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How to Invest for the Long Term
October 13th, 2012
By
Peeyoosh Chadda
Executive Vice President
Edelweiss 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
Lets 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, heres a look at some of them
Understand your investment options
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1898
1692
1503
1479
1414
456
100
500
900
1300
1700
2100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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 investing
Growth 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 investing
Turnaround 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 orchange in balance sheet structure
How to pick a stock
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How to pick a stock
Large Caps
Small Caps
Risk
Return
Identify your risk appetite
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Large Caps
Typically companies which are large and have a proven long-term
performance track record. Market cap exceeds INR 5,000 crores
Mid Caps
Typically 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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Using your guide: Edelweiss.in
http://www.edelweiss.in/http://www.edelweiss.in/ -
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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 Edelweisss 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
http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/ -
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Stocks you should buy
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Bajaj Auto
Second largest 2 wheeler
manufacturer, set tobenefit from increasing
two wheeler penetration.
https://www.edelweiss.in/company/Bajaj-Auto-Ltd/28074.htmlhttp://www.edelweiss.in/https://www.edelweiss.in/company/Bajaj-Auto-Ltd/28074.htmlhttp://www.edelweiss.in/ -
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ITC
Cigarettes business to remain
robust, FMCG the trump card,
classic domestic consumption bet.
https://www.edelweiss.in/company/ITC-Ltd/301.htmlhttps://www.edelweiss.in/company/ITC-Ltd/301.html -
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ICICI Bank
Banking revenue set to grow
5.3x to Rs 10.6 Trn over thenext 10 years, ICICI Bank is a
front-runner to capture this
opportunity.
https://www.edelweiss.in/company/ICICI-Bank-Ltd/5418.htmlhttps://www.edelweiss.in/company/ICICI-Bank-Ltd/5418.html -
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Thank You