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This presentation will provide you an overview of the various strategies you must consider before investing for the long term and will help you understand & evaluate the various investment options available. Learn how you can use the power of knowledge to safeguard and grow your investments manifold!
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How to Invest for the Long Term
October 13th, 2012
ByPeeyoosh Chadda
Executive Vice PresidentEdelweiss Financial Services Limited
&Sandeep Raina
Expert Research
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Follow a disciplined approach
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Have an approach, if you are
· Trading or
· Investing
Each has a distinct need for a discipline which needs to be followed
We focus on long term investing here
· Look at markets as a place for long term wealth creation
· Markets are not a lottery
· Do not panic when the markets correct or invest only in times of euphoria
· Refrain from relying on tips – do your homework
Follow a disciplined approach
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Understand your investment options
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Understand the investment options to participate in equities
Two basic investment options are:
· Mutual funds – Regular investing and SIPs
· Direct investment through stocks
Let’s have a look at the options
Understand your investment options
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Investing through Mutual Funds – Regular and SIPs
· When you are quite busy with your regular schedule and can devote limited time, say not even on a weekly basis
· Your job then is to simply identify the right set of funds and fund managers, invest money regularly and track performance regularly
· The fund managers are the experts – they devote a large part of their time towards stock research and analysis, and are trustworthy in terms of investing on your behalf
· Good funds can add a lot of value, here’s a look at some of them…
Understand your investment options
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012100
500
900
1300
1700
2100 1898
1692
15031479
1414
456
Reliance Growth SBI Magnum Contra HDFC Top 200
HDFC Equity Reliance Vision Nifty (Benchmark)
Source: Valueresearchonline
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Direct investment in stocks
· When you can devote enough time in your regular schedule towards analyzing and researching companies (at least five to seven hours per week)
· You have sufficient knowledge of financial as well as other industry-related metrics
· You have the ability to identify and track a particular sector where you can identify trends – an edge
· You can resist tips / other temptations
Understand your investment options
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How to pick a stock
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Identify your style of investing
Investing styles primarily fall under one of these:
· Value investingThis is when an investor looks at a bargain in terms of how a stock is valued, i.e., identifying stocks at deep discounts to their asset values, liquidation values or replacement values
· Growth investingGrowth investors look for companies that are experiencing a rapid growth in their earnings, typically companies growing by upwards of 20% every year
How to pick a stock
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· Turnaround investingTurnaround specialists look at companies in a distress state currently, but which could be potential candidates for turnaround in operations. This could be triggered by change in business model, change in management or change in balance sheet structure
How to pick a stock
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How to pick a stock
Large Caps
Small CapsMid CapsRi
sk
Return
Identify your risk appetite
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Large CapsTypically companies which are large and have a proven long-term performance track record. Market cap exceeds INR 5,000 crores
Mid CapsTypically companies at an expanding stage of product/service acceptance and witnessing steady growth in their business. Market cap in the range of INR 1,000 to 5,000 crores
Small CapsTypically companies at an early stage of product/service acceptance and subject to change/competition/substitute products/ technology. Market cap less than INR 1,000 crores
How to pick a stock
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Key parameters to look at:
· Growth
· Capital Efficiency
· Leverage
· Valuations
How to pick a stock
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When to sell a stock
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Deteriorating fundamentals (Slowdown in growth, increasing competition, reduction in profit margins, etc.)
The stock price has appreciated to such an extent that valuations are beginning to look expensive on multiple fronts
A better substitute is now available versus the current stock you are holding, and with capital being limited, you sell the current stock to buy the new one
When to sell a stock
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Portfolio monitoring is not optional
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Portfolio monitoring is an ongoing exercise that you need to conduct to be aware of the performance of your portfolio and take corrective actions as needed
This involves tracking day-to-day events / news in the sector/ stocks you hold
Once the monitoring activity is put in place, the next logical step is to take corrective action in terms of reducing exposure to current holding or adding exposure to a current / new holding based on the analysis
In the case of mutual funds as well, a similar monitoring activity has to be undertaken
Portfolio monitoring
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In order to simplify and enrich your investment decision-making process, you can take full advantage of your guide, Edelweiss.in
At Edelweiss.in, you have full access to Edelweiss’s full range of coverage on macro economics, sectors and over 200 stocks.
Further, you get research reports daily, tracking Indian corporate news, market movements, thematic reports across sectors, economy and asset classes.
Using your guide – Edelweiss.in
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Stocks you should buy
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Bajaj Auto
Second largest 2 wheeler manufacturer, set to benefit from increasing two wheeler penetration.
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ITC
Cigarettes business to remain robust, FMCG the trump card, classic domestic consumption bet.
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ICICI Bank
Banking revenue set to grow 5.3x to Rs 10.6 Trn over the next 10 years, ICICI Bank is a front-runner to capture this opportunity.
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Thank You