Omega

Typically for corpus of less than 5 Crore, Equities, Debt and Gold are three broad asset classes suitable for investments. Your self-occupied house is not counted as an investment since it does not earn any returns. When your assets increase beyond 5 crore, you can consider Real Estate that you can rent and or sell to earn a return, as an additional asset to diversify your wealth.

If you are investing in Fixed /Recurring Deposit for about 5 years and more, then this is a reasonably good duration to invest in Equity. Investing in Equity will help you to beat inflation and grow your corpus for meeting your long term goals. MoneyWorks4me will help you build your portfolio with quality assets, diversify it and occasionally rotate assets based on upside and downside risk.

The MoneyWorks4me Way of Investing is to designed to ensure an investor reaches his financial goals by staying invested for long and earning a healthy risk-adjusted return.

We are anchored in estimating as best as possible the long term fair value of stocks based on fundamentals and using this knowledge intelligently to get in or move out of equity. This ensures an investor captures reasonable upside as well as protects downside; overall ensuring he doesn’t get out of equity at wrong times. In the end what matters is time spent in the market to compound the capital rather than chasing returns.

We have developed a unique measure Nifty@MRP and Sensex@MRP, which is a hypothetical value of the Nifty/Sensex if all the 50/30 stocks were fairly valued. We have analysed the actual movement of the market vis-à-vis Nifty@MRP and Sensex@MRP for more than 5 years (real time) and back-tested our hypothesis over more than a decade. This has enabled us to confidently assess whether the market is over-valued or under-valued at any point of time.

Based on opportunity we would recommend investing in:

  1. Liquid FAAund
  2. Index Fund
  3. Select Quality Stocks
  4. Equity Mutual Funds
  5. Gold ETF

Liquid Fund is a category of mutual fund which primarily invests our funds in money market instruments like certificate of deposits, treasury bills, commercial papers and term deposits. Since all the above instruments are very liquid and short term assets, Liquid fund can be redeemed easily. It typically earn close to after-tax Fixed Deposit returns but more tax efficient if held for more than 3 years. Besides, it can redeemed without any penalty/pre-mature closure fee.

An index fund is a type of mutual fund with a portfolio of 50-80 stocks constructed to match or track the market index, such as Nifty 50 or MSCI 80. An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. This product can be used for tactical allocation if not many stocks are available at decent prices, thereby holding a diversified equity. Two popular index funds are listed on exchange R*Shares Nifty BEES & Junior BEES.

An Index construction is done based on free float market capitalization of companies, meaning larger companies would form higher proportion of the index irrespective of their valuation and quality. An Index may correct more in bad times due to poor quality companies or overvalued companies. Second, it may take more time to recover because it may continue to hold poor quality stocks that may not get removed as they would have high free float market capitalization. Besides, just buying and holding an index fund would lead to high volatility. In times of correction, it may scare an investor to move out of equity. Asset allocation between equity and debt would work better as it would reduce volatility in bad times.

You can add Cash every month and Omega will advise to invest in best possible opportunity available at that particular time. This will ensure you invest in asset that would earn some absolute return rather than investing passively in any asset.

If your monthly savings are small compared to portfolio, you can use our lower cost solution SmartSIP and do an SIP in mutual funds till the corpus becomes significant and then add it to Omega Portfolio for better investment outcome.

Equity generate higher than FD returns due to higher underlying risk. Risk means the returns from equity returns could be low or high, or inadequate from time to time versus our expectations. If FD earns 7% pre-tax, equity returns must be much more than FD return to compensate for uncertainty of business/market cycles. Given India’s GDP Growth Rate + Inflation Rate is about 13% CAGR for past several years, this return looks plausible and is good compensation for risk too. A moderate risk can earn slightly better than 13% CAGR returns over long term.

Context of Timing the market is very important. Timing the market only based on hunches, personal biases definitely will not work in long term. But if one takes cognizance of market valuations, i.e. he can reduce exposure if upside is low and increase exposure to equity when upside is high, it may lead to good outcome. Some experts argue timing may earn poor returns versus buy and hold in back-testing model, we believe staying invested is more important than earning the last paisa from equity. Fall in portfolio value from peak can scare investor out of equities and lead to unproductive behaviour of selling out at the bottom. It is always better to minimize regret rather than maximize profits.
Yes. MoneyWorks4me uses market valuation to consider how much of the corpus must be invested in equities at any given point. If market valuations are low, upside will be more hence higher % of corpus will be invested in equity. Even if market falls further temporarily, you can be certain that your portfolio will earn good absolute returns in long term. If market valuations are high, upside will be low hence lower % of corpus will be invested in equity. Even if market rises temporarily, it will be eventually earning lower returns in long term as starting valuations were high.
SIP in a mutual fund means one doesn't consider valuations but keeps investing regularly. This provides benefit of time correction but not necessarily price correction. Firstly, success of SIP is dependent on buying when markets are cheap or fair or expensive, so the purchase price will be averaged. But the problem is market valuations remain expensive more often than they are cheap or fair. This leads to poor SIP returns. Secondly, if market valuations are fair to cheap and an investor has Lumpsum available, it better to put funds at once. Market goes up in value in 4 out of 5 years. Going for SIP route means missing the rally and also losing time value of money. MoneyWorks4me recommends investing large portion of corpus in equities if they are fairly valued or cheap. This ensures one earns good absolute returns. Similarly, MoneyWorks4me way recommends selling equity or holding smaller allocation to equities when markets are expensive. This process of buying low and selling high leads to better returns over long term.
While we ask you to invest for the long term, ie: money you won't need for the next 5+ years at least, it can happen that you do need to touch this money. Had you invested in Fixed /Recurring Deposit you would have to break it and would lose some money (interest loss), while doing it. With the MoneyWorks4me Way of Investing you can meet this emergency in various ways depending on the market situation. You are likely to hold some money in a Liquid Funds and selling this becomes the obvious way to meet the emergency. When you do this your portfolio will ask you to rebalance it by selling that portion of your equity holding that makes the most sense to sell at that time. You can override this if you expect to put some money back into the plan soon. This may make sense if the market is under-valued and you wish to hold on to your equity portfolio. If the markets are in the over-valued zone you may be comfortable acting on the rebalancing advice. Thus you will have some good flexibility on how you manage such emergencies.
A mutual fund is a pool of funds collected from multiple investors for the purpose of investing in stocks, bonds. Every mutual fund has a fund manager who takes active decision in picking stocks. Mutual Fund charges a fee varying from 1.5 to 2.5% of assets under management typically, with a promise of trying to beat the market. In addition if you buy through a MF distributor (Regular plan) you end up paying 1% towards distribution cost. When you buy a directly (Direct plan) you save the 1% distribution cost. However, you do not get any advice (good or bad) from your distributor/agent when you buy directly.
Our analysts actively track underlying assets a mutual fund holds rather than popular past performance analysis. We analyse a fund manager’s past process of stock picking and determine strategy across market cycles ,while on an aggregate basis mutual funds would yield market returns only, occasionally some mutual fund might be holding a large percentage in undervalued stocks with a potential to earn very high returns for next 2-3 years. We endeavour to recommend only such Mutual Funds.
MF-Robo typically recommends Mutual Funds based on Past Performance analysis; the most popular way to short list a mutual fund for investment. Rather than analysing past performance which is an outcome, we analyse the underlying assets a mutual fund holds. We are then able to assess the health of the portfolio as well as the potential upsides based on our proprietary methods. We also keep a tab on the quality of churn. In addition we also recommend investment in quality stocks at attractive discounts from their MRPs and lower cost Index Funds. This provides a better portfolio design than only investing in Mutual Funds.
We consider the primary risk in equity is making a permanent loss of capital. Following are three levels of how we reduce risk: 1. First, we select only best quality stocks after running the stock through our 10Year X-Ray. 2. Second, we buy the stock at 20-50% discount to its MRP which reduces our downside risk or deviation in future estimates, if any. 3. Third, we recommend diversifying portfolio in 15-18 stocks. This reduces business specific risks and eliminates risks to a large extent.
At Moneyworks4me equity analysts analyse the company, its current and likely future profitability based on the business and economic cycles over the next 5 years and using the appropriate valuation method arrive at the fair value a company. This we call its MRP.
MoneyWorks4me MRP is a fair value estimate of a stock. Fair value depends upon long term profitability of a company. In the long term a company would trade at its fair value. If we buy a stock at price lower than fair price, we get a bargain. This increases our chances of making a profit. Brokerage Target price is basically based on short term company performance and likely stock price movement in 6 to 12 months. This may or may not depend on company performance but has more to do with stock market sentiment.
On most occasions, great stocks may not trade at large discount to their MRP for obvious reasons. Sometimes they are available at attractive prices but still a little higher than our preferred buy price which could range from a small discount from the MRP for the best stocks to DP for other. We therefore think of a band around our preferred buy price. We recommend starting buying them as soon as they enter the buying band. If the price goes lower we buy more of it in instalments till we have purchased the desired quantity or maximum allocation.
Superstars

Each company is valued based on next 5 years cash flow and earnings estimates. We called this value as MRP (maximum retail price) or Fair value of a company. This is used to find out upside potential in stock on current market price and gets updated every day. After we estimate long term prospects to be good, we recommend to buy the company’s stock when upside potential is more than 15% CAGR or 10-15% CAGR over next 5 years.

We expect to own companies for long. We do not recommend buying on short term trends as this is highly speculative in addition to being costly and incurring high taxes.

As per our philosophy, portfolio must be concentrated enough so as not to dilute returns from our winners and diversified enough to handle couple of disappointments.

If you own large cap stocks of established companies, you can hold as low as 10 stocks but as portfolio size rises, one can add upside potential by spreading your portfolio into 20-25 stocks across 4-5 sectors.

Historically, there has been less than 20% annual churn on average on overall portfolio. Churn is even lower in Core Superstars as it includes strong companies with stable long term prospects. This keeps capital gain tax in check and retains bulk of the profits. Churn may increase in bull markets if stock price rises much faster than actual business growth.

Entry and exit predominantly depends on upside potential and future prospects. If either of the scenario is unfavourable, we will exit.

Cash Call is an outcome of opportunities available. Historically, we have found enough opportunities to be invested at least 60% and idle cash was parked in liquid funds. Uninvested cash gets deployed over next 3-6 months. We do not invest forcefully even we see upside potential or future prospects are not good.

Market levels or single valuation metric of a broad market doesn’t tell much about the return potential of all stocks in the market. It is market of stocks and not one stock market. What it means is, there are 100s of companies listed that might be at different stage in cycle. Individual stocks may have more upside potential than narrow index like Nifty 50 or Sensex 30.

A stock price moves in lines with earning growth. Even though all stocks move in same direction in short term, their trajectories vary over longer timeframe.

Let’s assume the worst period with the benefit of hindsight when Nifty peaked in Dec’07 and 3 years after that.

Returns-Dec07-Dec10-Nifty-50

If we observe individual stocks, we can see that markets made high in Dec’07, went through correction of 50%, and recovered in Dec’10. During this period Nifty was flat but more than 40% of stocks earned positive returns. Out of 185 large and mid-cap stocks (BSE Group A), 78 were positive, and more than half earned >13% CAGR. Together these 78 stocks earned >17% CAGR.

This proves that market levels must be used only in context of asset allocation to reduce equity and add to debt. If one can find enough bargains with good future prospects, you should remain invested.

While in the short term prices fluctuate for various reasons, in long term stock price is function of long term growth in underlying company. Price can keep moving up or down depending on prospects. Using valuation estimate, one can assess upside potential of a stock over a longer time frame, say 3-5 years. Again, it is just an estimate, which may not consider positive surprises in good quality company or disappointment/bad luck. If there are positive surprises, we are happy to hold longer as gains can be multi-fold. So we do not communicate price targets for long term investing.

Low upside potential: With our proprietary price calculator and future estimates, we update valuation of best 200 stocks across large, mid and small cap. Using the same, we compute upside potential of stocks over 3- 5 year period from current price. While one cannot be 100% confident about future upside, if the upside is significantly lower than liquid fund returns based on valuation, we choose to exit. One doesn’t have to earn the last nickel out of every investment. Our aim is to earn reasonable returns on overall portfolio, not necessarily own stocks till they peak out.

Change in future prospects: Capitalism is very competitive. As soon as a company does well, competition can come in either with similar products or disruptive one to ruin the profitability. This leads to deterioration of profits and company’s downfall. In such cases, we would like to exit the investment. Other situations we exit is when the management of the company may treat minority shareholders unfairly which can lead to steeper loss over long term.

Ask queries or seek second opinion on stocks/funds/asset allocation from our analysts. If they have studied, they will share their analysis on the same. You can ask these queries in our "Investors Day" which is held on 1st-10th of every month where we collect all queries and publish our answers for all to read, without disclosing your name.

Equity returns are not linear like Fixed Deposits. They are erratic and returns can be concentrated in few years. So even if equity does not earn positive returns every year, longer term investing is highly in our favor

BSE-Sensex-Annual-Returns

Past data shows equity returns are positive in 31 out of 41 years. There will be only one year out of four years of negative return. Out of 31 positive years, Equity earned more than 20% returns in 16 years. However, the returns were quite volatile during the year. It is advised to review equity return on annual basis versus monthly/quarterly. Longer investment period of 5 years or more has very high chances to earn healthy absolute returns.

For Core Stocks their strong businesses and bright prospects helps us build a model portfolio approach. One can allocate bulk of their savings in model portfolio and rest can be held for new opportunities beyond Model Portfolio.

In rest of the portfolio, we may delay buying or selling actions if it is merited. The number of calls depends on markets levels. If markets are overvalued, there will be less Buy calls and more Sell calls. If markets are undervalued, there will be more Buy calls and less Sell calls.

Let’s assume you have portfolio of 5 lakhs and you have invested just 3 lakhs, in that case hold cash of 2 lakhs. There is no need to be invested if there are no opportunities based on the process.

Historically, there has been less than 20% annual churn on average on overall portfolio. Churn is even lower in Core Superstars as it includes strong companies with stable long term prospects. This keeps capital gain tax in check and retains bulk of the profits. Churn may increase in bull markets if stock price rises much faster than actual business growth.

Core 50 Superstars enables you to build a strong stocks portfolio of high quality large sized companies through a Model Core Portfolio and also through additional buy recommendations from the top 50 Core Superstars.

Portfolio built with Core 50 Superstars provides robust returns in long term and has a stable foundation to withstand economic and market down turns and recover faster.

That’s because Core 50 Superstars covers the best quality companies. Companies that are in good financial shape, have pricing power over its peers, and sell products that people buy even during deep recessions. These strong companies are structured and operate in such a way that they can withstand the economic downturns.

Bluechip companies are well known, but having this list doesn’t translate into good investments unless they are bought at a right price. And very often prices of such stocks are high to very high, making it difficult to invest in them. Some ‘stable’ bluechip companies are at times so highly priced that future returns are likely to be mediocre for a few years.

From time-to-time good companies are available at a reasonable price but this is accompanied by some ‘bad’ news and most people avoid investing in them out of fear. Such opportunities don’t feature in most model portfolios. Then again even if one does own such companies, one may lose conviction to hold on to them when they run into a tough situation.

And lastly figuring out at what price should one reduce or exit a stock and invest in another opportunity when there are no obvious performance-related triggers?

Core 50 Superstars helps you build a strong portfolio using multiple methods

  1. Helps you invest in a model portfolio of Core Stocks which you can implement for bulk of your portfolio or entire portfolio.
  2. Can also add regular savings into the model portfolio in SIP mode
  3. Additional buy calls from the top 50 Core Superstars that are good opportunities to invest but do not feature in the model portfolio. Our Buy list is concise and comprehensive; it does not extend to 50-100 of buy calls creating confusion and defeating the purpose of advice.
  4. Read our research and opinion from a long term investor perspective, understand quarterly results or key events to make informed decision rather than merely following a model portfolio or buying because on news or tips. This helps you stay on top of your investments, stay invested for the long term which is key to success in investing.

It is true that multi-cap approach tends to earn higher returns than large cap companies. But as a beginner in stocks or with smaller portfolio, succeeding is more important than earning a higher return because that ensures you becomes a committed stock investor. A poor experience at this stage can put off people from investing in stocks and that is a major loss. It is wise to own predominantly large cap portfolio as you can concentrate and learn about few stocks and experience lower volatility versus a multi-cap portfolio. As your portfolio and experience grows you can upgrade to a multicap portfolio.

Large cap performance has been substantially higher than inflation and fixed income options in all periods. The consistency in returns is much higher with more than 85% chance of a positive return over any 3 year period. Large cap generate returns in range of 7-12-15% and with an average of 12%+ p.a. in past. At 12% CAGR, your investment quadruples (4X) every 12 years. With Core 50 Superstars philosophy of buying companies at right price can further add to returns. These are very good returns to meet your goals.

You can systematically buy stocks in Model Portfolio, or top stocks to add today. These stocks are mostly Quality at Reasonable Price with very good medium term prospects. For queries, call us at (+91)-20-67258333 or mail: besafe@moneyworks4me.com

Superstars 100 Multicap enables you to take informed decisions to build and manage your portfolio with a mix of carefully selected large, mid and small cap stocks. Superstar Multicap approach to portfolio enables you to earn enhanced returns over long term through ‘Booster’ stocks at the same time through Core stocks build a stable foundation to withstand economic and market down turns and recover faster. Superstars Multicap enables you to build your portfolio using multiple methods.

Superstars 100 Multicap helps you build a strong portfolio using multiple methods

  1. Helps you invest your current surplus in the “Best stocks to Buy today”.
  2. You can invest your regular monthly savings in a recommended set of Superstar stocks
  3. You will receive buy and sell recommendation on stocks from the coverage of 100 stocks. Our Buy list is concise and comprehensive; not just a long list of possibilities, creating confusion and defeating the purpose of advice. You can also invest in other opportunities from the coverage using the research available to you.
  4. Take informed decisions using the Moneyworks4me Platform. This helps you stay on top of your investments, stay invested for the long term which is key to success in investing.
  5. Get Booster stocks recommendations (typically mid and small cap) that help you enhance your returns. Booster stocks tend to report higher growth or are available at deep discount which leads to higher returns, albeit with higher volatility. You get sell recommendations when these are unlikely to enhance your portfolio returns any further

Investors often focus on price rather than looking at upside potential. We always suggest making decision based on upside potential of an opportunity set. Our Upside Potential is evaluated based on current price. You may have missed the stock at Rs. 100 but even at Rs. 200 the same stock might be offering ‘More than 15% CAGR’ or ‘10-15% CAGR’. Instead of worrying about buying high, focus on upside potential even from the current price on fresh investment. Upside Potential is given for all stocks that we cover and it is on the basis of next 5 years. Remember this is not a precise tool, but surely a very good elimination process.

  1. A stock showing less than 6% CAGR over 5 years must be definitely avoided for fresh/additional purchase, while it might be fine to hold on small allocation for positive surprises.
  2. A stock showing more than 10-15% CAGR and More than 15% CAGR can be considered for new purchases. If now every stock, aggregate portfolio can deliver this level of return.

Investing is a probabilistic field where you win or lose with no guaranteed outcome. Probabilistically, if you own a portfolio of good quality stocks, bought at reasonable prices and held for long term it is fair to assume you will definitely profit from stock investing.

Historically we had 85% calls turned into profits and 70% calls beat Index return. Investing is very rewarding as the calls that deliver positive returns ranged from 100-800% returns more than compensate for losses of 10-30-50%. Winners far FAR outweigh losers. So one has to consciously avoid looking at individual stock performance and focus on portfolio returns.

Focus on long term: Equity returns are erratic; do not get impatient in down years. Even if you invested just before correction (it can happen because no one can anticipate correction) stick with equity for 3 years minimum. Add more in form of SIP during correction phase with whatever amount you can afford and lower your purchase cost. Markets tend to recover eventually which will recover your older investments and also earn handsome returns on investments made during correction.

Diversify: Most investors do not diversify adequately, instead concentrate in just 3-4 favourite stocks. Future is uncertain and you do not have all the information today. Do not leave investing to luck and get hurt concentrating in few stocks. Diversify as instructed, upto Maximum recommended allocation. While there are no guarantees on individual stocks, portfolio of stocks will deliver very good returns over time.

Ensure you act on our calls: It is not possible to develop high confidence immediately on BUY recommendation; buy the stock partially and add more, upto recommended allocation, as your understanding improves. If you miss any big winner, you will start lagging our overall performance.

Use only surplus available for 5 years+: Do not invest funds that you may need before 5 years. It is true that stocks will reward in 3 out of 4 years, but one bad year in stock market should not coincide with your goal that will make you sell your investments at loss. Set aside funds for short term goals and emergency in ultra-safe assets like Fixed Deposits or Liquid Funds.

Superstars 200 Multicap enables you to take informed decisions to build and manage your portfolio with a mix of carefully selected large, mid and small cap stocks. Superstar Multicap approach to portfolio enables you to earn enhanced returns over long term through ‘Booster’ stocks at the same time through Core stocks build a stable foundation to withstand economic and market down turns and recover faster.

Superstars 200 Multicap helps you build a strong portfolio using multiple methods

  1. Helps you invest your current surplus in the “Best stocks to Buy today”.
  2. You can invest your regular monthly savings in a recommended set of Superstar stocks
  3. You will receive buy and sell recommendation on stocks from the coverage universe of 200 stocks. Our Buy list is concise and comprehensive; not just a long list of possibilities, creating confusion and defeating the purpose of advice. You can also invest in other opportunities from the coverage using the research available to you.
  4. Take informed decisions using the Moneyworks4me Platform. This helps you stay on top of your investments, stay invested for the long term which is key to success in investing.
  5. Get Booster stocks recommendations (typically mid and small cap) that help you enhance your returns. Booster stocks tend to report higher growth or are available at deep discount which leads to higher returns, albeit with higher volatility. You get sell recommendations when these are unlikely to enhance your portfolio returns any further
  6. Superstars 200 can access thematic investing portfolio which have megatrend backing the theme to enhance returns. It includes stocks that are close to buy zone and in analyst’s watchlist. By conducting your own research on that list, you can select stocks for your satellite portfolio or do an SIP.
  7. Superstars 200 can come with Portfolio Optimizer which deep dives into your portfolio to prune it, reshuffle it with stocks that are worth holding on and replace the others with our recommended stocks today.

The portfolio will comprise of mix of stable companies with high profitability and companies that are at the cusp of upcycle with strong medium term prospects. Most of the companies will be high quality when measured in Return on Capital Employed and high free cash flows. We do not participate in highly cyclical sectors like mining, metals or commodities as they do not deliver consistent returns.

At MoneyWorks4me, we believe that multi-cap approach, mix of Core and Booster stocks, helps to achieve consistent performance with relatively less volatility. There is no point investing in an asset that is so volatile and inconsistent that you cannot stay invested in it to realize those high returns.

A mix of Core and Booster stocks helps you stay invested and recover faster from correction with help Core stocks and realise healthy returns.

Thematic portfolio will include 10-15 themes and more depending on identifying new mega-trends. You can simply decide how much money you will like to deploy in a particular theme and it will calculate how much quantity to buy in each stock idea. Thematic investing is risky so do not exceed 20% of portfolio in theme investing.
In Portfolio Optimizer our analysts review your portfolio and provide insights on reshuffling or tweaking allocation to reduce risk or improve return potential of your portfolio.
Investors may have gone overboard on just few stocks or accumulated 50-100s of stocks over time from several sources. If these are liquid stocks Portfolio Optimizer will give a review of individual companies and share risks involved. This will help you streamline your portfolio to manageable 20-30 stocks so that you can stay top of the things and act decisively on our recommendations going forward.