10 Month Update

Surprised by the 40-45% rally from the bottom ? Don’t tell me you believed that it would stick around at 8K Sensex levels for a long time. I believe that the Sensex fair value to be around 12K to 13K and it could stay in and around these levels for a long time. As this rally happened very fast lot of people have been left out , even the so called “professional” money managers. The markets are like a pendulum going from one extreme to the other. Once there is a small 10-15% correction takes place I believe that all these “professional” will pump in money and take the sensex above its fair value ( to its over valued extreme) ! so if you have invested money before Mar and are not in for the long haul, it would be fair point to book some of the profits at this extreme. 50-60% profits in such economic conditions are great returns. If you are long term investor like me then hold on for another 6 to 12 months for real wealth creation. Real wealth creation happens when you are able to sell X times your buying price. Another point to note is that in case you are holding on to dividend paying companies, there is no way you should sell before July - August. May – August dividend is paid out for lot of companies. In some good companies, the dividend yield is as high as 10-11%. This yield is higher than deposit rates and this return is in addition to the capital appreciation and people say stock markets are a risky business!

My value picks were 50% plus in the green last week before people started booking profits. They are still doing pretty well and beating the index by 9%. The other companies in the display below are also good only reason they are not doing great is that they were picked up at high valuations. Investing is all about buying Re1 for 75paisa ! If you are able to pick this Re 1 at 60-65 paisa then you also have built in a margin of safety.

9 Month Update

Happy New FIN-Year !!
Are you thinking of joining the party seeing my 25th Jan portfolio? It might not be very wise !
Sensex and Nifty distract all and I am also in that “all”. Last week was a sterling show of strength. Have you lost out in the gain? Not really. If you check we are still 18% down from July ’08.
Can it run up more ? sure it can as I believe the fair value of the sensex around 12-13 K. if it shoot up to 12K I would wait for it to correct till around 10K to buy and if it goes down from this level I would wait for 8.5-9K to buy. Can you start buying now , sure. On a day when the Sensex is down 300-400 points you can pick up some good companies. If you take a 1-2 yr horizon companies like Ashok Leyland at around 20 is very attractive but I would wait for it to dip before I buy.

Oct-Nov was a good period to buy. Companies like SAIL, RIL, TISCO and M&M have given returns of anywhere between 30% to 90% returns! It is almost impossible to time the bottom, but if you find great value it is time to buy. In the period of Oct-Nov the downside was around 10% but the upside seemed more than 40-50% so it was a buying period.

There are mails floating around speculating that Sensex’s new high might be at 37000! can it happen sure it can but first we must go beyond the 21K of 2008 and I don’t think that will happen in a hurry. It would also be a terrible thing to happen. Look at Japan, some years back it was at 40K and now it is bouncing along the bottom of around 8K. The 40K high might never be reached again.

MFs are again becoming active and trying to woo the retail investor. I just cannot understand this mentality. How can you just give someone your hard earned money and do what can be easily be done by you. It just takes 3-4 hours a week to do some basic research and buy good stocks. If you are hard pressed for time and cannot spend even these 3-4 hours per week then sure, go ahead, and give your money to MF managers. If you are planning to invest then I would suggest that you wait for the results to be out this month before deploying fresh cash. Price/Earnings, Price/Book and Price/Cash are some basic indicators to go by before picking up stocks. Current P/E ratio might give wrong inputs as the price is low and earnings are of previous quarter. P/B and P/C are still good. In the lows of Oct and March some companies like Indiabulls Realty were at prices lower than cash! Such valuations are worth dying for. There are still quite a few companies at such valuations. You just have to find them and read up on them to ensure that your investment is safe.

Note - My value picks are beating the Nifty by more than 9% !

Happy Investing.