India Stock Screeners: Tools to screen Indian Stocks listed on NSE and BSE

There are several ways to learn about new companies and sectors to invest your hard money in. I am being a dumb investor (yes, still I am even after a couple of years in the market!!) dependent so far on business news websites like moneycontrol.com, business-standard.com. Usually, I come across an interesting story, like millions of other readers, and then start to dig a little into sector and/or companies mentioned.

But, I learnt that this top-down approach is not the most effective way since the news papers, sites, analysts and brokerage firms can and will cover only a small percentage of the companies listed on NSE/BSE and you miss out on the bigger percentage where some of the best opportunities lie hidden. And you basically just follow the crowd since everyone have the same information as you!

So, the obvious (which was not so obvious till a week ago) question was "is there a better way?."

And the answer is yes, that’s what I got while reading a book yesterday and it’s called stock screening. Stock screening, simply put, is the process of filtering/identifying companies, from thousands across sectors and industries, based on parameters that meets an individual's risk, expected returns, and even taste. One example could be searching for companies with a dividend yield of 4% or more. Of course, this will only help you cut down the number of companies to look at from 1000s to, possibly, few 10s but then one needs to analyze each company further to better understand its business, past and future(expected) performance before making a decision of whether to invest in it or not.

Since we are lucky to be living in an internet age this screening process is not as daunting as it could sound like. There are several tools, limited for Indian stocks but numerous for US listed ones, that help with this and some of the good ones are really free! The following is the list of some sites and tools that provide free tools to screen NSE and BSE listed stocks.

IDBI Paisabuilder
http://www.idbipaisabuilder.in/Market_Content/CMcorpinfo.aspx

I had used this site in the past and I really like it. It provides a decent number of parameters, more than equity master which comes next in the list, to filter stocks on and the research section of the site also includes various other useful tools that can be really useful. The following screenshots shows the search form and the results for a search on stocks in NSE 500 that have a dividend yield of more than 3%

Search form:

Search results:

EquityMaster

http://www.equitymaster.com/research-it/company-info/search/internal.asp

This has a decent stock screener; the following screenshot shows the results I got for companies having a dividend yield between 3% and 4%.

There are few bugs with this tool though, the year criterion in the search form is only till 2007 but the search still does give results for 2009 and 2008 so I am not sure (have not compared against other tools) if the results are accurate and reflect latest information.It also has other useful tools like sector info,recent quarterly performance of some of the companies (I liked this one, see screenshot below)

ICICI Direct Research

http://content.icicidirect.com/research/customsearch.asp

ICICI Direct also provides a screener but the search form is limiting in the parameters e.g. I could only search large cap stocks, and not all, with dividend yield greater than 3%

BSE

http://www.bseindia.com/stockscanner/stockscanner.aspx

BSE website also find a stock screener but again the form is limited to four criteria (see screenshot below)

Buzzing Stocks

http://www.buzzingstocks.com/in/search.pl

This one is different in the sense that it lets you screen stocks based on technical parameters. The search form takes criterion in plain english and it also comes with a pre-defined list that users can use. I plan to use if I buy anything for trading purpose. The following screen shot shows list of stocks that have had serious buying interest and which could go up higher.

There could be other tools and I plan to update this post as and when I come across them.

RK.

Other posts that could be of interest:

Warren buffets low diversification good for average investors?

Think before investing in india's ETFs

Stock picks top 20 indian stocks to own

Financial bubbles of next decade

Little book that beats the market

Financial Bubbles of the next decade!!

Think you seen the end of bubbles?? Forbes does not think so, they have an article on forbes.com titled "Seven Looming Financial Bubbles" that lists the sectors/countries and areas which can go bust in the next decade. Here is the list and the reasons why they think so

Gold
Gold is up 300% over the last decade, in part because investors see it as a store of wealth during times of trouble and inflation. Look beyond the hype and you may see an asset with its best gains behind it. As an asset that generates no actual income, gold's price is purely a function of what others are willing to pay for it.

China
China has positioned itself as the factory for the world, pushing out everything from drywall to toys. It's growing in large part due to easy money. Its government is already on the hook for debt equal to over 70% of gross domestic product. By keeping its own currency artificially low, China has also pushed its citizens to invest at home, artificially inflating property and stock prices.

Emerging Markets
Investing in emerging markets was hugely profitable in 2009 as confidence in the U.S. waned. An ETF that tracks the Brazilian market has gained nearly 125% this year, but overall economic growth in Brazil has fallen short of forecasts. The main Russia ETF has gained more than 135% in 2009, even as the country's GDP shrank. Now is probably not a good time to be hopping on the notoriously volatile emerging-markets bandwagon.

Treasuries
Warren Buffett and Chinese Premier Wen Jiabao were among those who lamented the Treasury bubble in 2009 as the U.S. borrowed to fund its record budget deficit. Signs the bubble is at or near the bursting point: rates on short-term bills that have fallen to negative levels after inflation--meaning investors are paying the government to hold onto their money--and a growing national debt.

College Tuition
Over the last 20 years, college tuition has risen at double the rate of inflation. There are now more than 60 colleges charging over $50,000 a year, and the average student now leaves school with $20,000 in education loans. With financially strapped parents reluctant to foot the bills, colleges may soon be forced to cut amenities--like gourmet dining hall food--introduced in boom times. And some ivy-covered doors are likely to close for good.

Exchange-Traded Funds
These index- and sector-tracking products were designed to provide investors the breadth of mutual funds on the cheap. They were a big hit in the wake of the last recession, jumping in number from 152 ETFs in 2004 to nearly 760 today. But this once pristine area is on the verge of being overrun by opportunists. Some investment companies have been hawking ETFs with expense ratios more than four times higher than those of their rivals. It won't be long before ETFs join the ranks of the dubious financial products they were supposed to replace.

Copper
Spot prices for copper spiked during the mid-decade housing boom, shooting from about $1,500 a pound in 2004 to nearly $4,000 a pound in 2007. Copper plummeted in 2008 to below $2,000, but prices are once again approaching boom-time levels. Some of the demand is coming from China. Another source is ETFs that let average investors buy commodities contracts that were once restricted to institutions, resulting in an oversubscribed investing idea.

RK

Rakesh jhunjhunwala trims infoMedia 18 limited holding

In case you are a follower of Rakesh jhunjhunwala then this news might be of interest to you. As per communication to stock exchanges he, his wife Mrs Rekha Jhunjhunwala and brother Mr. Rajeshkumar Jhunjhunwala have
sold 4,45,389 number of shares on December 09, 2009 and 2,22,366 numbers of shares on December 10, 2009. They still have about 4.2% in this company. So it will be interesting to see if they will hold on or sell it off.

update: Rakesh jhunjhunwala continues to dilute his holding in infomedia 18, there were transactions on Dec 11th again.

Info

Indian telecom companies - invest or stay away?

Indian telecom companies have been taking a pounding recently and the reasons are well known. I am in sync with those analysts and individuals who think this negativity is only a short term one and this is the right time to invest to make money 2 years down the line. This is a test to the big players and if these companies are worth their salt then they will emerge out stronger. My strategy will put in some money regularly for next few months into airtel and rcom.

There was an interesting analysis in the business line today. I'm copying it verbatim here
----------------/--------------------/-----------
Indian telecom companies have suddenly gone from being the institutional investors’ blue-eyed boys to last on the shopping list. Stocks such as Bharti Airtel are languishing close to their 52-week low even as the market is close to its yearly highs.

Telecom stocks now trade at 10-15 times forward earnings, compared to 20-25 times till end-September, and are at a substantial discount to the broader market. Fears of new players winning market share away from the entrenched players, sliding revenues and the spectre of “per second’ billing have all had a hand in battering telecom stock valuations.

However, how much of this de-rating of the likes of Bharti Airtel, Idea Cellular and Reliance Communications (RCom) is justified? Some correction in valuation may be called for, given that popular metrics such as ARPUs, subscriber additions and usage minutes have come down, hinting at lower growth for players. But the situation may not turn out as dire as markets now expect.

First, with all operators joining the per-second billing race, the loss of subscribers to new players may be temporary. Second, this offering itself may be short-lived because of its adverse impact on profitability, unless operators resign themselves to making losses on all short-duration calls.

Third, for players such as RCom and Bharti, non-cellular businesses have been contributing significantly to overall revenues and at robust margins, providing a cushion against competitive pressures in mobile services.

With Idea Cellular, entry into lucrative new circles as it becomes a pan-India GSM player offers scope for growth. This is evident from the fact that with these launches, Idea has also increased its subscriber addition run-rate in the month of October. Here’s an analysis of the concerns and the reasons why larger players may survive this phase.

Tariff war and its longevity
The new regime of per-second billing, recently launched by Tata DoCoMo (GSM arm of Tata Teleservices), has set the cat among the pigeons in the telecom space. In the few months since this billing was introduced, Tata DoCoMo became the largest incremental market-share gainer with four million subscribers added in September.

RCom joined the battle soon, offering Rs 0.5 per minute for all calls, local and STD. This led to fears of slowing subscriber growth for other top players. This assessment, though justified in the short term, may not, however, hold good in the long run.

First, with all operators now joining the ‘per-second’ bandwagon, the market share drift to one or two operators may be limited sooner than later. Witness to this is the fact that, after a lull in September, all the frontline operators have seen rapid improvement in subscriber additions for October. Overall GSM additions (excluding Tata DoCoMo and RCom) in October are up 14.2 per cent relative to September to over 10 million.

Second, the economics of the per-second itself suggests that it may not last too long.

Players such as Bharti, RCom, Idea and Vodafone derive about 50-56 paisa per minute as revenue per subscriber. The cost of providing a mobile call for Bharti works out to approximately 40-42 paisa per minute, and may be similar or marginally higher for other players.

For regional players (though many have pan-India licences), the cost of providing this service may be higher as they do not have the scale and nationwide connectivity and may have to rely on pan-India players for NLD and roaming services.

The termination charge an operator pays for a call made by its subscriber to another operator’s is about 20 paisa per minute.

This suggests that only a subscriber who speaks for at least 40 seconds would ensure break-even! For example, a person who has spoken for exactly 60 seconds would ensure realisations are above current levels for operators, while another who speaks for 20 seconds would entail a stiff loss.

The calls made between different operators (local and NLD) account for 44 per cent of the total calls, according to data released by the telecom regulator. Unless, termination charge is shifted to a per-second basis, and cost of providing calls is drastically reduced (which is impossible for a new operator), this pricing cannot continue indefinitely.

‘Failing’ in metrics
The tariff wars apart, the September quarter earnings numbers of telecom majors too were a reason for their de-rating after they came in below market expectations.

For Bharti, Idea, RCom, Vodafone and TTML, ARPU (average revenues per user) fell 7-20 per cent sequentially and about 20-25 per cent from year-ago levels. Subscriber additions for Bharti and Idea fell below their quarterly run-rates.

But how much should an investor be worried about this?

Two factors need to be kept in mind. One, revenue growth for telecom operators has not hinged on subscriber growth in recent years. Two, companies have improved margins substantially amid a slower pace of revenue growth. Revenue growth has substantially lagged subscriber growth from 2005. Between 2005 and 2008, while the annual growth in subscribers was 61-74.8 per cent for the top operators’ revenues grew by only 27.7-50.9 per cent. Though ARPUs have fallen 34-45 per cent in absolute terms over these years, all operators actually expanded their margins!

Even with the fall in tariffs, the number of minutes used by subscribers has been falling steadily over the last 4-5 quarters. The usage minutes fell 11-14 per cent, but rate per minute declined 9-10 per cent.

Though monthly subscriber additions have gone up from 5 million to over 10 million the last 3-4 years, thanks to a series of tariff cuts, innovative schemes and, finally, the disruptive ‘lifetime recharge’, this hasn’t resulted in proportionate revenue growth. This suggests that the incremental subscribers, especially from the rural areas, were not revenue accretive at all.

Subscriber additions, ARPU and minutes of usage may serve as an accurate gauge when there is a connect between subscriber adds and revenue growth. That is no longer the case, and underperformance on this count should not be the cause to de-rate stocks.

Second, there is the problem of multiple SIM cards that subscribers tend to use. So, depending on the use, and affordable tariff plans, a subscriber may use the services of multiple operators. So, subscribers would show up in different operators’ networks at different points in time, creating significant duplication. Bharti estimates such subscribers to be as much as 30 per cent of the subscriber base, while Idea pegs the number at 20 per cent.

Other businesses of telcos
Though there have been tariff cuts over the years, Bharti, RCom and Idea have EBITDA margins of 27-40 per cent. This suggests that players ensure a sufficient margin of safety before they sacrifice profits to tariff wars.

Majors such as Bharti and RCom also generate a substantial portion of their revenues from a host of non-mobile services. These revenues also sport EBITDA margins over 40 per cent for these companies, which are well-placed to take advantage of potential, both in India and overseas.

RCom derives over 30 per cent of its revenues from its global, broadband and enterprise data business, while for Bharti, this forms just over 20 per cent of revenues. Since Bharti, RCom and BSNL are the only players with a pan-India fibre-optic network, they provide NLD connectivity to a lot of incumbent players as well as new operators. This apart, Bharti and RCom are among the top players in the enterprise data connectivity market in India, estimated to be Rs 7,400 crore currently and set to go up to over Rs 13,000 crore by 2013, according to a Frost & Sullivan report.

Reliance Infratel, the tower infrastructure arm of RCom, also has been successful in increasing tenancy for its towers. It has signed several deals in recent times, prominent among them being a Rs 10,000-crore outsourcing contract with Etisalat DB.

Both these companies also have over a million DTH subscribers, suggesting another sustainable revenue stream.

With tailor-made packages, capability to deliver both free and pay channels, and ability to drive value-added services, DTH ARPU (average revenue per user), which is in the Rs 150-160 range, could grow over the next few years. A recent PwC report states that DTH households are likely to increase to 35 million(from 16 million currently) by 2013.

Idea, which acquired Spice Communications and also new licences over the last 18 months has become a pan-India player. It is in growth mode and is being fully funded for all its expansions, through infusion from Axiata and Providence.

Most of the new circles that the company has launched operations in are metros such as Mumbai, Chennai and Kolkata, apart from other profitable States. Being a partner in Indus Towers means it has been able to get operations up and running in new circles quicker than many new entrants.

Clearly, all these three players have substantial potential. Investors need to look beyond the immediate price wars and view the industry from a 2-3 year horizon. They may accumulate all the three stocks, especially Bharti Airtel.

----------------/--------------------/-----------

Rk

How Rakesh Jhunjhunwala became a crorepathi (millionaire)!!

Rakesh Jhunjhunwala said the following during a recent interview how he made his millions and name in the Indian stock markets. If you go through the transcript you will see how easy it is to make money, you just have to invest in a good stock and let it zoom!! ;)

Sesa Goa had a big fall because there was a depression in the iron ore
industry and then prices for the next year had been considerably raised
about 20-25%. The stock was available abysmally cheap around Rs. 25-26.
There was a projection of a very good growth in profitability in the next
year but nobody seemed to believe it.

When I saw the facts, I wanted to invest but I did not have capital. Between
1986 and 1989 I must have earned Rs 20-25 lakhs. After 1986, the market went
into a big depression for two three years but I put that money in Tata Power
and the Tata Power stocks became about 1100-1200.

Now I was worth Rs 50-55 lakhs. I bought 4 lakh shares of Sesa Goa in
forward trading, worth Rs 1 crore. I sold about 2-2.5 lakh shares at Rs
60-65 and another 1 lakh at Rs 150-175. The prices then went up to Rs 2200
and I sold some shares. I did some other trading too. I had net worth of
about Rs 2 - 2.5 crore.

RK

Indian Stock Picks : Top Analysts recommendations

Here are some of the recommendations from analysts in recent weeks

ONGC
Research: Citigroup
Target price: Rs 910

Citigroup has rated ONGC a 'sell', with a price target of Rs 910, citing lower crude prices and lack of clarity on fuel subsidy burden. "Weak to moderate crude prices have started hurting ONGC, despite lower subsidy sharing, as realisations on JV (joint venture) and international crude suffer," the foreign brokerage said in a report.

My take: I always prefer trading in ONGC, it has support around 990 so I would be buying at this level if markets are not in a panic mode

Aban Offshore
Research: Macquarie
Target price: Rs 605

Macquarie has raised its price target on Aban to Rs 605 from Rs 315 while reiterating its 'underperform' rating after the company's net profit beat estimates, despite falling. The hike in price target is in the wake of the company's plans to raise capital through share issue.

GMR Infrastructure
Research: Enam
Target price: Rs 171

Enam Securities has maintained its 'outperformer' rating on GMR Infrastructure, relative to the sector, with a price target of Rs 171, post its June quarter earnings.

Unitech
Research: ICICI
Target price: Rs 73

ICICI Securities has downgraded its rating on Unitech to a 'sell' from hold, with a price target of Rs 73, citing expensive valuations.

Genus Power
Reasearch: Sharekhan
Target Price: 338

In its results update note, Sharekhan has maintained ‘Buy’ recommendation on Genus Power with a price target of Rs 338 which is an upside of over 90 per cent from its current market price.

Voltamp Transformers
Reasearch: Religare
Target Price: 884

Religare Securities has maintained ‘Buy’ recommendation on Voltamp Transformers with an upgraded price target of Rs 884.

Kalpataru Power
Reasearch: Kotak Securities
Target Price: 865

Kotak Securities has initiated coverage on Kalpataru Power and Transmission with a price target of Rs 865, which is around 20 per cent upside from current market price of Rs 715.

rk

Stock Picks: Top 20 Indian Stocks to own by Forbes India

The following is the list of 20 stocks that were recommended by Forbes India in their recent release

Page Industries: A small company that makes a small product with big margins

Pidilite Industries: Pidilite has brands like Fevicol, M-Seal, car polish Motomax and other assorted consumer art materials and specialised home paints

Dabur: This company has focus. Five years ago, Dabur got out of the pharmaceutical business and put all its effort, like the best brand companies, behind five of its brands

Procter and Gamble Hygiene: Over the last three years, the money that P&G invested did not translate into market cap gains

Marico: Till 2008-09 came by, the company’s sales and profits had grown for 30 consecutive quarters, indicating a stable track record

Blue Star: Two decades to reach Rs. 1,000 crore in sales; two years to reach Rs. 2,000 crore in 2008

BHEL: For 2009-10, the company is increasing its capacity from 10 GW to 15 GW

Power Finance Corporation: At about 25 per cent, the company’s net profit margin is close to what the best software companies earn at half their price-to-earnings ratio

Mahindra & Mahindra: Rural India is earning well because of infrastructure boom. M&M’s SUVs are selling briskly and its market share in the SUV space has gone from 51 per cent to 57 per cent in the last two years

Allcargo Global Logistics: This stock was one of the earliest to recover after it fell dramatically in October

Crisil: The 800-pound gorilla of rating agencies, it rates 1,000 firms today

ICRA: There is room for both Crisil and ICRA in the space

HDFC Bank: A cautious and solid bank, it is safe because its government bond holdings are 3 per cent over the statutory liquidity ratio (SLR) requirement

Kingfisher Airlines: The company has a debt-equity ratio of 3:1

Oracle Financial: It suffered when foreign banks went broke

Suzlon: Debt is high and so are the receivables.

Ranbaxy: The last 12 months have been bad. Sales are down, research hasn’t paid off and US FDA is after it for manufacturing lapses

NIIT: As IT crashed so did the IT trainer. Its stock fell 85 per cent to Rs. 14

Wockhardt: Its core business is in fine fettle. Its problems are foreign loan repayments and derivative losses

Hindalco: The acquisition of Novelis tripled Hindalco’s sales but caused an 11 per cent decline in net profits

RK

Nifty adopts Free Float market cap calculation methodology

Nifty has moved on to free float method for calculating the weights of the companies in the index. I just checked on investopedia for the definition of free-float methodology and this is what it says

Free-float methodology market capitalization is calculated by taking the equity's price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments.

Calculated as:

And it also goes on to say that "The free-float method is seen as a better way of calculating market capitalization because it provides a more accurate reflection of market movements."

And what was the impact of this?

"stocks that will lose their weightage in the index have seen sharp falls in share prices in the past few days," says a report from business line. It also points out that the selling is from the index funds who have to realign their portfolios based on the new weights assigned. Some of the companies that have lost weightage are NTPC, ONGC, Power Grid, SAIL and Bharti Airtel.

In general I think this is a move in the right direction for NSE and Nifty.

rk

Warren Buffet's funny and sensible quote

Warren Buffet is supposed to have quoted the following during an interview on US economic recovery

"You can't produce a baby in one month by getting nine women pregnant."

it does make sense, doesn't it?

Top 10 challenges for India to overcome!!

Goldman Sachs Economic Research has come out with a list of challenges that India needs to overcome if she has to achieve her true potential. The paper titled Global Economics Paper contains the following list

1. Improve governance
2. Raise basic educational achievement
3. Increase quality and quantity of universities
4. Control inflation: Try Inflation Targeting?
5. Introduce a credible fiscal policy: a medium-term strategy
6. Liberalize financial markets
7. Increase trade with neighbors
8. Increase agricultural productivity
9. Improve infrastructure
10. Improve environmental quality

Well, there are no surprises in this list. They are more or less obvious and they are definitely the areas to invest in.

RK

Indian Mutual Fund Investors can rejoice!!

There is GOOD news for the Indian Mutual Fund investors. Sebi decided yesterday that there will be no ENTRY LOAD for any of the mutual fund schemes AND the distributor commission is to be paid by customers themselves and it wont be deducted by the fund anymore. What needs to be done now is to make sure that this message reaches the general public. Here is the snippet taken out of the news report on CNBC

The board considered the question of the existing manner of payment to the mutual fund advisors by investors and decided that there will be no entry load for any schemes. The investor will decide the commission that he is to pay to the distributor directly. It will not be deducted by the fund and then paid to the distributor. If the investor is making an application for Rs 100 that means the entire Rs 100 will get invested. There will be no deduction from that because there is no entry load. The board also decided that if the distributor is selling different schemes then he must disclose to the investor as to what commission he is getting for different schemes. This will avoid the conflict of interest and will allow investors to understand why a particular scheme is being recommended to them.

Reliance Mutual Fund's underperformance

Even though I am not a big fan of MFs, I still have some money a couple of MFs. One of them is Reliance's regular equity savings plan. I got the SOA (Statement of Account which I mistakenly took as Service Oriented Architecture based on the subject and kept wondering why Reliance sends anything about Architecture!!! see how dumb? uffff!) and when I saw the statement why I was left speechless!
No, my money did not double within 6 months (Dec 08 was when I put in this money) and no it did not grow by 50% and no, it did not grow by .0000000000001%

It infact was down by about 5%!!!!!!!!!!!!!! This statement was sent out on 21st May so the question is what the **** was this doing? I did much better I guess with my individual investments , I was down 50% in dec 08 and I am down only by 10% now. I came across a message in one of the investment groups that Reliance AMC was sitting on 33% cash till last week. That could explain why it underperformed.

This kind of results strengthens my belief that an individual with patience and little bit of learning can earn similar returns as that of an average MF by just holding onto some of the blue chips. Having said that I am not going to pull out my money, I am a patient man so will wait a couple of years before deciding.

RK

A really little book that could help you beat the Market

I was visiting a friend a couple of weeks ago and we were having our usual discussions about investing and stock picking and he mentioned about a blog that rates the stocks in the Sensex and Nifty based on a ‘Magic formula’. Of course the words ‘Magic formula’ got me curious and who wouldn’t be? So I came back home and looked up this blog and found that this formula is actually from a book that the blogger had read in the past.

The title was “The Little Book That Beats the Market” and I almost screamed aloud “what the ****!!”

Don’t we already have countless number of books from third-rate writers or investors that claim to make you rich overnight and/or present you with strategies that let you earn supernormal returns? And I really thought that this blogger must be nuts to follow a shameless author who TOOTS his own horn so loud!

But then for some unknown reason I bothered to look at the author’s credentials.And, wow, weren’t they that bad! The author goes by the name of Joel Greenblatt and he is the founder and managing partner of Gotham Capital, a private investment partnership that has achieved 40% annualized returns since its inception in 1985. Having read this I asked myself does this guy really needs any cheap publicity or quick money?

Maybe not!

So I went ahead and picked up a copy of this book from the local library. And I have to admit that this was the simplest and the smallest investment book that I have read in the shortest time. The book has been deliberately kept free of financial jargons which I liked the most about this book and I could easily grasp the concepts. The concepts are not new, most of the value investors already use them in one way or the other, but the strategy keeps the whole process very simple which should keep emotions and attachments to particular stocks out the door.

I think this book should be most useful to the starters and not so financially savvy and I also tend to believe that this should work to give good returns if not the super normal returns promised by the author.

More information can be found at the following site https://www.magicformulainvesting.com/

RK

Warren Buffet's low diversification strategy good for small and average investors?

Warren Buffet is a great man and I am a big of him and his investment principles. He puts in lots of wisdom in those few words. However there is one principle of his that I do not fully agree with, or, at the least think is not good for small investors and for starters to follow. That's his "low diversification" strategy!

He espouses the virtue of concentration, rather than diversification, for beating the markets. This is valid but to do that the guy needs to be knowing exactly what he is doing and he needs to have lots of common sense and lots of financial acumen. But how many guys have it? 20%? maybe if you apply the 80:20 principle. That's why I think, and I experienced it first hand as well, diversification is the most important aspect that a guy, who has just started on his investing journey, and small investors, who put in their hard earned money, should follow.

For this category of investors I believe avoiding big losses and disappointments is the key and the only way to do this is through diversification - spreading your money across 30-40 stocks for e.g.. Of course one cannot achieve market beating results with this kind of diversification but one can at least limit downside on their investments. This can be the base that one can build on as they spend few years on the market and pick up the nuances of stock picking. Of course this means that one should spend the time and effort in trying to learn and gain knowledge. If the time and interest is not there then it is better to outsource your money management to a mutual fund manager.

I started investing at the end of 2007, right at the peak of the Indian markets. And I did the mistake of putting in too much money on too few stocks and too quickly. I did them by following analyst's recommendations and by following the technical charts. The result of it is that when the markets crashed my investments were down more than twice the index drop.

I have been trying to learn more about the markets and about stock picking since then. And I am also open to following different strategies to see which works for me and which I am comfortable with. Diversification and periodic investments(weekly) of smaller amounts is something that I am following now and it seems to be working for me - either because it really works or because the markets have been doing well of late. But it certainly does give me time to analyze each of these companies, that I like, in more detail without missing the upside and also limiting the downside.

RK

Warren Buffet mistakes in 2008

List of 50 stocks excluded from NSE futures and options contracts

The following list of stocks have been excluded from NSE futures and options contracts for an year. As per the report

the existing unexpired contracts for the month of and April, May and June 2009 would continue to be available for trading till their respective expiry and new strikes would also be introduced in these existing contract months.

This circular shall be effective from May 4, 2009

3i Infotech Limited

Alok Industries Limited

Amtek Auto Ltd

Aptech Limited

Arvind Limited

Balaji Telefilms Ltd.

Ballarpur Industries Limited

Bata India Ltd

Birla Corporation Ltd

Bombay Dyeing & Mfg Co. Ltd

Central Bank of India

Development Credit Bank Limited

Edelweiss Capital Limited

Escorts Ltd

Everonn Systems India Limited

Gateway Distriparks Limited

Gitanjali Gems Limited

Gujarat Narmada Valley Fertilizer Co. Ltd.

Gujarat Alkalies and Chemicals Ltd.

Havells India Limited

HCL Infosystems Ltd

Hindustan Oil Exploration Co. Ltd

IRB Infrastructure Developers Limited

Jet Airways (India) Ltd.

JSL Limited

Kesoram Industries Ltd.

KSK Energy Ventures Limited

The Karnataka Bank Limited

Lakshmi Machine Works Ltd.

Mahindra Lifespace Developers Limited

Maharashtra Seamless Ltd

MindTree Limited

Monnet Ispat Ltd

MRF Ltd.

Nava Bharat Ventures Limited

New Delhi Television Limited

Network 18 Fincap Limited

NIIT Limited

Peninsula Land Limited

Rajesh Exports Ltd.

Reliance Industrial Infrastructure Limited

S. Kumars Nationwide Ltd

SREI Infrastructure Finance Limited

SRF Ltd.

Strides Arcolab Limited

Thermax Ltd

Torrent Power Limited

TVS Motor Company Limited

UTV Software Communications Limited

Wockhardt Limited

Indian Companies 2008 - 2009 Annual Results on 17th Apr 2009

The following companies have reported their annual and 4th quarter results on 17th April 2009.

SBI Home Finance:- For the full year ended March 2009, net loss reported to Rs 24.63 crore as against net loss of Rs 18.25 crore during the previous year ended March 2008.

GRUH Finance:- For the full year ended March 2009, net profit rose 18.75% to Rs 50.28 crore as against Rs 42.34 crore during the previous year ended March 2008.

Sukhjit Starch & Chemicals:- For the unaudited full year, net profit declined 40.45% to Rs 12.00 crore in the year ended March 2009 as against Rs 20.15 crore during the previous year ended March 2008.

Logix Microsystems:- For the unaudited full year, net profit rose 82.35% to Rs 8.37 crore in the year ended March 2009 as against Rs 4.59 crore during the previous year ended March 2008.

Mysore Paper Mills:- For the unaudited full year, net profit rose 337.35% to Rs 22.13 crore in the year ended March 2009 as against Rs 5.06 crore during the previous year ended March 2008.

Sonata Software:- For the full year, net profit rose 45.43% to Rs 53.36 crore in the year ended March 2009 as against Rs 36.69 crore during the previous year ended March 2008.

Power Finance Corporation:- For the unaudited full year, net profit rose 12.30% to Rs 1355.19 crore in the year ended March 2009 as against Rs 1206.76 crore during the previous year ended March 2008.

ETC Networks:- For the unaudited full year, net profit declined 59.93% to Rs 9.36 crore in the year ended March 2009 as against Rs 23.36 crore during the previous year ended March 2008.

Compuage Infocom:- For the full year, net profit rose 3.74% to Rs 4.44 crore in the year ended March 2009 as against Rs 4.28 crore during the previous year ended March 2008.

Saving money, cutting expenses during recession

I liked to buy the latest editions of popular magazines as soon as they go on sale. Now I save up some money by waiting a month or two and picking up a copy at the nearby library.

Also read "A funny way to cut costs"

RK

Smart ways to save money during recession

1. If you have more than one girl friend then layoff the most expensive ones
2. If you have a single girl friend then cut down on expensive dinners and gifts
3. If girl friend is not reasonable then meet her less often or better take a break and enjoy your single hood
4. If you have a mistress then its needless to say that you won't be able to maintain her any longer. So people!!! recession is not a bad thing after all. It actually helps your spouse to remain faithful to you.
5. If you have a wife then god save you!

funny?

RK

Think before investing in India's Exchange Traded Index Funds

Index Funds are good. How about Exchange Traded Index Funds? They are good. That's what we are told and that's what I thought until I checked the volumes of the ETFs listed on NSE. To my horror and surprise I found that the volumes are miserably low and for some funds there were no trades at all. I use the stats from 6th Mar 2009 to drive home my point

Benchmark Mutual Fund-Nifty Junior Benchmark ETF -6257
Benchmark Mutual Fund-Nifty Benchmark ETF -76129
Benchmark Asset Management Company Pvt. Ltd. - Bank Index -1900
Reliance Mutual Fund -Banking Exchange Traded Fund (ETF) -236
Quantum Index Fund -Exchange Traded Fund (ETF) -104
Benchmark Mutual Fund - PSU Bank Benchmark Exchange -510
Traded Scheme
Kotak Mahindra Mutual Fund -0

From the stats you can clearly see that the volumes are pathetically low so its quite possible that you won't be able to sell when you want and at the prices you want since the spread between the bid and ask prices are high. Out of these funds only Nifty Benchmark Index seems to have decent volumes so that may be the only fund worth looking at.

I think the concept itself is very good but unless more people are aware of these funds and participate in them you are in real danger of getting stuck. You may not find buyers and you may get quotes far less than the market price. So think hard before investing in the ETFs.

RK

Warren Buffets big mistakes

Warren Buffet's mistakes? Does he ever make one? If you don't think so then you are wrong. He has made some big mistakes last year i.e. 2008 and like any great man he had the courage to admit in his latest annual letter to this share holders. The following is the admission taken from his report

I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.

I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes “unforced errors.”

Quarterly and Annual Results - Tata Steel, Thomas Cook, Bata India

There were declaration of quarterly and annual results from few companies this past week i.e. 23 - 27 Feb 2009. This post summarizes some of them

Thomas Cook - They announced their annual results for the period 01-JAN-2008 to 31-DEC-2008. Thomas Cook posted a net profit of 3732.50 lakhs and recommended a dividend of 37.5% on each equity share of Re 1/

Tata Steel - It reported a net profit of 73221.00 lakhs in its third quarter (01-OCT-2008 to 31-DEC-2008 ). The stock ended up by a little over 5% on friday

Bata India - They reported their annual results for the period from 1st Jan 2008 till 31st Dec 2008 and the company has recommended a dividend @ 25%. The net profit was about 5905.70 which is better than last year.

The last company covered in this post is Videocon industries. It reported a net profit of 109893.00 for the year 01-OCT-2007 to 30-SEP-2008 and it has recommended dividend of Re. 1/-per share. The stock ended the day down by a little over 1.5%

Invest in Indian Auto companies now and make MONEY

Auto sector has been doing pretty bad for at least a couple of years now. Last year was a disaster as we all know. My investments in Maruti and Tata Motors, which were made in 2007 when I thought that they were cheap, went down 50% and 90% resp in 2008. Maruti has come back well but Tata Motors is still down 80%. I did not look at the auto companies for quite some time now but with the interest rates coming down there is hope that the bad ends are about to end.

With the hope that this could be the right time to get in so that I am in before the stocks run up too far I decided to take a look at some of the auto companies. It became quite clear after a quick look that I have already missed the bus with some of the frontline stocks. Here are some of the numbers

Maruti Suzuki is up 50 % from its 52 week in December, Bajaj Auto is up more than 50% its 52 week dec low and Hero Honda, which has outperformed the whole of last year, is around its 52 week high. The case of Hero Honda shows that a good profitable business is what it matters and not the sector. These were the outperformers and other like Mahindra & Mahindra, TVS and Ashok Leyland are up 20 odd %. The only frontline company that missed this bus is Tata Motors and the reasons are pretty well know so its hovering around its 52 week low.

Performance has been good only for the auto companies but not the ancillaries. Exide Industries, Amara Raja and Shanthi gears are around their 52 week lows, maybe its time to get in them so not to come back in few months time and find them 50 odd % up.

As far as I am concerned there is n't much downside in autos at the moment so I will put in some money and see where it ends up at the end of the year.

RK

Investing in Index funds - So boring but I will still do it

I came across the book "The bogleheads guide to investing" in the public library recently. I took it since the name Bogle sounded familiar and I had only 15 mins to choose a book before the library closes down for the day. I assumed it was written by John Bogle but it was not be so. It had three authors - all leaders of an online forum called bogleheads who are basically diehard fans of John C Bogle's investment philosophy. I was sceptical but the book was quite ok. The opinions and advice of the authors had lots of common sense and some of them had really caught my attention and I really want to put them in practice even though my ego is still actually reluctant to follow them.

One of the points was to invest a bulk or all of your money in index funds – equity and/or bond. I am also a DIY investor who started a year ago, right at the peak of the Indian Bull Run. And I don’t have to say that I am not doing too well with my portfolio. It’s obvious isn’t it? But I don’t know if that’s attributable to the financial crisis that swamped the global markets since I started or it’s my poor stock selection. Anyhow!! Coming back to the topic of Index funds I know for sure that investing in these funds are the easiest and the most efficient, and perhaps most assured, way to long term wealth. It does not need much of your time – you don’t have to spend hours going through company’s financials, prospects for the sector, profiling the quality of the management etc. Basically you don’t have to do anything except for choosing an index fund with good track record and low expense. That’s it!! It’s as simple as that.

But the problem lies in this simplicity. Is it not too boring? Where is the challenge, where is the uncertainty, where is the thrill? Don’t we want to beat the market and those highly paid and fancied fund managers? Yes, we certainly want to do that and we can do that – that’s what our ego tells us. But if you really let your commonsense rule then you know for sure this is the way to go forward. So, reluctantly, I am going to look for an index fund that gave decent returns over 5 year period and has a low expense ratio and put in 50% or more of my money. Rest I will manage actively to feed my ego. I may do well or may not, I don’t know yet but what I know for sure is that the 50 odd % of my money in the index funds will do its job of compounding my wealth at decent percentage every year.

So, now let me focus on choosing an index fund!!

Oracle India trims salaries with hour-based payments

"Oracle India trims salaries with hour-based payments" - This is the heading of a report I read today on business standard. Couple of paras from this report are given below. They had also mentioned that the employees, while still being on the Oracle payroll, can take up contract work. These guys are effectively suggesting employees to look for a new job without actually forcing them to do it. Its good in one way that if you stick it out for next few months then the situation will be back to normal.

The world’s second-largest software products company Oracle is understood to have begun linking the payment of its 20,000-odd employees in India with the productive hours they spend in the company. This has resulted in salary cuts, ranging between 10 and 50 per cent across the board

Company sources explain that if an employee is a billable resource for 15 days a month, he will be paid in full for that period while for the rest of the period, he is paid a “nominal” amount. Replying to an email query, a company spokesperson in India said: “Oracle does not comment on speculation or rumours.

Gujarat Mineral Development Corporation Bonus shares delivered

Well! it took time but it happened finally! The bonus shares of GMDC have finally been added to my demat account. These bonus shares are of little solace considering that the price of the stock is down more than 90% of my buy price and I don't see it going back to that price ever again.

If you are an ICICIDirect customer then you won't see these shares added in your portfolio. You need to go to demat allocation page to see them added.