Investment Strategies - II

This blog is in continuation with the previous one posted, so please do read the first one before
starting with this one.

1) What you want is a stock that none is looking at or that is not of favour with big investment funds and is rolling at a lower price.
2) The skills you need to be a good investor are addition, subtraction, multiplication and division and the ability to rapidly calculate percentages and probability. Anything more is a waste.
3) Don't follow the herd. Identify the stocks that the market does not want today, but will be dying tomorrow. But for those who follow the herd usually spend a lot of time scrapping their shoes.
4) There is a great deal of comfort when you invest with the crowd. Everone agrees with you. However when you invest with the crowd,you have to worry about when the crowd will leave the party,because just like in high school none stays popular forever. There usually is not much upside left in a stock after it becomes popular.
5) Look for stocks that are through an unpopular phase because that is where you are going to find the tomorrow's Mr.Popular, selling at a discount price.
6) If you understand the investment process, there would be no need for investment analysts, advisors nor would we need Mutual funds or any of the priests of profession.
7) If you were to invest in 50 different stocks,then your attention and ability to keep track of the business economics of each and everyone would be severly limited. You would end indeed end up with a zoo in which none of the animals got the attention it needed. It is like being a jugglar with two many balls in the air. You don't just drop one,you end up dropping them all.
8) If you are getting more than one brilliant investment idea in a year,you are probably deluding yourself.
9) Concentrate your investments on a few well chosen eggs and then watch them like a Hawk.
10) The best temperament for good investment is to be greedy when others are scared and scared when others are greedy.
11) At times Investors are wildly enthusiastic about a stock and overprice it. At times, people become overly fearful and grossly undervalue a stock. What we do not know is when it will happen, but know just that will happen. Be ready to take advantage of the low prices, that folly and fear bring.
12) People often humanise inanimate objects, be they cars or stocks. When this happens with a stock, emotional thought replaces rational thought, That is a bad thing when it comes to investments. When it is time to sell, you don't want to hesitate because you love the stocks. When the stocks gets down, there is no reason to be mad at it, it does not know that you own it.
13) Greed is a wonderful thing if it is the servant and not the master. You can't get rich without a dose of it and you won't be happy if you have too much of it. Too much of greed leeds to envy and envy is a road paved with inadequacy of never having enough.
14) When you are born, you get a card with 20 Investment ideas and each time you make a mistake,you get a punch. So,you would better make them count.
15) Don't fear the bear markets, embrace them in a bear hug. That way they can't hurt you.
16) Mr.Market appears daily and names a price at which he will either buy your interest or sell you his. The main characteristic of Mr.Market is that he has incurable and emotional problems. At times, he is deprsessed and can see nothing but trouble ahead for both business and world. When maniac, he demands higher prices, when depressed, he will sell or buy cheaply. You should take the advantages of Mr.Market's moods, but should not be influenced by them.

Here are some of the thumb rules suggested by the legends for selecting stocks, which I stumbled upon and want to share with you.
PETER LYNCH :(Earnings growth + Dividend yield )/P.E should be greater than 1.5. Twice is excellent. The expected earnings growth can be based only on what the company says and the analyst's prediction about the companies growth rate.
2) BENJAMIN GRAHAM :The intinsic value of stock =EPS [( 2 * EARNINGS GROWTH) +O.O85]* 4.4 / AAA BOND YIELDHere is an example :Let us assume the outstanding shares as 10 lakhs,Let us assume the earnings as 20 lakhs,Then EPS will be 2Assuming a growth rate of 5% (don't think I am a bear ) and the AAA bond rate as 7.33% ( you can substitute this by even the FD rate )The intrinsic value is :2 ( 2* 0.05 + 0.085 ) * 4.4 / 0.0733 =22.20If the value on a given day is lesser than this value, then the stock price is cheap.

MIKE BERRY :His thumb rule is 2 - 2 - 2.First the stock should be trading at half the market multiples. i.e , Half of the average P.E. of the appropriate index.Second, The companies should be growing their earnings at twice the market rate of growth.Third, the price to book ratio must be less than
2. It should be mentioned that Berry was always interested in value spiced with growth.N.B : These are only thumb rules and not recipes to follow mechanically in arriving at your decisions It will be misleading to consider them as formulaes. This can be the basic criteria for selecting the stocks.


--> Mishra