Skip to main content

Checklist for equity investors to safeguard equity portfolio

 


   The first quarter's results for the financial year 2011-12 released so far have left many investors jittery. This is exemplified by their reactions to the results. Bad results are punished quickly. The sudden decline in performance of some the blue-chip companies have indeed been unsettling. After the results, some of them have lost nearly a third of their market value.


   For the first time, there are cracks in the confidence levels reposed by investors in domestic companies. The opinion that they are good in managing the macroeconomic challenges has lost some sheen. The sudden drop in the price of a share can cause substantial damage to a portfolio. A question that then arises is what is the remedy for such a catastrophic impact on a portfolio after the results, and whom should an investor trust for a stock recommendation.


   The ideal answer would be nobody. Self analysis is the best strategy for picking stocks, that will help a portfolio grow. But today's investors do not have time to research a stock to invest in. Further, research is a continuous process that requires time and effort. On the other hand, a portfolio's exposure to stocks either directly or through mutual funds is necessary to achieve higher returns. One way of solving this dilemma would be to invest in companies that are well-researched.


   Usually, company research reports are generated by three segments of analysts. In-house research teams of mutual funds generate research reports for their exclusive use, brokerages issue reports on companies free of cost for their clients and independent research companies provide research reports for a fee.


   The reports of mutual funds are technically called buy-side reports and are expected to be more accurate as the analyst's earnings are pegged to the performance of the stocks they recommended. Reports generated by brokerages are called sell-side reports and are expected to be bullish with the aim of inducing investors to buy. Independent research reports are expected to be unbiased.

As most individual investors have access only to the second and third categories of reports, they can use them to construct their investment portfolios. However, a preliminary check on the given recommendations is imperative to remove any bias that may have crept into the report.


Some checks that can go a long way in protecting a portfolio:


Browse to check if there are any adverse news reports on the company.

Check whether the recommendation is for trading or investing. Trading stocks are recommended for an upside of a few percentage points and come with a strict stop-loss trigger. They may not be suitable for investing.


The costs of frequent trading can be a huge drag on performance over time. It makes sense to buy stocks as an investment and hold on to them for the long term.


Read the report closely to check if the projections are too optimistic.

Check the P/E ratio of the company to ensure it is at reasonable levels. Unusually high P/E companies may correct sharply when the tide turns against them.

Ask two questions before investing - is this a high-quality company, and is its stock priced attractively.

Check if there are any immediate triggers that can make the stock attractive.

This checklist can give you reasonable protection from sharp falls in security prices. But there could still be a surprise or two where despite taking all the precautions the stock price tanks due to unsavoury acts by the management.
 
 

Popular posts from this blog

How to Decide your asset allocation with Mutual Funds?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) How to Decide your asset allocation ? The funds that base their equity allocation on market valuation have given stable returns in the past. Pick these if you are a buy-and-forget investor. Small investors are often victims of greed and fear. When markets are rising, greed makes the small investor increase his exposure to stocks. And when stocks crash to low levels, fear makes him redeem his investments. But there are a few funds that avoid this risk by continuously changing the asset mix of their portfolios. Their allocation to equity is not based on the fund manager's outlook for the market, but on its valuations. Our top pick is the Franklin Templeton Dynamic PE Ratio Fund, a fund of funds that divides its corpus between two schemes from the same fund house-the...

Mirae Asset Healthcare Fund

Best SIP Funds to Invest Online   Mirae Asset Global Investments (India) has launched Mirae Asset Healthcare Fund. The NFO of the fund will be open from June 11, 2018 to June 25, 2018. Mirae Asset Healthcare Fund is an open-ended equity scheme investing in healthcare and allied sectors. The scheme will invest in Indian equities and equity related securities of companies that are likely to benefit either directly or indirectly from healthcare and allied sectors. The investment strategy of this scheme aims to maintain a concentrated portfolio of 30-40 stocks. Healthcare is a broad secular theme that includes pharma, hospitals, diagnostics, insurance and other allied sectors. The fund will have the flexibility to invest across markets capitalization and style in selecting investment opportunities within this theme. Neelesh Surana and Vrijesh Kasera will manage this fund. In a press release, Swarup Mohanty, CEO, Mirae Asset Global Inves...

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...

Reliance Regular Savings Fund - Debt Option

Reliance Regular Savings Fund - Invest Online     The scheme aims to generate optimal returns consistent with moderate levels of risk. It will invest atleast 65 per cent of its assets in debt instruments with maturity of more than 1 year and the rest in money market instruments (including cash or call money and reverse repo) and debentures with maturity of less than 1 year. The exposure in government securities will generally not exceed 50 percent of the assets. The fund uses a mix of relatively low portfolio duration with active investments in higher-yielding corporate bonds. It does not take aggressive duration calls but tries to improve returns by cherry-picking corporate bonds. This is reflected in the fund's returns matching the category and benchmark for five years - at 8.4 per cent - but lagging behind the category during a raging bull market in bonds in the last one year. The fund has been a consistent but not chart-topping performer in the income category. Despite its ...

Gifts to relatives will not attract tax

Tax Saving Mutual Funds Online Current open Infra Bond Application form Gifts are always special to the recipient and it would be extra-special if there is no tax payable on these. The taxman believes so, too. In the provision introduced in Section 56 of the Income Tax Act, if any sum of money is received gratis by an individual or Hindu Undivided Family (HUF) during any year, it shall not be taxable if from a relative. The law has already defined the term 'relative' and HUF. However a case that came up before the Income Tax Tribunal shows that some clarifications were still needed. Background The law also exempts gifts during special occasions like marriage of an individual or under a will or by way of inheritance and even in contemplation of death of the payer. Money received as grants or loans from educational institutions/universities, charitable trusts or similar institutions is also exempt. The term relative has been defined in the law to include spo...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now