Hi Alchemist,

It was enchanting to read your views on the Grey Market Premiums, definitely an eye-opener.

Yes, i try to follow a model which i have learnt from my & others experiences while investing. I would like to share it with you.

To begin with, i feel Equity is the finest investment option available considering various parameters like liquity , diversification (sectors / time / Companies).

Now, i abide by the following rules on investment:-

1. Decide whether you wanna be an investor or speculator.(I loved you logic of trader-investor millionaire)
2. Decide on your asset allocation on Equity (Don't over expose - eat what you can digest)
3. Observe the sunrise sectors - In india at the moment (Telecom,IT,Retail,Media,Power)
Of-course some companies not in these sectors are very lucrative too...Afterall a growing ecomony needs all sectors to grow in sync. Albeit in various proportions.
4. Identify in what proportion of market capitalisation will you be splitting your investment amount. I prefer (50:30:20) depends on your risk apetite.
5. Once done with Market caps & sectors identify the companies which you would be interested in investing.
6. Make sure that the management of the company is good,well qualified & the company is professionally qualified.
7. Check on the valuation of the company (compare its P/E with its peers & the overall sector. Buying cheap increases your MOS (Margin of Safety)
8. Check the financials of the company on the YOY basis for the last 5 years. Study its CAGR (both its revenue & PAT).
9. Keep an eye on the Macro-economic factors like Inflation , Interest rates, Forex as different sectors respond differently to these.
10.Finally, the market sentiments are important (Only for short term)

I have abided by these rules and more often than not they have worked for me. Hope it helps.

regards,
Nishant

(I moved your post and created a new thread out of it.)

Yes, I think that's nicely put.

I have a similar investing stratergy. I don't do much trading and I don't believe anyone can make good money, in the long term, from trading.

There is one point where my stratergy defers. I prefer to stay with the market leaders. I have a buy and forget type of thinking.

I don't intend to sell any of my investments for next two decades.

When I invest in a market leader, I usually have to pay a higher price. However there is less risk for a market leader in the long run.

For example, take the IT sector. If one buys an Infosys or TCS, he will be paying a higher PE compared to other mid caps in the IT sector.

However when times are bad, it is usually the market leaders that manage to survive. Till 2000, most IT companies did well and the mid caps outperformed the large caps. However post-2000 meltdown, many mid caps like Polaris and VisualSoft have appreciated much less than stocks like Infosys and Wipro.

Also, along with PE ratio, one must also look at the PEG ratio. PEG is nothing but ratio of PE to growth rate of a company.

If a stock is at a PE of 10 and is showing growth rate of 20%, its PEG would be 10/20 = 0.5. A similar company with PE of 8 and growth rate of 2% would have a PEG of 8/2 = 4. In such a scenario the first company would be a better investment, in spite of the fact that it has a higher PE ratio.

PE and PEG are very simple tools and are not always good tools for stock evaluation. Stock market analysts use many other ratios and valuation parameters.

However PE/PEG are still the most reliable tools for a general investor.

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Nice posts.
Is there any pointers/suggested/recommanded list of top5 companies for each of the sunrise sectors (for ex. IT: TCS, Infy, Wipro, Satyam, etc) based up on past performances and future outlook for medium to long term investment.
Thanks!

I am a bit reluctant to recommend any stock to anyone at this point of time.

For the last few months, prices of all assets are going up worldwide.

stocks
bonds
base metals like steel
precious metals like gold
crude oil
real estate
art

I am not sure how long this will last. I was watching Udayan interview someone in London today.

I switched on the TV a bit late and don't know who actually the person was.

However he made some very valid points about the global bull run.

He said that the actual problem today, was not excess physical liquidity in the world, but excess psychological liquidity.

People just don't want cash anymore. They want to convert it to assets. This is what is driving up prices of assets so fast.

If they cycle turns, it will take no time for this "psychological liquidity" to disappear.

The overheating is clearly evident is some sectors - especially real estate. People are complaining that real estate prices are so high in the metros, that it is impossible to buy any property. These type of prices are unsustainable in the long term.

Usually gold and equities move in opposite direction. When economy is doing good, people invest in equities and avoid gold. When a recession comes, people move away from equities and invest in gold. However in this bull phase, both gold and equities are rising simultaneously.

Similarly equities are defying the negative impact of crude oil prices. There is no way that current economic growth can be sustained with long term, with oil prices of over $70 a barrel. (Crude oil made a new high of 76$ a barrel today).

Nobody wants to look at the fundamentals today. People are just pumping in money to whatever looks cheap - in hope that it will be more expensive later. It is taking a form of a dangerous and unsustainable euphoria.

I am not saying, India will regress all it has achieved in last one decade, but personally I would like to see lower prices before I can feel comfortable picking stocks again. At present I am just holding stocks that I own and applying for a few select IPOs.

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