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Thursday, September 15, 2011

The Sensex Fool’s Four stocks

This is a sequel to last Thursday’s post: Fool’s Four stock investment strategy. Before proceeding further, let me thank readers Googol, Purnendu and Rishi for providing me with their lists.

There are a few stocks common in their lists with mine, but there are differences due to changes in current market prices, adjustments for split/bonus and calculation of dividends. I have checked the list to the extent possible, without turning it into a research project. But there may be errors in my list as well.

The point to note is that the stocks that make the list – with one notable exception – have under-performed the Sensex by various degrees. That is the whole idea behind the Fool’s Four strategy. Without further ado, here are the Sensex Fool’s Four stocks:

  1. NTPC
  2. Jaiprakash Associates
  3. ITC
  4. ONGC
  5. Wipro
  6. Tata Steel

Why 6 stocks? Well, if you read the previous post, you will know that the stock ranked 1 – viz. NTPC - is supposed to be dropped from the list. That leaves 5 stocks. Regular readers may be aware that I am biased against PSU stocks because the government treats them as ‘free ATMs’ and run them to the ground. That eliminates ONGC from my list.

Given below are the one year closing charts of the remaining four – compared with the Sensex (in green):-

Jaiprakash Associates


Jaiprakash Associates has been a significant underperformer for the past one year, and it isn’t a surprise that it is at the top of the list. The company’s ambitions have far exceeded its execution capabilities. The huge debt burden is a millstone around its neck. Since it has fallen so much, the chances are better for a higher percentage gain when the market eventually turns around.



ITC is the odd-one-out of this list. It was a market performer till Feb ‘11, but has significantly outperformed the Sensex from Mar ‘11 onwards. The special centenary dividend boosted the dividend yield. The dividend is unlikely to be repeated next year. But this is a great stock to own – even if it wasn’t on the list.



Wipro had outperformed the Sensex till mid-Jul ‘11. It is the last two months that haven’t gone well. There are management issues that haven’t yet been sorted out to the market’s satisfaction. Of late, it has fallen behind aggressive competitors like Cognizant and HCL Tech. But it is a good company and may fight back.

Tata Steel


Like Wipro, Tata Steel has underperformed the Sensex in the last two months. It is the lowest cost integrated steel maker in India and extremely well-managed. The Corus integration is still a work-in-progress, and the real benefits of the acquisition may be a couple of years away. But I have no doubts that the current problems in Europe will be overcome, and the company’s bottom line will significantly improve.

The Fool’s Four strategy suggests that you invest equal amounts of money in all four stocks, and make any adjustments only after one year. Will the strategy work? There is only one way to find out – by investing. Or, you can opt out by only investing ‘on paper’ and check back after one year.


Jasi said...

Now that is see the list, I still can't believe one can mechanically put the money at stake without evaluating fundamentals.
But I guess it does work! Believe it or not!

Jasi said...

A couple of queries more ...
1) By not considering ONGC due to any reason, are we not introducing emotions (intelligence) into what is meant to be largely a mechanical (fools) system?
2) Is this list in a preferential order as well? So lets say I dont have the money to put into all 4. Can I choose top 2 may be?

Subhankar said...

The Fool's Four strategy is for investors who haven't yet developed stock-picking skills - but are interested in buying large-cap stocks.

The order of stocks is dictated by the strategy. You are at liberty to buy - or refrain from buying - any or all the stocks.