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.
 
 

-----------------------------------------------------------------

 

Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Popular posts from this blog

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...
Read more

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...
Read more

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...
Read more

Banks tweak ATM strategies

Unrestricted usage of third-party ATMs ends on Thursday The era of free ATM usage will come to an end on Thursday, October 15. Every transaction carried out on another bank’s ATM could cost an account holder as much as Rs 20 and withdrawals will face a limit of Rs 10,000, the Indian Bank’s Association has said in its guidelines. According to the guidelines, banks can offer savings-account holders five free thirdparty withdrawals every month —they can be charged from the sixth transaction onwards. Current account holders can be charged the fees, which ranges from Rs 18 to Rs 20, from the very first transaction. Most banks are convinced that charging current account and no-frill account customers from the word go is a good idea. It suggests that the usage of ATMs by current-account holders is price-insensitive. For others, banks have decided to frame their charges depending on the profile of the customer. For instance, HDFC Bank is allowing its salary account and premium customers an unl...
Read more

Women need to plan for Retirement

Plan for Retirement Online       Higher life expectancy, lower pay and fewer work years necessitate thorough planning.   Women have raced ahead of men in various fields but, when it comes to retirement planning, they tend to lag behind. Despite saving a higher proportion of their salary, compared to men, women generally do not take retirement planning seriously. Below are some of the reasons why they should: According to the United Nations Department of Economic and Social Affairs, in India, the life expectancy of women is 69 years and, of men, it's 66 years. Due to this, a woman will need an additional `55 lakh to manage her living expenses (see table).Besides, usually, women work fewer years compared to men to take care of children and family.Further, a recent study by Korn Ferry Hay Group shows that women in India earn 18.8% less than men. Not to mention, a higher life expectancy can also mean higher medical expenses as the likelihood of health ailments such as diabetes, high...
Read more
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