This is uncertain but interesting times when the markets and Rupee are touching new lows . Fear is the all pervasive emotion hitting all the market parcticipants with investors and traders triping over each other to sell their assets . In these uncertain times , what should be our investing strategy? Should be stay away from the markets are should be stay put? Should we be buying or selling? Should we be aggressive or passive? Should we time the market? Could the market go down further?
Its these times, when a short sighted and a manic-depressive Mr.Market(as Benjamin Graham would call it) would over-react and hammer the prices down , creating great buying opportunities for long term value investors. My answer is positively inclined towards staying put and investing in the market in installments with every fall .There is no need to panic as the market has factored and discounted almost all the negatives- both domestic as well as international. It has factored in high inflation , high interest rates and domestic growth slow down on domestic front . It has also factored in US slow down , European recession,orderly and managed default for Greece etc. Only thing it has not discounted is disorderly default of Greece or any other PIIGS country or collapse of Euro . It can never disccount or factor that kind of catastrophe ever.
Yes, the market could go down further. It may probably go down by 10% further . But that probablity should never deter a long term investor as they never try to time the market . They have a horizon of atleast 3 to 5 years when they invest in solid businesses and look at medium and long term trends rather than short term trends . By the way,nobody has been able to predict or time the short term market variations with perfection till now including the biggest of investors and traders . If somebody claims to have a great vision, technology or tool to time the market in short term , he would be rolling in money instead of lecturing on electronic media or earning his money out of advises.
One should use these times of fear and uncertainty to invest in installments with every fall in the market to build up one's long term portfolio of strong businesses at discounted prices. The sensex is available at an attractive forward PE of 13-14 with respect to FY12 earnings and forward PE of 12 with respect to FY13 earnings which is at a good discount to the historic mean for foward PE of 16.
So , which are the businesses one should invest in now ? Should we go for Top down approach or bottoms up approach? Well , this is the time for bottoms up " fishing" strategy using my "Hi-Five" framework I had talked about earlier ...
The "Hi-Five principles/framework" provides the following Five criteria/filter for picking up a solid business/company
- Proxy to the Indian economy growth story or strong co-relation with Indian economy growth
- Excellent long term growth potential and durable competitive advantage ("sustainable economic moat" as Warren would call it)
- Honest & competent management - transparent ,shareholder friendly
- Strong financial track record -stable profitability,high ROE & low debt
- Available at attractive prices with good "margin of safety
Few of the stocks I am investing now and would recommend using the above mentioned principles are the following in different sectors.
Banking and Finance space - This has faced the burnt of market reaction and fear recently and hence have some solid buying opportunities like Axis Bank and Bank of Baroda. Consistent performers with > 20% ROE and >25% growth rate in last 5 years with very attractive prices/ PEs
Infrastructure space - L&T and IDFC - Solid and consistent performers with verry attractive prices/ PEs
Capital equipments/ Power space - BHEL and REC(Rural Electric Corporations) . Very strong performers with consistent growth track records(>20% CAGR) and >20% ROE . BHEL has strong balance sheet(almost debt free) and big order book( equal to almost 4 times current year revenue). REC is very strong player in power finance and has monopoly in rural power programs . You could also consider Power Grid which has huge expansion plans with virtual monopoly in transmission sector
Energy space - GAIL and Reliance Industries . GAIL has huge pipiline expansion plans with strong performance and balance sheet . Virtual monopoly on gas transmission. Entering into profitable city gas distribution in a big way. Reliance has been an underperformer for some time which makes it attractive as all the negatives have already factored in the price(<800) and it has huge cash surplus of $13 Billion which could be deployed productively.
Agriculture & rural space - Jain Irrigation and Coromandel International are very strong businesses with attractive prices and long term growth potentials .
All these players are dominant or big players in their sectors with consistent growth and profit performance , well managed companies with strong balance sheets with sustainable competitive advantages in their areas. And they are available at great prices now with respect to their instrincic value or historic PE, providing a great "margin of safety" for the value investors .
Hopefully , you will find this article interesting and useful as I have come out with the best 10 options I would invest in today's market with a long term horizon of 3-5 years. These options should be giving us atleast 20% annualized returns over a long term.
Happy reading and investing.
cheers
Amar
Its these times, when a short sighted and a manic-depressive Mr.Market(as Benjamin Graham would call it) would over-react and hammer the prices down , creating great buying opportunities for long term value investors. My answer is positively inclined towards staying put and investing in the market in installments with every fall .There is no need to panic as the market has factored and discounted almost all the negatives- both domestic as well as international. It has factored in high inflation , high interest rates and domestic growth slow down on domestic front . It has also factored in US slow down , European recession,orderly and managed default for Greece etc. Only thing it has not discounted is disorderly default of Greece or any other PIIGS country or collapse of Euro . It can never disccount or factor that kind of catastrophe ever.
Yes, the market could go down further. It may probably go down by 10% further . But that probablity should never deter a long term investor as they never try to time the market . They have a horizon of atleast 3 to 5 years when they invest in solid businesses and look at medium and long term trends rather than short term trends . By the way,nobody has been able to predict or time the short term market variations with perfection till now including the biggest of investors and traders . If somebody claims to have a great vision, technology or tool to time the market in short term , he would be rolling in money instead of lecturing on electronic media or earning his money out of advises.
One should use these times of fear and uncertainty to invest in installments with every fall in the market to build up one's long term portfolio of strong businesses at discounted prices. The sensex is available at an attractive forward PE of 13-14 with respect to FY12 earnings and forward PE of 12 with respect to FY13 earnings which is at a good discount to the historic mean for foward PE of 16.
So , which are the businesses one should invest in now ? Should we go for Top down approach or bottoms up approach? Well , this is the time for bottoms up " fishing" strategy using my "Hi-Five" framework I had talked about earlier ...
The "Hi-Five principles/framework" provides the following Five criteria/filter for picking up a solid business/company
- Proxy to the Indian economy growth story or strong co-relation with Indian economy growth
- Excellent long term growth potential and durable competitive advantage ("sustainable economic moat" as Warren would call it)
- Honest & competent management - transparent ,shareholder friendly
- Strong financial track record -stable profitability,high ROE & low debt
- Available at attractive prices with good "margin of safety
Few of the stocks I am investing now and would recommend using the above mentioned principles are the following in different sectors.
Banking and Finance space - This has faced the burnt of market reaction and fear recently and hence have some solid buying opportunities like Axis Bank and Bank of Baroda. Consistent performers with > 20% ROE and >25% growth rate in last 5 years with very attractive prices/ PEs
Infrastructure space - L&T and IDFC - Solid and consistent performers with verry attractive prices/ PEs
Capital equipments/ Power space - BHEL and REC(Rural Electric Corporations) . Very strong performers with consistent growth track records(>20% CAGR) and >20% ROE . BHEL has strong balance sheet(almost debt free) and big order book( equal to almost 4 times current year revenue). REC is very strong player in power finance and has monopoly in rural power programs . You could also consider Power Grid which has huge expansion plans with virtual monopoly in transmission sector
Energy space - GAIL and Reliance Industries . GAIL has huge pipiline expansion plans with strong performance and balance sheet . Virtual monopoly on gas transmission. Entering into profitable city gas distribution in a big way. Reliance has been an underperformer for some time which makes it attractive as all the negatives have already factored in the price(<800) and it has huge cash surplus of $13 Billion which could be deployed productively.
Agriculture & rural space - Jain Irrigation and Coromandel International are very strong businesses with attractive prices and long term growth potentials .
All these players are dominant or big players in their sectors with consistent growth and profit performance , well managed companies with strong balance sheets with sustainable competitive advantages in their areas. And they are available at great prices now with respect to their instrincic value or historic PE, providing a great "margin of safety" for the value investors .
Hopefully , you will find this article interesting and useful as I have come out with the best 10 options I would invest in today's market with a long term horizon of 3-5 years. These options should be giving us atleast 20% annualized returns over a long term.
Happy reading and investing.
cheers
Amar
