Why Long-Term Investment?

  • Long-term investment in a promising company creates sizeable wealth.

  • Many good performing companies do not get immediate stock market attention.

  • Specific business strategies adapted by a company, yield results over a period of time.

  • In Long-Term investment, short-term hiccups get absorbed.

 

Global Economic Environment

There is an increasing global economic integration, leading to the emergence of a single world market. India is not an exception to this. In Global economic environment, decisions made across different regions of the world impact Indian businesses as well.

 

Even in an uncertain global economic environment, analysing available information can yield better results.

 

Analysis Methodology

Selection of a stock is based on following considerations:

 

Business model which offers growth potential

Growth potential of sector.

Management’s ability & vision.

Growth prospects of company’s products / services.

Analysis of past performance of company’s financials as well as products.

Scalability of business from time to time with ability to maintain margins.

Future financial implications of company’s strategy.

Valuation of a company with respect to risks associated & possible reward generation.

 

Technical analysis

Technical analysis plays important role in predicting appropriate time to buy or sell.

 

Technical analysis is a statistical analysis tool. It helps to get a fair idea about stock market or individual stock price direction. However, different technical analysts using the same chart may have different views about the market.

 

Adapting to Changes - Flavour of Time

In the past, some sectors / companies performed well and gave huge returns to investors. But the same sectors / companies may not give expected returns over a period of time.

Software industry had generated huge returns during the period 1995 to 2000. Comparatively returns during period 2000 to 2005 were lower as the IT Software industry matured in India; prompting investors to look for other emerging sectors.

In early 1990, lots of finance companies were formed. But over a period of time, very few managed to stay afloat & generate returns.

Prior to year 2000, many PSU stocks were valued at lower PE ratio and were not fancy of investors. Once they got market attention, these stocks generated huge returns during the period 2000 to 2008.

2008 rally saw high valuations of realty stocks. In 2011 these stocks were out of favour.

To conclude, we should adapt to changes and explore opportunities in different sectors to create wealth over a period of time.

 

Is There Wisdom in Selling at a Loss?

Everyone wants to see their investment make profits all the time. But at times, selling at a loss might be a profitable proposition.

 

Good times may not last forever. Sometimes a stock may not move to our expectations or may yield negative returns due to change in market direction. In such a situation, I may recommend exit.

 

As a investor, you may feel reluctant to book loss and instead think of “Rupee cost averaging”. However, “Rupee cost averaging” works well, when a company is financially growing at a pace with strong fundamentals.

 

Loss booking frees up capital and creates liquidity to invest in other exciting opportunities. Sometimes, it is better to book loss to avoid further losses.

 

Liquidity / Daily Stock Traded Value

 

While investing, we should consider stocks offering enough liquidity. Daily stock turnover should support easy exit. High stock turnover indicates the availability of buyers and sellers in the market for that particular stock.

 

Over a period trade value does vary. A company like Infosys, in the initial period of listing [1995] had a daily turnover of less than Rs 10 lac, which shoot over to Rs. 100+ crores in 1999 / 2000.