Why are Indian stock markets attractive for Investments?

In this 5 minute video, JainMatrix Investments founder Punit Jain presents a few reasons for investing in Indian stock markets. This is part of the Investor Education section of http://www.jainmatrix.com.

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DISCLAIMERS

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain is a registered Research Analyst and compliant with SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

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How to approach the Stock Market – a lesson from Warren Buffet

This year the world’s most famous investor Warren Buffet did something unusual during his firm Berkshire Hathaway’s AGM.  He let the Apr 30th one-day event be telecast live over internet to anyone interested. I have taken one wonderful lesson delivered that day by Warren Buffet and rewritten it for the Indian market. It is here in 7 simple points.

  1. Lets say there are a 100 people sitting in front of us, and these 100 represent the entire Indian stock market shareholders, they own all the shares available. See Picture 1.  jainmatrix investments. audience
  2. Lets make a line in the center, and separate them out with the left half owning 50% of all shares and similarly the half on the right. The left half are passive investors. They do not trade shares much, just buy and hold. The ones on the right are active investors and traders. They invest through equity mutual funds, equity futures, buy and sell options, trade intraday, hedge funds, etc.
  3. The Indian Sensex has given 14.8% CAGR annual returns in 14 years since 2002. See Fig 2. jainmatrix investments, Sensex May 2016
  4. The people on the left are going to get the average returns of the Sensex, ie. 14.8 % CAGR over this entire period. They are passive, and so they will get the average returns. Tax on profits that are Long term capital gains (>365 days) on equity is zero.
  5. The ones on the right are also going to get an average of 14.8% over this entire period. However, their real returns will be much less due to tax, commissions, brokerage, AMC charges and success fees.
  6. Why is this? This is because:
    • The equity mutual funds are going to take away as much as 2.5% per year of AMC charges.
    • The traders in Futures and Options are essentially playing a +14.8% sum game, where the underlying equity is on average appreciating by 14.8%, and all the trading only declares some winners and some losers. The losses of the trading losers get transferred to the winners. Also, the intraday, momentum and swing traders too are in the same boat as F&O.
    • Trading is governed by an equation, Profits (by winners) + commissions + taxes = Losses (by losers). Of course if you are a good trader, you will get superior returns while another group will face the losses. But risks are higher here.
    • A lot of your money is eaten up by brokerage, taxes, AMC charges, fees and commissions.
  7. The lesson here is – become a passive long term investor and get the 14.8% long term average of returns. Spend your time on more useful things, and get good returns on investments.

Once again we thank the great investor for his simple but powerful messages.

JainMatrix Investments helps you in your investing process with good stock picks for the long term, monitoring of the firms over these periods and superior returns, all at a low fixed subscription rate!!

We have given Sensex plus returns in our Large Cap Model portfolio for over 3 years. And our Mid and Small Cap Model Portfolio has actually provided exceptional returns. See JainMatrix Track Record !!

Annual subscription for the Investment Service is available for Rs 11,999/- (India located) or US$ 210 (located outside India), for individual / Retail investors.
Investment firms, wealth professionals and Institutions may contact us for a quote for Investment Services.

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Warren Buffet enthusiasts may see the entire 7 hours of the AGM event on video on LINK.

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst (SEBI Registration No. INH200002747) under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

A Superior Investing Process – Do a DIP SIP

Did you know that the DIP SIP is the most efficient way to invest in the stock market?

We at JainMatrix Investments recommend investors to invest in equities in a Direct Equity – DIP SIP mode. The equity markets have fallen sharply this year, and this is a good time to invest. Let us explain this process.

What is a SIP?

A Systematic Investment Plan or SIP is a smart mode for investing money which allows you to invest a certain pre-determined amount at regular intervals (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments where the saving habit becomes a routine. The SIP approach can be used for any investment vehicle, such as FDs, MFs, direct equity, etc.

Why Equity investments?

Historically investments in equity stocks have given higher returns amongst all the other asset classes if investment was done with discipline and a long term time horizon. See an assets map where we present a number of asset classes and the Risk-Return trade off, Fig 1.

Fig 1 – Comparison of Asset Classes, JainMatrix Investments

Fig 1 – Comparison of Asset Classes (click on image to expand)

What are the benefits of an equity SIP?

  1. Ride the Volatile Equity class and reduce Risk with Rupee Cost Averaging
  2. SIP can be started with very small amount of money, and increased at a later date
  3. Timing the market is not necessary. But gains are best when markets are low.
  4. Long term financial goals can be aligned with SIP
  5. Disciplined approach towards Investment helps in controlling the emotions
  6. Investments get aligned with income flow and it becomes a regular habit

The JainMatrix Investments Model Portfolios

JainMatrix Investments launched its Large Cap Model Portfolio in Dec 2012 and its Mid & Small Cap Model Portfolio in Feb 2013. These two portfolios are chosen from over a 100 stocks that we have researched over the years. The main reason for two separate model portfolios is to offer simple investment choices, and to align with the risk appetite of investors.

  • The Large Cap Model Portfolio consists of 7 stock picks from 7 different sectors. The firms chosen are identified as high potential large caps with good fundamentals. The minimum investment period is 2 years. The objective is to outperform the Sensex/ Nifty by 5-10%.
  • The 7 stock picks from the Mid & Small Cap Model Portfolio are from 3-4 high potential sectors. These firms have very good growth potential irrespective of mid, small or micro size. The minimum investment period is 1 year. The objective is massive out-performance of Mid/Small cap Indices.

DIP SIP and equity MF SIP compared

Now that you have understood the equity SIP mode of investment, it is imperative to compare DIP SIP – investing directly in equity with equity Mutual Funds.

1 – Expense Ratios

Investments in equity Mutual Funds are expensive in terms of the expense ratio cost incurred to the investor. Expense ratio states how much you pay a MF in percentage term every year to manage your money. This includes the fund management fee, agent commissions, registrar fees, and selling and promoting expenses. The Expense Ratio that is disclosed every March and September as a percentage of the funds net assets. As you grow your investment portfolio over the long-term, a high expense ratio will eat into your returns through power of compounding. The expense ratio of debt MF’s is typically in the range of 0-1% whereas it is in the range of 1-3% for equity MF’s. See Fig 1.

Exhibit 2 – Expense ratio of MFs, JainMatrix Investments

Exhibit 2 – Expense ratio of MFs (Source: Finalaya.com)

In comparison to this, the JainMatrix Investment Service has a fixed/ flat annual charge.

2 – Performance

Now let’s have a look at various index returns, top performing large, mid & small cap MF’s and the performance of JainMatrix Investments model portfolios.

Top 10 Large Cap MFs over last 3 years

JainMatrix Investments

Fig 3 – The top 10 Large Cap MFs over 3 years (Source Value Research)

The best performing large cap MF over a 3 year period is Birla Sun Life Frontlife Equity Fund which has given investors a 13.7% simple annual returns. In the same period the SENSEX has given investors a simple annual return of 7.27% and JainMatrix Investments Large Cap Model Portfolio has given a simple annual return of 13.3%. Let us understand this graphically in Fig 4.

JainMatrix Investments

Fig 4 – The Sensex, MF and JainMatrix LC Portfolios (Source Value Research)

Top 5 Mid Cap and Small Cap MFs over last 3 years

JainMatrix Investments

Exhibit 5 – Return and expense ratio of top 5 Mid and Small Cap MFs (Source Value Research)

  • The best performing Mid-Cap MF over a 3 year period is UTI Mid Cap Fund with a 28.08% simple annual returns. In this period, the S&P BSE Mid-Cap gave returns of 17.14%.
  • The best performing Small-Cap MF over a 3 year period SBI Small & Midcap Fund gave 33.23% simple annual returns. In this period the S&P BSE Small Cap gave a return of 18.22%
  • The JainMatrix Mid & Small Cap portfolio gave a simple annual return of 47%. See Fig 6.
JainMatrix Investments

Fig 6 – The Indices, MF and JainMatrix MSC returns (Source Value Research)

3 – Control

Investors in MFs hand over the investment performance to the portfolio management team of the MF. They can now decide only to buy, hold or exit. However in the case of the JM Model Portfolios, investors retain control over the purchases as the investments are in their own trading/ demat accounts. This offers additional flexibility to investors for both entry and exits.

4 – Liquidity

Liquidity is the investors ability to encash in the case of urgent need for money. MF’s can be closed ended MFs that will be locked in until maturity thereby removing chances of liquidity during the investment term. Thus if an investor wants the money immediately, then he/she would have to pay an exit load for the same which is again 1-3% of the invested amount. ELSS MFs are locked in for 3 years. Direct equity is very liquid as within 2-3 days the stock can be sold and the cash credited into the linked bank account. However from a tax perspective, the treatment is the same for direct equity and equity MFs. Long term capital gains kick in after 1 year of investing.

How to execute a DIP SIP?

Checklist for a Direct Market SIP:

  • You can use your current Online Trading account/ broker relationship for the DIP SIP. If you have to choose among your broker options, choose the one with lower brokerage or better ease of use.
  • Decide on the 5-7 stocks you will invest in.
  • Decide on the amount you will invest every month – here I would suggest you fix an amount in the range of Rs 5,000 to 50,000 and keep up this amount every month. Thumb rules here can be 10% of your take home salary or 50% of monthly savings.
  • Create a small calculation excel for helping you decide the actual number of shares to be bought. See section – Start Investing.
  • Decide a date for investing. If you are salaried, perhaps 2nd or 3rd every month is a good date as it is right after you have received your salary. Or any other convenient date. Keep a reminder for this.

Choose Your Stocks

This is an important step. My key principles in choosing the stocks are:

  • For a high stability low risk portfolio, choose large liquid blue chips.  They should be Nifty/ Sensex stocks. You do not want too much volatility in this investment.
  • For an aggressive higher risk portfolio, choose mid & small cap stocks with high potential.

Subscribe to JainMatrix Investments Investment Service to receive proven, high performing Model Portfolios

Start Investing

  • You are now on the day you are starting your DIP SIP, within trading hours.
  • Choose your DIP SIP portfolio of stocks. Lets say you chose the top 5 shares by mkt cap.
  • Lets say you have chosen the amount Rs. 30,000 to be invested every month for your DIP SIP.
  • Create a small excel – which can help you calculate the number of shares right now. See fig 7.
JainMatrix Investments

Fig 7 – Tool for DIP SIP purchase

  • Open the excel, do the calculation; then buy the DIP SIP through your broking account.
  • Your DIP SIP can be done in 10 minutes every month. 

Start your DIP SIP today. Subscribe to the JainMatrix – Investment Service to get our top performing Model Portfolios  and recommendations and you are ready to go.

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Happy Investing!!!!!

JAINMATRIX KNOWLEDGE BASE 

See other useful reports

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  3. Track Record – Dec 2015
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  5. Goods And Services Tax (GST): Integration And Efficiency
  6. Indigo IPO – Flying High, Wide And Handsome
  7. Café Coffee Day IPO – Very Hot Coffee 
  8. Syngene IPO: Good Pharma R&D spinoff from Biocon.
  9. JainMatrix IPO Reports deliver 60.5% returns

Search for companies/ sectors of your interest in Search box in the right panel.

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com .

Seven Short Steps to Long Term Investing Success

Dear Investors,
I got a question on a discussion forum, about Long Term Investing. I found the line of thought very interesting, and my reply is in the form of the Seven Steps to Long Term Investing Success !!
So here goes.  (thanks Srini and Musa).
..

First the question

Dear All,
Need some advise.
I intend to invest some X amount in some select stocks with a holding period of about 8-9 years.
Is it good to leave it untouched till the end of holding period? Or is it advisable to set some yearly target say 20% or so and exit once the target is achieved in a year and wait for some lows to happen to reenter the stock for a target n exit once again and continue this cycle till the end of Holding year.
I don’t know how the above approach of mine sounds, but need you to give me some thoughts on how to go about it.
Regards.
..
Here’s my Answer:
..

the Seven short Steps to Long Term Investing Success

Dear Investor,
This is a pretty good question.
The investing process I feel you should follow is:
  1. Stock Selection: Obviously, choose your Select Stocks well. Since the holding period is 8-9 years, you need to look closely at the fundamentals. Each stock needs to have an investment thesis (eg. capacity expansion of 200%, or a new product launch that can grow profits 150%) and a price target for a specified period of time like say 2-3 years. These need to be high conviction ideas. Plus good Portfolio thinking is that there should not be an overexposure to any one sector, to reduce overall sector risk.
  2. Investment: Buy the Selected Shares. One way to simplify things is to buy shares of roughly equal monetary value.
  3. Monitor the Stocks: Next these shares need to be monitored. Is the investment thesis being played out in reality? Any external events affecting it? A six monthly review for these Select Stocks may be sufficient.
  4. Minimize Transactions: I would disagree about the 20% annual targets and exit /entry cycle. Good well chosen shares may appreciate even 100% in a good year, yet may still be cheap and worth buying, even at this level, if the 2-3 year outlook still looks good. Every delivery based entry and exit can cost you upto 0.6% of your asset, so transactions should be minimized for long term investments.
  5. Use Dips to Buy: Also the reverse may also happen. The investment thesis may be playing out well, but the share price may have fallen 20%. You need to be patient here, and can even buy more of this stock if you have funds.
  6. Exit Non-Performers: My approach would be to (on Review) sell those Stocks that are not performing on fundamentals as per the investment thesis (this may or may not be reflected in the price performance) and perhaps buy more of those that are performing. There is no shame in admitting mistakes. Even investment greats like Anthony Bolton (I’m reading a great book by him called Investing Against the Tide) talk about a success/ hit rate of 55-60%. The secret is to identify mistakes and reduce losses by exiting fast.
  7. Time in Market: Over the 8-9 years period a good internal price target to have is to get a 20% annualized return for your Select Stocks. But notice that big returns come in a few years and things may be flat to negative for the others. So I prefer “Time in Market” with “Good Stocks” where you will get the returns over time.
Thats it !! I guess many years of investing have helped me give a short and sweet answer.
Sorry for generating Option 3 compared to 1 or 2 asked by you, but this is my recommended approach.
Here’s to your investing success.
(needless to say, revert to me if you need help with choosing stocks and monitoring  Emoji )
Regards, Punit Jain
Bangalore, Founder, JainMatrix Investments
 .. 

DISCLOSURES AND DISCLAIMER

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and all stock investments are subject to market risks. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a Financial Adviser. This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. JM has been publishing equity research reports since Nov 2012. JM has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Investor Education

As an equity analyst, I feel that education and learning should never stop. There are so many mysterious pebbles to overturn and emotions we have to fight, as investors. So I share with you some of my articles and notes that can help you become a better equity Investor.

  1. How to Approach the Stock Market – A Lesson from Warren Buffet – May 2016
  2. A Superior Investing Process – Do a DIP SIP – March 2016
  3. Seven Short Steps to Long Term Investing Success – June 2015
  4. Retirement Planning: Some Radical Thoughts – April 2015
  5. Fundamental Thoughts – The Search for Stability – Feb 2015
  6. The Toughest Lesson In Long Term Investing – Dec 2014
  7. My favourite – A Vision for the Indian Economy – June 2014
  8. High Risk and High Return In Equity – Oct 2014
  9. The Rationale Behind A Sell Decision – July 2014
  10. How many Mutual Funds should I hold? – May 2014
  11. How The Economic Machine Works – Feb 2014
  12. Make Equity Investing Less Tricky: The JainMatrix Eleven – Jan 2013
  13. Investing Needs Discipline – Dec 2012
  14. An Investor’s Checklist – Apr 2012
  15. India’s Investment Rockstars – Mar 2012

Hope you like them. Feel free to comment, share or go social with these.

Punit Jain

Retirement Planning: a Poll and some Radical Thoughts

Dear Reader,

I came across this interesting article recently, and would like to share it with you.

The inglorious goal of doing nothing – LiveMint, April 21st 2015. 

In short the article describes a person who retired at 40 and is living in a remote location and doing nothing – just enjoying his peaceful retired life. The author proceeds to comment on this and sees it as a poor choice in life.

As an analyst, I would say that …. Its a choice the person in Goa has made, and the best he could do. I may or may not make the same choices, and I may or may not be able to achieve as much as this person at 40.

Which moves me to a question for my readers:

What is your ideal retirement dream?

In fact, I will ask you to take a Poll below and let me know what your dream is …..  Remember, you can answer this Poll only once.

Thank you in advance for your answer.

The Importance of Investing

The point of my exercise is to understand you, my reader. It is also related to this important thing in life called MONEY. Our entire work life is devoted to earning it.

There’s an almost equally important aspect of our life, often neglected, called INVESTING. Most people realize its importance, but are not able to act on it. Investing is a wide term, and there are a number of asset classes, see this chart.

Untitled

Within Direct Equity there are a few options, detailed below:

Equity Risk

My opinion on Retirement Planning:

  • Its not important to retire. Instead its important to be able to make work and lifestyle choices where you are free from financial pressures.
  • Free yourself from financial pressures by building your own financial assets.
  • Assets owned by you depend not just on income earned, but also on your making the right investments.
  • Equity as an asset class is highly recommended for long term wealth and asset building, and retirement planning.

Sign up with JainMatrix Investments as a subscriber. Build and protect your capital through equities, and let the money set you free to pursue a passion, a hobby or a peaceful life.

JAINMATRIX KNOWLEDGE BASE

See other useful reports:

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. JM is voluntarily compliant with SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Equity Portfolio Thoughts – Control, Wealth and your Reflection

——————————————————————————————————-

Date 23rd March 2015  

Summary

  • An Indian investor is free to invest in any of 5000+ stocks listed on the exchanges.
  • He may have a range of needs in his equity portfolio, which we have captured in a hierarchy.
  • He may like to progress on this range and exercise his choices in a calibrated fashion

Introduction

I was speaking to an investor a few weeks ago. A busy executive, he had a medium size equity portfolio by value. But I was astonished to see that he had almost a hundred shares in his Demat account. And he looked at me and asked, “So what should I do with my portfolio?” I was of course on a tight time schedule, and ran through my 4-5 step standard template for portfolio discussions.

A little later, on reflecting on the above question, I realized that the answer to the above question can be very nuanced. And really there can be multiple approaches and answers to this question.

Let’s step back to the very basics of the question, what does a person need from his equity portfolio?

An Equity Portfolio – A Hierarchy of Needs

To answer this question, we need to draw parallels from the Maslow’s hierarchy of needs, and it is summarized below. Expressed simply, every human can have a number of needs, but at different times in his life, and in different situations, the needs change. Generally speaking, the needs follow a hierarchy.

Portfolio hierarchy, JainMatrix Investments

An Equity Portfolio – A Hierarchy of Needs. Source: JainMatrix Investments. Click to enlarge.

In a similar way as Maslow’s needs hierarchy, a person’s equity portfolio reflects different needs in investing and his ability to focus efforts and achieve his personal needs and objectives. Here are the levels that I am able to present:

  1. Gain Control: I have seen many equity portfolios that are nothing more than a legacy of 15 years of sporadic investment enthusiasm. With funds available and a pep talk by anyone, individual investors may make a series of purchases. This may be followed by 6 months of watching the results unravel, followed by 4.5 years of inaction. All of which may be repeated again. As a result the shares may be an uncoordinated mass of choices from the past. Selling is more difficult than buying.
    • It may seem that ‘Do nothing’ is an option here. After all these stocks can sit in your portfolio for another 5 years, and your carrying cost is as less as Rs 1000/year. Wrong. If you are not in the right stocks for a ‘long only’ portfolio, chances are that over time your portfolio will decay in value rather than strengthen.
    • The task of the Investor (along with his portfolio adviser) would be to try and gain control of this portfolio. The basic issues here are –
      • 1. What’s the objective and primary need of this portfolio?
      • 2. How many shares are we comfortable with?
      • 3. Whats the risk appetite and profile of the investor?
      • 4. How do we achieve these 1, 2 & 3, and in what time frame?
    • Also essential to Gain Control, is the need to identify and exit the low potential stocks.
    • In my opinion even stable long term (example – avg. holding of 10 years) investment portfolios should be reviewed once a year to align with macro/ sector events and to evaluate opportunities.
  2. Absolute Returns and Profits: Typically equity trading has a very clear objective, of maximizing returns from any trade. Similarly we obviously invest money with the plan of gaining profits and building wealth. The question here is, over what time span? One hour? One week? One year? A decade? New investors are typically looking for a simple quick absolute return.
    • For an investor, the portfolio strategy here is to simply find the shares that have a high confidence rating of highest upside potential. To find such shares is an ongoing exercise. Many successful finds for example may achieve their potential and may not be investment worthy any longer. Others may continue appreciating for decades. However this exercise is also fraught with risks. Many highly rated shares may fail. Or a sector may be affected by an unexpected event.
    • Its critical here to not just understand a target investment firm for its financials, management and business assets, but also the sector and macro context of this firm.
  3. Safety and Stability: Very soon a trader/ investor may realize that just desire for profits and available funds is not enough. One has to approach investing with a safety plan, and temper high profit expectations with realistic back up plans and a safety net. Am I taking too high a risk, with the possibility of a big loss? What’s my worst case scenario? What risk am I comfortable with? And for how much of my portfolio? With some experience, an investor is able to balance the profit expectation with an understanding of risk, and build his checks and balances.
    • For some thoughts on Risk v/s asset classes see LINK.
    • Every asset class has an associated risk. And a good fundamental researcher can assess and understand this risk well. So for a long term equity investor to have a 100% returns per annum expectation is asking for too much. He may actually get it but only once or twice in a decade. And this may soon be followed by a hurtful loss, equally unexpected.
    • A good equity Portfolio should be able to limit equity holdings within individual firms and within a sector, and also align the market cap focus with risk profile such as Safety – large caps, Higher risk – mid caps and Aggressive – small caps.
  4. Belonging: Community, Region, Profession, etc: At another level of the investment hierarchy, a wealthy investor may start thinking of his investments not just as a means to grow wealth, but as an expression of his place in society. This means the person is focusing a part of his funds towards the things that are important to him, an extension of his personality.
    • This could perhaps mean that for a Bangalore based person like me, I could invest in firms like Titan, Brittania Industries, BF Utilities, Mindtree, etc. which are local firms. I may get a feeling of pride to see these firms doing well, and even though a small shareholder, would be sharing a part of a big success.
    • Similarly as a former software executive, I may like to invest in a few software small caps that I not just understand well but also hope that my ownership in a small way can contribute to its success. It’s more about encouragement and support than just returns.
    • In terms of an exclusion list, a lot of people may be uncomfortable about investing in sectors such as cigarettes and liquor/alcohol. Its really upto the investor to be comfortable with his investments, right?
  5. Self Actualization: A wealthy investor may actually decide to focus his funds towards doing real good, or addressing problems of society. In the past the only way one could do this was in making donations to NGOs, and Education or Religious Trusts. In today’s economy there are several listed corporates that address the needs of the weaker sections of society, or of the environment, and still have an objective of making profits for shareholders. I see no essential compromise in achieving both these objectives. There is, possibly, “A Fortune at the bottom of the Pyramid”.
    • I believe firms in sectors like education, environment, renewable energy and some NBFC’s in housing finance and micro-finance may be addressing and solving large problems of society.
    • Readers are invited to revert to me with their ideas or suggestions of such firms that they have come across.

In Conclusion

Different investors may have vastly different needs in their equity portfolio, and we have mapped these in the form of a simple hierarchy. Many of us could be frozen in inaction at Stage 1 of this hierarchy. Others may have progressed along the stages and gained control and solid wealth from it. Some may actually have a portfolio that expresses their hopes and dreams for their society. Its essential for an Investor to reflect objectively about his own portfolio and think about improvements.

So where are you in this hierarchy? Drop me an email to see if I can help you with aligning your Equity Portfolio to your own needs. See Portfolio Review for a short description of our services.

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Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. Many firms are mentioned in this report, and it should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com