Sensex@2010 – Thoughts and Strategies

I wanted to caption this topic as Sensex@35k but then I thought who am I to decide whether the sensex will  be at 35,000 in 2010 or at 53,000 by that time. We can only debate whether the market is bullish or bearish the extent and magnitute is decided by the invisible hand  individuals and institutions that collectively make Mr. Market.

In the last four and a half years we have made money like bandits in this market. People who were able to hold on to their stocks made big multibaggers in their portfolio not just in stocks. The ride has been tremendous and maybe in our life time we will never get a chance to see something like this again. Who knows?

I am a cricket buff and while watching the recently concluded Twenty- 20 series I tried connecting the analogy into our investing startegies.Suppose Team A scores 150 in their alloted 20 overs and Team B is put into bat manages to get to 100 for 1 in the first ten overs. What would the strategy be for Team B? They would need to play sensibly without talking risks and also try to protect the good start.The anchors would drop and the batsmen would play with more caution and with more ground strokes, the sixes would evaporate and the singles would be the order of the day.

Even in investing when we started in 2000 - 01 we started with a  nothing to lose type of a feeling and that initiated a lot of high risk high reward strategy but now we need to play safely with caution because:

a)      There are no such sure shot bargains (multibaggers) available

b)      If at all there are these multibagers come with associated risk because something that could not have performed for 5 years will find it extremely difficult to justify its market cap expansion in the next 12-24 months.

c)       We know that the biggest money is made in http://www.theequitydesk.com/forum/forum_posts.asp?TID=382 - and from what it seems all stocks are discounting a couple of years ahead so PE expansion is out of question. In that event it is the EPS growth that will have to help us in market cap expansion.

I wonder why we are looking @ 2010 as climax year?

I disagree with most of the thoughts mentioned in your Sensex @ 2010 article.

One "strategy" that I have used when I feel there's too much optimism around is to look at my holdings and ask whether I would buy any of my current holdings (based on valuations) if they were to correct 20-30%. If not, then the answer becomes very clear and I sell.  This helps me clearly identify stocks where risk-reward is still favourable.

From ‘Introduction to the Millennium Edition’

of ONE UP THE WALL STREET by Peter Lynch

• In the doldrums of the early 1970s, when I first took the helm at Magellan, at that low point, demoralized investors had to   remind themselves that bear market don’t last forever. Today it is worth reminding ourselves that bull market doesn’t last forever and that patience is required in both directions.

• What Mr. Market pays for a stock today or next week doesn’t tell you which company has the best chance to succeed two to three years down. I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities. What the stock price does today, tomorrow or next week is only a distraction.

• Never invest in any company before you have done the homework on the company’s earnings prospects, financial condition, competitive position, plans for expansion and so forth.

• In my experience, six out of ten winners in a portfolio can produce a satisfying result. All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.

• Speaking on long-term gains, in eleven years’ worth of luncheon and diner speeches, I’ve asked for a show of hands: “How many of you are long-tem investors in stocks?” To date, the vote is unanimous- everybody’s a long-term investor, including day traders in the audience who took a couple of hours off.

• People are advised to think long-term, but the constant comment on every gyration puts people on edge and keeps them focused on the short term. It is a challenge not to act on it.

• It is foolish to bet we have seen the last of the bears, which is why it is important not to buy stocks or stock mutual funds with money you will need to spend in the next twelve months to pay college bills, wedding bills, or whatever. You don’t want to be forced to sell in a losing market to raise cash. When you’re a long-term investor time is on your side.

• Stocks are not lottery tickets. There’s a company attached to every share.

• My advice for the next decade: keep on the lookout for a tomorrow’s big baggers. You’re likely to find one.

2010 pe sensex ka calculation kulman jee kar sakte hai. Kulma jee ke kuch dosto kee pass ek jabardast formula hai.

Oops, I never took whatever you wrote in negative manner! I am not talking about individual stocks ( I wonder what is multi bagger and what kind of duration are we talking about we can get a multi bagger in 3 months and we may not get one in our entire life forget about 3 years)

I think we moving a bit too fast on few stock(s) from being very positive to neutral and then to negative and the same is reflecting on overall market view also which according to is a bit confusing.

I hope we agree to disagree on few thing`s, otherwise it is irrelevant to discuss anything....

This thread made me think like that, the name itself is self descriptive!

There is discrepancy in thought process! If PE is low it will remain low and where PE is high we are getting cautious then which way the boat is heading I am confused?

Reeteshji, why would you believe that people do not hold shares for long period? I know enough people holding shares for really long period. In fact, historically, the minimum period of my holding ( of quality shares ) used to be 7/10 years. Now, it is 2/3 years to keep pace with the changing times.

source bloomberg?

I would like to share with fellow TEDdies a book I am currently reading by Joel Greenblatt, a very successful money manager in the US. He recommends a simple strategy wherein you make use of two ratio's - ROCE and the Earnings multiples. He has demonstrated in the book that this strategy has consistently beaten the benchmark over 17 years.