Reading : Investing Stretegies

Oct 2010 Money Today has an interesting article on Joseph Piotroski's style of picking up stocks. It seems he became famous with his method of selecting unpopular stocks that have the potential to become winners.

Here is his methodology:

1. The stock must have a high book value to market value ratio
2. Return on Assets should be positive & increasing
3. Cash flow from operations should be positive & greater than net income
4. Long term debt to asset ratio should be decreasing
5. Current ration should be increasing
6. Number of outstanding shares should not be increasing
7. Gross Margin should be increasing
8. Asset Turnover ratio should be increasing

When this was applied in Indian scenario for last 2-3 years, it seems to have beaten the BSE Smallcap Index. The Money Today article mentions details and name of stocks that passed the above filter.
I just wanted to make a note of the concept.


Regards, Rohit

Making Money

The basic principle says that once we start earning money, our earned money should earn more money for us. We can get 8-9% pa Pre Tax from FD, 10-12% pa from MF for 5 years + investment horizon and 15-20% for Direct Equity again for 5 years + investment horizon. Real Estate is another good avenue and can fetch similar or higher returns.

Does anyone know of any better options to make greater returns without being full time engaged? I understand that more risks one takes, will mean more returns. We can't take risk with all of our money but with some, we can perhaps take.

One of my friend replied to this query with a comment that prices of Onions have gone up by 880% compared to 2 Digit return by all assets in 2010 :)

Regards, Rohit

Starting 2011

Last weekend, we visited a proposed construction site near Panvel. They have just done Bhoomi Pujan and the plans are getting a final sanction. The location is amidst good population but the area is not developed. With Airport coming near by, this is right to invest there. Once we have the final design, we will make a decision. We are likely to invest. One of the friend is also referring a Project in the outskirts of Pune. Let's see.

If I do go ahead, the surplus cash will be absorbed. We are close to opening the Loan Against Securities account with ICICI Bank so fund should not be a problem. However, with IPO Investment returns turning out so low, I am not sure if it would continue making sense.

Today, we exited from MRO Tek & Manugraph & bought more of IFCI, Aditya Birla Chemicals, Shriram Transport & entered in 3I Infotech. 

Happy New Years to All.

Regards, Rohit

Portfolio Review

Is PE & 52 Week L or H is the only measure? Of course not. Few things that I would like to check:

• Nature of business
• Growth in Sales, Profit & EPS in last 5 years
• Level of Long Term Debt
• ROCE
• Visibility in the earnings
• Publicly available Brokerage Reports
• Valuation

I reviewed all 23 Stocks in my portfolio & applied the above parameters. While Aditya Chemicals, HEG, Manappuram, Micro Tech & Yes Bank show a strong sign of growth over a period of years, IFCI, MM Forging, MRO Tek, Pudumjee Industries, Shipping Corp. & Manugraph Industries show negative growth. I have considered where 2 of 3 parameters show negative growth so ignored Reliance, Power Grid or Precision Pipes showing negative EPS growth, for example.

Aditya Birla Chemicals, HEG, JBF Industries & Micro Tech have reasonable or low valuations and also have shown strong growth over a period of years, In case of LIC Housing Finance, I suspect that EPS reported is for a face value of 10. Recently, there has been a split to face value 2, reflected in the CMP.

In case of Manappuram, while the historical growth in Earnings has been good, the stock seems at high valuation right now. Seems like recently they have diluted lot of equity base. The business is simple & management looks strong. We would buy more. MM Forging is a clear case of turnaround as we can see from the performance in last few quarters. While it does not match the criteria, I would hold for now. IFCI is just for speculation that they would eventually get a Banking license & someone would take them over. But would it not be wise to switch these funds to some high growth stock? I am wondering.

MRO Tek originally attracted me as they had cash balance of around Rs.40 per share. I need to check the latest status now. Looks like potentially due for sell off from my portfolio. Pudumjee investment was based on Outlook Profit story on concept stocks. Management looks strong and their household products of tissue paper seems will grow strong. I will hold on. But its very expensive. Also, they have increased debt...making me uncomfortable.

Shipping Corp, Punjab & Singh & Power Grid are IPO investments. Have not been able to get out of these.

Here is how our industry profile looks like. Yes, the Banking & Financial Services have of course got a very highly skewed balance. Its Yes Bank, LIC Housing Finance, Manappuram & Shriram Transport though over 37% is due to Yes Bank. At this stage, I am comfortable with this imbalance and have been increasing my non banking sector investments over a period of time, to get this under control.
My sense is that I need to focus more in reading, rather than buying more stocks. I am hoping that this vacation, I will complete Benjamin Graham's Intelligent Investor. I am on my annual vacation right now and went thru a medical treatment on my ears. So its like a compulsory rest :)

Regards, Rohit

Yes, I am here

I have been very busy at work so did not get time to blog!

Retail Participation in recent IPOs continues to surprise me. Retail demand in Ravi Kumar is almost same as HNI + Corporate demand. In case of Shipping Corp., Retail demand is highest. One part of the change is due to increased limit for Retail investment & other part is also effect of successful issues like Coal India. Since demand of shares keep increasing, the allotments continue to get poorer :) So making money is becoming increasingly difficult :(

I let A2Z issue go since funds are blocked. Most of the analyst feel that this IPO is over priced a bit but my sense is that this will list at a premium. Let's see. On the other IPO this week, Ravi Kumar Distilleries, I would not invest even if I had funds. I would like to stay away from stocks in the category like Liquor, Cigar etc. I am fully aware that some of my direct equity or mutual fund investment may not be always in what is called 'Ethical Businesses' but I would like to do what I can.

Punjab & Sindh IPO looks interesting. There are management comments that they would like to leave 'something on the table'. I will take a look at the numbers but most likely we will apply.

We bought LIC Housing, Yes Bank, Shriram Transport & IFCI in the recent crashes. To me, it seems that the undertone is still bearish.

Regards, Rohit

Investment Updates

Looked at some options for IPO Financing since couple of issues are over lapping. Learned about ICICI Bank's Loan against Securities scheme. Interest rate is 13.5% p.a. and is charged on a daily basis for actual number of days funds are used. They need you to have minimum Two Lakhs rupees of eligible Shares & with 50% Margin, they fund One Lakh Rupees. The shares are pledged to them & it seems this can be done on-line. The only other expense is Current Account opening - 2k for first year & 1.5k thereafter, plus of course the taxes. This seems pretty good. For a funding of a lakh for two weeks, the interest cost works out to just Rs.563. I am seriously considering to Open the Account so this funding is available on demand. Here is the link on ICICI Bank's website.


I am bit disappointed with the price band announced for Shipping Corporation FPO. But I guess this is more due to current market situations. With large issue size, decent profit should still be possible.

Another disappointing news is development on Lavasa. I am pretty impressed with the first planned city of India. We actually visited Lavasa and stayed there for 2 days to check out Real Estate Investment. We did not go ahead with Real Estate investment for different reasons but I am eagerly looking at their IPO. That said, keeping my profit orientation aside, I sincerely wish that environment concerns be addressed first & all approvals obtained.

We will be applying, but naturally, for Manganese Ore IPO in full retail quota of Two Lakhs in all our accounts.The Indexes continue to go down. So this is a cause of worry.

Regards, Rohit

The IPO Flood & My Investments

I decided not to invest in RPP Infra IPO. I am not impressed for various reasons, as I stated in my earlier post. I earlier thought of taking a punt may be for 1 full application but now that we are close to MOIL & SCI issues, with Claris Life Science in between, I am running out of funds. I will review Claris Life Science RHP and take a call.

It will be a good strategy to apply using Rs. 2 Lakhs limit. If we want to apply full limit, for both MOIL & SCI, for all in Family, we need a huge amount. I hear that Hindustan Copper plans the FPO around Dec 6. Then there is Lavasa & then there is IOC planning issue by end of Jan 11.

What this clearly means is that we need to be ready to utilize the opportunities that are coming in. So I need to review our portfolio and liquidate less profitable investments. I think its also time to sell 199 Shares of Coal India that we are still holding on. I can hold for some more upside but I think its sensible to keep funds available for IPOs, in this scenario. I know all this means a lot more churn in the portfolio and more brokerage payments, but I am OK with that ! Would have also liked to leverage my LIC Jeevan Shree policy and take a bit of loan but my wife won't allow :(

A quick review of MF Portfolio reveals that Magnum Contra & Magnum Tax Gain are not doing very well. I know both are good schemes and have done well in past but this is sort of forced ranking since the objective is to try & get best returns. Table above is a comparative rating of key MF Schemes part of our Portfolio. On the Stocks, the only possible stock I can liquidate for now is NTPC. Though its not unlocking any great liquidity, I am still going ahead !

I also decided to subscribe for Equity Masters Hidden Treasure Service. Seems like some discounted rate of Rs.2,950 for a year's service. Not sure if they would offer to all. Would get one Small cap stock recommended every month. Seems like pretty much researched. Though again, I don't know where will I get funds for investing :)

One of their report talks about MIC Electronics. I originally invested in their IPO and sold off quickly as usual. There was a stock split so its difficult to compare the price but I don't think there is a huge difference in the price. Its about Rs.35 right now & I plan to invest. So why now? I agree with the investment rationale that there is a tremendous opportunity in the LED Market. MIC has a monopoly.

LIC Housing Finance & Shriram Transport are 7 to 9 % down compared to Nov 5, Murhat Trade. So I will bye some more.

Regards, Rohit

Murhat Trading & IPO Updates

Purchased Yes Bank, LIC Housing Finance & Shriram Transport Finance during the Murhat Trading, this Diwali. It turned out bit exciting with an hour to trade and we were trying to get best price to sell our Coal India IPO stocks as well as buy these new stocks. It seemed to me that there was unusual rush by many investors and Sharekhan, ICICI Direct & Motilal Oswal sites were very slow.

Its just little few shares of LIC Housing & Shriram Transport right now. I have been watching both of this stock for sometime. In case of Shriram, about 7 years ago, I purchased a good quantity @ Rs. 20 but sold sometime later @ Rs. 30 :(

With Coal India's effect, Powergrid evoked even better response from Retail Category. Now, with 3.85 Times over subscription in Retail Category, each full application is likely to get 287 Shares. So it does not seem that profits can match the Coal India experience :(

I did not invest finally in Gravita India. This is one of the rare instance I recollect that Retail interest was much higher than FIIs :)




Regards, Rohit

Stock Ideas

I finally started doing little bit of research on the 'Stocks to check' list I made in last couple of weeks. Marathon Nextgen Realty is one such stock that came to my notice with low PE tag. It incidentally also happens to be my current work place where my client is located.

I took a look at the Financials of the Company, checked their website and went through their latest Annual & Quarterly results. Current PE is 4.45. EPS was Rs.116.06 as per last audited Annual Report for period ending March 2010. However, the Quarterly EPS has sharply come down to Rs. 12.31, the lowest in last few quarters. While their property that I see everyday is pretty decent, it does not seem to have high occupancy right now. Also, the Residential Apartment & the Club House in the same premises are a good pluses. Further, development is still happening with more commercial property coming there. Seems to me that they will grow though inconsistency in the performance is making me uncomfortable. Not much information is available from any publish analyst reports or management interviews.

I decided to drop this finally.

Invest in yourself

About 4 years ago, I read an article in a Personal Finance Magazine, either Money Today or Outlook Money. It was about how the biggest investment is in yourself. This gave me a few leads and though not fully there as yet, the path that I have taken has been fruitful. The immediate decision was to take up a professional certification in Project Management (PMP). This allowed me to shift from a Project Management assignments in Process Outsourcing business to IT Outsourcing Business. From the IT Outsourcing Project Management, now I have shifted to IT Outsourcing Service Delivery. I am now investing my time in certification that will add further value. Plan for 2010 is to target Certification for IBM Certified Sr. Project Manager & IBM Certified Delivery Project Executive.

Regards, Rohit

Investing in MM Forging

With a view to cleanup the Portfolio and also book some profit, I was contemplating to sell off my small holding in MM Forgings. As I mentioned in my previous post, 'When to Sell' is still a mystery. I was looking at the financials @ Indiaearnings website and in the process ended up looking at the board comments. My past observation is that most of these comments are a Punters view, more of speculative in nature. Someone argued that Automobile Industry is picking up & with a low PE, MM Forging is a good bet. I looked at the numbers more closely and changed my mind. Having decided not to sell, I went ahead and increased my position a bit more. This was few weeks before.

What has followed is the strong quarterly results and the price is now up 25%. With the original investment made year ago, my overall gain is 37 % before tax. EPS (TTM) is Rs. 11.87 p.a. & PE is 8.9. The Q2-2010 EPS is Rs. 4.05 and assuming this reflects annual growth, this translates into an EPS of Rs. 16.20 p.a. Industry PE multiple seems high but even at PE of 10, the valuation works out to Rs. 162. Current Market Price is Rs. 105. My average cost is Rs. 77.

No - I may not add any more but will just hold on & see if the growth is consistent in Q3-2010. How did I originally get into this script? think it was one of the Outlook Profit issue that carried a detailed analysis by one of the leading fund manager. Seems like a worthy pick.

So my investment style has changed with reduced time at hand. Its difficult for me to get into a full fledged research on my own and I have started relying on professional research though very selectively.


Regards, Rohit

Disclosure:
As stated above, I have a holding in MM Forgings

Stock Analysis

I came across an interesting post at Rohit Chauhan's blog. Good One !
http://valueinvestorindia.blogspot.com/2008/08/how-i-analyse-stocks.html
Regards, Rohit

Portfolio Review

A quick look at my equity portfolio shows that out of core holdings, Yes Bank, MM Forgings & Infosys have done well. In absolute terms the gain is 120%, 94% & 64% respectively. Reliance is 4th @ 50%. The investments are of course made at different points in time so there is no direct comparison. I recently entered back in MindTree and thinking to take a position in NTPC.

In Mutual Funds, HDFC Equity, Birla Sun Life Midcap & Fidelity Equity are the top 3 performers. In absolute terms the gain is 105%, 92% & 80%

Just like 13 scripts in Direct Equity, over a period of time, I have invested in 19 different Schemes of MF. I plan to reduce these to best 10. Will divert the amount so liquidated to chosen direct equity scripts.

Regards, Rohit

Investments Update

Few weeks before I decided to cut down on my monthly SIP in MF and direct that to Direct Equity instead. I still continue 1 SIP in HDFC Equity though. I picked up Aditya Birla Chemicals, JBF Industries, MRO Tek, Manugrah Industries, Micro Tech, Mind Tree, Precison Pipes & Reliance Communications. Big Shopping, huh !

Review of my portfolio performance shows that Direct Investments are earning a far higher rate of return than the one in MF. Now, this is not a new discovery though the Direct Investment ideally requires a quality time to research & understand what you are getting into.

In the time to come, I would focus on reducing the number of scripts I have in my Direct Equity Portfolio - currently at 13. Somehow, I am psychologically attracted to scripts which have low MRP :) I am consciously looking at scripts in the sub 100 Region so its mentally easier to build position. That's how most of the scripts mentioned above have found a place in my portfolio.

Review of our family's Asset Class, net of all liability shows that I continue to have an overall asset imbalance, primarily due to inflated real estate in Mumbai. Here is how it looks:
78% Real Estate
8% Equity
14% Cash or Equivalent
There is nothing much I can do in the short term. I hope to avoid additional real estate investment, keep diverting my savings to Equity & Debt and get a proper balance, eventually. But why is it not possible to correct this imbalance? Well, the real estate pie (net of loan value) comprises of the only property we have so we can't liquidate. It has grown significantly in last 4 years though its more like a paper profit as one always needs at least one house to live.

Why am I sitting on cash? Hum.... As I mentioned, I do not have time required to make a quality investment. I am pondering over some of the real estate investment options if I should increase the imbalance and go ahead. On the other hand, there is always 'I want to be on my own' thoughts though I am miles away. Let me post separately on this.

Regards, Rohit

If Graham & Buffett picked Indian Stocks

Sometime back Money Today carried an article on the above subject. Here, I have scanned the copy, for my reference.

Regards, Rohit

Source: Money Today, September 20, 2007

Investing the RJ Way

Recent (March 6, 2009) Outlook Profit has a cover story on Rakesh Junjunwala (RJ). Here is a part of the article, on the investment process that RJ uses, to pick stocks.

Regards, Rohit

Source: Outlook Profit, March 6, 2009

Portfolio Updates

I finally gave up on few minor bets I had taken on Adlabs, Kotak Bank etc., for a momentum trading. These were supposed to be for 20/30% profit in few months time and I was to get out. Given the 2008 performance, this did not work for these scripts. After close to a years investment, I sold out at a massive loss of over 80% but never mind since the amounts are not very significant.

I also gave up on Reliance Power. Idea is that if money sitting on something which is not earning enough, let's move somewhere else and create some earning. So I have moved the residual amounts, from Adlab, Kotak & Reliance Power to Reliance Capital which has shown a better momentum.

I will continue with my momentum trading approach but will not exceed 5/10% of my portfolio. My current bets are Reliance Capital, HDIL, IDFC, Oracle Financials & Punj Lloyds. I will keep buying them on significant corrections and sell them the moment I reach 20% profit. For sure, this approach cannot work forever. So far, I have made decent profits in Reliance Capital, Mundra Port, HDIL, Oracle Financials, this way. But again, the amounts are insignificant :(

From the family portfolio, I also finally redeemed HDFC Long Term MIP at about 5% loss. Moved the proceeds to ICICI Bank FD for 390 Days @ 10.25%. Net net, over two years, this investment would earn less than the bank saving account and obviously, much lesser than the inflation. Bad luck :(

We also invested in another ICICI Bank FD, few days before, @ 11%. These are senior citizen rates. I now plan to invest in Tata FD for 3 years. @ 12% cumulative yield works out to 13.5% and looks too good. Of course, these are unsecured but for sure, I am happy to take that 'risk', with Tatas. Being very busy with work, so not sure if this FD is still open. Let me check.

I increased my SIP Investments. I am now invested in below, all growth options. When time permits, I would search on high rated funds giving good dividends. Recently, Outlook Profit issue lists out many Cos., at current valuation, are giving excellent dividend yields. I would prefer to invest thru a MF route, though.

1. Birla Sun Life Midcap
2. DSP BR Tiger
3. Franklin India Prima Plus
4. ICICI Pru Infrastructure
5. Reliance Banking
6. Reliance Growth
7. SBI Magnum Contra

At the aggregate portfolio level, The Direct equity investment is down by 42% & MF investment is down at 28%. Of course, it's not a direct comparison since the individual investment time frame differ.

Reviewing my overall asset allocation, I am under invested in equity. It's basically my PF investments which tilt the balance in favor of debt. With the current investment, I would be re-aligned to right proportion in next few years.


Regards, Rohit

Financial Planning - my thoughts

Very often I have been asked. Which mutual fund scheme is good? Which shares I can invest in? How much insurance is enough for me? And so on... I recently made a presentation to few of my friends. So here is a copy for you. Sorry, the presentation is not very intuitive and it's best when someone walks thru.

What a crash it was !

Huh...what a week it was. While the severity of the market crash on 22-Jan, did surprise me largely, I used this opportunity to buy more of my long term picks. Yes Bank went down as low as 155 and NTPC was around 170. One of course cannot catch the falling knife. So average purchase worked out at 175/180 for both Yes Bank and NTPC. Good thing is I had a target # of shares to be acquired, keeping in mind my target asset allocation and the crash gave me an opportunity to buy at these attractive prices. I also bought my all time favorite Reliance Industries at average of 2250. I think this is a very good price.

From a momentum trading perspective, I bought just few shares of GMR Infra at 120 and I intend to sell them off at 220 levels or so. I saw the price had come down too low and it was too tempting to buy.

One very crucial observation in this meltdown was that my overall portfolio was still positive, by a decent margin. So as long as one buys regularly in the good companies with good businesses, one that you are able to understand and follow, and has a long term perspective, I think one can survive such crashes. I have been buying Reliance Industries, Yes Bank and NTPC regularly for more than 2 years now and my average buying price is lower than the lows touched in the the recent crash.

My IPO Investing also seems to be working well except for one or two cases. I normally sell upon listing and book gains. Edelweiss, Mundra, Powergrid etc. are now available below the average price at which I have sold. While some of these are great stocks for long term holding, at this stage, I am just focusing on building long term portfolio of very few chosen stocks, which I understand. And I need more capital to invest in these stocks so booking IPO profit is one way, to my mind.

I am stuck with part of Spice Communications and Manaksia allotment, though. Manaksia looks to be good company so I guess I can be patient for a while. I holded on Spice Communications keeping in mind the great telecom story and example of Quarter on Quarter rise and Idea performance is what I had in mind. I went wrong, however, in ignoring that fundamentally Spice is not in good shape with a weak balance sheet, smaller market presence and now they are planning to grow big with licenses received recently. Amidst all the spectrum confusion and changing policies, things look better for Spice. Nevertheless, I may just sell off Spice the moment I recover my cost :)

Another learning. Keep money handy. I have linked my brokerage accounts to my Bank accounts in a way that I can get all my available cash balance, in any bank account, in less than 5 minutes. So getting money to take advantage of such crash is not a problem, assuming of course, I have enough bank balance in my account :)

Regards,

Rohit

Basics of financial planning

Here are some of the basic things that one can keep in mind, for sound financial planning:

1. Make financial projections (income, expense, savings etc.)
2. Asses risk profile
3. Set financial goals (short, medium & long term)
4. Determine the appropriate asset pies. Current & Ideal state (e.g. 10%Cash, 10% Gold, 25% Real Estate, 25% Equities, 30% Debt-Retirement)
5. Over a period of time, ascertain sub pies & sub sub pies e.g. Equities into 50% Direct Equity (DE) : 50% Mutual Fund (MF)...further classification of DE can be into IT:Banking:Power sector etc. and MF can be into Diversified : Tax Saving : Balanced and so..
6. Draw an action plan to reach your ideal pie, over a period of time, which should in turn help you to meet financial goals
7. Always invest or disinvest regularly & Never at a stretch
8. If you are invested in a not so great fund, don't sell in a hurry as there could be tax implications.
9. Track your portfolio regularly.

There are many tools available for most of the above, on the web. If you need help, let me know. I will keep sharing my thoughts on the basics of investments.

Cheers