Factors to Consider When Evaluating Company Management

Most investors realize that it's important for a company to have a good management team. 

The problem is that evaluating management is difficult. So many aspects of the job are intangible. 

It's clear that investors can't always be sure of a company by only poring over financial statements.

Read more at:
https://www.investopedia.com/articles/02/062602.asp

Investment Strategies To Learn Before Trading

The best thing about investment strategies is that they’re flexible. If you choose one and it doesn’t suit your risk tolerance or schedule, you can certainly make changes. 

But be forewarned: doing so can be expensive. Every purchase carries a fee. More importantly, selling assets can create a realized capital gain. These gains are taxable and therefore expensive.

Here, we look at four common investing strategies that suit most investors.

Read more at:
https://www.investopedia.com/investing/investing-strategies/

The Art of Selling a Losing Position

Your stock is losing value. You want to sell, but you can't decide in favor of selling now, before further losses, or later when losses may or may not be larger. 

All you know is that you want to offload your holdings and preserve your capital and reinvest the money in a more profitable security. 

In a perfect world, you'd always achieve this aim and sell at the right time. Unfortunately, it isn't that easy in real life.

Read more at:
https://www.investopedia.com/investing/selling-a-losing-stock/

Training your Mind in Volatile Markets

Volatility in the stock market can be counter-intuitive. Bull markets aren’t typically filled with huge up days. Instead, rising markets tend to experience a slow and methodical rise higher. 

The best up days are usually seen in the same market environments as the worst down days, which occur during down-trending, volatile markets.

...loss aversion is a big reason why investors tend to make more emotionally-charged decisions when stocks are falling, which causes both panic selling and panic buying during a market downtrend.

Read more at:
https://www.investopedia.com/news/training-your-mind-volatile-markets/

Why You Should Never Short a Stock

If you've ever lost money on a stock, you've probably wondered if there's a way to make money when stocks fall. There is, and it's called short selling.

Even though it seems to be the perfect strategy for capitalizing on declining stock prices, it comes with even more risk than buying stocks the traditional way.

Read more at: 
https://www.investopedia.com/articles/investing/121415/why-you-should-never-short-stock.asp

A Beginner's Guide to Growth Investing

"People have many different styles and tastes when it comes to money, but making your money grow is typically considered the most fundamental investment objective.

The best way to accomplish this goal will vary according to factors such as the investor's risk tolerance and time horizon.

However, there are some key principles and techniques that are applicable for many different types of investors and growth strategies."

Read more at:
https://www.investopedia.com/articles/basics/13/introduction-to-growth-investing.asp

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A 4-Step Guide to Growth Investing

Market Timing Tips Every Investor Should Know

It's a long-held belief that market timing and investing are mutually exclusive, but the two strategies work well together in producing solid returns over a number of years. 

The effort requires a step back from the buy-and-hold mindset that characterizes modern investing and adding technical principles that assist entry timing, position management and, if needed, early profit taking.

This set of technical tips can guide your investments through a gauntlet of modern market dangers:

https://www.investopedia.com/articles/active-trading/043015/market-timing-tips-rules-every-investor-should-know.asp

3 tricks billionaires use to make their money work for them

You don't need a billion-dollar brokerage account to invest like a billionaire. 

While some of their investing strategies that are obviously out of reach to most people - such as acquiring a controlling stake in a company - there are common billionaire investment techniques that anyone can use.

Here are three that can amplify your returns.

Read more at:
https://money.cnn.com/2018/08/01/pf/invest-like-a-billionaire/index.html

5 Factors to Consider Before Picking Stocks

"Although it must be clear that what happens to prices of stocks over short periods of time is largely a reflection of changes in investor psychology, there is more than enough information readily available to assist in the process of identifying issues that have a better-than-average chance of outperforming the market. 

Understanding the importance of this information is the difference between the astute investor and one who is awash in incomprehensible data."

Read more at:
https://www.investopedia.com/advisor-network/articles/5-factors-consider-picking-stocks/

Behavioral Bias: Cognitive Versus Emotional Bias in Investing

"Everybody has biases. We make judgments about people, opportunities, government policies and, of course, the markets. When we analyze our world without knowing about these biases, we put our observations through a number of filters manufactured by our experiences, and we're not just talking about stock screeners.

We're talking about the filters we put our decisions through that sometimes make them biased. Day-to-day activities are primarily driven by behavioral patterns. The same behavioral patterns also guide investing actions.

It’s impossible to be unbiased in our decision-making. However, we can mitigate those biases by identifying and creating trading and investing rules – but only if we know what to look for."

Read more here.

4 ways to predict stock market performance

"There are two prices that are critical for any investor to know: the current price of the investment he or she owns, or plans to own, and its future selling price. Despite this, investors are constantly reviewing past pricing history and using it to influence their future investment decisions. 

Some investors won't buy a stock or index that has risen too sharply, because they assume it's due for a correction, while other investors avoid a falling stock because they fear it will continue to deteriorate.

Does academic evidence support these types of predictions, based on recent pricing? In this article, we'll look at four different views of the market and learn more about the associated academic research that supports each view. The conclusions will help you better understand how the market functions, and perhaps eliminate some of your own biases."

Read more here.

The Art of Cutting Your Losses

One of the most enduring sayings on Wall Street is "Cut your losses short and let your winners run." Sage advice, but many investors still appear to do the opposite, selling stocks after a small gain only to watch them head higher, or holding a stock with a small loss, only to see it worsen.

No one will deliberately buy a stock they believe will go down in price and be worth less than what they paid for it. However, buying stocks that drop in value is inherent to investing. 

The objective, therefore, is not to avoid losses, but to minimize the losses. Realizing a capital loss before it gets out of hand separates successful investors from the rest.

Read more here.

Warren Buffett and Ray Dalio agree on what to do when the stock market tanks

"The money is made in investments by investing and by owning good companies for long periods of time." - Warren Buffett

"It's when you're not scared you probably want to sell, and when you are scared, you probably want to buy." - Ray Dalio

Read more from this recent cnbc.com article.

Are you a bull or a bear? Why not both?

Most small investors thrive in bull markets. They feel comfortable by buying low and selling high. The adventurous buy high and sell higher. The sophisticated buy more on small corrections to support levels. They make the trend their friend.

All their best laid plans go haywire when bears attack. Panic sets in as portfolio values go crashing. Stock prices fall below 'buy' prices. Some book losses and get out, promising never to come back again.

Others make a bad problem worse. They start 'averaging down' - buying more at lower prices. When the stock shows no sign of recovering, they lose heart and book huge losses.

What happened to making the trend a friend? The analytical side of the brain gets scrambled when money is rapidly going down the drain. The only thought is 'take the money and run'.

The smart ones - they become that way after losing money in bear markets - know that you can be a bull AND a bear depending on the trend. 'Buy the dips' when the trend is up. 'Sell on rise' when the trend is down.

The 'buy the dips' is the easier strategy to follow. No wonder small investors prefer it. You keep buying as a stock's price moves up. No selling is involved - till you decide to book profits when upward target is met.

'Sell on rise' is harder, and requires practice to succeed. For every sell, you need to buy back at a lower price. And then repeat the process - till the correction ends. Deciding when to buy back requires skill.

Studying long-term technical chart patterns to identify support and resistance levels can prove invaluable for identifying entry and exit points. 

Sometimes stocks get into consolidation phases that can last months. What to do then? If the consolidation range is reasonably wide - say, 40-50 points instead of 10-15 points - draw a line through the middle of the range. 'Buy the dips' below the mid-point, 'sell on rise' above the mid-point.

For longer term investors, it is better to be a crocodile or a python (both have a lot of patience) instead of a bull or a bear during consolidation phases. Just wait patiently for a price breakout in either direction.

The bottom is falling out of the Indian stock market; should you sell now?

The bottom seems to be falling out of the Indian stock market. Re-imposition of LTCG tax (from Apr 1 '18) has badly dented bullish sentiment. Now, imposition of import tariffs by the US President has dented bullish sentiment in global stock markets.

Some experts are suggesting that this 'discount sale' in the Indian stock market won't last long, and investors should use the correction to buy. Others are suggesting that it is not a good idea to try and 'catch a falling knife'.

Small investors are in a quandary. Portfolio values are getting depleted on a daily basis. Is it better to sell and run? Or, hold and wait out the correction?

In a recent article in investopedia.com, Andrew Beattie has advised when to sell and when to hold. Read the article here.

Related Post
When should you 'hold' and When should you 'fold' a stock?

Should you 'average' down during a correction?

Interactions with small investors over the years throw up the same questions repeatedly. Here is a recent example:

"I bought 100 shares at 60. Bought 100 more at 80. The stock moved up to 100, but I didn't book profit. Now it has breached the stop-loss at 75 and fallen to 65. I am still holding. Can I 'average' now?"

Two mistakes have already been made: (1) not booking partial profits at 100; (2) not selling when the stop-loss was breached. Now the investor wants to 'correct' the two mistakes by committing a third - trying to buy a stock on the way down.

When a stock is correcting from a top, one needs to make an assessment of both the short term and long term trends. If the short term and long term trends are down, there is nothing to be gained and much to lose by 'averaging'.

There are no supports that can hold when bears go on the rampage. Better to take it on the chin and book a loss quickly instead of waiting for the stock to regain your 'buy' price. (Remember that the stock doesn't know or care about your 'buy' price.)

If the short term trend is down but the long term trend is up - in other words, a correction in a long term bull market - then 'averaging' can make some sense. 

However, the smart move will be to wait for the correction to be over and buy when the stock resumes its up move. This is easier said than done.

One has to be very savvy about support and resistance levels to decide when the correction is over and whether the resumption of the up move will be followed by another down leg or not.

That was the long answer to the question.

The short answer is: Never 'average' down. 'Averaging' on the way up is a better strategy.

Strategies to Volatility-Proof Your Portfolio

Stock markets worldwide have become quite volatile of late. The first sign of correction has sent many small investors scampering towards the exit door, thinking worse is to follow.

Others have jumped into the market in search of bargains, thinking that markets can't fall much further and the time to buy is now.

Investors who have experienced previous corrective moves and have longer-term views are probably using the market upheaval to rebalance their portfolios. 

A recent article in investopedia.com has suggested strategies for making your portfolio volatility-proof. Read it here.

Sunday musings: Lessons for small investors from Vishwamitra's dalliance with Menaka

Once upon a time, King Kaushika was touring his kingdom with a large army when he chanced upon the ashrama (hermitage) of Rishi (Sage) Vashishtha near a forest.

The Rishi greeted the King and offered his hospitality. Kaushika declined the offer because he thought it will be a great financial strain for Vashishtha to feed such a large army.

Vashishtha insisted and said it would not be a problem as he owned a wish-fulfilling (kamadhenu) cow, Sabala. Sure enough, Sabala arranged a grand feast which greatly pleased the King.

But a King won't be a King unless he coveted the possession of others. Kaushika felt that Sabala will be of more use to a King than a Sage. So, he offered ample monetary rewards to Vashishtha in exchange for Sabala.

The Sage politely refused the offer, which angered the King. He ordered his army to forcibly seize Sabala, at which point Sabala mournfully requested Vashishtha not to part with her.

Vashishtha suggested that Sabala raise an army of her own and defeat King Kaushika's soldiers - which she promptly did.

Kaushika decided to perform spiritual penance for 12 years. That pleased Lord Shiva, who granted him a wish. Being a King, who was humiliated by a humble Sage, Kaushika wanted the best weaponry that Lord Shiva could offer.

An emboldened Kaushika went on the attack and hurled his newly acquired divine weaponry at Vashishtha. But to no avail. Vashishtha's superior spiritual (yogic) powers repelled the attack easily.

Kaushika realised that physical powers were no match for spiritual powers. This time he went ahead with a more serious effort at penance to become the spiritual equal of Vashishtha.

In the process, he became Sage Vishwamitra. Lord Indra, King of Heaven, was disturbed by the severity of Vishwamitra's meditation and the yogic powers he might attain, and sent the beautiful apsara (celestial nymph) Menaka to seduce him.

Menaka did as she was instructed. Vishwamitra's spiritual resolve was overcome by the sheer beauty of Menaka. Their dalliance resulted in the birth of a daughter. 

Unfortunately, Menaka revealed to Vishwamitra the real reason why she had descended from Heaven. Vishwamitra was enraged by Lord Indra's devious move. He banished Menaka, abandoned their daughter and returned to his meditations.

[The daughter - named Shakuntala - was raised in Sage Kanva's hermitage. She later married King Dushyanta. Their child was called Bharata, after whom India was originally named.]

Moral of the story? There are two:

1. Thou shalt not covet others' possessions - which can be paraphrased as 'Keeping up with the Joneses'. It is a futile activity. Be happy with what you own. Greed isn't always good - particularly near a stock market top.
2. Dalliances should be avoided - regardless of the attractiveness of the opportunity.

The second moral is of particular importance to small investors. Remain steadfast in your discipline of maintaining a financial plan and following an asset allocation plan. Financial powers will follow inevitably albeit gradually.

Let not the Menaka's of the investment world - penny stocks, F&O trading, commodities trading, forex trading - lure you. Behind these Menaka's are the devious moves of the Lords (i.e. Professional Traders) of the stock/commodities/forex markets - designed to test your financial resolve.

Portfolio Management Tips For Young Investors

Too many young people rarely, or never, invest for their retirement years. Some distant date, 40 or so years in the future, is hard to imagine. However, without investments to supplement retirement income, if any, retirees will have a difficult time paying for life's necessities.

Smart, disciplined, regular investment in a portfolio of diverse holdings, can yield good long-term returns for retirement and provide additional income throughout an investor's working life.

Read more at: 

https://www.investopedia.com/articles/younginvestors/12/portfolio-management-tips-young-investors.asp

What a Swiss Pianist taught me about Contrarian Thinking

It was a pleasure and privilege to attend a solo piano concert by Swiss pianist Nik Baertsch at the Calcutta School of Music on the Saturday preceding Durga Puja (the biggest religious and cultural festival in the state of West Bengal - and now celebrated all over the world by NRIs).

A sparse and motley group - ranging from young music students to very senior citizens - were in attendance. The pianist set the tone for the evening by stating that his performance will explore the rhythmic rather than the melodic aspects of a piano.

What followed was an hour-long exploration in rhythmic sounds that can't be called music in the traditional sense of the word - because it had little harmony, almost no emotion and was not pretty to listen to.

Having heard other (mostly European) pianists, who plucked the piano strings as well as played on the keys during their mostly melodic performances, I was interested to find out what Nik Baertsch would do differently. 

He turned the grand piano into a percussion instrument - drumming up a steady beat on the keyboard with both hands; occasionally running his fingers across the strings; getting up from his seat to thump on the piano strings with both hands; using implements like sticks and mallets to strike various metal and wooden parts inside the piano; playing an almost melodic part on the keyboard. It was a dynamic and spellbinding performance, completely different from anything I have ever heard before.

Nik is obviously a very accomplished and well-trained pianist. Yet he chose a unique way to explore and expand the sonic possibilities of a piano. That got me thinking about the way people invest.

Most small investors prefer to take the easy way forward by following the herd. They buy the stocks that well-known investors or funds are buying, or the ones that are recommended by business papers or TV channels.

Developing a contrarian attitude doesn't mean doing the opposite of what others are doing. It means thinking differently and looking beyond the here and now to get an edge in the market.

For example? The recent pronouncement by Nitin Gadkari that automakers will be 'bulldozed' to replace petrol and diesel vehicles with electric vehicles by 2030 sent analysts scurrying to identify the likely winners in the electric vehicles and ancilliary space.

Not surprisingly, names like M&M, Exide and Amara Raja were being recommended. As if it was a no-brainer.

A little Google search will tell you that the largest EV maker in terms of sales is Renault-Nissan (not Tesla). Renault-Nissan is already present in India. Tesla is waiting to get in. If either or both start producing EVs in India, M&M's EV dreams will lay in tatters.

Who supplies batteries to Renault-Nissan and Tesla EVs? LG-Chem and Panasonic/Sanyo respectively. Both LG and Panasonic are present in India already. If EV sales start picking up, will batteries be supplied by Exide and Amara Raja or by LG and Panasonic?

It is this kind of thinking that will help you to catch the winners rather than the losers in the EV space. 

(If you do catch any of the EV winners, you needn't thank me. Thank Swiss pianist Nik Baertsch instead.)