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Showing posts with label Investment Principles. Show all posts
Showing posts with label Investment Principles. Show all posts

Tuesday, October 5, 2010

Volatility in Stock Market

Although market volatility may be unnerving to investors, there is nothing new about equity market volatility and declines. But trying to time the market by getting in and out during these periods does not make any real sense.

Peter Lynch, portfolio manager of Fidelity's Magellan Fund from May 1977 to May 1990, stated that over the past 96 years there have been 53 occasions when the US market has fallen at least 10%.

"It happens about once every two years. However, over the longer term ­ 10, 20 or 30 years ­ the market is very predictable!"

"You must be prepared to sit through the fluctuations, and the only thing that's going to keep you from bailing at the wrong times is a belief in the company's true value."

It is important to remember that past performance is no guarantee of future returns. However, sitting tight could yield big returns.

Market declines often represent attractive buying opportunities and it is important to focus on the underlying fundamentals.

We believes that over the coming years, markets will be driven by individual corporate fundamentals, and therefore a stock-picking approach should be especially rewarding. We recommend building portfolios by selecting stocks based on fundamental financial indicators rather than on short-term industry or market trends.

The world is an ever-changing place, and volatility is the nature of equity markets. Investors who maintain a long-term outlook for their investments have an advantage over those who do not.

Successful long-term investors understand that the market will always experience periods of decline, and that although stock investments are considered riskier, history has shown that stocks have a record of outperforming more conservative investments over longer time periods.

In the past, equity investments have offered the highest returns. Ultimately, the key to surviving market volatility is a long-term approach and diversification. A focus on balance sheets, cash flows, and earnings reveals a company's true potential for long-term growth.

Sticking to an asset allocation strategy, and periodic rebalancing of your portfolio "forces you" to sell high and buy low. Investing for the long-term, patient investors are always rewarded!

Monday, September 6, 2010

Stock Investing and The Age Factor

How do you decide how much of your investments to put into stocks and how much to put into other types of investments?

Before deciding how much to invest in each, a little financial planning and self-examination is necessary.

Basically, there are five things you need to consider when trying to decide how much to invest in stocks and what to tuck away in other investments:


1. Your Age

2. The Consequences for Your Retirement Planning

3. Your Personal Comfort Level


5. Your Overall Financial Goals

You start by placing your age into a formula which tells you what percentage of your long-term investment money should be invested in aggressive growth vehicles such as stocks.

It simply is:

100 - Your Age = The percent of your investment money that should be in aggressive growth investments.

This formula is straight forward and makes logical sense. When you're young, you have time on your side. If one of your investments goes in the tank, it may be upsetting at first.

However, you have many years before your retirement to rebuild your fortune before you actually need to touch the money. The main risk you have to overcome when you are young is not losing your fortune, but not growing your fortune fast enough.

And this formula doesn't lie!

Clearly, when you grow older, more of your assets should be invested into conservative, income-producing investments such as bonds.

That's because when you're 50 years old you have a lot less time in the job market to rebuild your retirement fortune than when you're say 25 year old.

This formula generally applies to money earmarked for retirement. Or at least money that you won't touch for 7 years or more.

Investing in good fundamental stocks with long term can deliver huge returns, which proves to be far superior in terms of returns when compared to other investment items like fixed deposits, bonds, precious metals like gold & silver and ofcourse real estate.

Are you a serious investor and want to build your equity portfolio with regular investments? Subscribe to Saral Gyan - Hidden Gems (Unexplored Small Cap Stocks Research Reports) & Value Picks (Reports of Mid Cap Stocks with Plenty of Upside Potential) to grow your capital by investing in stock market. Subscribe Today!

Tuesday, August 31, 2010

Investment Analysis

The more closely you examine your decision making processes, the better able you will be to improve them.

One great way is to record your thoughts, predictions and rationale, and later revisit them to see if and why you were wrong, so that you won't make the same mistake twice.

You may want to consider the elements below when you're thinking about buying or selling. It helps clarify the decision, it helps with record keeping and it helps with learning. You may want to change them to suit your own needs, or come up with totally different ones.


Remember that these elements are not intended to be comprehensive, they are just to give you ideas.

You may also want to analyze other aspects of the company. Also periodically check the transactions you decided not to do, to see if you made the right choice and why.

ANALYSIS

1. Company Information

2. Does this investment fit into your overall strategy?

3. Does this purchase make sense given the rest of your portfolio?

4. What is this stock worth?

5. What is the stock's price?

6. What is the downside risk of this investment?

7. What could go wrong?

8. What is the upside potential?

9. What news, events or trends should you watch for that might affect the stock's price, how likely are they, and what would the effect be?

10. When will you sell this investment?

11. Will it be sold after a certain period of time?

12. Will it be sold when you reach a certain profit level?

13. How much?

14. Why that amount?

15. What percentage of your portfolio does this represent?

TRANSACTION

Once you've completed the Analysis above, if you decided to go ahead with the transaction, you will probably want to record the following information:

1. Company name and symbol

2. Date shares bought

3. Cost

4. Reason bought

5. Plan of when/why to sell

6. Date sold

7. Proceeds

8. Reason sold

9. Under what cirumstances would you buy again?

10. Gains/Losses

Periodically, you should examine the forms you've filled out to see how well you did. Put them in order, from best to worst, and see if you can discover any patterns.

Maybe your circle of competence is different than you thought; or maybe you'll find that you hold too long or not long enough.

Sunday, August 22, 2010

Retirement Investing Principles

Author Paul Grangraard, in his book, "The Grangaard Strategy -- Invest Right During Retirement," uses the Twelve Principles of 21st-Century Retirement Investing to offer readers an important new way to look at their financial affairs after they stop working.

The first three principles address some of the new realities faced by today's retirees.

Principle #1 Is "Expect to Outlive the Averages"

Since almost half of the people reaching age 65 today will live beyond an average life expectancy, it's very dangerous to use averages in your own individual planning!

Principle #2 Is "Adjust for Changing Income Needs"

Because people are living longer today, it's more important than ever to account for inflation and the possibility of fluctuating lifestyle expenses. It's simply not good enough any more to plan for a fixed amount of income throughout retirement.

Principle #3 Is "Create Dependable Income for the Rest of Your Life"

As Grangaard says early on, "When you get to retirement, you have to be prepared to replace your paycheck as soon as you stop working."

The next four principles address some of the most important overall financial concepts.

Principle #4 Is "Count on Compounding During Retirement"

Of course, compounding is key to accumulating assets for retirement, too -- but when you're living longer during retirement, it's just as important over the last 20 or 30 years of your life.

Principle #5 Is "Invest in the Right Stuff"

You need to have the right amount of money set aside in lower-risk assets to replace your paycheck, but you also need to have enough invested in growth-oriented investments to take care of your income later on. As Grangaard puts it, "You have to know how to thread the financial needle."

Principle #6 Is "Be a Long-Term Investor During Retirement"

If you decide to invest some of your assets to go after higher rates of return, you'll need to be able to manage the risk of taking a more aggressive investment posture -- and having a long-term planning horizon can really help.

Principle #7 Is "Know When to Sell"

During retirement, most people will be overall sellers of stock market investments, since they'll have to use the proceeds to generate the income they need to live on. In fact, the real value of being a long-term investor in retirement is that you'll have more time to figure out when it's a good time to sell.

The following three Principles, #8, #9 and #10, address some of the other key issues important to all retirement investors.

Principle #8 Is "Don't Let Rupee-Price-Erosion Catch You Off-Guard"

Rupee cost averaging into the stock market is great advice for younger investors, but rupee cost averaging out of the stock market can get you into a lot of trouble in retirement.

Principle #9 Is "Diversify"

Diversification is important at every stage of life, and even more so in retirement. Since you will be selling stocks periodically to get more income to live on, having a well-diversified portfolio will make it more likely that you will always have something in a good position to sell whenever you need to.

Principle #10 Is "Keep It Tax-Deferred"

Reducing income taxes is an important part of any investment strategy, and it's particularly important during retirement. You can't afford to pay taxes too soon, because you'll be giving up too much future growth - and therefore, too much future income as well.

The final two principles focus primarily on taking action:

Principle #11 Is "Have a Plan"

In fact, "The goal of effective retirement planning," says Grangaard, "is to live better during the day while sleeping better at night. Having a plan," he says, "is the key to being able to do that."

And finally,

Principle #12 Is "Take Action Now"

While Grangaard offers a lot of information, theories and strategies, there is also a practical sense of urgency and a plea for action throughout the book. "It's never too early and it's never too late to do your retirement planning," he says, and then wraps it all up by suggesting that "Most people don't plan to fail, they simply fail to plan"