Equity Investments for the year 2011-12 .

I am a regular investor in stock market and have recently realized a rather foolish one at that!

So what steps do I take to improve

My Risk and Priorities:

1) High risk: Since I am single and in late 20’s , hi- risk stock is acceptable to me.

2) Fixed capital: I am not adding any capital to my trading account….so I have to rotate money in the existing account through sell buy.

3)Target return on portfolio is 22%.  I take this number since inflation (12%) is higher than fixed deposit interest rate provided by banks (Max. around 9%). And for a fruitful year a 10% return over inflation is a real success and can provide for my expenses.

Mistakes I have been making and actions to take from now:

1)Investing all capital at once. By doing that I miss opportunity when the market is in correction. I do not want to sell other stocks who are either increasing or stocks who are hammered (not wanting to book losses) thus giving me no capital to invest in stocks which I know are bound to go up in near future.

Action to be taken from now: Only be invested 80% at all times. When the market is at bottom buy with 20%  on a stock which gives highest probability of going up and sell other stock(s)  which have given reasonable return to the amount of 20% pf total portfolio.

2) Too much fundamentals. Through magazines and reports I started picking stocks with great fundamentals but realized that these stocks are not going up for long duration of time and give nominal returns when they do and come back down even further when market corrects ( Typically talking of Indian market here, or it just so happens with the stocks that I pick). Though these stocks may be good for long-term but they do not work for me since I have fixed capital from which to extract 22% (2011) return in 1 year.

Action: Start picking stocks which are not just good fundamentally but also have high volume on bourses, they are less likely to be affected by government policies and inflation. Understand behavioral factor associated with the stock and check the 5 year history. Do not exceed portfolio with more than 20 stocks at any time (just for the ease of following).

3) Not a balanced diversification: Though I have invested in stocks in almost all sectors my biggest drawback is that the ratio of investment is very haphazard. Education ( 1 stock)and real estate (5 stocks) sectors take more than 60% of my portfolio value.

Action: Simple, just need to focus more on balanced ratios.

4) Not booking losses. I do not book losses and miss on opportunities.Also booking losses could save me some tax.

Action: Suppose I have a stock which is making a loss of say somewhere between 1-7% and has not gone up for some time with no hope it will be soon. I should sell that stock and invest in the one for which I believe will be doing well in near future thus capitalizing on opportunity.

5) Averaging. This mistake is just pure escalation of commitment problem and solution is simple ….don’t do it.

Other things to consider currently.

– The market is in red. The world economy is in a bad shape. My portfolio is down. Should I sell- book losses and buy again when the market bottoms out ( Hoping that I predict that well)?

-Christine Lagarde is a very strong personality and according to my observations  she will not be afraid to take bold decisions (like letting Greece fail). Should I trust my instincts and free capital to take advantage of such decision.

-Figure a way to create a cycle of stock sell portfolio that I am selling stocks only long term and also realizing my goal of desired return …..result-zero tax.

Quit Smoking- Social Perspective

If anybody has read  insightful book “Switch” by Chip and Dan Heath, they will be aware of implementing change through social pressures. Here let us take the case of smoking…the cancer pictures on cigarettes packs do little to change smokers mindset…lets face it they already know and eventually will get emotionally used to pictures. What I feel ( and I am sure most of people already know out there) is that the biggest change in smoker population will come from social pressures.  Smoking has been made socially acceptable in many parts of the world (and  cigarette companies pay large amount to show that in movies, TV). It is time we take major steps to make it socially unacceptable. Broadcast the message on TV, Movies, media altogether to form a strong negative perception about smoking. Social pressures are strong and so is the environment  and culture, to make a large impact for change.  So rather than just tinkering with the cigarette packs, the do-gooders of non-smoking movement may also want to look into creating environment where smokers are loathed at.

Geopolitical view_the challenges ahead!

I have been thinking about how the world would handle the power shift from west to east!

-First time in world history-> Well defined nations have existed now for more than 60 years and west has always been a superior one with most political/economic and military power. Now as the shift is beginning to happen….will ego play a big role?…..will people who have lived a comfortable and commanding life able to gulp the fact that they will be working for Asian tycoons in future.?  (we have already witnesses the challenges faced by Mittal steel and Tata motors on acquisition of western conglomerates amongst many)

The shift is inevitable…….. the challenge is human nature! as taboo as it may sound.

Maruti Suzuki suffering from First movers disadvantage

We all know the story if Maruti Suzuki in India and for those who are unaware, it was a first major joint venture btw India and Japan in Automobile sector and the company was first of a major MNC to enter India. Maruti did exceptionally well (majorly because it seemed like monopoly for some time until some competition rose up). But now that many Automotive majors have entered India , Maruti’s sheen has been long gone and it struggles to increase brand value ( many still consider its cars low segment ). Maruti struggles to make sales of mid-segment or High -segment cars and is facing tough competition from those who are also able to make good turnover in the mid,high-segments.

It would be interesting to see how Maruti copes with this challenge in coming years.

Maruti Suzuki suffering from First movers disadvantage

We all know the story if Maruti Suzuki in India and for those who are unaware, it was a first major joint venture btw India and Japan in Automobile sector and the company was first of a major MNC to enter India. Maruti did exceptionally well (majorly because it seemed like monopoly for some time until some competition rose up). But now that many Automotive majors have entered India , Maruti’s sheen has been long gone and it struggles to increase brand value ( many still consider its cars low segment ). Maruti struggles to make sales of mid-segment or High -segment cars and is facing tough competition from those who are also able to make good turnover in the mid,high-segments.

It would be interesting to see how Maruti copes with this challenge in coming years.

Indian cars die young?

Do car owners in India change their cars more frequently than other parts of the world….major reason citing being the car performance deteriorates more quickly per mile used…bad roads, average quality engines etc.?
Do people care? Is it done purposefully? Economic effects?

Note: Auto industry in India is one of the fastest growing and contributes a lot to the Indian Economy.

Subscription News

View: News about how many times a fresh IPO is subscribed should not be public until the IPO closing date has passed.

Reason: Public sentiments; reading or listening that an IPO is oversubscribed multiple times makes number of investors invest in the IPO without even knowing the company , which could lead up to a speculation hazard. On the other hand an IPO which has not shown much enthusiasm during subscription period and the news anchors speaking about it , further makes it difficult for the IPO to be fully subscribed.

Big or small family?

I read “Outliers” by Malcolm Gladwell, nice read. I like the way the author makes observations and analyzes what many overlook. There is certainly a hint of “Kismat”(in lines of destiny) as we call in Hindi Language in his true stories.

I would like to read some studies about the impact of having a large family (many cousins, Uncle ,Aunts) on an individual as compared to having a small family.

Things to consider will likely be:

1)The country ( as culture results in different kinds of bonds and understanding)

2)The Social Status of the family

3)How well the families get along

a)The social pressure involved

b)Influence of competiton amongst cousins

c)The impact on your decision making ….comparing to decision making of other in the family

So much more , as its a complex ….. not much can come from research as many things will not be consistent but some certainly will have same results in case of comparing small with large families.

So many soap operas are made around these relationships but reading a book with real results/ analysis can be interesting.

Of Facebook and cameras

Has facebook influenced sale of Camera’s.

I certainly would like to believe so. Many of my friends whom I did not see using cameras my whole life suddenly are shooting photos with a professional model. Posting them straight on to facebook and eagerly waiting for their first like.

What does that mean for companies such as Nikon , Sony. Kodak , bunch of others? A great external factor benefiting them ?

Dummy Talking money?

Imagine a High end XYZ CAR Showroom with 2 models A4 and A6:
The company has done market research on what customers are willing to pay for A6 : suppose100,000USD
But if given a choice between 2 models A4 and A6:
A4 a relatively inferior model.
Lets price A4 as 100,000USD in the market and A6 between 110,000 USD and 120,000 USD.
There is a good chance that the person will opt for A6 and the premium paid is higher than what the price would have been with just one model market. Its all in the lure of a better product for little more.

It seems very hypothetical to me now when I wrote it than when I thought about it. But nonetheless its here.

*Considering no competition in the market