Part 4: Strategy or How the heck do I get to Financial Freedom?
4.12 Invest in Equity in a way that ensures your success today and, in the future
It all boils down to investing in equity successfully, so how do you ensure that? How do you take informed investing decisions and improve upon them with time? How do you prevent your emotions from hijacking your decisions? How do you take your equity investing to the next level?
How do you choose the Investing Process let alone a System that is suitable for you? And how do you with limited knowledge of investing in equity improve on it. Is it possible? Let’s find out.
First you need to know what exactly do you do when you invest in equity? You make these decisions:
Which stocks or Fund to buy?
At what price or NAV?
At what price/NAV to sell it?
And then act on it. In short, build and manage your equity portfolio to achieve the desired returns.
Now, can you know in advance, with certainly which stocks/MF will deliver your targeted CAGR? You cannot, no one can. Then how can you judge? Good question. This sounds like a problem faced by people working in the corporate world at least the good ones, who hold one another accountable and responsible for meeting their targets and goals, despite not knowing how things will pan out in the course of the year? How do they handle this and can we do the same for investing?
Essentially, they follow the PDCA : Plan-Do-Check-Act Process or Cycle. How does this work?
First, they agree to a plan of action, then do the actions as per the plan, check what results they have got and whether it is in line with what was expected or not, in short how well it worked. Then, and this is the game changer, they reflect on why the results were not up to the expectations and what is required to get there. It could be a better implementation of the plan itself, maybe some skill improvement or a better...........Read More
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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