Part 5: Process or How the heck do I Invest in Equity Successfully?
5.2 What will get your Mind committed to Process?
The scale and dynamic nature of the stock market pose big challenges. What are the challenges to actually taking the decision?
The first thing that hits an investor is the large number of possibilities where he could put his money. There are about 5000 listed stocks in India. All you need is about 25 to 30 stocks in your portfolio at any point of time, the ‘right’ ones to succeed. Similarly, there are hundreds of funds to choose from.
This is further complicated by the bombardment of opinions, pitch, noise and din of the market, media, influencers etc. It’s mind-boggling. Where does Process come in?
Investing is about making decisions. So, we are talking about a Decision-making Process. We don’t do anything else to make the money. Now, to make a decision on buying a stock is not very different from making a decision to buy anything. You got to know if what you want to buy is worth buying, what is the price you should pay for it and should you buy it now or wait for a better price.
Buying is an activity we do very often. However, selling is quite infrequent. And selling something for a profit is a very rare event in our regular life. However, selling is an integral part of investing. And we need to be equally adept at making selling decisions as buying ones.
Warning: Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Disclaimer: Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provides any assurance of returns to investors.
MoneyWorks4Me method for rating and ranking mutual funds for SIP
MoneyWorks4Me rating and ranking of funds for SIP is available to subscribers only. Moneyworks4Me is not a rating and
ranking agency, however it is required that users have a way of selecting funds and building a Portfolio. The method used by it are described below to enable users to understand the logic behind the rating and ranking Subscriber will find more details on this in the
various content made available from time to time. In case you need more please write to besafe@moneyworks4Me.com
MoneyWorks4Me rates and ranks mutual funds based on the following data-driven system:
Performance Consistency: This is measure based on whether the fund has beaten the benchmark index consistently. For
this we compare the 3-year rolling returns of the fund with the benchmark for a minimum of 5 years and preferable 10
years. The period of rolling is one month and holding period is 3 years. Fund are color-coded Green on Performance when
the fund beats the benchmark more than 90% of the time. It is Orange if it beats 80% to 90% of the time and Red if less
than 80%. Funds with less than 5 year data are color-coded Grey.
Quality of Portfolio Holding: Moneyworks4Me has color-coded stocks as Green, Orange and Red based on whether the
company's performance has generated a ROCE above a threshold level (cost of capital) over 10 years (minimum 6 years) and
generated positive Free Cash Flow. For Banks it checks whether ROE is greater than 15% and sales has grown over previous
year. Stocks that perform consistently on these combined metrics are color-coded Green (min score 14 out of 20), Orange
(between 8 and 14) and Red (less than 8 out of 20).
Fund are color-coded Green provided the portfolio has 70% holding in Green stocks but not more than 10% in Red stocks.
Funds with more than 15% Red stocks in the portfolio are color-coded Red. The rest are Orange funds
Funds ranking in screeners: Performance Consistency and Quality are two parameters used for ranking funds for SIP. The
ranking as follows GG, GO, GR, OG, OO, OR, RG, RO and RR.
With the same color-coded funds, the one with the higher Average 3-year rolling returns (over 5 to 10 years), the number
that appears in the Performance tag, ranks higher.
Here is the summary:
The third tag Upside Potential is not relevant for SIP. It is relevant for lumpsum investments in Mutual Funds.
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