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

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
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