Stocks for the long and short term portfolio
- Thread starter jamit_05
- Start date
Ts
Yes, it is tough to buy the stock of a sector, which is in recession. Especially when the company has multiplied its production several times amidst a pretty bad economic scenario and is deep in debt which it is finding hard to service.
That doesn't mean that the stock will fall endlessly. It will certainly find a pullback, a relief rally or a sustained sideways consolidation. But, when will that happen is anyone's guess.
The real question is, do I want to take a test in bravery or wait for a killer price where there is little or no need to be brave?
I am not saying that one approach is RIGHT and the other is WRONG. No. I am sure there are fair amount of successful people doing short-term stock investment. But, I do not know how to do it. Hence, I do not recommend it or even propose a plan to go about it.
Yes, it is tough to buy the stock of a sector, which is in recession. Especially when the company has multiplied its production several times amidst a pretty bad economic scenario and is deep in debt which it is finding hard to service.
That doesn't mean that the stock will fall endlessly. It will certainly find a pullback, a relief rally or a sustained sideways consolidation. But, when will that happen is anyone's guess.
The real question is, do I want to take a test in bravery or wait for a killer price where there is little or no need to be brave?
I am not saying that one approach is RIGHT and the other is WRONG. No. I am sure there are fair amount of successful people doing short-term stock investment. But, I do not know how to do it. Hence, I do not recommend it or even propose a plan to go about it.
Last edited:
Essence of Warren Buffet's Investment-Mindset.
Much is written, read, published, discussed and re-written about Warren Buffet's life and investments and his style. But, it took me a decent amount of reading to understand his core, his focus, what he wants to achieve from an investment. His Essence. And its important to understand, as it provides great learning. There is plenty of material easily available. So it is a matter of ones interest.
What piqued my interest in doing this research is, I observed that WB does NOT always get rock bottom prices and still achieves a remarkable growth rate. So what am I missing?
He buys companies with good management, understandable business, strong Moat and at reasonable prices (PE<25.)
(It makes sense, why would an extraordinary company become cheap (Low PEs), unless its in trouble)
So, with that logic... HDFC is not expensive right now because it is at 20 PE. Its avg historic PE. So will I succeed as an investor if I buy HDFC at Rs.600... which is near its all time high?
It turns out, at CMP HDFC is a much better bet than any other Indian bank and most of other companies. Why? Read on..
Consider this, I buy HDFC now at 20x. Its current EPS is Rs.30... hence CMP Rs.600.
10 years from now, its Avg PE will be 15x. So lets project its EPS to get its CMP 10 years later and calculate our gains.
Lets Assume EPS grows by a humble 15%. It has grown by 30% in last few years... so 15% is decent. Compounding at 15%; After 10 years its EPS is Rs.120 per share. So, at PE of 15, its share price becomes Rs.1800.
This gives me a growth of Rs.120 per year per share. Now that is 20% growth in share price year! That is a lot more than I can handle
I have realized that, this is the essence of being a pure Long Term investor. Buy the best companies at reasonable prices and hold for decades like I would hold my PPFs.
However, I must be alert to follow the fundamentals to catch any fall in growth.
Invest Wisely.
Amit
Much is written, read, published, discussed and re-written about Warren Buffet's life and investments and his style. But, it took me a decent amount of reading to understand his core, his focus, what he wants to achieve from an investment. His Essence. And its important to understand, as it provides great learning. There is plenty of material easily available. So it is a matter of ones interest.
What piqued my interest in doing this research is, I observed that WB does NOT always get rock bottom prices and still achieves a remarkable growth rate. So what am I missing?
He buys companies with good management, understandable business, strong Moat and at reasonable prices (PE<25.)
(It makes sense, why would an extraordinary company become cheap (Low PEs), unless its in trouble)
So, with that logic... HDFC is not expensive right now because it is at 20 PE. Its avg historic PE. So will I succeed as an investor if I buy HDFC at Rs.600... which is near its all time high?
It turns out, at CMP HDFC is a much better bet than any other Indian bank and most of other companies. Why? Read on..
Consider this, I buy HDFC now at 20x. Its current EPS is Rs.30... hence CMP Rs.600.
10 years from now, its Avg PE will be 15x. So lets project its EPS to get its CMP 10 years later and calculate our gains.
Lets Assume EPS grows by a humble 15%. It has grown by 30% in last few years... so 15% is decent. Compounding at 15%; After 10 years its EPS is Rs.120 per share. So, at PE of 15, its share price becomes Rs.1800.
This gives me a growth of Rs.120 per year per share. Now that is 20% growth in share price year! That is a lot more than I can handle
I have realized that, this is the essence of being a pure Long Term investor. Buy the best companies at reasonable prices and hold for decades like I would hold my PPFs.
However, I must be alert to follow the fundamentals to catch any fall in growth.
Invest Wisely.
Amit
Last edited:
Cons of Dividends.
Companies that do not have growth plans/ideas/motivation choose to do away with their precious Free Cash Flows by the way of dividends.
FCF is very precious for companies that have strong motivation and avenues to grow. So, if I am buying a company and expecting it to grow its EPS by 15% for the next decade or two, then surely I do not WANT it to give away its FCF.
This FCF can help it perform the best "Type of Growth", which is debt free, risk free, haste free growth: Organic Growth. I would rather have the management use this precious cash in
1) Reducing debt
2) In future Expansion.
3) And if the environment is unsuitable for both, then use this money to buy back its stock from open market, hence appreciating share price.
A nominal amount of Dividend is tolerable in the name of tradition. But, logically speaking, if it gives high dividend, like Union Bank or Corporation Bank, then be sure that in the coming decade it will lose its market share to other more ambitious and younger companies, like Axis and HDFC.
The recent price action is corroborative:
Union Bank fell from Rs.420 to Rs.100 and recovered feebly. CMP Rs.115; It is hence, net down by 72% from its All Time Highs.
Whereas, HDFC fell by Rs.200 From its All Time High of Rs.727 and strongly recovered back to Rs.610; It is net down by ONLY 16%; Surely, only NPA could not be the reason for such a wide-gap!
"Old" Companies Give Dividends.
Companies that do not have growth plans/ideas/motivation choose to do away with their precious Free Cash Flows by the way of dividends.
FCF is very precious for companies that have strong motivation and avenues to grow. So, if I am buying a company and expecting it to grow its EPS by 15% for the next decade or two, then surely I do not WANT it to give away its FCF.
This FCF can help it perform the best "Type of Growth", which is debt free, risk free, haste free growth: Organic Growth. I would rather have the management use this precious cash in
1) Reducing debt
2) In future Expansion.
3) And if the environment is unsuitable for both, then use this money to buy back its stock from open market, hence appreciating share price.
A nominal amount of Dividend is tolerable in the name of tradition. But, logically speaking, if it gives high dividend, like Union Bank or Corporation Bank, then be sure that in the coming decade it will lose its market share to other more ambitious and younger companies, like Axis and HDFC.
The recent price action is corroborative:
Union Bank fell from Rs.420 to Rs.100 and recovered feebly. CMP Rs.115; It is hence, net down by 72% from its All Time Highs.
Whereas, HDFC fell by Rs.200 From its All Time High of Rs.727 and strongly recovered back to Rs.610; It is net down by ONLY 16%; Surely, only NPA could not be the reason for such a wide-gap!
Last edited:
Re: Essence of Warren Buffet's Investment-Mindset.
Amit.... great analysis....just a small correction. It is Hdfcbank in discussion.
Much is written, read, published, discussed and re-written about Warren Buffet's life and investments and his style. But, it took me a decent amount of reading to understand his core, his focus, what he wants to achieve from an investment. His Essence. And its important to understand, as it provides great learning. There is plenty of material easily available. So it is a matter of ones interest.
What piqued my interest in doing this research is, I observed that WB does NOT always get rock bottom prices and still achieves a remarkable growth rate. So what am I missing?
He buys companies with good management, understandable business, strong Moat and at reasonable prices (PE<25.)
(It makes sense, why would an extraordinary company become cheap (Low PEs), unless its in trouble)
So, with that logic... HDFC is not expensive right now because it is at 20 PE. Its avg historic PE. So will I succeed as an investor if I buy HDFC at Rs.600... which is near its all time high?
It turns out, at CMP HDFC is a much better bet than any other Indian bank and most of other companies. Why? Read on..
Consider this, I buy HDFC now at 20x. Its current EPS is Rs.30... hence CMP Rs.600.
10 years from now, its Avg PE will be 15x. So lets project its EPS to get its CMP 10 years later and calculate our gains.
Lets Assume EPS grows by a humble 15%. It has grown by 30% in last few years... so 15% is decent. Compounding at 15%; After 10 years its EPS is Rs.120 per share. So, at PE of 15, its share price becomes Rs.1800.
This gives me a growth of Rs.120 per year per share. Now that is 20% growth in share price year! That is a lot more than I can handle
I have realized that, this is the essence of being a pure Long Term investor. Buy the best companies at reasonable prices and hold for decades like I would hold my PPFs.
However, I must be alert to follow the fundamentals to catch any fall in growth.
Invest Wisely.
Amit
What piqued my interest in doing this research is, I observed that WB does NOT always get rock bottom prices and still achieves a remarkable growth rate. So what am I missing?
He buys companies with good management, understandable business, strong Moat and at reasonable prices (PE<25.)
(It makes sense, why would an extraordinary company become cheap (Low PEs), unless its in trouble)
So, with that logic... HDFC is not expensive right now because it is at 20 PE. Its avg historic PE. So will I succeed as an investor if I buy HDFC at Rs.600... which is near its all time high?
It turns out, at CMP HDFC is a much better bet than any other Indian bank and most of other companies. Why? Read on..
Consider this, I buy HDFC now at 20x. Its current EPS is Rs.30... hence CMP Rs.600.
10 years from now, its Avg PE will be 15x. So lets project its EPS to get its CMP 10 years later and calculate our gains.
Lets Assume EPS grows by a humble 15%. It has grown by 30% in last few years... so 15% is decent. Compounding at 15%; After 10 years its EPS is Rs.120 per share. So, at PE of 15, its share price becomes Rs.1800.
This gives me a growth of Rs.120 per year per share. Now that is 20% growth in share price year! That is a lot more than I can handle
I have realized that, this is the essence of being a pure Long Term investor. Buy the best companies at reasonable prices and hold for decades like I would hold my PPFs.
However, I must be alert to follow the fundamentals to catch any fall in growth.
Invest Wisely.
Amit
Had this brief Analysis about HDFC Bank in my archieves : Sharing for anyone interested in a Long Term Safe bet : This Analysis was done after June Qrtr 2013-14 results
Results Update - Q1Fy14
HDFC Bank's Q1Fy14 results seemed to be in line with the past growth trends. A brief write-up on the same is presented below:
Q1Fy14-on-Q1Fy14 - Net profit for the quarter was up 30% to Rs 1844 crores while the Net Interest Income grew 21% to Rs 4420 crores. The Other Income constituting of fees and commissions grew 30% to Rs 1926 crores.
The Bank grew its Net Advances at 21% to Rs 2.59 crores while Deposits grew by 18% to Rs 3.03 crores. The asset quality was the key discussion point as the Net NPA increased to 0.3% from 0.2% in the immediately preceding quarter whereas the Gross NPA at 0.97% vs.1% in the preceding quarter.
The Provision coverage ratio at over 75% is well above RBI guidelines. Return on average assets continues to be strong at 0.5% for the quarter. The CASA ratio at 44.7% was lower when compared to 47.4% for Q4Fy13. The Capital Adequacy Ratio at 15.5% indicates that the Return ratios should improve from here as the Bank uses up its existing resources.
At a a Price to Book of 3.6 times and a PE of 18.3 times Fy14 earnings HDFC Bank is the best option in the private banking space. Its asset book is well diversified and mostly floating in nature. This indicates that any increase in interest rates even though temporary can be passed on to its customers more easily than Banks which have a greater proportion of fixed rate loans. At the time of the Asian crisis in 1998 the RBI had raised the Repo rate by 200 bps in a single stroke in order to protect the rupee and though that looks highly unlike the high interest rate trend should be in vogue till the Indian rupee stabilises against the US Dollar.
Overall any weakness in HDFC Bank should be used to buy this as part of a long term portfolio and though the stock can fall in line with the overall market the recovery will be strong and swift. In an uncertain environment it makes complete sense to stick with quality and though the present money tightening attempts look temporary they might well continue into the future in case the rupee does not stop its slide.
Results Update - Q1Fy14
HDFC Bank's Q1Fy14 results seemed to be in line with the past growth trends. A brief write-up on the same is presented below:
Q1Fy14-on-Q1Fy14 - Net profit for the quarter was up 30% to Rs 1844 crores while the Net Interest Income grew 21% to Rs 4420 crores. The Other Income constituting of fees and commissions grew 30% to Rs 1926 crores.
The Bank grew its Net Advances at 21% to Rs 2.59 crores while Deposits grew by 18% to Rs 3.03 crores. The asset quality was the key discussion point as the Net NPA increased to 0.3% from 0.2% in the immediately preceding quarter whereas the Gross NPA at 0.97% vs.1% in the preceding quarter.
The Provision coverage ratio at over 75% is well above RBI guidelines. Return on average assets continues to be strong at 0.5% for the quarter. The CASA ratio at 44.7% was lower when compared to 47.4% for Q4Fy13. The Capital Adequacy Ratio at 15.5% indicates that the Return ratios should improve from here as the Bank uses up its existing resources.
At a a Price to Book of 3.6 times and a PE of 18.3 times Fy14 earnings HDFC Bank is the best option in the private banking space. Its asset book is well diversified and mostly floating in nature. This indicates that any increase in interest rates even though temporary can be passed on to its customers more easily than Banks which have a greater proportion of fixed rate loans. At the time of the Asian crisis in 1998 the RBI had raised the Repo rate by 200 bps in a single stroke in order to protect the rupee and though that looks highly unlike the high interest rate trend should be in vogue till the Indian rupee stabilises against the US Dollar.
Overall any weakness in HDFC Bank should be used to buy this as part of a long term portfolio and though the stock can fall in line with the overall market the recovery will be strong and swift. In an uncertain environment it makes complete sense to stick with quality and though the present money tightening attempts look temporary they might well continue into the future in case the rupee does not stop its slide.
I tend to only take a hint from the popular ratios and prefer to derive my own conclusions from the data in the Annual Reports.
For ex. I read that HDFC has one of the best CASA ratio in the industry. This means, cheap source of funds. Not taking the news for granted I devised the following ratio:
Interest Expense / Interest Income
If indeed a bank has access to cheap funds, then it should strongly show in its numbers. And guess what, the above ratio for HDFC Bank is 2nd lowest!
Kotak 53%
HDFC 55%
ICICI 63%
Axis 64%
ING Vysya 69%
City Union 72%
Yes 73%
Surprisingly, Yes's is the highest. Its EPS is going to take a hit in the tough times ahead.
Excellent Thread by Amit ! I am new to TJ and been through your entire thread. You, sir, are a true Fundamental Investor who knows how to walk the talk without getting impatient! Also, I share the view that being proficient in TA helps to time your entry in valuable stocks, which are to be held like property (I mean for a longer period). I am new to the stock market (about 1 year i think) and will try to learn and share as much as possible to contribute to this forum/thread. Seasoned investors are welcome to credit/discredit my findings.
I will start with: Indian Bank - this gem i think is deeply discounted and BELOW its IPO levels at CMP - 67 and after PSU Banks have bottomed out, i think INDIANB will lead the Bull-Pack among banks.
The stock may keep depreciating further, but it is to be accumulated on dips and SIP can be made into this.
Its highlights are:
Face Value - 10
BVPS - 269 - Giving a P/BV of 0.25 !!! Awesome ! - Also BVPS is increasing YoY
PE Ratio is just 2.02 whereas industry standard is approx 4.85
52 Week High/Low is 218/60 , currently it is at lifetime lowest levels !
Formed a bullish harami pattern earlier this month
Total income is steadily increasing YoY - 17% yearly increment over past 10 Years
Also see huge delivery volumes on moneycontrol
and . . . wait for it . . . dividend of 66%
Personally i think its a no-brainer ! Amit, awaiting your views on the same.
I will start with: Indian Bank - this gem i think is deeply discounted and BELOW its IPO levels at CMP - 67 and after PSU Banks have bottomed out, i think INDIANB will lead the Bull-Pack among banks.
The stock may keep depreciating further, but it is to be accumulated on dips and SIP can be made into this.
Its highlights are:
Face Value - 10
BVPS - 269 - Giving a P/BV of 0.25 !!! Awesome ! - Also BVPS is increasing YoY
PE Ratio is just 2.02 whereas industry standard is approx 4.85
52 Week High/Low is 218/60 , currently it is at lifetime lowest levels !
Formed a bullish harami pattern earlier this month
Total income is steadily increasing YoY - 17% yearly increment over past 10 Years
Also see huge delivery volumes on moneycontrol
and . . . wait for it . . . dividend of 66%
Personally i think its a no-brainer ! Amit, awaiting your views on the same.
Last edited:
Similar threads
-
-
-
How about SIP in stocks for long term?
- Started by nileshsh
- Replies: 17
-
Short selling stocks for longer than intraday
- Started by fatlabrador
- Replies: 11
-
Daily Day Trading Ideas: Stocks and Options - Long and Short Strategies- Started by philosuffer
- Replies: 61