Action Time To Buy 0811-011p
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Rummaging the Rubble
ACTION TIME TO BUY Filtered Stocks - Short & Long Term What is more Important in stock markets - ENTRY or EXIT time? This question has been nagging the minds of all investors ever since the stock market was invented. There is no clear answer so far, although hundreds of books have been written on stock markets. The simple answer is as under: EXIT Time for Bull Market; ENTRY Time for Bear Market Now that we are in a bear market by all means, the question is whether it is right time to enter in this bear market or bulls are still being slaughtered? Whenever you try to buy, you become a bull and when you try to sell, became a bear. Whenever the market goes down, they call it “Profit Taking.” No one ever says “Loss taking.” Right now, the damage is more like Katrina. Rubble, rubble everywhere. You have to find something valuable available virtually free. In investment, an Investor usually asks the following questions (some they are explicit, some they ask within themselves) 1. 2. 3. 4. 5. 6.
Is it right time to Buy? Will not the markets go down further? What should we buy? How long do we have to hold? How much we can possibly gain? What is the downside risk for the stock?
If above questions are answered, the investor loosens the purse and starts investing. However, during this market collapse, especially in India, the investors have started asking the following questions. Our comments are given immediately below in Blue. 1. Oh my god? How low the SENSEX will go to? We are in worst ever credit crisis. It is specific to USA, and has spread to Europe and UK. It is limited to a financial sector. No one knows how low will SENSEX go, so let us not involve in prediction game. Further, we are going to invest into individual stocks, so why dwell too much in the big talks like Index movement? 2. Are we finished or washed out with the market? The market never gets finished or washed out completely. The market lives on. So use steep correction as suitable investment opportunity 3. When will the market revive? Will it go to 21000 again? Again, predictions game. Whether the market goes up or down, we are concerned whether the stocks that we have invested in will give us suitable return. Yes, any sizable gain in a short term will be a bonus. Focus on one to two year’s horizon. The target of 21000 is not achievable in a medium term (next five years or so). The losses are so much, that the investors will be keen to take profit, if the stock makes a gain of 10% to 30%. No one has more patience now. 4. Will the market go to 5000? When the market was at 21,000, the brokers were talking about the index going to 50,000 to Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 2 of 11
60000. Now that, the same brokers are talking about 5000, and if it goes to 5000, they will talk about 3000. There is no end to it. To be quite honest, individual stocks do not necessarily track indices. For instance, when the market was near 12000, Hotel Leela comes down to Rs. 21.85 and with the present index of 8500 (35% down), same stock is trading at Rs 26.50. You therefore better worry about the stock you are going to invest in rather than talking about markets that will lead you nowhere. 5. How much we should invest? Should we invest all now? It depends on your risk taking abilities. Do not invest more than you cannot afford to lose is the principle of stock market investment. Not everything is going to zero. There are values in the stocks when they are battered. The present opportunity is on a golden platter. So use it. To give you an example, take Arvind Mill that has collapsed into Rs 13.10 today. Even a yard of Arvind Mill fabric cost over Rs 30 to 45 per meter, or one shirt cost over Rs 150 to Rs 300. With this amount one can buy about 10 to 20 shares of same Arvind Mill. The stocks today are so cheap that even toilet paper often cost more. Do one exercise. Take the inventory of items of your household that you have not used for more than 12 months. Sell it out in open house or garage sale or sell it out to some hawkers who buy such stuff in barter trade. Ask them to pay cash instead. Use that money to buy above quoted cheap shares. You will be able to reduce dead inventory in your home; make enough space, clean up the excesses and got some really valuable shares, that may double or triple in less than one or two years. Please note that when the confidence returns in the marketplace, these stocks multiply in less than five trading sessions. If they have come down very fast, they will climb up with equal speed. Please be practical.
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 3 of 11
6. Is it not risky to invest now? There is a risk everywhere. Even if one is healthy, he can be in bed if he meets some accident. When one comes out of his home or office, there is no guarantee that he may not be hurt by someone walking on the street or sidewalk. Do not ask such questions - they are not worth even asking, where is the question of getting the answers? You: Me :
Great, I now understand the game. I will take reasonable risk. So pick up some stocks for me and advise me. I am buying on two year’s horizon at least. That’s my boy. Now I will tell you what should you do. Remember, this is a stock market and this time it is tough. If you are not made of steel, try to become one.
How to Buy in Washed Out Market? There are two angles. One for domestic investors and other foreign investors or NRI. Following is the consideration that governs my approach: 1.
2.
3.
4.
5.
Strength of Rupee (for International Investors including NRI) a. The stocks are cheaper by 50% to 80%, and the currency is cheaper by 20% (from Rs 39 to Rs 50). This makes the stocks very cheap if you decide to send more remittances to India (and you must) b. India may suffer in pace, but not in aim. The growth may be subdued somewhat, but will pick up in 12 months c. Current weakness in Rupee is due to manipulation in world market by USA and another, sudden fall in all markets have initiated margin calls even on funds facing redemption pressure. This is temporary event. The Rupee will regain its strength soon. The relative strength of dollar is more on weaker side. In fact it could collapse under its own weight. Strength of Economy (to all investors) a. The days of US supremacy is gone, That nation is heading towards disintegration slowly but surely. b. The days of consumptive society is also gone. The days are for savers who have preserved the wealth c. Only those countries will prosper who have larger population. China and India head the pack but the India is ahead in domestic based growth whereas china rely on export led growth. Sectoral Growth to all investors) a. A growing economy needs power, infrastructure, oil and gas, transportation, hotels, shipping, port developments. The info tech, pharmaceuticals, entertainment sectors will perform better. Regional Growth a. There will be more trades within Asia and South East Asia. The wealth has been transferred to Asia, South East Asia, Middle East and Far East. Africa is now on the verge of expansion. Commodity Growth a. Steel, Cement, Auto, Agriculture, Plastic, Chemicals will outperform. While world may be reeling in recession, India will be on expansion mode after present turmoil is fully played out. b. Oil and Gas will outperform Coal; entertainment will outperform and dominate service sectors. Copper, Aluminium, Zinc, Tin, Stainless Steel and Carbon Steel will lead the sectors. These are most attractive sectors today. c. Finance sector will take back seat, not because of its potential contribution but more due to risk aversion d. Agriculture sector will mushroom most. Sugar, Soybean, Coffee, Corn will outperform other soft commodities. Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas 6.
7.
8.
9.
10.
11.
Page 4 of 11
Growth in Housing a. This will be engine for growth. Home Mortgage and Home finance industy will prosper as the default rate will be minimum. b. The sytem of mortgage in India is diametrically opposite to what is found in USA. They are incomparable. c. Home furnishing industry will prosper. Precious Metals and Diamond a. Gold and Silver will outperform diamond industry for at least 2 to 4 years. Future currency regime in the West will be relatively gold and silver based. This will cause demand to outpace the supply. b. Growth in diamond demand depends on countries like USA, Japan, Europe and UK. The Japan will be major customer for diamond due to rise in Yen which will be perennial feature for next 7 years Banks and Financial Sector a. Banks will underperform especially private sector banks due to dearth of capital b. Stock market will revive but still under perform. c. Debt market will prosper due to high interest rates d. Insurance sector in India will be more stable than rest of the world e. Much depends on Taxation policy. There is strong case for lower corporate tax and also personal taxation. Interest rate and CRR policy will take a back seat. However, these are politically dependent, so anything could happen. Growth inTextile and Garment sectors a. They will be more domestic and Asia dependent b. Garments will outperform textiles. Growth in Music and Entertainment industry a. Music, TV, Video, Audio and multimedia industry will have huge growth for next decade b. Bollywood will emerge as challenging center to Hollywood Growth in Sports industry a. Cricket as usual b. Followed by Football, Tennis and Gymnastics c. Sports related Advertisement industry will have maximum growth
Based on above concepts, the following is the basis of industry, sector and stock selection. 1. Select The industry 2. Narrow down to sectors within that industry 3. Select companies having least debt 4. Select Two top tier companies, One middle tier and One small cap with innovative technology. 5. Select the popular companies. It is more like a fashion parade or beauty contest, where the most popular 6. Stock selection will be on following basis: a. The defensive sector will under perform b. The stocks that have dropped most will rise fastest c. The stocks that have not fallen much (less than 30%) will under-perform d. Mid Caps will outpace main Index stocks and also small caps What the Investors must do as preparatory steps? 1. Avoid putting in new funds at the moment. The market is having strong negative bias. 2. Reshuffle the portfolio for the time being. It is like raining heavy outside forcing you to stay home. 3. Normally, I keep the list to 12 stocks,.Since many stocks have fallen over 80%, the list is expanded to 20 stocks at the maximum 4. Sell high PE stocks and raise the cash Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 5 of 11
5. Swap stocks from higher value to lower value. Never swap from lower value to higher value. 6. Do not go for stocks for less than Rs 5 as there is chance that there will be reverse split or consolidation of shares. 7. Make a recent inventory in your home. Chose the items that have not been used for last 12 months. Sell them out and raise cash whatever the amount for buying some mid cap stocks that have become small caps. 8. Be prepared to withdraw money from Provident fund (taking a loan), borrowing against Life Insurance policy and and Bank’s fixed deposits, and postal savings. That money will be used to buy new stocks when the market has almost stabilized or drops another 30% from current level. This may happen, do not be surprised. a. The thinking is that when the stocks rebound from very low base, they could have huge % returns. Some stocks may rise 4 to 5 times. (400% to 500%) in two years. Even if you part with higher deposit interest rate of 10% per annum or 20% in two years, the % gain of about 400% to 500% will more than compensate loss of interest income. b. Do not go for stocks which have not fallen much. When the market recovers, these stocks will fall because the investors will go for stocks having fallen most. c. Under current environment, the stocks having moderate level of debt are more acceptable. Capital intensive stocks may not perform well.
Stocks in the Dock: I normally limit the selection of stock to 12 but due to heavy fall, many stocks have fallen to great extent. I have therefore extended the list to 20. After some time, they will be whittled down to 12 after profit taking in some of the least prioritized stocks (last 8). I have given the following 5 stocks as selection list. There will be 15 more that will be added on daily basis @ 5 stocks per day.
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 6 of 11
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 7 of 11
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 8 of 11
ADDED 4/11/2008
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 9 of 11
ADDED : 4/11/2008
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
This suggestion is withdrawn due to recent developments
Page 10 of 11
Other stocks will be appended here @ 5 stocks per day for next 2 days. This PDF file (and also the html file in the browser on the blog) will be revised every time, so that you can discard the previous one and use the latest one. Do not be guided by Dow’s sucker rally of 889 points yesterday. There are two possibilities: 1. A massive rally is rigged a few days before the bad news come out. The stocks then retreat but still above desired support level. For instance, if Dow had fallen before 8000 and the bad news were released, there could be massive fall. If the market is pushed by 1000 points, and then the bad news released, the market will remain above key level and the collapse avoided.
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 11 of 11
2. There is really some good news, but none was released.
Kalidas, Hong Kong Oct 28, 2008 (Ref: 08-011-Action Time to Buy) updated till 5/11/2008
Copyright © 2008 - Anil Selarka (Kalidas)
ACTION TIME TO BUY Filtered Stocks - Short & Long Term What is more Important in stock markets - ENTRY or EXIT time? This question has been nagging the minds of all investors ever since the stock market was invented. There is no clear answer so far, although hundreds of books have been written on stock markets. The simple answer is as under: EXIT Time for Bull Market; ENTRY Time for Bear Market Now that we are in a bear market by all means, the question is whether it is right time to enter in this bear market or bulls are still being slaughtered? Whenever you try to buy, you become a bull and when you try to sell, became a bear. Whenever the market goes down, they call it “Profit Taking.” No one ever says “Loss taking.” Right now, the damage is more like Katrina. Rubble, rubble everywhere. You have to find something valuable available virtually free. In investment, an Investor usually asks the following questions (some they are explicit, some they ask within themselves) 1. 2. 3. 4. 5. 6.
Is it right time to Buy? Will not the markets go down further? What should we buy? How long do we have to hold? How much we can possibly gain? What is the downside risk for the stock?
If above questions are answered, the investor loosens the purse and starts investing. However, during this market collapse, especially in India, the investors have started asking the following questions. Our comments are given immediately below in Blue. 1. Oh my god? How low the SENSEX will go to? We are in worst ever credit crisis. It is specific to USA, and has spread to Europe and UK. It is limited to a financial sector. No one knows how low will SENSEX go, so let us not involve in prediction game. Further, we are going to invest into individual stocks, so why dwell too much in the big talks like Index movement? 2. Are we finished or washed out with the market? The market never gets finished or washed out completely. The market lives on. So use steep correction as suitable investment opportunity 3. When will the market revive? Will it go to 21000 again? Again, predictions game. Whether the market goes up or down, we are concerned whether the stocks that we have invested in will give us suitable return. Yes, any sizable gain in a short term will be a bonus. Focus on one to two year’s horizon. The target of 21000 is not achievable in a medium term (next five years or so). The losses are so much, that the investors will be keen to take profit, if the stock makes a gain of 10% to 30%. No one has more patience now. 4. Will the market go to 5000? When the market was at 21,000, the brokers were talking about the index going to 50,000 to Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 2 of 11
60000. Now that, the same brokers are talking about 5000, and if it goes to 5000, they will talk about 3000. There is no end to it. To be quite honest, individual stocks do not necessarily track indices. For instance, when the market was near 12000, Hotel Leela comes down to Rs. 21.85 and with the present index of 8500 (35% down), same stock is trading at Rs 26.50. You therefore better worry about the stock you are going to invest in rather than talking about markets that will lead you nowhere. 5. How much we should invest? Should we invest all now? It depends on your risk taking abilities. Do not invest more than you cannot afford to lose is the principle of stock market investment. Not everything is going to zero. There are values in the stocks when they are battered. The present opportunity is on a golden platter. So use it. To give you an example, take Arvind Mill that has collapsed into Rs 13.10 today. Even a yard of Arvind Mill fabric cost over Rs 30 to 45 per meter, or one shirt cost over Rs 150 to Rs 300. With this amount one can buy about 10 to 20 shares of same Arvind Mill. The stocks today are so cheap that even toilet paper often cost more. Do one exercise. Take the inventory of items of your household that you have not used for more than 12 months. Sell it out in open house or garage sale or sell it out to some hawkers who buy such stuff in barter trade. Ask them to pay cash instead. Use that money to buy above quoted cheap shares. You will be able to reduce dead inventory in your home; make enough space, clean up the excesses and got some really valuable shares, that may double or triple in less than one or two years. Please note that when the confidence returns in the marketplace, these stocks multiply in less than five trading sessions. If they have come down very fast, they will climb up with equal speed. Please be practical.
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 3 of 11
6. Is it not risky to invest now? There is a risk everywhere. Even if one is healthy, he can be in bed if he meets some accident. When one comes out of his home or office, there is no guarantee that he may not be hurt by someone walking on the street or sidewalk. Do not ask such questions - they are not worth even asking, where is the question of getting the answers? You: Me :
Great, I now understand the game. I will take reasonable risk. So pick up some stocks for me and advise me. I am buying on two year’s horizon at least. That’s my boy. Now I will tell you what should you do. Remember, this is a stock market and this time it is tough. If you are not made of steel, try to become one.
How to Buy in Washed Out Market? There are two angles. One for domestic investors and other foreign investors or NRI. Following is the consideration that governs my approach: 1.
2.
3.
4.
5.
Strength of Rupee (for International Investors including NRI) a. The stocks are cheaper by 50% to 80%, and the currency is cheaper by 20% (from Rs 39 to Rs 50). This makes the stocks very cheap if you decide to send more remittances to India (and you must) b. India may suffer in pace, but not in aim. The growth may be subdued somewhat, but will pick up in 12 months c. Current weakness in Rupee is due to manipulation in world market by USA and another, sudden fall in all markets have initiated margin calls even on funds facing redemption pressure. This is temporary event. The Rupee will regain its strength soon. The relative strength of dollar is more on weaker side. In fact it could collapse under its own weight. Strength of Economy (to all investors) a. The days of US supremacy is gone, That nation is heading towards disintegration slowly but surely. b. The days of consumptive society is also gone. The days are for savers who have preserved the wealth c. Only those countries will prosper who have larger population. China and India head the pack but the India is ahead in domestic based growth whereas china rely on export led growth. Sectoral Growth to all investors) a. A growing economy needs power, infrastructure, oil and gas, transportation, hotels, shipping, port developments. The info tech, pharmaceuticals, entertainment sectors will perform better. Regional Growth a. There will be more trades within Asia and South East Asia. The wealth has been transferred to Asia, South East Asia, Middle East and Far East. Africa is now on the verge of expansion. Commodity Growth a. Steel, Cement, Auto, Agriculture, Plastic, Chemicals will outperform. While world may be reeling in recession, India will be on expansion mode after present turmoil is fully played out. b. Oil and Gas will outperform Coal; entertainment will outperform and dominate service sectors. Copper, Aluminium, Zinc, Tin, Stainless Steel and Carbon Steel will lead the sectors. These are most attractive sectors today. c. Finance sector will take back seat, not because of its potential contribution but more due to risk aversion d. Agriculture sector will mushroom most. Sugar, Soybean, Coffee, Corn will outperform other soft commodities. Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas 6.
7.
8.
9.
10.
11.
Page 4 of 11
Growth in Housing a. This will be engine for growth. Home Mortgage and Home finance industy will prosper as the default rate will be minimum. b. The sytem of mortgage in India is diametrically opposite to what is found in USA. They are incomparable. c. Home furnishing industry will prosper. Precious Metals and Diamond a. Gold and Silver will outperform diamond industry for at least 2 to 4 years. Future currency regime in the West will be relatively gold and silver based. This will cause demand to outpace the supply. b. Growth in diamond demand depends on countries like USA, Japan, Europe and UK. The Japan will be major customer for diamond due to rise in Yen which will be perennial feature for next 7 years Banks and Financial Sector a. Banks will underperform especially private sector banks due to dearth of capital b. Stock market will revive but still under perform. c. Debt market will prosper due to high interest rates d. Insurance sector in India will be more stable than rest of the world e. Much depends on Taxation policy. There is strong case for lower corporate tax and also personal taxation. Interest rate and CRR policy will take a back seat. However, these are politically dependent, so anything could happen. Growth inTextile and Garment sectors a. They will be more domestic and Asia dependent b. Garments will outperform textiles. Growth in Music and Entertainment industry a. Music, TV, Video, Audio and multimedia industry will have huge growth for next decade b. Bollywood will emerge as challenging center to Hollywood Growth in Sports industry a. Cricket as usual b. Followed by Football, Tennis and Gymnastics c. Sports related Advertisement industry will have maximum growth
Based on above concepts, the following is the basis of industry, sector and stock selection. 1. Select The industry 2. Narrow down to sectors within that industry 3. Select companies having least debt 4. Select Two top tier companies, One middle tier and One small cap with innovative technology. 5. Select the popular companies. It is more like a fashion parade or beauty contest, where the most popular 6. Stock selection will be on following basis: a. The defensive sector will under perform b. The stocks that have dropped most will rise fastest c. The stocks that have not fallen much (less than 30%) will under-perform d. Mid Caps will outpace main Index stocks and also small caps What the Investors must do as preparatory steps? 1. Avoid putting in new funds at the moment. The market is having strong negative bias. 2. Reshuffle the portfolio for the time being. It is like raining heavy outside forcing you to stay home. 3. Normally, I keep the list to 12 stocks,.Since many stocks have fallen over 80%, the list is expanded to 20 stocks at the maximum 4. Sell high PE stocks and raise the cash Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 5 of 11
5. Swap stocks from higher value to lower value. Never swap from lower value to higher value. 6. Do not go for stocks for less than Rs 5 as there is chance that there will be reverse split or consolidation of shares. 7. Make a recent inventory in your home. Chose the items that have not been used for last 12 months. Sell them out and raise cash whatever the amount for buying some mid cap stocks that have become small caps. 8. Be prepared to withdraw money from Provident fund (taking a loan), borrowing against Life Insurance policy and and Bank’s fixed deposits, and postal savings. That money will be used to buy new stocks when the market has almost stabilized or drops another 30% from current level. This may happen, do not be surprised. a. The thinking is that when the stocks rebound from very low base, they could have huge % returns. Some stocks may rise 4 to 5 times. (400% to 500%) in two years. Even if you part with higher deposit interest rate of 10% per annum or 20% in two years, the % gain of about 400% to 500% will more than compensate loss of interest income. b. Do not go for stocks which have not fallen much. When the market recovers, these stocks will fall because the investors will go for stocks having fallen most. c. Under current environment, the stocks having moderate level of debt are more acceptable. Capital intensive stocks may not perform well.
Stocks in the Dock: I normally limit the selection of stock to 12 but due to heavy fall, many stocks have fallen to great extent. I have therefore extended the list to 20. After some time, they will be whittled down to 12 after profit taking in some of the least prioritized stocks (last 8). I have given the following 5 stocks as selection list. There will be 15 more that will be added on daily basis @ 5 stocks per day.
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 6 of 11
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 7 of 11
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 8 of 11
ADDED 4/11/2008
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 9 of 11
ADDED : 4/11/2008
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
This suggestion is withdrawn due to recent developments
Page 10 of 11
Other stocks will be appended here @ 5 stocks per day for next 2 days. This PDF file (and also the html file in the browser on the blog) will be revised every time, so that you can discard the previous one and use the latest one. Do not be guided by Dow’s sucker rally of 889 points yesterday. There are two possibilities: 1. A massive rally is rigged a few days before the bad news come out. The stocks then retreat but still above desired support level. For instance, if Dow had fallen before 8000 and the bad news were released, there could be massive fall. If the market is pushed by 1000 points, and then the bad news released, the market will remain above key level and the collapse avoided.
Copyright © 2008 - Anil Selarka (Kalidas)
From the mind of Kalidas
Page 11 of 11
2. There is really some good news, but none was released.
Kalidas, Hong Kong Oct 28, 2008 (Ref: 08-011-Action Time to Buy) updated till 5/11/2008
Copyright © 2008 - Anil Selarka (Kalidas)
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