Why do most equity investors fail?
And how to avoid it?

FAQs: Omega

  • 1.What are the assets available for a retail investor?

    • 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.
  • 2. I invest only in Fixed /Recurring Deposit; how do I know that the MoneyWorks4me Way of investing is right for me?

    • 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.
  • 3. What is the MoneyWorks4me Way of Investing?

    • 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.
  • 4. How is this done?

    • 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.
  • 5. How does MoneyWorks4me know when the market is over or under-valued?

    • 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.
  • 6. Which products does MoneyWorks4me advice to invest?

    • Based on opportunity we would recommend investing in:
      1. 1. Liquid Fund
      2. 2. Index Fund
      3. 3. Select Quality Stocks
      4. 4. Equity Mutual Funds
      5. 5. Gold ETF
  • 7. What is a Liquid Fund?

    • 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.
  • 8. What is an Index Fund?

    • 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
  • 9. Why not just put all the money in the Index Fund?

    • 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.
  • 10. I have a sizeable portfolio but I also save good money every month. How will MoneyWorks4me Plans work for me?

    • 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.
  • 11. My current monthly savings are small compared to my portfolio. How should I manage this?

    • 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.
  • 12. What are risk-adjusted returns? Why MoneyWorks4me insists on the same?

    • 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.
  • 13. Does timing the market work?

    • 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.
  • 14. I have a significantly large amount saved. Is there a right time to shift it to the Moneyworks4me Way of Investing?

    • 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.
  • 15. How is the MoneyWorks4me Way of Investing better than doing an SIP in Equity Mutual Funds?

    • 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.
  • 16. What if I need money suddenly?

    • 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.
  • 17. What is a Mutual Fund?

    • 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.
  • 18. How does MoneyWorks4me select the Mutual Fund that it recommends?

    • 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.
  • 19. How is the MoneyWorks4me Way of Investing different from a Mutual Fund-Robo Advisory?

    • 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
  • 20. How do you lower the risk involved in Direct Equity Investing?

    • We consider the primary risk in equity is making a permanent loss of capital. Following are three levels of how we reduce risk:
      1. 1. First, we select only best quality stocks after running the stock through our 10Year X-Ray.
      2. 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. 3. Third, we recommend diversifying portfolio in 15-18 stocks. This reduces business specific risks and eliminates risks to a large extent.
  • 21. How does MoneyWorks4me arrive at the MRP of a stock?

    • 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.
  • 22. How is MoneyWorks4me MRP different from the Target Price given by Broking Houses?

    • 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.
  • 23. How does the systematic tranche-wise investment in a stock work?

    • 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.

FAQs: Superstars

  • 1. What should be my goal when investing in stocks?

    • Your goal should be to build a wealth-creating portfolio. A portfolio of very strong and reasonably diversified stocks; all purchased at attractive prices so that you get excellent returns over the long run.
  • 2. How many stocks do I ideally hold in my portfolio?

    • Your portfolio should not contain less than 7 stocks and not more than 18 stocks depending on your portfolio size. Too few increases risk and too many reduce returns. It is good to have some cash in your portfolio so that you can act on very good opportunities when they come.
  • 3. How do I select stocks to add to my portfolio?

    • You should also chose stocks from different sectors eg BFSI, IT, FMCG, etc and not be over invested in only one sector. Simple rule 3 sectors and 7 stocks are minimum, 6 sectors and 18 stocks is maximum. Do not go after every opportunity in the market.

      Make sure you invest mostly in Green colour-coded companies and have moderate exposure to Orange colour-code companies. To find out the current opportunities go to the Homepage and click on BUY tab.
  • 4. How much of a particular stock should I buy?

    • Look at the Right Allocation section of the Decision Maker. For every stock we recommend maximum allocation in terms of percentage of your portfolio. However, you buy this in a phased manner (refer Question 6)
  • 5. How do I calculate my portfolio size for this allocation?

    • Go to the Portfolio Builder. You will be able to see all our signals and recommended allocation. You will see your portfolio and allocation in each stock entered in Bought List. This will help you in making portfolio level decisions.
  • 6. When do I buy and how much?

    • To take action you need to see the Right allocation section of the Decision Maker.

      We have implemented ‘real’ systematic investment plan (SIP) for every stock in your plan. You can see this by clicking the Price Chart.

      This plan tells you that you should buy and sell a stock in tranches (slices).It suggest investing 20% of the max allocation at Rs. 882-971, additional 30% taking the total invested to 50% at Rs. 794-882 and so on. This will ensure you avail of opportunities as it arises and still maintain a very attractive average buying price. Similarly selling is suggested in 3 tranches to ensure great returns without carrying the risk of losing the opportunity to book profits

  • 7. How many calls does MoneyWorks4me generate every year?

    • In our model, calls or alerts are generated as and when stocks prices move to certain levels. However, these are doubly checked by our analyst before they are released. In some cases we may delay buying or selling actions if it is merited. Therefore 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. We do not give Buy calls forcibly. We prefer that you wait with cash to buy with conviction when opportunities come. Let’s assume you have portfolio of 5 lakhs and you have invested just 3 lakhs, in that case hold cash of 2 lakhs. Do not be fully invested in the market if there are no opportunities.
  • 8. Do all calls given by MoneyWorks4me perform well?

    • To a large extent Buy signals do perform, but one or two may not go as expected and may be a bad call in retrospect. So we insist you build your portfolio as suggested above and not concentrate your portfolio in only a few stocks chosen by you. Diversification helps overall portfolio to grow despite of one or two losers. You will be able to track all our Buy/Sell triggers and percentage allocation in Portfolio Builder section alongside your portfolio pulled from Bought List.

  • 9. I had invested in XXX Ltd at average buying price of Rs. XX, it is currently down by 10-15%. What should I do, I am really worried?

    • Our analysts are constantly monitoring the stocks. We will give signal what to do with the stock. If not, feel free to call us to ask the future course of action. Do not act on your own, our experts will help you. Since we are keeping overall portfolio view, we will not be affected by a correction in any particular stock. The other stocks in your portfolio will take care of losses, if any. Your goal should be increasing entire portfolio size.
  • 10. I have invested in XXX stock as recommended by MoneyWorks4me. It has neither gone up nor down. What should I do?

    • We give our signals based on what price it will command five years hence. So, it may take at least 12-24 months for the stocks to perform. Few stocks would rise every quarter and few will rise only after some anticipated event. You should hold the stock and ignore short term volatility in the stock.
  • 11. I am currently fully invested and I receive a Buy signal from MoneyWorks4me. What should I do?

    • You need to check whether you have any large exposure to a particular stock or Orange/Red colour stock.

      For eg. let’s say, you have 13% of your portfolio in ABC Ltd. You should partially sell the stock to reduce the exposure to this particular company and invest in new stock, provided you do not diversify beyond 18-20 stocks. Similarly, you should reduce your exposure to Orange/Red colour stock and invest in Green colour stock.

      For queries, call us at (+91)-20-67258333 or mail besafe@moneyworks4me.com

  • 12. How to use Upside potential for making decisions?

    • We always suggest making decision based on upside potential of an opportunity set. While our MRP and discounted price help you gauge which stocks are undervalued, they do not help adequately address upside potential.

      Upside Potential will tell you our estimate of upside of a particular stock at current price. Upside Potential is given for all stocks that we cover and it is calculated for next 3 years. Remember this is not a precise tool but surely a very good elimination process.

      1. 1. A stock showing less than 6% CAGR over 3 years must be definitely avoided for fresh/additional purchase, while it might be fine to hold.
      2. 2. A stock showing more than 10-15% CAGR and More than 15% CAGR can be considered for new purchases.
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