With an estimated fortune of $62 billion, Warren Buffett is the richest man in the entire world. In 1962, when he began buying stock in Berkshire Hathaway, a share cost $7.50. Today, Buffett, 78, is Berkshire’s chairman and CEO, and one share of the company’s class A stock is worth close to $119,000. He credits his
astonishing success to several key strategies, which he has shared with writer Alice Schroeder. She spent hundreds of hours interviewing the Sage of Omaha for the new authorized biography The Snowball.
1. Reinvest your profits
When you first make money, you may be tempted to spend it. Don’t. Instead, reinvest the profits. Buffett learned this early on. In high school, he and a pal bought a pinball machine to put in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Buffett used the proceeds to buy stocks and to start another small business. By age 26, he’d amassed $174,000—or $1.4 million in today’s money. Even a small sum can turn into great wealth.
2. Be willing to be different
Don’t base your decisions upon what everyone is saying or doing. When Buffett began managing money in 1956 with $100,000 cobbled together from a handful of investors, he was dubbed an oddball. He worked in Omaha, not on Wall Street, and he refused to tell his partners where he was putting their money. People predicted that he’d fail, but when he closed his partnership 14 years later, it was worth more than $100 million.
Instead of following the crowd, he looked for undervalued investments and ended up vastly beating the market average every single year. To Buffett, the average is just that—what everybody else is doing. To be above average,you need to measure yourself by what he calls the Inner Scorecard, judging yourself by your own standards and
not the world’s.
3. Never suck your thumb
Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline. Buffett prides himself on swiftly making up his mind and acting on it. He calls any unnecessary sitting and thinking “thumb-sucking.” When people offer him a business or an investment,
he says, “I won’t talk unless they bring me a price.” He gives them an answer on the spot.
4. Spell out the deal before you start
Your bargaining leverage is always greatest before you begin a job—that’s when you have something to offer that the other party wants. Buffett learned this lesson the hard way as a kid, when his grandfather Ernest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shoveling until they could barely straighten their frozen hands. Afterward, his grandfather gave the pair less than 90 cents to split. Buffett was horrified that he performed such backbreaking work only to earn pennies an hour. Always nail down the specifics of a deal in advance—even with your friends and relatives.
5. Watch small expenses
Buffett invests in businesses run by managers who obsess over the tiniest costs. He once acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only the side of his office building that faced the road. Exercising vigilance over every expense can make your profits—and your paycheck—go much further.
6. Limit what you borrow
Living on credit cards and loans won’t make you rich. Buffett has never borrowed a significant amount—not to invest, not for a mortgage. He has gotten many heartrending letters from people who thought their borrowing was manageable but became overwhelmed by debt. His advice: Negotiate with creditors to pay what
you can. Then, when you’re debt-free, work on saving some money that you can use to invest.
7. Be persistent
With tenacity and ingenuity, you can win against a more established competitor. Buffett acquired the Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant,she built the mart from a pawnshop into the largest furniture store in North America. Her strategy was to
undersell the big shots, and she was a merciless negotiator. To Buffett, Rose embodied the unwavering courage that makes a winner out of an underdog.
8. Know when to quit
Once, when Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick—h e had squandered nearly a week’s earnings. Buffett never repeated that mistake. Know when to walk away from a loss, and don’t let anxiety fool you into trying again.
9. Assess the risks
In 1995, the employer of Buffett’s son, Howie, was accused by the FBI of price-fixing. Buffett advised Howie to imagine the worst- and best-case scenarios if he stayed with the company. His son quickly realized that the risks of staying far outweighed any potential gains, and he quit the next day. Asking yourself “and then what?” can help you see all of the possible consequences when you’re struggling to make a decision—and can guide you to the smartest choice.
10. Know what success really means
Despite his wealth, Buffett does not measure success by dollars. In 2006, he pledged to give away almost his entire fortune to charities, primarily the Bill and Melinda Gates Foundation. He's adamant about not funding monuments to himself—no Warren Buffett buildings or halls. "I know people who have a lot of money," he says, "and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them.
When you get to my age, you'll measure your success in life by how many of the people you want to have love you actually do love you. That's the ultimate test of how you've lived your life."
Friday, October 03, 2008
Friday, May 30, 2008
Seven Habits of Highly Successful Traders
Seven Habits of Highly Successful Traders
by Phillips Wiegand Jr.
Most people spend a lot of time focusing on mistakes they’ve made in the past, hoping to avoid the same undesirable results in the future. Although this can be helpful,perhaps it would be even more useful to take the focus off of yourself and examine what other highly successful traders are doing right—not what you’re doing wrong.
Focusing on the positives and the actions necessary for success will automatically program your mind to achieve your goals and objectives, while allowing for mistakes to be made without wiping you out. So what exactly are the best traders doing differently?
Here are seven of the most important habits that you’ll need to develop a successful trading mindset.
1. They have the right attitude
As with most aspects of our lives, having the right attitude is imperative to successful trading. Most of us possess potential that far exceeds what we ordinarily imagine; yet, too often we place limitations on ourselves without even realizing it, simply through a process of denial or blame. When the hard times hit or trading does not seem as glamorous as it seemed, some begin to make excuses and steer away from their original goal to succeed. To blame a failed strategy or a losing streak on someone or something else is to seed failure. Every trader is going to have setbacks and difficult times, but it is the way we choose to handle those times that will separate us from the majority. Will you use rough periods to learn valuable lessons, or will you live in denial and make excuses for your losses? Will you let self-doubt creep into your mind, or will you continue moving forward? It’s been said that successful trading is 10% strategy, 90% psychology. Successful traders keep a proper mindset and have a positive attitude, even when the going gets tough.
2. They do their own homework
The Street has always been littered with people who wanted to make a fortune trading stocks, but were washed out because they were not willing to put forth the necessary
effort. It is not enough to simply subscribe to a couple of newsletters or trading services and feel that your work is done. Although those can be helpful tools, successful traders never blindly follow someone else’s trades without doing a fair amount of due diligence themselves. As the saying goes, “Trust your gut.” When was the last time you made money on an analyst upgrade? How about a hot tip? Most of the time, your best trades are probably those that you come up with on your own, not from the advice of an outside source.
3. They keep it simple
The advent of the computer and trading software in the last decade has been both a blessing and a curse. On the upside, it’s leveled the playing field by affording the
average Joe to make a living trading the stock market with analysis techniques previously available only to institutional traders. Ironically, this is also its downside. It’s essential to not get caught up in too many of these tools, or you may become prone to “Paralysis by Analysis”—when traders use too many indicators and find themselves at an impasse, unable to enter good trades or get out of bad ones. It’s possible to get so caught up in developing a system, tweaking a strategy just a bit more or cramming that last datapoint into a search, that it becomes nearly impossible to capture the information needed for a clear and concise trading idea. Too much information can blur the mind and guide you down the wrong path. The bottom line is that the system or indicators are not what will make you a successful trader; it is what you actually do with the information or ideas that they generate. Keeping it simple is the best way to remain lucid and avoid a convoluted thought process.
4. They have a plan
If you find yourself losing more trades than you’re winning, step back and look at your plan to see where you might have gone wrong. Oh, you don’t have one? Try again. If you want to succeed long-term, this is critical. Without a plan, you might do silly things like double down on losers or even implement the ever-popular strategy of praying that your stocks will come back. A carefully developed plan keeps things objective and prevents emotional trading decisions that will invariably lead to poor money management, excessive losses, and certain failure. Something as simple as deciding definitively when to get in, when to get out (i.e. stop-losses), and how much risk to allocate for each trade are all that’s really needed to create a basic trading plan.
5. They practice risk management and self-discipline
Habit 5 is the implementation of Habit 4. In other words, plan your trade and trade your plan. That’s a mantra of nearly every highly successful trader in existence. The objective in this business is to remain in the game. The more often you walk to the plate, the greater the chance you have of smacking the ball out of the park. Each time you place a trade, you’re taking on a chunk of risk, and there is potential for loss. Therefore, it is imperative that measures are in place to prevent a disaster if a position does not cooperate as you anticipated. Even if you know all about the protective measures available, they will not be effective unless you have the discipline to implement them as part of your plan. This may sound simple, but trading can be stressful, and stress can lead to bad decisions. Never let pride or conviction get in the way of the discipline that is necessary for risk management to work properly.
6. They practice sound money management
One of the cardinal rules of successful trading is to use proper money management. A trader’s most precious tool is his capital, and that capital must be guarded and put touse in the most efficient way possible. The primary idea behind money management is
to preserve capital while implementing strategies that incrementally provide a positive rate of return. The first question that should always be asked is not, “How much can make on this trade?” but rather, “How much money can I lose?” You must never be in a position where one trade could wipe out all of the other profits that you have accrued. In addition, you need to perform a risk/reward analysis to determine if the trade is the most efficient use of your capital. The idea is to maximize reward and minimize risk so that you can obtain the largest bang for the buck while keeping the potential downside as small as possible.
7. They adapt to change
It may sound like a cliché, but in fact the only thing in trading that stays the same is change. The financial markets are dynamic beasts that have a funny way of humbling you just when you think you have it all figured out. It’s really not possible to have a solid grasp of everything that the market discounts while it moves, and what makes it all so interesting and complex is the multitude of variables that affect the prices of securities.
Generally, we need the benefit of hindsight in order to understand the true reasons why the market behaves the way it does. Since the variables are constantly changing, you can rarely find an exact match when comparing one period of time to another. Instead, successful traders simply adapt their trading strategies to the ever-evolving market. What’s working now may not work tomorrow; and it’s always important to be flexible enough to adjust to such changes. If, for example, all of a sudden your “perfect system” begins to experience drawdowns, you should be ready, willing, and able to switch gears and institute a new plan (see Habit 4), instead of being paralyzed by losses when it’s already too late.
Conclusion
Remember that trading is just one aspect of our lives, and keeping everything in perspective is part of living a balanced, healthy, and happy life. Whether you are
performing well or running through a dry spell, emotions run high at the trading desk. It is important to mitigate these highs and lows as best you can and attempt to operate with a calm, cool, and collected mindset. In addition to these seven habits, you should always maintain a reasonable perspective of the market. It owes you nothing and doesn’t care whether you win or lose. Through your complete acceptance of this and by implementing some basic habits into your own regimen, you too can be a highly successful trader.
by Phillips Wiegand Jr.
Most people spend a lot of time focusing on mistakes they’ve made in the past, hoping to avoid the same undesirable results in the future. Although this can be helpful,perhaps it would be even more useful to take the focus off of yourself and examine what other highly successful traders are doing right—not what you’re doing wrong.
Focusing on the positives and the actions necessary for success will automatically program your mind to achieve your goals and objectives, while allowing for mistakes to be made without wiping you out. So what exactly are the best traders doing differently?
Here are seven of the most important habits that you’ll need to develop a successful trading mindset.
1. They have the right attitude
As with most aspects of our lives, having the right attitude is imperative to successful trading. Most of us possess potential that far exceeds what we ordinarily imagine; yet, too often we place limitations on ourselves without even realizing it, simply through a process of denial or blame. When the hard times hit or trading does not seem as glamorous as it seemed, some begin to make excuses and steer away from their original goal to succeed. To blame a failed strategy or a losing streak on someone or something else is to seed failure. Every trader is going to have setbacks and difficult times, but it is the way we choose to handle those times that will separate us from the majority. Will you use rough periods to learn valuable lessons, or will you live in denial and make excuses for your losses? Will you let self-doubt creep into your mind, or will you continue moving forward? It’s been said that successful trading is 10% strategy, 90% psychology. Successful traders keep a proper mindset and have a positive attitude, even when the going gets tough.
2. They do their own homework
The Street has always been littered with people who wanted to make a fortune trading stocks, but were washed out because they were not willing to put forth the necessary
effort. It is not enough to simply subscribe to a couple of newsletters or trading services and feel that your work is done. Although those can be helpful tools, successful traders never blindly follow someone else’s trades without doing a fair amount of due diligence themselves. As the saying goes, “Trust your gut.” When was the last time you made money on an analyst upgrade? How about a hot tip? Most of the time, your best trades are probably those that you come up with on your own, not from the advice of an outside source.
3. They keep it simple
The advent of the computer and trading software in the last decade has been both a blessing and a curse. On the upside, it’s leveled the playing field by affording the
average Joe to make a living trading the stock market with analysis techniques previously available only to institutional traders. Ironically, this is also its downside. It’s essential to not get caught up in too many of these tools, or you may become prone to “Paralysis by Analysis”—when traders use too many indicators and find themselves at an impasse, unable to enter good trades or get out of bad ones. It’s possible to get so caught up in developing a system, tweaking a strategy just a bit more or cramming that last datapoint into a search, that it becomes nearly impossible to capture the information needed for a clear and concise trading idea. Too much information can blur the mind and guide you down the wrong path. The bottom line is that the system or indicators are not what will make you a successful trader; it is what you actually do with the information or ideas that they generate. Keeping it simple is the best way to remain lucid and avoid a convoluted thought process.
4. They have a plan
If you find yourself losing more trades than you’re winning, step back and look at your plan to see where you might have gone wrong. Oh, you don’t have one? Try again. If you want to succeed long-term, this is critical. Without a plan, you might do silly things like double down on losers or even implement the ever-popular strategy of praying that your stocks will come back. A carefully developed plan keeps things objective and prevents emotional trading decisions that will invariably lead to poor money management, excessive losses, and certain failure. Something as simple as deciding definitively when to get in, when to get out (i.e. stop-losses), and how much risk to allocate for each trade are all that’s really needed to create a basic trading plan.
5. They practice risk management and self-discipline
Habit 5 is the implementation of Habit 4. In other words, plan your trade and trade your plan. That’s a mantra of nearly every highly successful trader in existence. The objective in this business is to remain in the game. The more often you walk to the plate, the greater the chance you have of smacking the ball out of the park. Each time you place a trade, you’re taking on a chunk of risk, and there is potential for loss. Therefore, it is imperative that measures are in place to prevent a disaster if a position does not cooperate as you anticipated. Even if you know all about the protective measures available, they will not be effective unless you have the discipline to implement them as part of your plan. This may sound simple, but trading can be stressful, and stress can lead to bad decisions. Never let pride or conviction get in the way of the discipline that is necessary for risk management to work properly.
6. They practice sound money management
One of the cardinal rules of successful trading is to use proper money management. A trader’s most precious tool is his capital, and that capital must be guarded and put touse in the most efficient way possible. The primary idea behind money management is
to preserve capital while implementing strategies that incrementally provide a positive rate of return. The first question that should always be asked is not, “How much can make on this trade?” but rather, “How much money can I lose?” You must never be in a position where one trade could wipe out all of the other profits that you have accrued. In addition, you need to perform a risk/reward analysis to determine if the trade is the most efficient use of your capital. The idea is to maximize reward and minimize risk so that you can obtain the largest bang for the buck while keeping the potential downside as small as possible.
7. They adapt to change
It may sound like a cliché, but in fact the only thing in trading that stays the same is change. The financial markets are dynamic beasts that have a funny way of humbling you just when you think you have it all figured out. It’s really not possible to have a solid grasp of everything that the market discounts while it moves, and what makes it all so interesting and complex is the multitude of variables that affect the prices of securities.
Generally, we need the benefit of hindsight in order to understand the true reasons why the market behaves the way it does. Since the variables are constantly changing, you can rarely find an exact match when comparing one period of time to another. Instead, successful traders simply adapt their trading strategies to the ever-evolving market. What’s working now may not work tomorrow; and it’s always important to be flexible enough to adjust to such changes. If, for example, all of a sudden your “perfect system” begins to experience drawdowns, you should be ready, willing, and able to switch gears and institute a new plan (see Habit 4), instead of being paralyzed by losses when it’s already too late.
Conclusion
Remember that trading is just one aspect of our lives, and keeping everything in perspective is part of living a balanced, healthy, and happy life. Whether you are
performing well or running through a dry spell, emotions run high at the trading desk. It is important to mitigate these highs and lows as best you can and attempt to operate with a calm, cool, and collected mindset. In addition to these seven habits, you should always maintain a reasonable perspective of the market. It owes you nothing and doesn’t care whether you win or lose. Through your complete acceptance of this and by implementing some basic habits into your own regimen, you too can be a highly successful trader.
Tuesday, May 06, 2008
Small Is Beautiful:Economics as if People Mattered
Small Is Beautiful is the title of a series of books by E. F. Schumacher. The original 1973 publication is a collection of essays that brought Schumacher's ideas to a wider audience, at a critical time in history. It was released soon after the effects of the 1973 energy crisis shook the world and dealt with the crisis and various emerging trends (such as globalization) in an unusual fashion.
Schumacher was a respected economist who worked with J.M. Keynes and J.K. Galbraith. For twenty years he was the Chief Economic Advisor to the National Coal Board in the United Kingdom, opposed the neo-classical economics by declaring that single-minded concentration on output and technology was dehumanizing. He held that one's workplace should be dignified and meaningful first, efficient second, and that nature (and the world's natural resources) is priceless.
Schumacher proposed the idea of "smallness within bigness": a specific form of decentralization. For a large organization to work, according to Schumacher, it must behave like a related group of small organizations. Schumacher's work coincided with the growth of ecological concerns and with the birth of environmentalism and he became a hero to many in the environmental movement.
Quotes from the book:
-Man is small, and, therefore, small is beautiful
-"[A modern economist] is used to measuring the 'standard of living' by the amount of annual consumption, assuming all the time that a man who consumes more is 'better off' than a man who consumes less. A Buddhist economist would consider this approach excessively irrational: since consumption is merely a means to human well-being, the aim should be to obtain the maximum of well-being with the minimum of consumption. . . . The less toil there is, the more time and strength is left for artistic creativity. Modern economics, on the other hand, considers consumption to be the sole end and purpose of all economic activity."
-"It is clear, therefore, that Buddhist economics must be very different from the economics of modern materialism, since the Buddhist sees the essence of civilisation not in a multiplication of wants but in the purification of human character. Character, at the same time, is formed primarily by a man's work. And work, properly conducted in conditions of human dignity and freedom, blesses those who do it and equally their products."
-"The most striking about modern industry is that it requires so much and accomplishes so little. Modern industry seems to be inefficient to a degree that surpasses one's ordinary powers of imagination. Its inefficiency therefore remains unnoticed."
-"Ever bigger machines, entailing ever bigger concentrations of economic power and exerting ever greater violence against the environment, do not represent progress: they are a denial of wisdom. Wisdom demands a new orientation of science and technology towards the organic, the gentle, the non-violent, the elegant and beautiful."
-"No system or machinery or economic doctrine or theory stands on its own feet: it is invariably built on a metaphysical foundation, that is to say, upon man's basic outlook on life, its meaning and its purpose. I have talked about the religion of economics, the idol worship of material possessions, of consumption and the so-called standard of living, and the fateful propensity that rejoices in the fact that 'what were luxuries to our fathers have become necessities for us.'
-"Systems are never more nor less than incarnations of man's most basic attitudes. . . . General evidence of material progress would suggest that the modern private enterprise system is--or has been--the most perfect instrument for the pursuit of personal enrichment. The modern private enterprise system ingeniously employs the human urges of greed and envy as its motive power, but manages to overcome the most blatant deficiencies of laissez-faire by means of Keynesian economic management, a bit of redistributive taxation, and the 'countervailing power' of the trade unions.
-"Can such a system conceivably deal with the problems we are now having to face? The answer is self-evident: greed and envy demand continuous and limitless economic growth of a material kind, without proper regard for conservation, and this type of growth cannot possibly fit into a finite environment. We must therefore study the essential nature of the private enterprise system and the possibilities of evolving an alternative system which might fit the new situation."
-"The way in which we experience and interpret the world obviously depends very much indeed on the kind of ideas that fill our minds. If they are mainly small, weak, superficial, and incoherent, life will appear insipid, uninteresting, petty, and chaotic. It is difficult to bear the resultant feeling of emptiness, and the vacuum of our minds may only too easily be filled by some big, fantastic notion – political or otherwise – which suddenly seems to illumine everything and to give meaning and purpose to our existence. It needs no emphasis that herein lies one of the great dangers of our time."
-"Education can help us only if it produces “whole men”. The truly educated man is not a man who knows a bit of everything, not even the man who knows all the details of all subjects (if such a thing were possible): the “whole man” in fact, may have little detailed knowledge of facts and theories, he may treasure the Encyclopædia Britannica because “she knows and he needn’t”, but he will be truly in touch with the centre."
About the 25th Anniversary Edition-just published:
Small is Beautiful is the perfect antidote to the economics of globalization. As relevant today as when it was first published, this is a landmark set of essays on humanistic economics. This 25th anniversary edition brings Schumacher's ideas into focus for the end-of-the-century by adding commentaries by contemporary thinkers who have been influenced by Schumacher. They analyze the impact of his philosophy on current political and economic thought. Small is Beautiful is the classic of common-sense economics upon which many recent trends in our society are founded. This is economics from the heart rather than from just the bottom line.
Wednesday, April 16, 2008
5 Rules You Must Follow to Make Money in Any Market
Rule One:
Never Trade Just to Trade.
Having an itchy trigger finger can turn a trader into his own worst enemy. This is a classic mistake. We've all made it. I may even go so far as to say that this is what I see as the most common mistake among professionals AND non-pros.
Savvy traders know that there are times when the best action is to take no action. I never wake up one day and say, "Okay, I need to find a good play. I'm going to pore over a list of good stocks and pick my favorite one. I know that it is best to first get a good feel for exactly the way the stock trades before considering it as a profit opportunity.
We don't think that a trader who does such a thing can have a good enough feel for the stock's price action, or for the other major players who are controlling the stock's price movement. The savviest players on Wall Street know several great companies for months or years before buying the stock.
Rule Two:
Only Buy When Both the Fundamentals and the Technicals Tell You to Buy.
There are two stars that must be aligned: Technical and fundamental. If I purchase a stock, it is because the situation is such that a smart technical analyst and a smart fundamental analyst would both agree that the time to buy is NOW.
Generally, once I know that the company is well positioned from a financial standpoint, I then make sure that I have a good understanding of what the charts are telling us. Then I get more detailed by checking who the major buyers, sellers and current shareholders are, evaluating their reputation and whether new major shareholders are entering the picture.
Rule Three:
Never be Greedy; Small Profits Never Hurt Anybody.
As long as I am profitable, I am happy. Remember, I only swing at the pitches that I love. I only stick with a position because I think it has strong potential. I never stick with a trade because I have not yet achieved the profit that I want.
The market doesn't owe us anything! If anything, Mr. Market owes me a couple of losses. I never look a gift horse in the mouth. Waiting for the profit that you feel is owed to you is another classic emotional mistake and an emotion that makes a trader his/her own worst enemy.
It's just like holding a stock because you are down 5%, and you only want to sell at a profit or at break even. Mr. Market doesn't know you and doesn't care what you paid for the stock.
I make moves strictly based on what the indicators are telling me. NEVER based on the price of the stock.
If I moved based on stock price alone, I would never hold a stock for a 500% increase.
Rule Four:
Welcome Unsuccessful Trades.
What the heck is this guy talking about? Don't worry, this is not the "go down with the ship" philosophy.
My rules are simple. They are what has built fortune after fortune for myself and my clients, so listen to me here: I might limit my downside to 7% or I might cut my losses at 20%. Very often, I hedge my stock positions with stock option contracts that limit my downside to a few percentage points.
My stock screening system usually keeps me from buying stocks that get crushed. Okay, I know that you can't guarantee that a stock won't take a beating here and there. And when I'm trading options, we take an occasional beating. But if I'm right more than I'm wrong, and I make a lot more than I lose, then I've achieved my goal.
Some of the biggest winners that I have had - ones that have traded thousands of percentage points higher - have traded lower first. If I hadn't run them through my stock screening system, I would have limited my losses to 7% and, therefore, missed those winners that mean the world to your overall portfolio.
Rule Five:
Whenever Possible, Utilize Options as a Way to Generate Income in a Flat Market.
You can take in additional income every month by selling covered calls.
Every month there are ways to have from 1.5% - 7% of the value of your stock positions either deposited into your account, or sent to your home in the form of a check.
Every single month, so many investors leave an absurd amount of money on the table. The worst part about it is that the only reason they don't pick the found money up off of the ground, is that they don't have eyes that have the ability to see it. My heart goes out to those people who don't understand this simple strategy, just as it does to people who literally have vision problems. It's simple, really, and all that you have to do is take a few hours to understand it. IT'S WORTH IT!
Never Trade Just to Trade.
Having an itchy trigger finger can turn a trader into his own worst enemy. This is a classic mistake. We've all made it. I may even go so far as to say that this is what I see as the most common mistake among professionals AND non-pros.
Savvy traders know that there are times when the best action is to take no action. I never wake up one day and say, "Okay, I need to find a good play. I'm going to pore over a list of good stocks and pick my favorite one. I know that it is best to first get a good feel for exactly the way the stock trades before considering it as a profit opportunity.
We don't think that a trader who does such a thing can have a good enough feel for the stock's price action, or for the other major players who are controlling the stock's price movement. The savviest players on Wall Street know several great companies for months or years before buying the stock.
Rule Two:
Only Buy When Both the Fundamentals and the Technicals Tell You to Buy.
There are two stars that must be aligned: Technical and fundamental. If I purchase a stock, it is because the situation is such that a smart technical analyst and a smart fundamental analyst would both agree that the time to buy is NOW.
Generally, once I know that the company is well positioned from a financial standpoint, I then make sure that I have a good understanding of what the charts are telling us. Then I get more detailed by checking who the major buyers, sellers and current shareholders are, evaluating their reputation and whether new major shareholders are entering the picture.
Rule Three:
Never be Greedy; Small Profits Never Hurt Anybody.
As long as I am profitable, I am happy. Remember, I only swing at the pitches that I love. I only stick with a position because I think it has strong potential. I never stick with a trade because I have not yet achieved the profit that I want.
The market doesn't owe us anything! If anything, Mr. Market owes me a couple of losses. I never look a gift horse in the mouth. Waiting for the profit that you feel is owed to you is another classic emotional mistake and an emotion that makes a trader his/her own worst enemy.
It's just like holding a stock because you are down 5%, and you only want to sell at a profit or at break even. Mr. Market doesn't know you and doesn't care what you paid for the stock.
I make moves strictly based on what the indicators are telling me. NEVER based on the price of the stock.
If I moved based on stock price alone, I would never hold a stock for a 500% increase.
Rule Four:
Welcome Unsuccessful Trades.
What the heck is this guy talking about? Don't worry, this is not the "go down with the ship" philosophy.
My rules are simple. They are what has built fortune after fortune for myself and my clients, so listen to me here: I might limit my downside to 7% or I might cut my losses at 20%. Very often, I hedge my stock positions with stock option contracts that limit my downside to a few percentage points.
My stock screening system usually keeps me from buying stocks that get crushed. Okay, I know that you can't guarantee that a stock won't take a beating here and there. And when I'm trading options, we take an occasional beating. But if I'm right more than I'm wrong, and I make a lot more than I lose, then I've achieved my goal.
Some of the biggest winners that I have had - ones that have traded thousands of percentage points higher - have traded lower first. If I hadn't run them through my stock screening system, I would have limited my losses to 7% and, therefore, missed those winners that mean the world to your overall portfolio.
Rule Five:
Whenever Possible, Utilize Options as a Way to Generate Income in a Flat Market.
You can take in additional income every month by selling covered calls.
Every month there are ways to have from 1.5% - 7% of the value of your stock positions either deposited into your account, or sent to your home in the form of a check.
Every single month, so many investors leave an absurd amount of money on the table. The worst part about it is that the only reason they don't pick the found money up off of the ground, is that they don't have eyes that have the ability to see it. My heart goes out to those people who don't understand this simple strategy, just as it does to people who literally have vision problems. It's simple, really, and all that you have to do is take a few hours to understand it. IT'S WORTH IT!
Friday, April 11, 2008
5 Rules to Become a "Trading Monk"
Tell me if this is you:
1. You work very hard at your “day job”.
2. You can’t stand your boss and most of your co-workers.
3. Your job doesn’t pay you enough.
4. You don’t get the respect that you deserve at work.
5. You see stupid people who have more money than you do.
6. You experience road rage regularly.
7. The only vacation that you are familiar with is a working one.
8. You are uncertain about what to do to make more money.
9. You are skeptical about most things.
10. You wish that you could just “get away” sometimes (e.g. move to Alaska).
Take a deep breath and think about becoming a “trading monk”. Let me first define what a monk is:
“A man who is a member of a brotherhood living in a monastery and devoted to a discipline prescribed by his order: a Carthusian monk; a Buddhist monk.”
Let’s take a look at what a potential trading monk may look like.
You don’t have to become a serious monk to make money trading, but you do need to develop a certain mind set in order to take your trading/investing game to another level.
Things to work on:
1. Make learning about investing and trading part of your life.
It’s just like trying to lose weight; it has to be a part of your lifestyle. When you're on a diet, you may take the stairs instead of the elevator, park your car far away from work so that you have a further distance to walk, etc.
You should make learning about trading and investing a part of your life. Start slow and work your way up. Bring a book on investing with you while you’re waiting in the doctor’s office, etc.
2. “It’s the economy, stupid.”
I am actually shocked at how weak many traders and investors are when it comes to the economy. Take the time to learn economics and what the statistics mean, and you will have a competitive advantage over others in the market that are competing with you to make money. The economy will reveal to you when, where, and how to play the market.
3. Paper trade first.
Before you start to bet real money, practice paper trading first. It’s like taking practice exams before you take the real thing. Believe me: You would rather make your mistakes with fake money first.
4. Get comfortable with a handful of securities.
Find a handful of stocks and get to know them intimately (like the back of your hand). Each stock has its own unique character. Find out the “character” of a handful (e.g. five) good name companies and watch them for several weeks or months (depending on your personality) before you bet real money on them.
5. Get in there and trade.
Once you feel comfortable, get in there and trade. Just remember to crawl before you walk, and to walk before you run.
In closing...
I speak with people on a regular basis who try to invest and trade on their own, lose money because they went about it the wrong way, and eventually just throw in the towel and give up. THIS DOES NOT HAVE TO BE YOU!
To be good at anything, it takes practice, dedication, and hard work. If you don’t want to put that effort in then throw in the towel right now, hand your money over to a “professional”, and get ready to receive mediocre returns and retire when you are about 90.
The choice is yours. Do it the “right way” or don’t do it at all.
Sunday, April 06, 2008
Drink Coffee to Keep Alzheimer & Cancer at bay!
Alzheimer's? Just take a cuppa coffee
A cup of coffee daily can help you in more ways than you think. For example, the daily dose of caffeine can keep Alzheimer's disease at bay
New York: A daily dose of caffeine blocks the disruptive effects of high cholesterol that scientists link with Alzheimer's disease.
Caffeine equivalent of just a daily cup of coffee could protect the blood-brain barrier (BBB) from damage that occurs with a high-fat diet, according to a study.
The BBB protects the central nervous system (CNS) from the rest of the body's circulation, providing the brain with its own regulated microenvironment.
Previous studies have shown that high levels of cholesterol break down the BBB that can then no longer protect the CNS from the damage caused by blood borne contamination. BBB leakage occurs in a variety of neurological disorders such as Alzheimer's disease.
In this study, researchers of University of North Dakota (UND) gave rabbits three mg caffeine daily or the equivalent of an average daily cup of coffee. The rabbits were fed a cholesterol-enriched diet during this time.
After 12 weeks a number of lab tests showed that the BBB was significantly more intact in rabbits receiving a daily dose of caffeine.
Findings of the study have been published in the open access Journal of Neuroinflammation.
"Caffeine appears to block several of the disruptive effects of cholesterol that make the blood-brain barrier leaky," says Jonathan Geige of UND.
"High levels of cholesterol are a risk factor for Alzheimer's disease, perhaps by compromising the protective nature of the blood-brain barrier. For the first time we have shown that chronic ingestion of caffeine protects the BBB from cholesterol-induced leakage.
"Caffeine is a safe and readily available drug and its ability to stabilise the blood-brain barrier means it could have an important part to play in therapies against neurological disorders."
Drink coffee to keep cancer at bay
Now medical scientists say that drinking three cups of coffee a day can also cut risk of ovarian cancer
London: Caffeine may not be good for to-be-moms as it increases the risk of miscarriage. But a new study has found that drinking three cups of coffee daily can help prevent ovarian cancer in women.
A team of international researchers has carried out the study and found that women who take caffeine equivalent to three cups of coffee everyday are less likely to develop ovarian cancer later in life.
"We observed a significant inverse trend of ovarian cancer risk with caffeine intake. The reasons why caffeine protects against ovarian cancer is not clear and further studies will be carried out," lead researcher Shelley Tworoger of Harvard Medical School wrote in the 'Cancer' journal.
The team came to the conclusion after analysing the effects of coffee intake on a group of nurses. The researchers compared the diets of 80,000 of these women with the incidence of ovarian cancer as part of the study between 1976 and 2004.
According to the researchers, 737 of them developed ovarian cancer during the study period.
Those who had at least three cups of coffee a day were found to be 20 per cent less likely to develop the disease than those who drank none. Moreover, those who did not opt for hormone replacement therapy, the risk was 43 per cent less.
However, the benefits and risks of drinking coffee continue to be the subject of much debate.
"The jury is still out as to whether or not caffeine affects the risk of ovarian cancer because evidence from previous studies looking at this link has been inconsistent," the 'Daily Mail' quoted Josephine Querido of Cancer Research UK as saying.
Ref: Indo-Asian News Service
Sunday, March 30, 2008
The 7 Gems you can invest in
These seven companies should see their earnings double in the next three years, which in turn should positively reflect on their respective stock prices.
The steep fall in stock valuations, the day-to-day gyrations in the market and increased uncertainties globally, have all sent shivers down the spine of domestic investors, while largely keeping foreign investors at bay.
While there aren’t any conclusive signs of market sentiments turning positive, the current scenario provides long-term investors the opportunity to take a plunge into the market and buy high-quality stocks at far cheaper valuations.
Although the current turmoil is more to do with global events and to some extent due to the fears pertaining to earnings slowdown, one can still pinpoint companies capable of delivering an earnings growth of 25-30 per cent annually for the next three years. In other words, their earnings should double over the same period.
While experts have always suggested investing in the domestic growth story including in sectors such as FMCG, retail, media, financial services (including banking), telecom, infrastructure and, oil and gas, the answer to superior returns lies in one’s ability to pick the right stocks.
A good investment would ideally be a combination of robust fundamentals, sound promoter/management, market leadership in the business (preferred), healthy growth prospects, reasonable valuations and minimum downside risk, all of which put together should help achieve above-market returns.
The Smart Investor brings to you a few of such stocks, which with the exception Reliance Petroleum (due to no past track record as it is yet to commence operations), largely meet the criteria.
The current market turmoil is only making things more attractive. Even if the market goes for a toss, their relatively high-quality characteristics should act as a cushion.
Aban Offshore
The record high crude oil prices, worldwide shortage of rigs and investments to spruce up domestic oil production will benefit Aban Offshore, which provides rigs and allied equipment to the oil and gas industry.
The company’s well-timed fleet expansion in a tight supply, high demand scenario and renewal of longer-duration contracts at higher day rates would boost earnings over the next few years.
Aban is set to add five assets (four new jack-ups and a recently acquired semi-submersible rig) between CY08 and CY09 to its existing fleet of 16 offshore assets (post the acquisition of Sinvest).
Further, the company has renewed its longer duration contracts at much higher day rates, which means higher growth in profits.
For example, its two contracts with ONGC for three years each – one commencing from March 2008 and another already commenced from December 2007 – have been renewed at $150,000 per day each as against $45,000 and $28,000-$56,000 a day respectively, reflecting a more than three-fold rise in value of contracts.
Another contract, for six years, with Oriental Oil, which commenced from October 2007, was renewed at $87,000 (as compared with $40,000). Analysts expect this kind of supply tightness to continue till CY10.
The company’s acquisition of Sinvest, gave it access to premium jack-up rigs and quicker supply of rigs, which otherwise would have taken about three years.
Thus, the expected strong operational cash-flows will help Aban bring down the huge debt on its books (high debt to equity ratio of 1.7 in FY07) and boost earnings.
Lastly, while the growth in earnings in FY09 is steep as compared with the EPS of Rs 40 for trailing 12 months, it comes on the back of a loss in FY07 (due to five-fold rise in interest costs).
Nonetheless, after adjusting for the low base effect, Aban’s expected growth in earnings is more than healthy and its future prospects continue to be good, all of which make it a good bet.
ABB
ABB, a leading player in the power equipment (transmission and distribution) and industrial automation technology businesses, reported strong growth for the year ended December 2007, wherein revenues shot up by 39 per cent to Rs 5,930 crore and order backlog was up 49 per cent at Rs 5,020 crore followed by a 100 basis points improvement in operating margins to 12.2 per cent.
Such robust growth is expected to continue and orders are expected to flow in for the next few years, given growth in the power sector (in India as well as globally) and investments in sectors such as minerals, energy, oil and gas in emerging markets, driving demand for its automation division.
The Indian power sector is expected to witness investments of Rs 6,16,300 crore during the Eleventh Plan period (ending 2012), out of which the transmission and distribution sector – the target market for ABB – is allotted Rs 1,74,300 crore.
After completing its $100 million capex and augmenting its manufacturing facilities, ABB has announced yet another investment of a similar amount, spread over the next 18 months. ABB’s parent expects the business from its Indian operations to double by 2010, which is an indication of robust growth for ABB going forward.
HDFC Bank
HDFC Bank, the second largest private bank in India, trades at a premium to other larger private and public sector banks due to its ability to sustain its superior financial track record, especially in areas such as net interest margins, return ratios, profit growth and asset quality, irrespective of the interest rate scenario.
Going forward, the bank is expected to continue its robust organic growth – 42 per cent, 40.5 per cent and 31 per cent in advances, net interest income and net profit respectively, reported in the past four years.
Its recent acquisition of the relatively smaller private bank, Centurion Bank of Punjab (CBoP), should help expand its geographical reach. Its branch network would jump by 52 per cent to 1,148 branches, ahead of its larger peer ICICI Bank, with greater concentration in northern and southern states.
HDFC Bank’s balance sheet size, total advances and total deposits will shoot up as well, by 37 per cent, 43 per cent and 43 per cent, respectively.
However, its CASA (current and savings bank account) ratio will decline from 58 per cent to 50 per cent, which will impact margins, while its overall asset quality is also expected to be impacted slightly.
However, these concerns are only short-term in nature and should be offset on account of the long-term benefits from better synergies, rationalisation of employee and branches as well lower expenditure on technology.
Also, CBoP’s dominant position in the retail (two-wheelers and cars) and SME (small and medium enterprise) segments, distribution of third-party products and substantial non-resident client base will strongly complement to that of HDFC Bank.
IDFC
Infrastructure Development Finance Company (IDFC) has been a preferred lender to infrastructure projects due to its long track record and age old association with the government in policy formulation.
However, due to pressure on margins in this wholesale financing business, IDFC has formed its strategy of stepping up its fee-based income by acquiring stakes in various businesses including brokerage firm SSKI, buyout of Standard Chartered Mutual Fund, and private equity along with debt finance and syndication opportunities.
Nevertheless, infrastructure financing would remain a key revenue stream for the next few years due to the astounding (around $500 billion) opportunity in infrastructure spending.
Moreover, with India’s economic growth still one of the highest in the world, even after the expectations of a mild slowdown, and favourable demographics (leaving more disposable income in the hands of people), the financial services industry is expected to experience buoyant times.
For example, the Indian asset management industry has grown over 40 per cent in the last four years and is expected to grow at a rapid clip in the future as well. All this suggests that IDFC is not only set to grow at more than healthy rates, but should also emerge as a formidable financial institution.
Reliance Petroleum
Apart from the promoter company, Reliance Industries (RIL), Reliance Petroleum (RPL) also offers a good investment opportunity as its 29 million metric tonne per annum (580,000 barrels per day) refinery, the world’s sixth-largest is likely to come on stream before the scheduled December 2008.
The commissioning of capacity is well timed, given that the outlook for gross refining margins (GRMs) is bullish till FY12.
Globally, refining margins are likely to remain buoyant between $5-$10 per barrel from 2008 to 2012, thanks to the huge demand-supply mismatch and the time lag of three to four years for new capacities to come on-stream.
Also, increasingly stringent environmental standards leading to demand for light and cleaner products, and thus, high prices are further strengthening the case for higher GRMs.
The company’s promoter, Reliance Industries’ gross refining margins improved by 380 basis points in nine months ended December 2007 to $14.9 a barrel, almost double of the benchmark Singapore complex margins of $7.7 a barrel. Since RPL will be able to process even complex crudes it will earn relatively high refining margins.
The key thing to look in this case is the movement of the rupee against the dollar, which is bullish, though it would be partly offset by low cost incurred by the company due to its plant location in a special economic zone, benefiting from incentives like zero duty on imports of plant and machinery and fiscal benefits like a tax holiday (no minimum alternative tax; 100 per cent for first five year followed by half that for another five years).
Titan Industries
Titan’s focus on branded products, and its strategy of capturing less penetrated market segments and catering to every income group will help it reap rich fruits.
The company is a market leader in the organised watch segment with a 40 per cent share with brands like Titan, Sonata and Fast Track. It braced up its branded jewellery business and today, its Tanishq brand enjoys a strong recall in the organised market.
Organised jewellery retailing business has a meagre share of 3-4 per cent, but with a growth of 25-30 per cent, it is expected to gain higher share, thus benefiting Titan. Further, it has rightly identified new markets with strong growth potential.
It has also entered the $450 million Indian eyewear market with its Fast Track brand and precision engineering equipment business catering to automobile, medical and aerospace industry (global size of $35 billion). It has also ventured into the Rs 2,500-3,000 crore Indian prescription eyewear business under the brand Titan Eye+.
All these indicate that Titan is set to report high revenue growth driven by its branded jewellery business and supported by new segments.
Although profitability will trail sales growth due to lower margins in the jewellery business, it is still expected to be substantial. Moreover, periodic introduction of brands and ability to identify new segments boosts confidence about the company’s prospects.
Voltas
Voltas, the engineering and air-conditioning major, is expected to gain immensely from the rising capital expenditure across sectors like retail, IT and entertainment, and higher infrastructure spending in India and other emerging markets such as West Asia.
Being the second largest player in the Indian organised heating, ventilation, and air conditioning (HVAC) market after Blue Star, the company is expected to reap benefits of immense opportunities in the air conditioning market, especially the non-residential segment, which is expected to almost triple to Rs 37,600 crore in the next five years.
Apart from HVAC, Voltas will also gain from the growth in the construction activities, which in turn throw up opportunities in the fledgling MEP (mechanical, electrical and plumbing) industry.
The company has established itself in its MEP business, which is growing at 40 per cent year-on-year, which had an order book of Rs 3,500 crore (international orders worth Rs 2,700 crore and Rs 800 crore worth of domestic orders) as on December 2007.
To its credit, the company has executed orders at nine out of the ten domestic airports, and is currently working on the upcoming international airport at Hyderabad.
The total investment of Rs 40,800 crore planned towards airports over the next five years reflects a huge market and hence, growth potential for players including Voltas and Blue Star.
Also, Voltas, which commands a 17 per cent share in the air-conditioner market, should benefit from increased consumer spending. All this put together indicate strong growth prospects for Voltas.
(Please note this is a report appeared in The Business Standard newspaper. You are at your own risk to invest in these shares. In no way, I am responsible for your decisions)
The steep fall in stock valuations, the day-to-day gyrations in the market and increased uncertainties globally, have all sent shivers down the spine of domestic investors, while largely keeping foreign investors at bay.
While there aren’t any conclusive signs of market sentiments turning positive, the current scenario provides long-term investors the opportunity to take a plunge into the market and buy high-quality stocks at far cheaper valuations.
Although the current turmoil is more to do with global events and to some extent due to the fears pertaining to earnings slowdown, one can still pinpoint companies capable of delivering an earnings growth of 25-30 per cent annually for the next three years. In other words, their earnings should double over the same period.
While experts have always suggested investing in the domestic growth story including in sectors such as FMCG, retail, media, financial services (including banking), telecom, infrastructure and, oil and gas, the answer to superior returns lies in one’s ability to pick the right stocks.
A good investment would ideally be a combination of robust fundamentals, sound promoter/management, market leadership in the business (preferred), healthy growth prospects, reasonable valuations and minimum downside risk, all of which put together should help achieve above-market returns.
The Smart Investor brings to you a few of such stocks, which with the exception Reliance Petroleum (due to no past track record as it is yet to commence operations), largely meet the criteria.
The current market turmoil is only making things more attractive. Even if the market goes for a toss, their relatively high-quality characteristics should act as a cushion.
Aban Offshore
The record high crude oil prices, worldwide shortage of rigs and investments to spruce up domestic oil production will benefit Aban Offshore, which provides rigs and allied equipment to the oil and gas industry.
The company’s well-timed fleet expansion in a tight supply, high demand scenario and renewal of longer-duration contracts at higher day rates would boost earnings over the next few years.
Aban is set to add five assets (four new jack-ups and a recently acquired semi-submersible rig) between CY08 and CY09 to its existing fleet of 16 offshore assets (post the acquisition of Sinvest).
Further, the company has renewed its longer duration contracts at much higher day rates, which means higher growth in profits.
For example, its two contracts with ONGC for three years each – one commencing from March 2008 and another already commenced from December 2007 – have been renewed at $150,000 per day each as against $45,000 and $28,000-$56,000 a day respectively, reflecting a more than three-fold rise in value of contracts.
Another contract, for six years, with Oriental Oil, which commenced from October 2007, was renewed at $87,000 (as compared with $40,000). Analysts expect this kind of supply tightness to continue till CY10.
The company’s acquisition of Sinvest, gave it access to premium jack-up rigs and quicker supply of rigs, which otherwise would have taken about three years.
Thus, the expected strong operational cash-flows will help Aban bring down the huge debt on its books (high debt to equity ratio of 1.7 in FY07) and boost earnings.
Lastly, while the growth in earnings in FY09 is steep as compared with the EPS of Rs 40 for trailing 12 months, it comes on the back of a loss in FY07 (due to five-fold rise in interest costs).
Nonetheless, after adjusting for the low base effect, Aban’s expected growth in earnings is more than healthy and its future prospects continue to be good, all of which make it a good bet.
ABB
ABB, a leading player in the power equipment (transmission and distribution) and industrial automation technology businesses, reported strong growth for the year ended December 2007, wherein revenues shot up by 39 per cent to Rs 5,930 crore and order backlog was up 49 per cent at Rs 5,020 crore followed by a 100 basis points improvement in operating margins to 12.2 per cent.
Such robust growth is expected to continue and orders are expected to flow in for the next few years, given growth in the power sector (in India as well as globally) and investments in sectors such as minerals, energy, oil and gas in emerging markets, driving demand for its automation division.
The Indian power sector is expected to witness investments of Rs 6,16,300 crore during the Eleventh Plan period (ending 2012), out of which the transmission and distribution sector – the target market for ABB – is allotted Rs 1,74,300 crore.
After completing its $100 million capex and augmenting its manufacturing facilities, ABB has announced yet another investment of a similar amount, spread over the next 18 months. ABB’s parent expects the business from its Indian operations to double by 2010, which is an indication of robust growth for ABB going forward.
HDFC Bank
HDFC Bank, the second largest private bank in India, trades at a premium to other larger private and public sector banks due to its ability to sustain its superior financial track record, especially in areas such as net interest margins, return ratios, profit growth and asset quality, irrespective of the interest rate scenario.
Going forward, the bank is expected to continue its robust organic growth – 42 per cent, 40.5 per cent and 31 per cent in advances, net interest income and net profit respectively, reported in the past four years.
Its recent acquisition of the relatively smaller private bank, Centurion Bank of Punjab (CBoP), should help expand its geographical reach. Its branch network would jump by 52 per cent to 1,148 branches, ahead of its larger peer ICICI Bank, with greater concentration in northern and southern states.
HDFC Bank’s balance sheet size, total advances and total deposits will shoot up as well, by 37 per cent, 43 per cent and 43 per cent, respectively.
However, its CASA (current and savings bank account) ratio will decline from 58 per cent to 50 per cent, which will impact margins, while its overall asset quality is also expected to be impacted slightly.
However, these concerns are only short-term in nature and should be offset on account of the long-term benefits from better synergies, rationalisation of employee and branches as well lower expenditure on technology.
Also, CBoP’s dominant position in the retail (two-wheelers and cars) and SME (small and medium enterprise) segments, distribution of third-party products and substantial non-resident client base will strongly complement to that of HDFC Bank.
IDFC
Infrastructure Development Finance Company (IDFC) has been a preferred lender to infrastructure projects due to its long track record and age old association with the government in policy formulation.
However, due to pressure on margins in this wholesale financing business, IDFC has formed its strategy of stepping up its fee-based income by acquiring stakes in various businesses including brokerage firm SSKI, buyout of Standard Chartered Mutual Fund, and private equity along with debt finance and syndication opportunities.
Nevertheless, infrastructure financing would remain a key revenue stream for the next few years due to the astounding (around $500 billion) opportunity in infrastructure spending.
Moreover, with India’s economic growth still one of the highest in the world, even after the expectations of a mild slowdown, and favourable demographics (leaving more disposable income in the hands of people), the financial services industry is expected to experience buoyant times.
For example, the Indian asset management industry has grown over 40 per cent in the last four years and is expected to grow at a rapid clip in the future as well. All this suggests that IDFC is not only set to grow at more than healthy rates, but should also emerge as a formidable financial institution.
Reliance Petroleum
Apart from the promoter company, Reliance Industries (RIL), Reliance Petroleum (RPL) also offers a good investment opportunity as its 29 million metric tonne per annum (580,000 barrels per day) refinery, the world’s sixth-largest is likely to come on stream before the scheduled December 2008.
The commissioning of capacity is well timed, given that the outlook for gross refining margins (GRMs) is bullish till FY12.
Globally, refining margins are likely to remain buoyant between $5-$10 per barrel from 2008 to 2012, thanks to the huge demand-supply mismatch and the time lag of three to four years for new capacities to come on-stream.
Also, increasingly stringent environmental standards leading to demand for light and cleaner products, and thus, high prices are further strengthening the case for higher GRMs.
The company’s promoter, Reliance Industries’ gross refining margins improved by 380 basis points in nine months ended December 2007 to $14.9 a barrel, almost double of the benchmark Singapore complex margins of $7.7 a barrel. Since RPL will be able to process even complex crudes it will earn relatively high refining margins.
The key thing to look in this case is the movement of the rupee against the dollar, which is bullish, though it would be partly offset by low cost incurred by the company due to its plant location in a special economic zone, benefiting from incentives like zero duty on imports of plant and machinery and fiscal benefits like a tax holiday (no minimum alternative tax; 100 per cent for first five year followed by half that for another five years).
Titan Industries
Titan’s focus on branded products, and its strategy of capturing less penetrated market segments and catering to every income group will help it reap rich fruits.
The company is a market leader in the organised watch segment with a 40 per cent share with brands like Titan, Sonata and Fast Track. It braced up its branded jewellery business and today, its Tanishq brand enjoys a strong recall in the organised market.
Organised jewellery retailing business has a meagre share of 3-4 per cent, but with a growth of 25-30 per cent, it is expected to gain higher share, thus benefiting Titan. Further, it has rightly identified new markets with strong growth potential.
It has also entered the $450 million Indian eyewear market with its Fast Track brand and precision engineering equipment business catering to automobile, medical and aerospace industry (global size of $35 billion). It has also ventured into the Rs 2,500-3,000 crore Indian prescription eyewear business under the brand Titan Eye+.
All these indicate that Titan is set to report high revenue growth driven by its branded jewellery business and supported by new segments.
Although profitability will trail sales growth due to lower margins in the jewellery business, it is still expected to be substantial. Moreover, periodic introduction of brands and ability to identify new segments boosts confidence about the company’s prospects.
Voltas
Voltas, the engineering and air-conditioning major, is expected to gain immensely from the rising capital expenditure across sectors like retail, IT and entertainment, and higher infrastructure spending in India and other emerging markets such as West Asia.
Being the second largest player in the Indian organised heating, ventilation, and air conditioning (HVAC) market after Blue Star, the company is expected to reap benefits of immense opportunities in the air conditioning market, especially the non-residential segment, which is expected to almost triple to Rs 37,600 crore in the next five years.
Apart from HVAC, Voltas will also gain from the growth in the construction activities, which in turn throw up opportunities in the fledgling MEP (mechanical, electrical and plumbing) industry.
The company has established itself in its MEP business, which is growing at 40 per cent year-on-year, which had an order book of Rs 3,500 crore (international orders worth Rs 2,700 crore and Rs 800 crore worth of domestic orders) as on December 2007.
To its credit, the company has executed orders at nine out of the ten domestic airports, and is currently working on the upcoming international airport at Hyderabad.
The total investment of Rs 40,800 crore planned towards airports over the next five years reflects a huge market and hence, growth potential for players including Voltas and Blue Star.
Also, Voltas, which commands a 17 per cent share in the air-conditioner market, should benefit from increased consumer spending. All this put together indicate strong growth prospects for Voltas.
(Please note this is a report appeared in The Business Standard newspaper. You are at your own risk to invest in these shares. In no way, I am responsible for your decisions)
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