Since last two days i was thinking about how to get extraordinary investment return by investing in stock market though i must admit that like most other investors i also always wanted extraordinary investment return for myself. My thought also went into various popular investment theories and how some investors become extraordinarily successful, some make meaningful return while most other fail miserably in this pursuit. I would like to emphasis here that by its very nature share market in itself is not wealth creator but merely an exchange and gateway of wealth distributor and share prices fluctuates on short terms based on demand/supply and in long term based on future business performance of any particular script. It is difficult to predict both of them in any scientific ways and with high degree of accuracy and reliability by using any specific formula, methodologies or analytics which is used or followed by large number of investors or market players.
My simple investment framework and rules:
(1)Maximum number of stocks in protofolio should not exceed 10. Dont invest more than 25% of protofolio value or less than 5% of protofolio value in a single stock.
(2)Except banking and financial services sector, promoters holding should be atleast 40 %. No past history of promoters share pledging or equity dilution except due to bonus or employee stock option.
(3)Scalable and simple business model with distinguished product and service offerings
(4)Price of stock/market cap, Maximum 5 times book value or sales turnover and 18 times last one year earnings and 15 times operating cashflow
(5)PEG ratio of atleast 1 and debt-equity ratio of less than 0.5 (also no past history of high debt-equity ratio of more than 0.5).
(6)No fresh investment in stocks if sensex or nifty PE exceeds 18.
(7)Sale stocks equivalent to protofolio cost if sensex/nifty PE exceeds 25.
(8)Fully invested if sensex/nifty PE moves below 12 (can take additional loan of upto 50% of profolio value for further investment) else hold atleast 20% of protofolio value in cash.
(9)Once invested hold the individual stocks for atleast 2 years unless it falls by 20% of buying price in rising or normal market conditions.
(10)Wait for atleast three months before buying a good stocks which is making new lows. Don't sell a stock which is making new highs.
(11)Wait for atleast 3 months before introducing a new stock or exiting a holding stock in protofolio. Always give preference to current holding stocks for more investments over introducing new stocks in the protofolio.
(12) Give special empathasis on quality of earnings, quality of product/services and quality of management/promoters before selecting a stock for protofolio.
(13) Without considering current stock price, arrive at fair price range for buying a stock and strictly stick with those price range for buying. Consider atleast 20 % margin of safety in fixing fair price range.
(14)Review in month of november every year each stocks in the protofolio by studying and analysing their annual and quaterly results and conference call, investor presentation and other independent websites and research reports. Sale the stock if result is not satisfactory for continously two years or their is declining trend in margin or sales growth or promoters holdings or increasing trends in debt level from previous years (for past atleast 5 years).
(15) All criteria should be strictly followed pointwise before making any stock investment. Immediately sale those stocks which violates any of these criteria even after purchase and facts come into light/known which violates any of these criteria. Date of full compliance of criteria is 30/11/2013.
My simple investment framework and rules:
(1)Maximum number of stocks in protofolio should not exceed 10. Dont invest more than 25% of protofolio value or less than 5% of protofolio value in a single stock.
(2)Except banking and financial services sector, promoters holding should be atleast 40 %. No past history of promoters share pledging or equity dilution except due to bonus or employee stock option.
(3)Scalable and simple business model with distinguished product and service offerings
(4)Price of stock/market cap, Maximum 5 times book value or sales turnover and 18 times last one year earnings and 15 times operating cashflow
(5)PEG ratio of atleast 1 and debt-equity ratio of less than 0.5 (also no past history of high debt-equity ratio of more than 0.5).
(6)No fresh investment in stocks if sensex or nifty PE exceeds 18.
(7)Sale stocks equivalent to protofolio cost if sensex/nifty PE exceeds 25.
(8)Fully invested if sensex/nifty PE moves below 12 (can take additional loan of upto 50% of profolio value for further investment) else hold atleast 20% of protofolio value in cash.
(9)Once invested hold the individual stocks for atleast 2 years unless it falls by 20% of buying price in rising or normal market conditions.
(10)Wait for atleast three months before buying a good stocks which is making new lows. Don't sell a stock which is making new highs.
(11)Wait for atleast 3 months before introducing a new stock or exiting a holding stock in protofolio. Always give preference to current holding stocks for more investments over introducing new stocks in the protofolio.
(12) Give special empathasis on quality of earnings, quality of product/services and quality of management/promoters before selecting a stock for protofolio.
(13) Without considering current stock price, arrive at fair price range for buying a stock and strictly stick with those price range for buying. Consider atleast 20 % margin of safety in fixing fair price range.
(14)Review in month of november every year each stocks in the protofolio by studying and analysing their annual and quaterly results and conference call, investor presentation and other independent websites and research reports. Sale the stock if result is not satisfactory for continously two years or their is declining trend in margin or sales growth or promoters holdings or increasing trends in debt level from previous years (for past atleast 5 years).
(15) All criteria should be strictly followed pointwise before making any stock investment. Immediately sale those stocks which violates any of these criteria even after purchase and facts come into light/known which violates any of these criteria. Date of full compliance of criteria is 30/11/2013.
