Upload
richa-singhal-khetan
View
218
Download
0
Embed Size (px)
Citation preview
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 1/77
Technical Analysis
Copied
BySHRAVAN
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 2/77
Business cycle
NASCENT
GROWTH
PEAK
DEMAND < SUPPLY
DECLINE
DEMAND > SUPPLY
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 3/77
TA Assumptions
Price discounts everything
History repeats itself
Prices move in trends Volume leads price action
Price leads fundamentals or future
Price depends on supply and demand
Timing the entry and exit is possible
Keeps emotions and ego out of trading
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 4/77
Dow Theory ± Basic Tenets
(it worked 45 out of 52 times!!!) Averages discount everything
Market has 3 movements±Prim/Sec/Minor
Lines indicate accumulation/distribution(5% price variation for 4 weeks or more)
Price/Vol relationships provide background
Price action determines trend
Averages must confirm.
Success rate 45/52 from 1897 to 1998
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 5/77
Basic Bar
High
Low
Close
Open
Up Day
High
Low
Open
Close
Down Day
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 6/77
Trend is your friend
Up
Down
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 7/77
Bull Trends
A bull trend starts when price rallies abovethe previous high,
A bull trend ends when price declinesbelow the previous low,
A bear trend starts at the end of a bulltrend (and vice versa).
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 8/77
Begin and End of Bull trends
BUY
SELL
Trend line acts as support
Price
Return line acts as resistance
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 9/77
Time frames
Long-term (or primary) trends that are
measured in years;
Intermediate (or secondary) trends of 3weeks up to 6 months;
Short-term cycles of less than 3 weeks;
and
Intra-day cycles.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 10/77
Investor¶s choice
Which stocks to buy?
How much trading capital?
Time frame Risk appetite and risk control
Reward is proportional to risk
Learn from your Track Record Position management
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 11/77
Market decides
Market will move up or down
How much will it move?
When to buy/sell?
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 12/77
Steps to Trading success
The key is to buy when the market signals thestart of a bull trend.
Select leading stocks that are outperformingthe market.
Sell when the bull trend has ended.
There are exceptions to this rule: Sellindividual stocks if they move against thetrend.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 13/77
Successfully trading trends
Select Security
Market Direction
Scrip direction
Entry signal
Stop Loss trailing
Exit signal
Market Leaders
Indicator
Same indicator
Oscillator, price action
Affordable, Technical
Stop loss, Supports,
Patterns
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 14/77
Stop Loss
Support/ resistance levels,
Above/below the most recent peak/trough,
Above or below reversal signals; or At the crossing of moving averages.
Affordable levels based on 5 to 7%.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 15/77
Supports & Resistances
the number of times that the level has been respected;
the amount of volume that has been traded near thelevel;
whether the level is old or new - recent levels havegreater significance;
whether the level is a new High or new Low - moreextreme levels have greater impact; or
a level formed at a round number (e.g. Rs. 50.00 or Rs.100.00) leaves a lasting imprint.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 16/77
Fibonacci Retracement
If rise is 100 points then supports are at
the following levels from top (0%)
23.6 % 38.2%
50%
61.8%
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 17/77
Pivot points
Resistance 3 = High + 2*(Pivot - Low)Resistance 2 = Pivot + (R1 - S1)Resistance 1 = 2 * Pivot - LowPivot Point = ( High + Close + Low )/3Support 1 = 2 * Pivot - HighSupport 2 = Pivot - (R1 - S1)Support 3 = Low - 2*(High - Pivot)
As you can see from the above formula, just by havingthe previous days high, low and close you eventuallyfinish up with 7 points, 3 resistance levels, 3 support
levels and the actual pivot point. If the market opens above the pivot point then the bias
for the day is long trades. If the market opens below thepivot point then the bias for the day is for short trades.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 18/77
Trading with Pivots
If the market opens above the pivot point thenthe bias for the day is long trades. If the marketopens below the pivot point then the bias for theday is for short trades.
The three most important pivot points are R1, S1and the actual pivot point.
The general idea behind trading pivot points areto look for a reversal or break of R1 or S1. By
the time the market reaches R2,R3 or S2,S3 themarket will already be overbought or oversoldand these levels should be used for exits rather than entries.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 19/77
CHART PATTERNS
Recognize successfully
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 20/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 21/77
Trading Range
Support
Resistance
Target = Distance between resistance & support ( or higher )
Once a resistance is broken it becomes a support andvice versa.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 22/77
Head and Shoulders - Reversal
High volume at S1
Moderate at Head
Low volume at S2
High volume at break
below neckline
S 1
H
S 2 Sell
Target = Distance between H and neckline
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 23/77
Double Top - Reversal
T 1 T 2
High volume at T1 & lower
volume at T2. Increased volume
on break below previous trough.
Target = Distance from top
to trough from break down
level
TRIPLE TOP IS SIMILAR TO DOUBLE TOP.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 24/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 25/77
Inside Bar
If there are three or more bars whose
entire range is within a big bar then you
look for a break out and trade in that
direction.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 26/77
Flags & Pennants - continuationThese are pauses in the primary trend & indicate consolidation
FLAG
PENNANT
Volume increases at the
beginning of pattern and
reduces towards the end.
Targets: These patterns occur in
the middle of a trend. So
projected price is equal to
preceding trend¶s price range.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 27/77
Wedges
A falling wedge forms with lower highs and lower
lows. A bullish signal, a falling wedge is a
continuation signal in an up-trend and a reversal
signal when observed in a down-trend. A rising wedge is formed by higher highs and
higher lows. A bearish signal, the pattern is
normally a continuation signal in a down-trend
but acts as a reversal signal when encounteredin an up-trend. Targets are similar to flags.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 28/77
Falling Wedge
¡ ¡ ¢
£
¤ g
¥ e
¦ § ct
̈
©
ec
¡ ¡
Fe
ar £
¦ r
a
J¤ n J
¤ l
£
¤ g
¥ e
¦ § ct
̈
©
ec
¡ ¡ Fe
¡ ¡ ¡
¡ ¡ ¡ ¡
¡ ¡ ¡
¡ ¡ ¡ ¡
¡ ¡ ¡
¢ ¡ ¡ ¡ ¡
¢ ¡ ¡ ¡
¡ ¡
¡
¢ ¡ ¡
¢ ¡
¡ ¡
¡
¡ ¡
¡
!
¡ ¡
FALLING WEDGE
£
" # TI
# Y
§ $ (
% .
¡ ¡ ¡ ,
&
.¡ ¡ ¡
,
%
.¡ ¡ ¡
,
& ¡ .
¡ ¡ )
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 29/77
Rising Wedge
'
e( )
e0 1
e2 3 4 ) 5 1
e2 6 5
7
e0 1
e2 8
e4 e
0 1 e
2 9 @ @ A Fe
1 2 B C 2 D E C 2 4 F
G
( 2 i
H E C D I B ne
I
P Q @ @
P Q A @
P R @ @
P R A @
P S @ @
P S A @
P T @ @
P T A @
9 @ @ @
9 @ A @
9 P @ @
9 P A @
9 9 @ @
9 9 A @
9 U @ @
RISING WEDGE
V
'
W X
Y 6 X
6 ̀F
a
b
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 30/77
Symmetrical Triangles
Symmetrical triangles form with lower highs and
higher lows. Because of their shape, they can
act as either a continuation or a reversal
pattern. This will be signalled by the breakout. An upward breakout is a bullish signal, while a
downward breakout is bearish.
Target = Height of triangle from breakout.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 31/77
Symmetrical triangle
Sc d e
f
g g
f
h
i
h J J
i
Sc d e
f
g g p h
i
h J J
i
Sc d e
f
g g
q
h
i
h J J
i
Sc d e
f
g g r h
i
h J J
i
Sc
r g
s g g
s r g
f
g g
f
r g
p g g
p r g
q
g g
q
r g
r g g
SYMMETRICAL TRIANGLE
i
t u c v I
d e c
w x
i
u h
i
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 32/77
Ascending triangle
An ascending triangle is formed by equal highs
and higher lows. It is a bullish signal, whether
encountered in an up- or down-trend. It is most
often observed as a continuation pattern in anup-trend but is a strong reversal signal when
witnessed in a down-trend
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 33/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 34/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 35/77
Descending triangle
ct
j
Deck
l l
m
n e
o ar
r
a
J n J
l
g
e
ct
j
Deck
l l n e
o ar
r
a
J n J
l
g
l l l l
k
l l l l
l l l l
m
l l l l
l l l l
l l l l
z l l l l
{
|
} }
k
l
l l
l
m
l l
m
l
l l
l
~
T
T
(
. l l
,
.
l l ,
.
l l l ,
.
l l )
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 36/77
Chart of cup handle
buy 1
2
3
4
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 37/77
Cup & handle
This pattern was identified by William O'Neil.
The cup commences with a new peak [1], formed after astrong up-trend.
A secondary correction occurs, with price falling +/- 50%from the peak at [2]. This is high - cup and handlecorrections normally vary between 10% and 30%.
The stock then forms a second peak at [3], slightly lower than the first.
The handle is completed [4] when price breaks abovethe intervening peak [3]. The handle should form in thetop half of the cup pattern, with volume contracting asthe handle forms and then expanding on the breakout.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 38/77
Cup & Handle
ece
er
e
ruar
arc
pril
a
June Jul
u
ust
epte
er
ct
er
CUP
HANDLE
T
T
I
&
T
(
.
,
.
,
.
,
.
)
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 39/77
GAPS
Common
Breakaway
Runaway
Exhaustion
No action
From a congestion
Midway in a trend
End of trend
An island reversal marks Trendreversal
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 40/77
VOLUME
PRICE VOLUME IMPLICATION
Rising Up Bullish
Rising Down Bearish
Declining Up Bearish
Declining Down Bullish
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 41/77
INDICATORS
Moving averages ± Simple, Weighted and
Exponential
Volume Oscillators ± MACD, RSI, Stochastics
TREND is Primary and Indicators are
Secondary. Use indicators for spottingCONFIRMATION or DIVERGENCE. Trade
on price signal only.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 42/77
Moving Average ( Dow Jones)
Use closing prices to calculate MA.
MA is a trend following indicator and
should be followed in a trending market. When the short term MA crosses the
longer term MA from below, a BUY signal
is generated and vice versa for a SELL
signal.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 43/77
Using Moving Averages(5/20 day)
Bullish above zero
Bearish below zero
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 44/77
MACD ( Gerald Appel)
MACD measures the distance between two expsmoothed averages and is used as a histogramor crossover for signals
When the MACD line crosses the signal line aBUY/SELL signal is generated.
Above zero line is bullish and below zero line isbearish.
A negative, or bearish, divergence exists whenMACD lines are well above the zero line & startto weaken while price continues to trend higher.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 45/77
RSI ( Welles Wilder, Jr.)
RSI is plotted on a scale of 0 to 100. Overbought >70/80; Oversold < 30/20.
A ³Top Failure Swing´ ± when a peak of RSI(>70) fails to
exceed its previous peak in an uptrend followed by adownward break of its previous trough or 70 level. Viceversa for ³ Bottom failure Swing´.
Divergences above 70 & below 30 are Serious warningsignals, at the end of a trend.
RSI = 100 ± 100/(1+RS); RS = Avg. of up/Avg. of down. A 14 period RSI is most popular.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 46/77
RSI with Moving Averages
J ne J
l
A g
st Se
te
er
ove
er
ece
er
ª e
r
ar
March A ril Ma
J ne J
l
A g
st
«
¬
-
®
® ®
®
® ̄
®
°
®
®
±
® ²
® ³
® ́
®
̄
°
±
h
h
Buy / Sell i l come fter i l o RSI c rt .
Buy i l
Buy i l
Sell i l
µ ivergences: RSI e¶
hi · its ̧ ositive ¹ ivergence when the
stock ̧ rice º akes a lower low · » t RSI fails to º ake a
lower low.
Siº
ilarl
¼
negative¹
ivergence occ»
rs when stock ̧
riceº
akes a higher high· »
t RSI fails toº
ake higher high.
RSI signals ̧ rece ¹ e ̧ rice signals.½
hen ̧ rice gives
a · »
¼
/sell signal after RSI signal then it is a goo¹ entr ¼
or e¶
it ̧ oint. The ¹ ivergences are significant onl¼
if the¼
occ » r in oversol ¹ zone for · »
¼
signal an ¹ in over · o » ght
zone for sell signal.
A
¾
A ¿ À
MI¿
RÁ
À
¾
I¿ À
S (AM
)
¯
°
±
²
³
h h Buy i lBuy i l
Sell i l
OVER SOLD
OVER BOUGHT Relative Strength InÂ
eÃ
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 47/77
Importance of price signal
1 2
3
Ä
epÅ
ctÆ
oÇ
È
ec 2É É Ê
Ë e
Ì Í
ar Î
pr Í
aÏ
Ð
Ñ
nÐ
Ñ
lÎ
Ñ
gÄ
epÅ
ctÆ
oÇ
È
ec 2É É
Ò
Ë e
Ì Í
ar Î
pr Í
aÏ
Ð
Ñ
nÐ
Ñ
lÎ
Ñ
gÄ
1É É É É
Ó
1Ô Ô Ô
1Ò
É
2É É
2Ò É
3É É
3Ò É
Ê É É
Ê Ò É
W y should we
wait f o price
signal???
Õ Î Õ Î
IÖ
Å Æ
×
Ä
Õ
Ø Ø
3É
Ê É
Ò É
Ù É
Ú É
Û É
Ö elati
Ç
eÄ
trengtÜ
InÝ
eÞ
1
23
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 48/77
Multiple divergences
June Julß
à
ugustá
epteâ ã
er ä
ctå
ã er
æ
å
veâ ã
er ç è è
é
ê e
ã ru
ë
r ß
Më
rcì
à
pril Më ß
June Julß
à
ugustá
é è è è
í
è è è è
î
ï ð ð ð ð
í
ñ è è
í
ñ é
è
í
é è è
í
é é è
í
ò è è
í
ò é
è
í
ó è è
í
ó é
è
í
ô è è
í
ô é
è
í
õ è è
í
õ é è
ç è è è
ç è é
è
ç
í
è è
ç
í
é è
ç ç è è
ç ç é è
ç ö è è
ç ö é
è
ç ñ è è
ç ñ é
è
ç é è è
*á ÷
ø
ù
æ X
æ I
ê TY
ö è
ñ è
é è
ò è
ó è
ô è
ú elë
tiveá
trengt ì Indeû
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 49/77
Stochastic ( George Lane)
%K = 100[(C-L14)/(H14-L14)] - Fast
%D is 3 period MA of %K - Slow
Range 0 to 100 ; OB > 80 OS < 20; Divergence similar to RSI.
Buy signal occurs when %K crosses
above %D in OS zone and Sell signalwhen %K crosses below %D in OB zone.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 50/77
Stochastics with Moving Avgs.
ü
ý n
þ
ü
ý l
ÿ
Aý g
ý st S
þ
tþ
¡ ¢
þ
£ ¤
ovþ
¡ ¢
þ
£ ¥
þ
cþ
¡ ¢
þ
£
¦
§ § ¨ ©
þ
¢ £ ý a
£
ÿ
Ma£
ch A £
il Maÿ
ü
ý n
þ
ü
ý l
ÿ
Aý g
ý st
¨ § § § §
§
¦
̈
¦
§
¦
¦ ¦
¦
¦
¦
̈
¦
h
h
Buy/Sell signals f ollow the signals on Stochastics
! " signal
! " signal
S#
ll signal
$ on t % & n ' ing(
on & . $ o action
A¥
)
A¤ 0 1 ¥
M2 0 3 4
¥ 1
)
2 0 1
S5
AM¥ 6
§
¨ §
§ §
OVERSOLD
OVER BOUGHT
h h
i
! " signal
! " signal
S#
ll signal
Stochastic4
scillato£
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 51/77
Bull vs Trading market
MA ± Buy upside
crossovers
RSI, %R,, Oscillators
± Buy oversold,Ignore overbought
Stochastics ± Buy
upside crossovers,
Ignore downside
crossovers
MA ± not useful
RSI, %R, Oscillators-
Sell overbought, Buy
oversold. Stochastics ± Buy
upside crossovers,
Sell downside
crossovers
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 52/77
OPEN INTEREST
Price Open Interest Interpretation
Rising Up Bullish
Rising Down Bearish
Declining Up Bearish
Declining Down Bullish
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 53/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 54/77
Risk Management
Place Stop loss orders with the trade.
Amount of money per trade
Limit the total amount of trading capital Determine your success percentage - 70%
Keep a record of your trades and analyze
Limit your amount per trade based on your failure rate. Keep ruin chances below 1%
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 55/77
Chance of ruin @ 30% fail rate
0.3*0.3 = 0.09 ie 9%
0.3*0.3*0.3*0.3 = 0.0081 ie 0.8 %
0.3*0.3*0.3*0.3*0.3 = 0.00243 ie 0.2 %
So limit your money per trade to 1/5 of your balance trading capital.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 56/77
Steps suggested
Select the trading system you are
comfortable with
Decide on acceptable risk and Rs./trade.
Continuously reduce risk/ cost of purchase
Have a profit/loss taking strategy. Eg Sell
at 30% rise or sell when trend has
reversed etc.
Profit/loss ratio = 3 or higher
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 57/77
P/L 3 or higher
30 trades/year; Success rate 70%, P =
Rs.300 L= Rs.100 ; Investment Rs
1000/trade; 5 trades per week; 6 times in a
year
Profit 21*300 = 6300
Loss 9*100 = 900 Net 5210 (100%)
In 25 years 12 times dbl = 4096 times
5000*4000 = 20,000,000 ( 2 cr. )
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 58/77
USEFUL TIPS
Wait for the right time
Select stocks with sustainable advantage
Returns must be clearly achievable
Remove weeds and water flowers
Sell only when you find a better return
Avoid glitter stocks
Calculate ROCE/ ROE/ PEG
Think value NOT Price
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 59/77
Themes
Value > price
Demand > supply
Sales and profits increasing steadily Strong clients whose business is growing
Turnaround stories
New products in pipeline Upturn in business cycle
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 60/77
Market features
Is either over valued or under valued
Fat gains are followed by fat losses
Bubbles develop frequently (M Cap>NP) Tips ± bad advice is free
Volatility- News, ECN, Day traders, Needs
Researchers, Speculators, free riders exist
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 61/77
Fundamentals
Strong financials, earnings stability and
growth, Strong sales & profit margins,
Internal cash funds growth
Quality & Integrity of management which
rewards shareholders
Good labor relations
Some knowledge about the business
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 62/77
Positives
It is not a waste of time to study individualinvestment opportunities in stocks.
You are likely to do better by thinking aboutwhether individual investment opportunities
make sense than by randomly selecting a groupof stocks for a portfolio by throwing darts at thestock tables
Nor will you do better by using modern portfoliotheory¶s strategy of putting your eggs in lots of different baskets based on what tells you therisk of each basket is.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 63/77
Lessons to learn
Methods are useful as tools but good
judgment comes not from methods alone
Good judgment comes from experience
Experience comes from bad judgment
Concentrate on assumptions ± interest
rates, taxes, inflation & compounding
Start early and save regularly. Invest only
when the price is right.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 64/77
Joy of compounding
Rule of 72 : Doubling period * Rate = 72
2^5 = 32; 2^10 = 1024; 2^ 12 = 4096
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 65/77
Worries and remedies
Over confidence
Confirmation &
resistance
Giving too muchimportance to news or
information flow
Recognize your
limitations
Articulate the
justification for your decisions
Have clear guidance
in decision making
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 66/77
MOST ATTRACTIVE CO.
Customers keep coming back ± Coca Cola
Branded products ± Sony, Honda, Infosys,
Microsoft, Disney
Minimum inventory - Dell
Enduring demand pattern ± Oil cos.
Diversified markets ± Grasim, Microsoft Killer instinct ± Wal Mart, Reliance
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 67/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 68/77
TISCO EPS
TISCO
EPS
P E
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 69/77
TISCO Price
TISCO
Price
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 70/77
TISCO Value
Average EPS last 10 years = 19.45
Assume it will be same for next 10 years
NPV of 19.45 for 10 years = 91.83 (16%)
Assume different risk profiles: (Rs.350)
91.83/0.12 = 765 118%
91.83/0.16 = 573 63%
91.83/0.20 = 459 31%
91.83/0.24 = 382 9%
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 71/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 72/77
High Growth
Research on your own
Self belief
Multi-bagger in the making Favorable market conditions
Should hold for long term
NP growing faster than peers Company should enter growth phase.
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 73/77
Make up methods
Modifying revenue recognition policies
Adjusting reserves and treatment of returns
Recording the value of market share as an asset
Recording the amount of cash we ³burn´ as anasset
Reporting in a different currency
Refining the concept of materiality
Earnings are inflated
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 74/77
Managerial Quality
Integrity - Warren Buffet, Narayana Murthy
Achievement ± Jack Welch, GE; Mike Goizueta,Coca Cola, Dr. Kurien, Amul
Energy ± Wasim Akram, Lance Armstrong Intelligence ± George Soros
Knowledge ± John Maynard Keynes
Leadership ± Jack Welch, GE, 6 sigma
Creativity ± Edward De Bono, Mike Eisner,Disney Corp, Akio Morita, Thomas Edison, DanGlover, Intel
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 75/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 76/77
8/8/2019 Technica and Fundamental Analysis
http://slidepdf.com/reader/full/technica-and-fundamental-analysis 77/77