be busier with this avenue.
However in here in India GPRS internet ain't that good. My first attempt of sending an MMS to go@blogger.com didn't quite yield the desired result. Then I chose to send email to the same address. This time it worked. So here is my first one on mobile. Hopefully bus rides to office and back will be busier with this avenue.
Monday, March 31, 2008
RAIT prospectus
This article (text pasted below) originally appeared in Jam Magazine many years ago.
"Unofficial Prospectus: Ramrao Adik Institute of Technology..
Previously was: Ramrao Adik College of Engineering.
Speciality: Toppers in Univ. at least in Electronic & Computer engineering (coz other branches don't exist.) It's known for Horizon - the inter-college fest (the top five in Mumbai)!
Crowd: A masala mix of scholars, cyberjunkies, die-hard headbangers, take-it-easy goers, flunkers, Martians, Gujjus etc. People here are into computers, rock music, rock music and computers. Half of RAIT comprises of cyber nuts, the other half sleep
on guitars.
Life in RAIT: It begins at 9:00 am and seems to end at 6:00 pm (People never leave, they seem to fade away. RAIT is never lifeless) It goes up and down as usual (except on Fridays). An added attraction not found in other colleges.
Hangouts: The basement is the site of all underground and nefarious activities. It houses the engg. canteen (EC) and the medical canteen (MC). Medical? Well the engg. & medical colleges are in the same building and the engineering studs share a special relationship with the MC.
Canteen: Strangely enough RAIT canteen (managed by Anna) serves good food at reasonable rates. Smoking is allowed in the EC at RAIT. The canteen speciality includes thali, vada pav (pleeese!), coffee, tea (of course!).
Official Rules: Meant only for the notice boards.
Notice Boards: They exist only to display the so-called outdated official notices and surprise holidays.
Unofficial Rule: Anything goes!
5 Things to do in RAIT:
1) Get ragged on the first day.
2) Learn Marathi (your office-cruising will be much faster.)
3) Sit for lectures for a change.
4) Compete in Horizon.
5) Witness a fight in one of the canteens in the college.
5 Things you don't do in RAIT:
1) Leave your programs unsaved.
2) Try to butter up professors.
3) Try to sweet talk babes.
4) Use the lift on Fridays (invariably the electricity conks off).
5) Try to eat your Lunch alone. (Lukewarm friendships suddenly turn into lunch long ones during your meal time)
Why you should be at RAIT: Life is never monotonous, so you'll never be bored. A healthy mix of both education and entertainment. So if you plan to be an engineer with a difference then RAIT is the place to be in.
"Unofficial Prospectus: Ramrao Adik Institute of Technology..
Previously was: Ramrao Adik College of Engineering.
Speciality: Toppers in Univ. at least in Electronic & Computer engineering (coz other branches don't exist.) It's known for Horizon - the inter-college fest (the top five in Mumbai)!
Crowd: A masala mix of scholars, cyberjunkies, die-hard headbangers, take-it-easy goers, flunkers, Martians, Gujjus etc. People here are into computers, rock music, rock music and computers. Half of RAIT comprises of cyber nuts, the other half sleep
on guitars.
Life in RAIT: It begins at 9:00 am and seems to end at 6:00 pm (People never leave, they seem to fade away. RAIT is never lifeless) It goes up and down as usual (except on Fridays). An added attraction not found in other colleges.
Hangouts: The basement is the site of all underground and nefarious activities. It houses the engg. canteen (EC) and the medical canteen (MC). Medical? Well the engg. & medical colleges are in the same building and the engineering studs share a special relationship with the MC.
Canteen: Strangely enough RAIT canteen (managed by Anna) serves good food at reasonable rates. Smoking is allowed in the EC at RAIT. The canteen speciality includes thali, vada pav (pleeese!), coffee, tea (of course!).
Official Rules: Meant only for the notice boards.
Notice Boards: They exist only to display the so-called outdated official notices and surprise holidays.
Unofficial Rule: Anything goes!
5 Things to do in RAIT:
1) Get ragged on the first day.
2) Learn Marathi (your office-cruising will be much faster.)
3) Sit for lectures for a change.
4) Compete in Horizon.
5) Witness a fight in one of the canteens in the college.
5 Things you don't do in RAIT:
1) Leave your programs unsaved.
2) Try to butter up professors.
3) Try to sweet talk babes.
4) Use the lift on Fridays (invariably the electricity conks off).
5) Try to eat your Lunch alone. (Lukewarm friendships suddenly turn into lunch long ones during your meal time)
Why you should be at RAIT: Life is never monotonous, so you'll never be bored. A healthy mix of both education and entertainment. So if you plan to be an engineer with a difference then RAIT is the place to be in.
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