Invest Without Emotions
The NIFTY ended on a bearish note, melting down -1.90% for the week.
Biggest losers were JPASSOCIAT(-11.87%), STER(-11.62%) and RCOM(-10.73%). And the biggest winners were BPCL(7.14%), TCS(3.80%) and POWERGRID(2.47%)
Decliners eclipsed advancers 40 vs 10
Gold: 2.12%, Infrastructure: -6.28% and Banks: -4.39%
Daily news summaries are here.
Image via Wikipedia
StockViz now had alpha, beta, Sharpe and information ratio values available for individual stocks. The calculations are done daily using 1 year’s worth of historical data.
“Alpha” is a measure of a manager’s skill by measuring the portion of the managers returns that are not attributable to “Beta”, or the portion of performance attributable to a benchmark. This is how “better” a stock is relative to owning the index (Nifty 50) outright.
“Beta” is similar to correlation. By definition, the market itself has a beta of 1.0. A stock whose returns vary more than the market’s returns has a beta whose absolute value is greater than 1. A stock whose returns vary less than the market’s returns has a beta with an absolute value less than 1.
The “Sharpe” ratio tells us whether a portfolio’s returns are due to smart investment decisions or a result of excess risk. The greater a portfolio’s Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.
“Information Ratio” relates the degree to which an investment has beaten the benchmark to the consistency with which the investment has beaten the benchmark.
Read the returns series here.
Image via Wikipedia
We had discussed how risk and return are two sides of the same coin (read the series here). Also, we looked at the high price correlation of Reliance vs. the Nifty 50 index. The question yet to be answered is this: given a choice between owning Reliance and owning the NIFTYBEES ETF, what should an investor do?
Lets look at the pros of owning the NIFTYBEES:
Now what would be the disadvantages of owning the NIFTYBEES vs. owning Reliance outright?
To answer this question, lets turn our heads to two measures: alpha and beta (discussed here.) Reliance has an alpha of -0.0002946529 and a beta of 1.027928. What this shows is that Reliance actually underperformed the index (a –ve alpha) and it more or less tracked the index (a beta close to 1; confirmed by our correlation study.)
We are in the process of rolling out alpha and beta of individual stocks against the Nifty 50 index. Stay tuned!
Image via Wikipedia
Warren Buffet may not like gold that much, but apparently Indians and Chinese haven’t received his latest newsletter. And not only that, China is set to overtake India as the world’s largest consumer of gold. Chinese demand has more than tripled from 2010.
Given that both growth and inflation remain high in China, it appears that gold is being seen as a hedge against inflation. Also, Beijing has encouraged gold consumption, announcing in 2010 measures to promote and regulate the local gold market, including expanding the number of banks allowed to import bullion.
After completely dominating the copper market (China accounts for 40% of global copper demand), it appears that China is about to wade into the bullion shop.
Investors looking to get exposure to gold via ETFs can look towards GOLDBEES or KOTAKGOLD.
Source: FT
Has the market risen too fast too soon? It feels like only yesterday that all the “green shoots” talk from the US drove Nifty to overbought conditions. And then nothing happened. Europe took center stage and the drama there still continues. Are we talking about “brown shoots” now?
We had the same sort of bullishness in early 2010 and 2011 as well. And we are yet to reach those levels again.
I think its time to be nervous.