Yes, Here let us deal with the portfolio of Mr. A again. We have seen the chart of NIFTYBEES and found the growth potential of it. Even if we done nothing after investing, it has grown at an average of 100% per year in last 7 years. But a growth of 48 times is possible only in case of a smart management skill. And I believe it is not an easy job. We have to develop our skill to understand the movement of an index with the help of Technical Tools. Let us discuss about it latter and now deal with Mr.A. Let us fix a Life span and target for the growth of Mr. A's invested fund. Let us give this investment a life span of total 5 years and aim a target of 500% growth. You know that we have diversified his portfolio in 4 different areas to minimize the risk.
Now we have very less to do with the 2 areas. i.e. Reality & Others. You can expect the fund invested in reality may increase at an average rate of in between 50% and 100%. Others like Insurance, PPF & FD will not perform more than 10% . Where you have to put your management skill more is the area of share market, Gold-ETF and Mutual Fund. And we are aiming an all over target of the fund to perform at an average of 100% per year. Now we also know that we have limitation in doing with Mutual funds and the only hope that we can do something to achieve our target is share market and little bit in GOLD-ETF. Let us discuss what and how we will do it. There are many proven ways like modern portfolio theory (MPT) to manage a portfolio which is used by the smart fund managers but the aim should be to reduce risk and maximize the gain. Well hedging of your investment is also a way of reducing the risk.
Investing in Share Market. Let us again diversify the fund here. Instead of putting all the money in to one script it is better to diversify it in different companies of different sectors. But it is not that you buy the shares of all the companies. I will not let you invest in more than 20 companies at a time and advice you to start investing your fund in 5 good companies of 5 different well performing sectors. Let us also diversify and invest the fund allocated for Mutual Funds equally divided in to 3 well performing Funds and Exchanged Traded Fund. NIFTYBEES.
Selection of Companies. There are three ways of analyzing a Company and they are Fundamental Analysis, Technical Analysis and Sentimental Analysis I prefer to select a script, index or an ETF with the help of all the above three types of analysis. In my opinion you have to select High Beta scripts of Large Cap Companies with good market weight age and with the lowest impact cost. Always select only one company from one sector which can be justified as a best performer and have a PE ratio little above than the industrial PE. When selecting stocks I always make sure that it is traded in Future & Option Segment because I believe it is very easy to hedge your investments if you do it in that way.
Fundamental Analysis . It is nothing but analyzing a company with the help of their financial status, balance sheets, Past performance, Management skill, Sectoral competitive power, their competitors ethic value of the company. One can use two basic approaches while analyzing a company fundamentally i.e. top down analysis and bottom up analysis. It is a must that you should study a script using this analysis when you are going to invest on it. But I don't think it is a must when you are just a trader of a script. Please try the following link for fundamental evaluation of scripts traded in Indian Markets.
http://www.moneycontrol.com/india/stockpricequote/computerssoftware/tataconsultancyservices/TCS
Technical Analysis. It is a type of analyzing a script based on the past performance of its price in the market. There are many technical tools available to assess it. We will discuss about the tools in future posts. You have to analysis a script technically when you are selecting it for an investment and it also useful when you want to trade with your investments.
Sentimental analysis. It is based on the the effect of the economical condition and government decisions on the company. This analysis will also help you to understand what is the sentiments of the huge market players in a script or an index. I have not yet find any particular institution teaching sentimental analysis but I am sure that one will not take much time to learn it from the market.
So let us imagine that we have selected 5 scripts and 3 Mutual Funds with an ETF to invest Mr. A's fund. I think our 50 % job is over. Now only thing we have to do is to hedging the fund invested and trading to book the profit with out coming out of your investment. We will discuss it in detail in the next post.
Even though I do intraday trades with my investments I will not tell you to become an intraday trader in the market because it is a very risky job. Here are some Charts of my today's trades with the help of some technical tools.
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