ICICI Securities is entering the primary market on Thursday 22nd March 2018, with an offer for sale (OFS) of up to 7.82 crore equity shares of Rs. 5 each by promoter ICICI Bank, in the price band of Rs. 519 to Rs. 520 per share. Representing 23.98% of the post issue paid-up share capital, ICICI Bank will rake in Rs. 4,017 crore at the upper end of the price band, which will help it partly off-set higher loss provisions. Issue is closing on Monday 26th March and listing is likely on 5th April.
ICICI Securities, a wholly owned capital market arm of ICICI Bank, offers broking (through ICICIdirect.com), investment banking, portfolio management services (PMS) and financial products distribution (mutual fund and insurance) to retail and institutional customers, through its marketing network of 200 own branches, 2,600+ branches of ICICI Bank, 4,600+ sub-brokers and independent financial associates. The technology, whether broking or mutual fund distribution is a ‘me-too’ or easily replicable, and most other full-fledged broking firms like Motilal Oswal or a discount broker such as Zerodha or many fin-tech start-ups in mutual fund distribution have similar offerings. Hence, its technological capabilities are not out-of-the-world and are simply keeping up with the changing times. Approximately 60% of income is generated through broking, 10% from investment banking, 15% from mutual fund distribution and balance through distribution fee of insurance and other products.
The company can be termed as a play on capital markets and cannot be really considered a financial powerhouse. It has lagged in tapping newer opportunities of ARC, or higher growth businesses such as home loans and consumer lifestyle financing are housed under the parent bank. Due to the operation being heavily concentrated on stock market activities, unlike some of the peers with more diversified presence, company’s results are highly cyclical and volatile in nature.
While total revenue has risen at 19% CAGR from Rs. 796 crore to Rs. 1,404 crore during FY13-17%, with higher PAT CAGR at 47% from Rs. 71 crore to Rs. 339 crore, coinciding with the broader market bull run, this growth has not been one-sided with FY16 actually witnessing 7% YoY decline in total revenue and 19% YoY drop in net profits. Thus, operating leverage is high, on either side. 9mFY18 revenue grew 31% YoY to Rs. 1,344 crore, while net profit surged 56% YoY to Rs. 399 crore, exceeding FY17 net profit of Rs. 339 crore. On an equity of Rs. 161 crore (FV Rs. 5 each), 9mFY18 EPS stood at Rs. 12.39, against FY17 EPS of Rs. 10.51. Company’s net worth stands quite low at Rs. 675 crores, translating into BVPS of Rs. 21.
Objects of Issue and Shareholding Pattern
The OFS is being undertaken only to help ICICI Bank, unlock value from its subsidiaries (after listing life insurance and general insurance business in the past 18 months). If news reports are to be believed, the bank has mandated that IPO proceeds be deposited into its account before 31-3-18, so that it can recognize the gains in FY18 itself, given the 29-31 March long weekend, so as to partly off-set mounting bad loan provisions. Thus, the timing of this IPO is very critical for ICICI Bank and hence some talk of valuation trim-down (vis-à-vis 3 months ago at the time of DRHP filing) also floating in the media. The company will not receive any proceeds or growth capital from the issue and post-listing, ICICI Bank’s stake will reduce to 76%.
At Rs. 520 per share, company’s market cap will be at Rs. 16,751 crore, which discounts 9MFY18 annualised EPS by PE multiple of 32x and one year forward expected earnings by a PE multiple of 26x, which is the highest in the listed peer set, as under:
Amt in Rs. cr.
While larger brokerages such as IIFL and Edelweiss are ruling at lower valuation multiples (21x and 23x), despite more diversified operations, Motilal Oswal with similar market cap as ICICI Securities edges the latter, due to asset management and advisory business, which ranks higher in the value chain vis-à-vis brokerage, due to more lucrative RoCE, accounts for over a third of Motilal’s profits (at 38%, higher than 27% of operating profits coming from brokerage) while ICICI’s asset management business is housed under a different subsidiary and ICICI Securities has nearly 60% income from broking alone. Thus, Motilal Oswal, with its more diversified operations across broking, fund based lending, asset management and advisory, is ruling at a comparable valuation of current year PE of 32x and lower one year forward PE of 24x, making ICICI’s offer appear expensive. Another peer JM Financial is ruling at much lower valuations, in mid-teens.
In addition to the valuation multiples, brand ICICI has taken a hit in the minds of investors, given bank’s persisting NPA woes and poor stock returns for both the life insurance and bank stock. While ICICI Securities has been paying out 54% earnings as dividends, based on the IPO price, the dividend yield is barely 1%, hence investors can’t play on this theme as well.
While on one hand, formalization of economy and greater channelization of retail savings is booming the stock markets, conscious efforts by SEBI to curb mutual fund distribution expenses and other stringent measures towards investor protection, show that outlook for financial markets intermediaries is cautiously optimistic. While ICICI Securities will benefit from supportive macros, it is not our preferred pick as a proxy to the buoyant Indian stock market, due to valuations being on the higher side.
ICICI Securities’ business is heavily market dependent and hence cyclical in nature. Since more diversified plays are ruling at lower valuations, ICICI Securities IPO is not attractively priced, and hence can be skipped.
Geetanjali Kedia wrote this review which appears on sptulsian.com and is available here.
Legendary investor Warren Buffet laid the ground rules for investment philosophy when he set two rules for investing. Rule Number 1 of investing according to Buffet is never losing money and Rule Number 2 is Don’t forget Rule Number 1.
But that is easier said than done, especially for a retail investor or a novice investor. In order not to lose money in the market is to pick up stocks which are close to the bottom. No fund manager, not even Warren Buffet has been consistently able to pick the bottom. But what differentiates a professional to a rookie is the ability to patiently wait and stick to their well-defined set of rules. It is not important to pick the bottom to make money, but as far as the price is right all that is needed to sit on the investment and patiently watch it grow. As the saying goes in the market it is not the brain that brings home the profit but its stomach to hold through the times.
Peter Lynch, one of the most successful professional fund managers in the world said ‘My best stocks have been the third, the fourth the fifth year I’ve owned them. It’s not the third week, the fourth week. People want their money very rapidly, it doesn’t happen.’ The statement holds true for all impatient retail investor who dumps their stock in less than a month because it does not move as anticipated.
One reason that shares are sold by novice investor is that they do not have a strong premise behind buying it. It is either bought on some friends tip or on an ‘expert’s advice’. There is no solid reasoning and a well laid out process behind buying the stock and waiting to check if the premise holds.
Ben Graham known as the father of investing and Warren Buffett’s guru put it well when he said that investors should purchase stocks like they purchase groceries, not like they purchase perfumes. Unfortunately, the opposite is true for most of us.
In order to avoid such mistakes and follow Buffett’s rules, one must have a set of guiding principles that have to be followed come what may. A similar set of guiding principle needs to be in place for selling the stocks.
One way of selecting the guiding principle is to follow the guiding principles of the professionals.
There are various ways in which a fund manager identifies a company for investment. While most fund managers swear by Warren Buffett and want to adopt his style of investing, markets rarely give that kind of opportunity to pick up stocks which are available at throwaway valuations. Nonetheless, a variation on Buffett’s approach to investing is adopted by most. A set of rules are clearly defined upfront and the fund managers wait for the opportunity to pick up the stock when the set of rules are satisfied.
Value Investing: Buffett’s philosophy of investment is generally termed as value investing. In such type of investing the fund manager searches for a stock that is trading at a price below its intrinsic value. The intrinsic value of a company is its actual value based on a given set of formulas taking into consideration both the tangible and intangible factors. The fund manager calculates the intrinsic value of the company and waits for the stock price to fall below it. This way he knows he has bought the stock cheap and all he has to do is wait for the price to reflect the true value of the company. The fund manager may buy more if the stock falls as he is convinced of the story and feels that the drop is an even better opportunity. By doing this he follows Buffett’s rule of not losing money. There are various strategies of picking up companies that fall in the value investing category. Fund managers and analysts play around with various financial parameters, but the underlying principle in all cases is to identify stocks that are fundamentally cheaper than the current market price.
Growth stock investing: In an economy like India which is in its growth phase, there are more companies that are available that are contributing to the growth. It is rare that such stocks are available at a discount to the intrinsic value. All shrewd investors are keen on owning such stocks that are expected to continue on the growth path. Many strategies are used by professionals to identify growth stocks. One of the most common use one is called the CANSLIM method developed by William O’Neil. This is a combination of qualitative, quantitative and technical analysis of picking up stocks. It essentially catches stocks which are already on a growth path and are have a strong probability of continuing on the same. Other ways used by fund managers are looking for companies that have just completed a major expansion or are launching a new product range or are acquiring a company that can change the landscape. Commodity companies that benefit from increased demand and prices of the underlying commodity also fall under this category.
Betting on turnaround companies: A strategy for the brave hearts but one where the risk-reward is huge is to bet on turnaround companies. A company might have been making losses on account of various reasons – poor external environment, low prices of its products, high raw material prices, over leverage or simply poor management quality. A change in external or internal environment is captured by the fund manager who anticipates that going forward the company would immensely benefit from a changing scenario. In Indian context companies and sectors where the government extends help as in the case of steel and sugar sector recently, tend to do well. In this type of strategy, the upside potential is huge, but chances of it breaking Buffett’s rule is higher as the odds are still stacked against the company.
Irrespective of the strategy adopted by an investor it is important to stick to it and adhering to it under all circumstances. If an investor has to prevent his capital from losses he has to be slow and sure in picking up his investment. Spacing his buying over a longer period of time is one way of ensuring that he is closer to the price before market forces catch up and take the stock to new heights.
The original article appeared on tradesmartonline.in’s blog and can be accessed here.
Mishra Dhatu Nigam is entering the primary market on Wednesday 21st March 2018 with an offer for sale of up to 4.87 crore equity shares of Rs. 10 each, by the Govt. of India, in the price band of Rs. 87 to Rs. 90 per share, with Rs. 3 per share retail discount. Representing 26% of the post issue paid-up share capital, total issue size is Rs. 433 crore at the upper end of the price band. The issue is closing on Friday 23rd March and listing is likely on 4th April.
Mishra Dhatu Nigam (Midhani), a wholly owned subsidiary of the Govt. of India, is India’s leading manufacturer of special steels and super alloys and the country’s sole manufacturer of titanium alloys, used in three critical sectors such as defence, space and nuclear energy, as well as in non-strategic sectors such as railways, oil and gas among others. Company has a manufacturing facility at Hyderabad and is undertaking greenfield expansion at two locations (i) Rohtak: operations to commence in FY19, to cater to needs of bullet proof jacket for the army and (ii) Nellore: plant will be operational in two phases – first part to commence in FY19-end, while second phase is under JV with NALCO will come on stream by FY21/22.
Company’s historic performance has been mediocre with past 4 years revenue CAGR in single digit, at 9%, rising from Rs.565 crore in FY13 to Rs. 810 crore in FY17, while net profit growth was a tad lower at 8%, during the same period, jumping from Rs. 94 crore in FY13 to Rs. 126 crore in FY17. Despite being a commodity play, company’s margins are extremely healthy – 25% EBITDA margin in FY17 and net margin of 16%, due to product being very niche. EPS for FY17 stood at Rs. 6.74, on an equity of Rs.187.34 crore, translating into healthy RoNW of 18%. Company’s net margins have consistently remained above 15% in the past 4 years, despite the cyclical nature of commodity industry, which makes one conclude that Midhani must be viewed as a value-add / technology play catering to defence and space sectors, immune from the price fluctuations (which can be easily passed on) and not as a mere alloy maker.
Due to maintenance shut-down of part facility for nearly 9 months in FY18 (which will recur may be after 10 years), H1FY18 financial performance was impacted, wherein revenue came in at Rs. 208 crore and PAT at Rs. 27 crore, leading to an EPS of Rs. 1.46. Thus, full year FY18 may also be subdued, but company should be able to regain lost ground in FY19, when the facility resumes operations and also new plants get operational.
As of 30-9-17, company’s net worth stood at Rs. 733 crore, implying BVPS of Rs. 39. Gross debt on the balance sheet is Rs. 66 crore, while cash balance is at Rs. 261 crore, translating into net cash per share of Rs. 10.40. Since issue is 100% OFS, no proceeds will flow into this cash-rich company and it will fund capex through internal accruals. GoI’s stake will decline to 74% post listing.
At Rs. 90 per share, company’s m cap will stand at Rs. 1,686 crore, which discounts FY17 EPS by PE of 13x while based on FY19E earnings, PE stands at about 10x, which is in-line. Company can not be compared with vanilla steel makers, who are ruling at high single digit PE multiples and grappling with mounting debt levels. Its slight premium to them is justified as Midhani, although a metallurgy company, enjoys monopoly position in titanium alloys manufacturing in the country and also meets the needs of defence / space sectors, with some of its products not available for import from other countries, due to national security concerns. Retail discount of Rs. 3 per share is also an attraction.
Going forward, company aims to increase its R&D spend to 5% of sales, from current 2%. It has also been recently allowed exports, which should augment topline further. However, given current subdued secondary market conditions, expecting listing gains on this stock will be too far-fetched. This stock can however be a quality mid-cap play delivering consistent returns, over the long term.
Dent in FY18 performance on account of maintenance shut-down as well as weak market conditions may constrain listing gains. However, given its unique story and sound fundamentals, company can be a good portfolio play, strictly with a medium to long term view.
The original review is authored by Geetanjali Kedia, appears on sptulsian.com and is available here.
A profit vs loss ratio is something that can by itself help you succeed investing in the stock market. They work wonders for new traders and are used by professionals as well.
This article will explain what a profit vs loss ratio is, how to set one up, and how to stay disciplined to utilize it effectively.
What They Are
A profit vs loss ratio is a plan that you put in place to limit your downside exposure on all your trades to x% while setting a target on your upside to x% return per trade. Depending on how you setup your ratio, you can be wrong more than you are right and still make money in your portfolio.
The whole point of your profit vs loss ratio is to be able to say, “hey, even if I am wrong x times in a row and then am right once, I still am making money”.
How to Setup Your Ratio
There are 2 factors to any ratio: maximum loss % per trade, and your target profit % per trade. Once you know these you know your ratio.
The best ratio and one that is recommended by CANSLIM founder William O’Neil is to utilize a 3 to 1 profit vs. loss ratio. This means that we can be wrong twice, then be right once, and still make a profit.
So, let’s use the CANSLIM philosophy and say that we want to cut our losses to a maximum of 7 or 8 percent each trade. To do this, when we buy our position we immediately place a stop loss order 7 or 8% below our purchase price. If the stock hits this price, the position is sold out and we walk away with our loss. On the upside, we will sell any stock after it is up between 20 – 25 %.
Let’s see how a few trades would play out (numbers are rounded for simplicity):
You buy 100 shares of a $20 stock, so $2000 total…
but it goes down 7% (-$140)…
to $18.60, and you sell leaving you now $1860 left to trade.
You buy 100 shares of a $18.60 stock, so $1860 total…
but it too goes down 7% (-$130)…
to $17.30, and you sell leaving you now $1730 left to trade.
You buy 100 shares of a $17.30 stock, so $1730 total…
and it goes up 20% (+$346)…
to $20.76, and you sell leaving you with $2076 total.
Even though you lost twice in a row, you still made money overall in your portfolio. With a 3 to 1 profit vs. loss ratio we in a sense have a .333 batting average and still are successful traders.
Maintaining Your Plan
This is the most important part. So, let’s say you want to implement the CANSLIM 3 to 1 profit vs loss ratio, you have to write it down and STICK WITH IT.
How do you do this? You use stop-loss orders to always minimize your losses, and you ALWAYS sell 20 – 25% above your purchase price. If you want your runner to run longer, then once you are up to your target price move your stop order up to lock in your gains.
The bottom line
It is a fact that some of the best traders in the world are only right in the stock market less than half the time. By staying disciplined and using a good profit vs loss ratio though they still make money consistently in the stock market. Great traders know how to strategically invest, they use a profit vs loss ratio.
This article originally appeared on stocktrader.com and is written by Blain Reinkensmeyer. It can be accessed here.
The market ended lower amid political upheaval after the Telugu Desam Party (TDP) formally decided to quit the NDA government.
The S&P BSE Sensex ended at 33,176, down 510 points while the broader Nifty50 index settled at 10,195, down 165 points.
Among sectors, metal companies were under pressure falling by over 2% on the NSE on fears that the tariffs could disrupt growth. SAIL, Vendanta, Hind Copper were trading lower in the range of 3% to 5% on the NSE.
Shares of Tata Motors, Tata Motors DVR, Force Motors, BEML, ICRA, Great Eastern Shipping Company and Max Financial Services were among nine stocks from the S&P BSE 500 index hitting their respective fresh 52-week lows in noon deal on the BSE.
Ramky Infrastructure has been awarded project worth Rs 939.41 crore in Srinagar in the State of Jammu & Kashmir by National Highways Authority of India (NHAI) on EPC mode. The stock gained 1.5 percent.
Shares of Dr Reddy’s Laboratories declined 3 percent as it has received Form 483 with 4 observations for its API Hyderabad Plant 1 at Jinnaram Mandal, Medak Telengana from USFDA.
Shares of oil marketing companies (OMCs) were under pressure falling by upto 4% on the BSE in intra-day trade. Indian Oil Corporation (IOCL), Hindustan Oil Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) were trading lower in the range of 3% to 4% on the BSE.
Jaiprakash Associates has moved higher by 15% to Rs 22, extending its Thursday’s over 15% surge on the National Stock Exchange (NSE), after Rare Enterprises purchased 30 million shares of the company worth Rs 551 million through open market.
Shares of public sector banks (PSBs) were in focus with the Nifty PSU Bank index rising 4% thus far in current week, to record its biggest weekly gain since November 2017.
HEG hit a new high of Rs 3,148, up 4%, extending its past four days 18% rally on the BSE in otherwise weak market on Friday. The company engaged in graphite electrodes business has outperformed the market by surging 23%, as compared to 0.61% rise in the Sensex thus far in the current week. In the past one year, the market value of HEG zoomed 1,245% from Rs 234, against 13% rise in the benchmark index.
Steel Strips Wheels (SSWL) announced bagging of yet another big exports order for supply of steel wheels for EU Caravan market.
Private sector lender Yes Bank has sold 2.17 percent stake in Fortis Healthcare, out of over 17 percent stake it acquired last month. Yes Bank had acquired 17.31 percent stake in Fortis Healthcare following invocation of nearly 9 crore pledged shares last month.
Edelweiss Financial Services said its acquisition of Religare Enterprises Ltd’s securities business had been terminated for want of necessary approvals.
Bandhan Bank Ltd. (BBL) a microfinance company that got RBI license in 2015 for Bank has transited itself into a bank on 23rd August 2015. It had the mandate to bring IPO within three years of starting banking operation; it is coming much before that with its maiden IPO. BBL is a commercial bank focusing on serving underbanked and underpenetrated markets in India. Bandhan Bank has a banking license that permits it to provide banking services pan-India across customer segments. It currently offers a variety of asset and liability products and services designed for micro banking and general banking, as well as other banking products and services to generate non-interest income.
BBL’s strength lies in microfinance and has the strength of 2,633 DSCs and 9.86 million microloan customers as of December 31, 2017. It also opened Greenfield network of 501 bank branches and 50 automated teller machines (“ATMs”), which as of December 31, 2017 has grown to 887 bank branches and 430 ATMs, together serving over 2.13 million general banking customers. Bank’s distribution network is particularly strong in East and Northeast India, with West Bengal, Assam and Bihar together accounting for 56.37% and 57.58% of its branches and DSCs as of December 31, 2017, respectively. It currently offers a variety of asset and liability products and services designed for micro banking and general banking. Its asset products consist of retail loans including a substantial portfolio of microloans, as well as micro, small and medium enterprise (“SME”) loans and small enterprise loans. As of December 31, 2017, 96.49% of its Gross Advances were in priority sector lending (“PSL”) compliant with the Reserve Bank of India (“RBI’s”) PSL requirements. As of December 31, 2017, BBL’s retail-to-total deposit ratio stood at 85.07%. As on the same date, bank’s deposits and Gross Advances (including IBPC/Assignment) stood at Rs. 25294 crore and Rs. 24364 crore respectively.
BBL is coming out with its maiden IPO of 119280494 equity shares of Rs. 10 each via book building route with a price band of Rs. 370 – Rs. 375 to mobilize Rs. 4413.38 crore to Rs. 4473.02 crore based on lower and upper price bands. The issue consists of a fresh issue of up to 97663910 equity shares and offer for sale of 21616584 shares. The issue opens for subscription on 15.03.18 and will close on 19.03.18. The objects of the Fresh Issue are to augment Bank’s Tier-I capital base to meet its future capital requirements. Further, the proceeds from the Issue will also be used towards meeting the expenses in relation to the Issue.
Minimum application is to be made for 40 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Issue constitutes approx. 10% of fully diluted post issue equity of the bank. Having issued initial equity at par, it raised further equity at a price of Rs. 42.93 per share. Post issue its current paid up equity capital of Rs. 1095.14 crore will stand enhanced to Rs. 1192.80 crore. The average cost of acquisition of shares by the promoters is Rs. 26.17 per share. BRLMs to the issue are Kotak Mahindra Capital Co. Ltd., Axis Capital Ltd., Goldman Sachs (India) Securities Pvt. Ltd., J M Financial Ltd. and JP Morgan India Pvt. Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue.
On the performance front, BBL has reported total income/net profits of Rs. 7.95 cr. / Rs. 0.60 cr. (FY15), Rs. 1731.25 cr. / Rs. 275.25 cr. (FY16) and Rs. 4320.12 cr. / Rs. 1111.95 cr. (FY17). For first nine months of the current fiscal ended on 31.12.17 it has earned a net profit of Rs. 957.70 on total income of Rs. 3954.51 cr. For last three fiscals, it has posted an average EPS of Rs. 6.21 and an average RoNW of 15.27%. The issue is priced at a P/BV of 7.60 on the basis of its NAV of Rs. 49.35 as on 31.12.17. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 35 plus. Thus issue appears reasonably priced. Industry composite P/E is 35 plus and some of its listed peers are trading at a P/E of around RBL Bank (30), Ujjivan Finance (194), Equitas Holdings (1173), AU Small Bank (79). It is also considering Kotak Bank, Axis Bank, IndusInd Bank, Yes Bank, Bajaj Finance as its peers.
On BRLM’s front, five merchant bankers associated with this issue have handled 57 public issues in the past three years out of which 17 public issued closed below the issue price on listing date.
The original review is written by Dilip Davda, appears on chittorgarh.com and is available here.
Every successful trader on the planet has one thing in common – he has an edge. By that, we do not mean he has information about a company much before others and takes a position based on the information. On the contrary, the successful trader is on the same footing as anyone else, the big difference is he knows how he will act when he sees his signal on the screen and that gives him the edge over everyone else who will be swinging their bat blindly. Unlike a novice, he will trade only and only if the signal shows itself at other times he is waiting patiently.
That is all that it takes to be a successful trader, to know what to do and when to do it. But this is a huge wall to climb for a novice trader as he does not has the patience to wait or the ability of self-control.
Successful trading can be broken down into five techniques which have been followed by professional traders for whom it is now second nature.
Approach: For a successful trader, trading is his life and passion. It is as much a business as it is a game. How you approach trading decides how you will succeed. A casual approach to trading will result in mediocre results. But if trading is approached as a business with all aspects of it thought through the trader can be assured of success. The common trait among the successful traders is the businesslike approach to trading with a lot of attention to even the smallest details, writing their own logs, taking complete responsibility for their trades irrespective of the outcome.
Retail traders generally tend to search for a person or an event to blame for their losses, but a successful trader owns the losses and considers it as part of the game. It is this winning attitude that is the differentiator. Just like a successful businessman takes responsibility for the mistake of his managers and workers and moves on in the search for a solution, a good trader also moves on to the next trade. He knows that this is just one of the thousands trade that he will take in his lifetime.
Keeping it simple: A successful trader trades simple strategies. A retail trader, on the other hand, will jump from one strategy to the other if he does not see profits accumulating. He prepares complex entry and exit signals and most times mixes up his strategies. This results in loss of faith in his strategy and he jumps to test some other strategy. A professional trader will have very few and simple sets of rules which he follows and trades. His chart patterns are simple, like a breakout or a retracement entry. Such a trader has very clearly defined rules for entry and exits. A series of losses does not deter him as he knows that his strategy has been built to overtake such days in the long run. He has strong money management rules that will reduce his position in case of series of losses. On the other hand, a retail trader will increase his trading bet in order to retrieve his losses in the next trade, he seeks revenge from the market for taking money from him.
It’s OK to be wrong: Not reacting to losses takes more energy and time for a trader than to search for the right strategy. It is only after years and hundreds of trades that a trader learns how to be emotionally neutral in any situation. Many professional traders follow the trend following strategies which normally has a win-loss ratio of 0.4. In other words, six out of every ten trades that a trend follower takes will result in a loss. A retail trader will be crestfallen with such a ratio and would abandon the strategy at a time when the next trade would have resulted in a huge profit. The professional takes these losses in his strides and knows that they are in line with the long-term averages. Taking losses are important of trading, the trick is to keep them small so that one or two profitable trades will take care of the accumulated losses. Since trading is a game of uncertainties it is obvious that there will be occasions when the price moves in a different direction than the one suggested by the pattern or the signal. How one reacts to these uncertainties determines the winner in the long run. Trading consistently with discipline and tweaking the strategy after learning from the losses will in the long run help overcome uncertainties.
Plan your trade and trade your plan: Trading, like any competitive sports, requires more work out of the playground rather than in it. For a day trader, there is little time to plan as the prices move rapidly. He has to have a plan in place and trade according to the plan, the strategy has to be so engraved in him that it becomes muscle memory. Last minute thinking will only lead to losses as well as confidence. Most traders, irrespective of the time-frame they trade also do not change their trading plan and second guess when the time for action comes.
Continuous improvement: One of the key aspects of all successful traders is that they seek to improve their performance continuously. They are not competing with anyone but with themselves and the way they do this is by keeping their own logs. This way they know their mistakes that need to be rectified, their previous track record as well as how the strategy has performed at the various points of time. They are learning aspects of trading and psychology and try to incorporate these in their trading. A successful trader is always a student of the market learning with each uncertainty and ticking the checklist of having encountered another surprise so that next time he knows how to react to it.
Making money consistently in trading requires discipline and consistently more than selecting a trading strategy. The techniques used by successful traders suggest that after the initial work of selecting a strategy is done they pay more attention to the psychological aspect of trading. Ultimately it is how one reacts to unpleasant surprises is what decides the winner from the losers. This is true for life as much it is for trading.
This article appeared on tradesmartonline.in and is available here.
Bharat Dynamics Ltd. (BDL) is one of the leading defense PSUs in India engaged in the manufacture of Surface to Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers, countermeasures and test equipment. It is the sole manufacturer in India for SAMs, torpedoes, ATGMs and also the sole supplier of SAMs and ATGMs to the Indian armed forces. Additionally, it is also engaged in the business of refurbishment and life extension of missiles manufactured. BDL is also the co-development partner with the DRDO for the next generation of ATGMs and SAMs. It currently has three manufacturing facilities located in Hyderabad, Bhanur and Vishakhapatnam. BDL enjoys Mini Ratna (Category – 1) status.
Off late Foreign Direct Investment (FDI) rates have increased in sectors like defense, insurance and other sectors. Under the ambit of the ‘Make in India’ initiative, investment procedure, license applications, declarations and other processes has been streamlined to boost investor confidence. Applications for permits have been digitized and a new uniform tax regime (Goods & Services Tax) has been implemented to reduce complexity in taxation. The nation also has a vibrant micro, medium and small enterprise (MSME) sector to support manufacturing units set up in India. The MSME sector is expected to perform a vital support function to the manufacturing sector and will be crucial to India’s agenda to raise the share of manufacturing in India’s GDP from 16% to 25% by the end of 2025. The central government, as well as state governments, are also trying to incentivize domestic and foreign players to ramp up defense manufacturing in India through a combination of tax benefits, infrastructure incentives, and other methods. The Indian defense market is in a state of transition, as a result of new policies promulgated by the government. BDL is in the process of setting up to new plants – one at Hyderabad, AP and another at Amaravati – Maharashtra.
The three services have several modernization plans underway, some of which have been delayed. The Indian government seeks to address this through the new Defense Procurement Policy (DPP) 2016, which seeks to streamline procurement and give more leeway to suppliers, opening up Foreign Direct Investment, allowing single vendor participation for tenders, and initiating a “Strategic Partner” model.
To dilute Government holding and listing benefits, BDL is coming out with a maiden IPO of 22451953 equity shares of Rs. 10 each by an offer for sale (OFS) via book building route with a price band of Rs. 413 – 428 per share to mobilize Rs. 927.27 – Rs. 960.94 cr. based on lower and upper price bands. The issue opens for subscription on 13.03.18 and will close on 15.03.18. It has reserved 458203 shares (0.25% of the issue) for eligible employees. The company is offering a discount of Rs. 10 per share to Retail investors and eligible employees. Minimum application is to be made for 35 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Issue constitutes 12.25% of the post issue paid-up capital of the company. BRLMs to this offer are SBI Capital Markets Ltd., IDBI Capital Markets & Securities Ltd., and Yes Securities (India) Ltd. Alankit Assignments Ltd. is the registrar to the issue. Its entire equity is issued at par. It has also issued bonus shares in the ratio of 1 for 4 in November 2016 and 1 for 1 in February 2018. It has bought back few shares at in the price range of Rs. 115.28 and Rs. 147.49 per share in March 2016 and September 2017 respectively. Being OFS, its equity post issue remains same at Rs. 183.28 cr.
On the performance front, BDL has posted turnover/net profits of Rs. 3253.23 cr. / Rs. 443.55 cr. (FY15), Rs. 4601.38 cr. / Rs. 562.07 cr. (FY16) and Rs. 5198.07 cr. / Rs. 490.32 cr. (FY17). Despite the higher turnover, it has posted lower net for FY17 and the first half of current fiscal due to a fall in other income as due to buybacks in last 4 years, its cash surplus reduced affecting interest income. For the first half of the current fiscal ended on30.09.17, it has earned a net profit of Rs. 172.59 cr. on a turnover of Rs. 2190.25 cr. For last three fiscals, it has posted an average EPS of Rs. 19.40 and an average RoNW of 25.67% on the basis of fully diluted current equity. The issue is priced at a P/BV of 4.81 based on its NAV of Rs. 88.96 as on 30.09.17 (on fully diluted current equity). If we annualize latest earnings and attribute it to its post-issue equity then asking price is at a P/E of around 23. It has no listed peers to compare with. Company’s current order book as of January 31, 2018 is Rs. 10543 crore.
On BRLMs’ front, the three merchant bankers associated with the offer have handled 26 public issues in the past three years out of which 7 issues closed below the issue price on listing date.
Conclusion / Investment Strategy
Although defense sector is in the transition mode with opening up of the sector for private players and FDI liberalization, considering status enjoyed by the company coupled with its track record and the order book position, investors may consider investment for long term.
The original review is penned by Dilip Davda, appears on Chittorgarh.com and is available here.
Warren Buffett is recognized as the greatest investor of all-time because of his discipline and conservative approach to investing.
Instead of focusing on the short term, Warren Buffett focuses on the long term.He also has a low appetite for risk, buying companies that active traders would find boring beyond all belief.
Buffett once described his investment style as, “I’m 85% Benjamin Graham.” (Benjamin Graham is known as the godfather of value investing. His book, The Intelligent Investor, is respected as a classic on Wall Street.)
Just look at Warren Buffett’s company Berkshire Hathaway’s (BRKA) stock price appreciation over the past 20 years. And yes, you are reading that correctly, the stock currently trades for over $260,000… per share.
Berkshire currently holds a market cap of approximately $430 billion, making Warren Buffett the third richest person on the planet.
To dive deeper and fully appreciate Warren Buffett, I recommend reading his annual shareholder letters alongside the book, Buffett: The Making of an American Capitalist.
This post will focus on how to build a simple Warren Buffett portfolio, so let’s get to it.
There are five key benefits of constructing a Warren Buffett portfolio:
You can sleep well knowing you are following the advice of the greatest investor of all-time, Warren Buffett.
By buying and holding for decades while reinvesting dividends, the power of compounded returns is realized.
With passive indexing in low cost index funds, you are keeping fees as low as humanly possible which maximizes returns.
You are maximizing tax efficiency by buying and holding for decades instead of days (only relevant when investing in a personal portfolio versus a retirement account).
The portfolio is easy to implement and straight-forward to follow.
Warren Buffett Portfolio Holdings
Warren Buffett’s recommended portfolio is actually extremely simple. In fact, there are only two holdings: the S&P 500 and a short-term US government bonds fund.Depending on how young you are when you start investing, it may just be the S&P 500 (more on allocation below).
What are the symbols for these two Vanguard funds? You can buy an ETF version or a mutual fund version. I personally use the ETF version, but either one works.
S&P 500 index fund – ETF symbol VOO (no minimum), Mutual Fund symbols VFIAX ($10,000 minimum), VFINX ($3,000 minimum)
Short-term government bonds fund – VFIRX ($10,000 minimum), VFISX($3,000 minimum). For an ETF, consider VGSH.
Buffett, 85 years young, revealed his simple portfolio mentality in his 2013 annual letter to company shareholders (emphasis mine),
My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.
Buffett provided similar advice after Lebron James asked him what he should do with his own investments,
“Through the rest of his career and beyond, in terms of earning power, [he should] just make monthly investments in the low-cost index fund,”
The reason Buffett recommends Vanguard funds over other providers is because the funds have the lowest costs respectively for the instruments they are designed to follow.
For example, VOO and VFIAX have a yearly expense ratio of just 0.05% (VFINX, with its lower minimum, charges 0.17%). For every $10,000 invested, .05% is a whopping $5 per year in management fees.
Here’s a Buffett quote on low costs and keeping investing simple,
Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.
What is the S&P 500?
The S&P 500 is the most widely followed index in the world. From Wikipedia,
The Standard & Poor’s 500, often abbreviated as the S&P 500, or just “the S&P”, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.
If you want to invest in the United States as a whole, the easiest way to do it is to buy a fund that replicates the S&P 500.
In fact, both Warren Buffett and Jack Bogle (founder of indexing and Vanguard) believe the S&P 500 is all you need to have a worldwide exposure. This is because the S&P 500 generates just over 50% of its revenues domestically. The rest comes from overseas.
Best Broker for Following Warren Buffett
Which online stock broker should you use to build your Warren Buffett portfolio? The answer is simple. It doesn’t really matter which broker you use.
Since you are investing for the long haul and will be accumulating a large stake over many years, broker trade commissions will quickly become negligible, even if buying shares every month as Buffett recommends.
The biggest advantage of a Warren Buffett portfolio is what we discussed earlier, the super low costs. Remember, for every $10,000 invested in Vanguard’s S&P 500 ETF VOO or mutual fund VFIAX, .05% is a whopping $5 per year in management fees.
Whichever broker you choose, reinvesting the dividends through a DRIP (dividend reinvestment plan) should be a free option (meaning the online broker will not charge you to automatically reinvest the dividends and buy more shares).
If you want to automatically make monthly deposits and have your account automatically buy shares, Capital One Investing is a good broker to consider. Similarly, you could just choose a discount broker – see this list of best brokers for cheap trading.
One final option, go direct to the fund source and use Vanguard.
I personally hold VOO in literally ten different online broker accounts currently(I do this because I head research for our sister site StockBrokers.com). Point is this, it doesn’t matter where you buy. Just buy and hold until retirement.
Consider a Robo-Advisor for Automatic Investments
Perhaps you want to follow Warren Buffett’s core principals of taking a long term approach, keeping it simple, reducing fees, and embracing passive indexing, but don’t want to actually place the trades yourself.
If this is you, then you will want to consider using a robo-advisor instead of trading on your own. For more on robo-advisors and automated investing, read this guide.
Traditional Asset Allocation by Age
While Warren Buffett favors holding a simple 90/10 portfolio of the S&P 500 (stocks) and short-term treasuries (bonds), this is not what a traditional advisor will recommend.
To determine a traditional portfolio that is “properly diversified”, you first want to look at your age and target retirement date. For this section I am referencing the largest asset manager in the world, Vanguard, which has a staggering $4 trillion under management.
When you’re young, it is recommended to take more risk and invest more heavily in stocks vs bonds to maximize returns. As you age, you then want to increase your bond holdings while reducing your stock holdings to lower risk. After all, you are getting ready to retire.
Here’s a good cheat sheet from Vanguard on the different allocations and historical returns. (IMPORTANT: The bond returns used below are a mix of every duration whereas Warren Buffett uses short-term treasuries. This is similarly true with the stock returns. Thus, the returns estimations are NOT a true 1:1 representation of Warren Buffett portfolio.)
To determine allocation based on age alone, Vanguard recommends starting with a 90/10 (stocks/bonds) mix and maintaining it until you are 20 – 25 years from your desired retirement age. From there, you slowly adjust your allocation every few years until you reach retirement in which you ideally would be allocated 40/60 (stocks/bonds).
For example, if your target retirement age is 65 and you are 30 like me, then you would theoretically want a 90/10 mix. Once you turn 40, you could reduce to say 80/20, or wait a few years to start transitioning. At age 60, you’d want to be around 60/40 or 50/50.
Formulas aside, Warren Buffett made it clear that for his estate he has instructed a 90% S&P 500 / 10% short-term gov bonds mix allocation. This would be counter-intuitive to the above formulas and breakdowns of proper allocation, but that’s Warren Buffett for you.
In the end, your plan for retirement has to be unique to YOU. Your ideal allocation mix may not fit into a broad, simplistic mold.
There are a slew of factors that come into play: your current income, current savings rate, target retirement age, and personal goals for retirement to name four big ones.
I am not a professional advisor, nor do I have any interest in becoming one. That said, hopefully the above can at least help to provide a simple guide to use as a starting point.
Target Date Funds are Another Winner
If you want to invest in a traditionally diversified portfolio by age, the easiest solution is to buy a Target Date Fund (TDF).
With a target date fund (Vanguard calls them target retirement funds), you simply buy one low-cost mutual fund and everything portfolio related is done for you automatically through the years.
Vanguard has a fantastic free tool to determine what fund you need to buy based on your current age and desired retirement age.
Since I am 30, Vanguard’s tool recommended I buy the Vanguard Target Retirement 2050 Fund (VFIFX) which charges an annual expense ratio of only 0.16%.
In my 401k portfolio held with our company (so pre-tax retirement money, not my personal post-tax investment portfolio), this is the only fund that I hold. I automatically invest 5% of my paycheck each month (which our company matches 100%) and it automatically buys this fund.
The bottom line is that Target Date Funds are a fantastic solution as well for those who want to simply set it and forget it.
Warren Buffett’s Bet Against Wall Street
Warren believes so strongly in the simplicity of buying the S&P 500 that he bet a handful of hedge funds $1,000,000 that they couldn’t outperform a low cost index fund over a 10 year period. Winner gets a donation to the charity of their choosing.
Warren Buffett chose the Vanguard 500 Index Fund Admiral Shares (VFIAX) for his single position. The competition Protege Partners, a New York City money management firm, selected five unnamed funds of hedge funds.
The bet was kicked off in 2008 and as of early 2017 Warren Buffett’s bet was crushing the competition with a 85.4% return vs a 22% return for the hedge funds.
For the full story, NPR’s Planet Money podcast did a great episode on the bet which also covers the benefits of passive, low-cost indexing which I’ve touched on in this post.
Alongside the above podcast episode, I also highly recommend Barry Ritholtz’s Masters in Business interview with Jack Bogle (founder of Vanguard, indexing).
Warren Buffett likes to buy companies that have stood the test of time, have fantastic managers, wide moats around their core businesses, and will be around for decades to come.
Building a Warren Buffett portfolio is a lot easier than many people think because the best representation of Buffett’s core beliefs falls under the S&P 500.
Buffett also believes in keeping costs as low as possible by consistently buying each month no matter what the market environment and then holding for decades. Also known as passive indexing, the other key is selecting funds with the lowest expense ratios, which is why Buffett recommends Vanguard.
All in all, you can choose any broker to build a Warren Buffett portfolio and follow the advice of greatest investor on earth. Awesome.
The original article is written by Blain Reinkensmeyer appears on stocktrader.com and is available here.
The domestic indices ended largely flat on Friday taking cues from their Asian counterparts.
Among sectoral indices, the Nifty PSU Bank index ended 1.81% lower led by a fall in the shares of Canara Bank, IDBI Bank and Oriental Bank of Commerce. The Nifty Metal index too ended 1.81% down due to a fall in shares of Steel Authority of India Limited, Jindal Steel & Power and Tata Steel.
The Reserve Bank may provide four quarters to Punjab National Bank (PNB) for making provisions against the country’s biggest ever banking fraud of Rs 127 billion allegedly masterminded by billionaire diamantaire Nirav Modi. The bank has written a letter to the banking sector regulator seeking its opinion on making provisions for the fraud, sources said.
The S&P BSE Sensex ended at 33,307, down 44 points while the broader Nifty50 index settled at 10.227, down 16 points
Shares of steel companies were under pressure with Tata Steel, Jindal Steel & Power (JSPL) and Steel Authority of India (SAIL) down more than 4% on the National Stock Exchange (NSE) after US President Donald Trump imposed tariffs of 10% and 25% on imports of steel and aluminium respectively on March 8th. Meanwhile, Tata Steel slipped nearly six-month low at Rs 607, down 4% on the BSE in intra-day trade, extending its past two days 4% decline after the company on Wednesday said that it has emerged as the top bidder for debt-laden Bhushan Steel.
State-owned power equipment major Bharat Heavy Electricals Limited (BHEL) on Friday said it has won Rs 117-billion order for setting up a 3×800 Mw thermal power plant in Jharkhand. Shares of BHEL were trading 1.34 per cent higher at Rs 87.15 on the BSE.
L&T Finance Holdings (LTFH) was trading 3% higher at Rs 163 on the BSE after the company said it has raised almost Rs 20 billion from preferential allotment of shares to its promoter Larsen & Toubro (L&T).
Shares of Amtek Group companies were locked in upper circuit of 5% on the BSE for the second straight day after Liberty House Group was chosen as the highest preferred bidder for Amtek Auto’s assets. Amtek Auto (Rs 24.95), Metalyst Forgings (Rs 30.50), JMT Auto (Rs 4.96) and Castex Technologies (Rs 4.57) rose 5% on the BSE with only buyers being seen on these counters.
Shares of GTL and GTL Infrastructure have tanked up to 20% on the BSE after the Global Group firms warned that its operations will be hit with the shutdown of multiple telecom players and filing of bankruptcy petition by Aircel early this month.
Pharma major Dr Reddy’s Laboratories shares fell 2.6 percent intraday Friday after its Medak unit has received five observations from the US health regulator. The stock price, however, recovered a bit to close down 0.7 percent at Rs 2,130.45 on the BSE.