Category: Your Money

Mutual fund positioning: 3-month trend

shyam January 21, 2014January 21, 2014

We are trying to figure out if tracking mutual fund purchase and sell decisions can help us be better investors. What fund managers do, vs. what they say, can provide insights into their decision making process. We took a look at what funds have done over the last 3 months (Oct-2013, Nov-2013, Dec-2013 portfolios) to see how they are positioned going into the year end.

Top 10 hated stocks:

RELIANCE	[stockquote]RELIANCE[/stockquote]
TECHM	[stockquote]TECHM[/stockquote]
IDEA	[stockquote]IDEA[/stockquote]
CAIRN	[stockquote]CAIRN[/stockquote]
HEXAWARE	[stockquote]HEXAWARE[/stockquote]
CIPLA	[stockquote]CIPLA[/stockquote]
NTPC	[stockquote]NTPC[/stockquote]
PETRONET	[stockquote]PETRONET[/stockquote]
HDFCBANK	[stockquote]HDFCBANK[/stockquote]
NMDC	[stockquote]NMDC[/stockquote]

Top 10 loved stocks:

POWERGRID	[stockquote]POWERGRID[/stockquote]
AXISBANK	[stockquote]AXISBANK[/stockquote]
BHARTIARTL	[stockquote]BHARTIARTL[/stockquote]
WIPRO	[stockquote]WIPRO[/stockquote]
ALSTOMT&D	[stockquote]ALSTOMT&D[/stockquote]
ACC	[stockquote]ACC[/stockquote]
APOLLOTYRE	[stockquote]APOLLOTYRE[/stockquote]
TITAN	[stockquote]TITAN[/stockquote]
SHOPERSTOP	[stockquote]SHOPERSTOP[/stockquote]
SKFINDIA	[stockquote]SKFINDIA[/stockquote]

The biggest additions in December were POWERGRID, COALINDIA and ALSTOMT&D and the biggest exits were INDUSINDBK, RELIANCE and OIL

Can the exit out of Reliance explain why the stock hasn’t shown much of a spark in spite of beating consensus estimates? Are fund managers bullish about power distribution companies now that the debt of state electricity boards have been restructured and they can finally pay the discoms? Interesting moves…

Note:

Only open ended funds that were in the “accumulation” phase were considered
Funds named “growth” and with the “direct” option alone were considered
Market value as-of closing 2014-01-20

Categories Your Money Tags mutual funds

Nifty Gap Analysis

shyam January 20, 2014

What is a Gap?

A gap is a change in price levels between the close and open of two consecutive days. A Full Gap Up occurs when the opening price is greater than yesterday’s high price. And a Full Gap Down occurs when the opening price is less than yesterday’s low.

Why should investors care?

Gaps indicate “event sensitivity” of the index. In the normal course of business, as information is absorbed by the market, the price reacts. However, if significant events occur outside of market trading hours, the information gets priced in through “gap” opens. And gaps can be traded.

Gap History

The number of gaps have gone up significantly since 2010. Here’s a chart of the number of full gaps (both up and down):

Zooming in, from 2010 onwards:

On an average, down gaps have displayed higher magnitude, compared to up gaps:

Specifically:

Trading the gap

Not only do opening gaps occur daily and offer significant profit opportunity,but they have an inherent directional bias. The following links take you to some of the most common gap trading strategies:

Gap trading is an opportunity worth exploring.

Categories Your Money

Weekly Recap: Get Lucky

shyam January 18, 2014

The Nifty ended the week +1.46% (+2.43% in USD terms) largely driven by banks and IT.

Index Performance

Top winners and losers

UPL	+6.22%
HCLTECH	+6.27%
HINDPETRO	+7.29%
RANBAXY	-12.42%
EXIDEIND	-10.02%
IDEA	-6.33%

A different story behind each of these stocks…

ETFs

BANKBEES	+1.75%
NIFTYBEES	+1.21%
GOLDBEES	+0.16%
PSUBNKBEES	-1.66%
INFRABEES	-2.57%
JUNIORBEES	-3.64%

Mid/small caps under-performed. Infra stocks continued to drag…

Advancers and decliners

advancers and decliners

Yield Curve

Investment Theme Performance

Enterprise Yield	+0.86%
Market Elephants	+0.52%
Market Fliers	+0.49%
Momentum 200	+0.37%
Balance-sheet Strength	+0.12%
ADAG Mania	-0.15%
Velocity*	-0.90%
Efficient Growth	-1.08%
Growth with Moat	-1.10%
Consistent10*	-1.47%
Magic Formula Investing	-2.21%
Financial Strength Value	-2.65%
Quality to Price	-3.41%
Long Term Equity*	-4.58%

Tough week for stock pikers – none of these strategies out-performed the Nifty…

*Contributed Themes

Sector Performance

Telecom stocks feeling the heat from Reliance Jio… Just when pricing power was threatening to return, the 800 pound gorilla decides to step into the rink…

Thought for the weekend

For an investor to both be right and make money:

his view of what will happen in the future – and what should be done about it – has to be analytically correct a priori,

the things he thinks will happen have to actually happen, and

those things have to happen on schedule.

But in investing, it’s hard to know what will happen and impossible to know when it will happen. Many things influence performance other than (a) investors’ hard work and skill and (b) the market’s dependable discounting of information about the future. Luck – randomness, or the occurrence of things beyond our knowledge and control – plays a huge part in outcomes.

Source: Getting Lucky (pdf)

Categories Your Money Tags weekly

Role of Innovation in Long-term Investing

shyam January 13, 2014January 22, 2014

I recently wrote about the difference between long-term investing and “buy-and-hold-forever”. Long-term investing requires investors to have a framework to deal with innovation. Sometimes, all it takes is one strategic mistake to sink an otherwise well run company. I am going to once again use the US context to frame this discussion, but it is applicable generally.

The rise and fall of Circuit City

Commercial broadcasting began after World War II. Few households owned TV sets but the medium was growing rapidly: The number of TV stations in the United States nearly tripled in 1949, from 27 to 76. The founder of Circuit City saw an opportunity and took it. Circuit City soon grew into a nationwide chain of discount electronic stores where commissioned salespeople helped the customers make their purchases. Salespeople were central to Circuit City’s business model, which depended on selling big-ticket, high-margin items and lots of extended service plans.

“Circuit City was at their strongest when consumers didn’t really understand what they were buying and were nervous about it.”

Then along came Best Buy. While their basic model was similar to Circuit City, Best Buy carried a wide variety of low-margin products to get customers in the door, such as computer peripherals, video games and CDs. As consumer electronics became cheaper and more ubiquitous, customers no longer needed or wanted a salesperson to help them with many of their purchases.Circuit City, on the other hand, stuck to its commission-based sales force and its reliance on high-margin products and watched Best Buy take over its market share.

“It’s a story of hundreds and hundreds of smaller decisions that added up to be destructive.”

You can read the whole story on Scribd.

The article doesn’t mention Amazon, though. Amazon pretty much turned Best Buy stores into showrooms for its products. Best Buy too went through its own existential crisis last year.

Charts of Best Buy and Circuit City:

Value traps

It might look obvious, given the benefit of hindsight, that Circuit City and Best Buy were/are doomed. But the problem is that the road to zero is long and winding. At many points in the journey towards zero, the stock might appear to be a bargain. Take the recent bullish commentary on Cisco for example:

The stock “could return 20% over the coming year, not because the competitive threat isn’t real, but because the stock’s valuation appears to factor it in, and then some,” Jack Hough writes, in a bullish article on Cisco (CSCO). Hough notes that the “new threat” to CSCO is software-defined networks, and although “SDNs are largely in a proof-of-concept stage” with widespread adoption still years away, “some 20% of CSCO customers by then could be tempted to try commodity gear.”

So CSCO’s high-margin gear that is sold with a whole bunch of profitable services contracts is under threat from low-margin commodity gear that are “good enough.” Is CSCO a value trap?

Lessons from the PC massacre

John Kirk has a wonderful article on Techpinions that is a must read for all long-term investors:

The reason people don’t see disruption coming is because they compare one product to another when they should, instead, be comparing the needs of the consumer to the product that best serves those needs.

Read: How The Tablet Made An Ass Of The PC

Conclusion

Long-term investing requires investors to have a framework to think about innovation. As you saw in the examples above, nobody rings a bell to announce the arrival of a game changer. But by asking the right questions, investors can get a sense of which way the wind is blowing and get out of the way before the tornado strikes.

Categories Your Money Tags innovation

How important are your stock picks?

shyam January 7, 2014

Everyday we are inundated with stock tips: buy this, hold that, etc. There’s even an astrologer who gives out stock-tips, “Ganeshaspeaks” for example. Should you pay attention? Turns out, you don’t.

Studies consistently show that asset allocation is the source of more than 90 per cent of investment returns, while stock selection adds little, perhaps because so many fund managers only make small bets relative to the index they are measured against.

i.e., momentum investing works.

Source:
Bin the crystal ball and follow the money

Categories Your Money