You need data, analysis, tools and advice to make sound stock investing decisions. You need these to be unbiased and transparently presented so that you can trust it and act on it confidently. Here's how
we enable you to build a wealth-creating portfolio.
Choose Quality-at-Reasonable-Price Way of Investing
Quality-at-Reasonable-Price, QaRP is a way of investing most suited for retail stock investors.This method ensures you invest exclusively in quality companies. Buying quality stocks at reasonable prices reduces the chances and extent of a fall in your net worth and thereby dramatically increases your chances of staying invested. Wealth is the natural outcome of staying invested and compounding growth of your investment.
There are other ways of investing in stocks that can create wealth. However, they demand higher risk taking ability, higher tolerance to volatility and loss, higher willingness to book paper/real losses, higher patience than what most of us have.
Identify Quality Companies
Quality-companies are those that have delivered profitable results even during tough market and economic conditions..
Look for a proven track record over many years. 10 years is a good period to do this as it usually has at least one tough period.
Only companies with a moat-competitive edge can deliver this performance.
Look at the key ratios over 10 years and if most of them are good you have found a Quality Company.
Assess Reasonable Price
Reasonable price is very subjective and hard to prove not just for stocks but for many products which do not have a MRP and certainly for all services. Consumers solve this problem by using an ‘anchor’, a price they use for comparing. We do it all the time- when we buy vegetable and fruits or judge the prices charged by a restaurant or a hotel.
Anchors used when assessing a stock price:
Using 52 week high or low, P/E or P/BV are examples of one type of anchor. These are all driven by market prices and may not have a correlation to the performance of the company.
Fair value, Intrinsic value etc. are anchors based on the current and future performance of the company. They have their basis in sound theory but influenced by assumptions.
It is difficult to prove which anchor works better.
You should not risk your money on only a few stocks but build a portfolio of about 20 stocks. It will take some time to build this portfolio as you are very unlikely to find 20 such stocks at one go. Be patient and you will be rewarded handsomely.
You can check the risk in your portfolio by uploading it on the MoneyWorks4me Portfolio Manager. Some good broker sites like ICICI Direct also provide risk analysis report of the portfolio you hold there.
Mutual funds help reduce risk through diversification and earn inflation-beating returns. Every fund provides one level of diversification as it is invested in 30 to 70 stocks. Fund Managers select their portfolio based on some process or strategy expecting to outperform their benchmark index. However, It is up to you and your advisor to select the ones that are right for you?
Invest in 3-4 Funds with Diverse Investment Strategies
Different investment strategies-Value, Quality, Momentum and Small Cap outperform under
different market and economic situation. By investing in 3-4 funds with diverse strategies you ensure that some part of your portfolio is always performing. You will also be invested in a more diverse set of stocks than picking 3-4 best performing funds.
Within a particular investment strategy you should select the fund that is stronger than others. To identify such funds, you need to stress-test them on two criteria - Portfolio Quality which helps us compare the risk in the portfolio & Consistent Performance (Rolling returns) which helps us compare how well the fund was managed for returns.
Invest when there is an attractive upside potential
Investing in top performing funds which have delivered great returns can be disappointing because they are likely to own stocks that are over-valued and the chances of correction are high. You need away to assess and compare funds on the likely future returns they could deliver. This is crucial when you need to invest lumpsum, not SIP. At the very least you would want to avoid funds that are may not even deliver FD like returns over the next 3 years.
Invest in funds that are different than your existing portfolio
When you invest in stocks directly, selecting a fund with a portfolio that is very similar is wasted opportunities and fees. If you are adding a new fund then again it is imperative to check how different is the portfolio vis-à-vis you existing 'see-through' portfolio. You can do this by checking the percentage active shares between the two portfolios. Higher % active share implies the new fund is substantially different and hence will diversify your portfolio.
Investing in stocks of fundamentally sound companies, when they are available at a discount from their fair price (MRP), assures you of very good returns. Sell them only when market has priced them so high that future returns are likely to be low.
Investing in the ‘right’ Mutual Funds (MFs) enables you to earn high returns and diversify with ease. However, selecting the right MF is a challenge, because today’s best performers are unlikely to be tomorrow's winners. They come at a high cost, and hence, make sense only when they beat Index Funds.
Index Fund is a Mutual Fund whose portfolio mimics a particular index (e.g. SENSEX 30, Nifty 50). They are much cheaper than MFs. Index Funds will become more attractive, as MFs will find it difficult to beat the Index and justify their high costs.
Ensure Security! Equity always comes with risk. Ensure your security by allocating a portion of your Investable Surplus to low-risk fixed-income assets
Debt Funds: How much depends on your risk profile and the market levels
Gold ETF: As an insurance against risks not reduced by diversification
Omega is MoneyWorks4me's Tech-assisted Multi-asset, Portfolio Advisory Solution .
Invest in quality stocks with future upside potential
Knowing the stock’s MRP enables us to spot and exploit opportunities:
When Mr. Market is bearish he offers high quality stock below/close to its fair value
Mr. Market over-reacts to short term problems and offers stock at attractively low prices
"Stop investing in mutual fund based on past returns’ We don’t drive a car looking at the rear view mirror just because the windscreen is dirty and hazy. We get out and clean the windscreen."
Manage Your Wealth in One Portfolio like HNIs do
See combined view accross asset classes
One Portfolio View
Allocation across Assets
See-through portfolio on equity
Check if a MF is Sahi for you
Tools to Identify and manage Risks
Putting all or most of your investable surplus in the equity basket exposes you to high risk and putting too much in safe, fixed-income asset reduces your returns drastically.
Companies in the same sector are likely to be impacted by the same economic factors. Large exposure to a single sector, or correlated sectors, could result in a drastic fall in your portfolio market value.
A stock is exposed to several company-specific risks, (business, balance sheet, valuation or people risk.) A 20% drop in a stock comprising 20% of your portfolio reduces your absolute returns by 4%.
While some smaller cap companies have potential of high returns, most come with high risks. Many have weak business models and are badly hit by economic or business downturns, and can erode your wealth!
Companies with poor fundamentals and weak business models can not deliver consistent and sustainable profitable growth.
If over-priced stocks form a large portion of your portfolio, a price-correction will reduce your portfolio value substantially.
Low-trading Assets have very few buyers. So, one cannot sell it, when needed without compromising on prices.