Along with ‘What to buy’ think about ‘When to Buy’:
Most of the people think if the stock has low PE, high EPS, better dividend yield and due to some external factors if it trading near 52w low, BUY the stock and forget. By doing this you are boarding on a train which is still standing in the yard and yet to start from the source and you are waiting when it will move.
No bad but, what if you choose to board it when it is about to depart.
Solution: Stock Technical Analysis
Source : TradeX workshop Pune
‘Stock technical analysis is basically the structural study of momentum, charts and moving averages that helps you to find the ‘entry’ and ‘exit’ point the stock
Example: When Sikka left the infosys, all the technical indicators (like RSI) were shouting loud to buy the stock but it’s human tendency that when a stock goes down they think it will plunge more and vice versa and meanwhile wise investors invested at that price and returned with triumph.
2. Keep an eagle eye on quarterly earning dates and numbers
If a company delivers better numbers consistently then those become sweethearts of the investors and they invest blindly because they think that if a company is delivering good numbers that means that they must have had higher revenues, better managed COGS and SG&A, lower costing and better margins.
Date is very important as ‘When its quarter numbers would be announced?’. On that day or prior to that day stock becomes more volatile and run towards a particular direction.
Solution: Know the of dates of quarter numbers
Example : Aegis logistics is a midcap company operating in service sector was going to announce its Q3 numbers on 02/02/2018.
Company’s profit statistics were terrific.
But, stock rallied over 12% prior to the Q3 number announcement date without any known news.
You can’t deny the fact that big investors steer the stock market in either direction via bulk buying and selling. That is when small retail investors like us lose that game even after we follow the right track. When time comes , when you are ready to buy a stock because it delivered good numbers, it becomes too late because that is when those big investors sell the stock and drain their money out of the market.
Updates as on 05/02/2018
Aegis Logistics Q3 (YoY)
Revenue up 15.6% at 1,442 crore.
Net profit up 44.6% at 53.5 crore.
Ebitda up 21% at 72 crore.
Margin at 5% vs 4.8%
3. Don’t forget the observe government statistical data for the economy as a whole.
Have you ever heard the news that CPI inflation is record high or IIP data is below average etc. If you are a regular investor you must have heard that.For '
Example: See this latest article published on ET just 4 hours before.
These data works as in indication for FIIs and DIIs that whether they should invest in India or not and if not then when should they invest.
For your information here are the quick notes of what these data are and what they indicate:
1. WPI/CPI : WPI is Wholesale Price Index which is ‘the price of a representative basket of wholesale goods’ and CPI is Consumer Price Index measures changes in ‘the price level of a market basket of consumer goods and service purchased by households. We mainly see CPI numbers.
2. IIP Data: IIP index of Industrial production is a measurement which represensts the status of the production in the industrial sector for a given period of time compared to reference period of time.
3. GDP data : GDP is one of the primary indicators used to gauge the health of a country’s economy.
4. Save some money for ‘Crises’
If you have say 5L to invest, then invest only 3–3.5 lacs and put 1.5 in FD and when market crashes because of external reasons likes global meltdown, US Fed rate hike or wars between two countries ( not internal reasons like geopolitical reasons like surgical strikes etc).
When the market crashes like this break your FD and invest in gems in lesser price.
5. Learn to cut your losses (Don’t Sell the winners and Hold the losers)
Traders have tendency that when they buy a stock and unfortunately if it goes down then either they buy more to average the price or hold for long term saying ‘oh I am a long term investor’.
This is perfectly fine strategy but only if you are holding a value stock. otherwise it will eat your money over time.
Example: I bought Glenmark Pharma at 900 levels and stock plunged below 850 and then to 820 and so on. Glenmark was facing some regulatory issues from USFDA that affected its sales and revenues. I decided to sell at 800 and get out.
Charts play an important role here too and I ended up preventing my further loss.
The company has lots of things to observe, See the financials, concentrate on ratios and margins, compare with peers, study about promoters, keep an eye on liquidity, make sure you know the debt, know future plans, forecast the scope, speak up with indicators and press BUY button.
That is how you can save yourself from a massive destruction.
Note: One indicator never tells the real story, if it was that easy then everybody would be making millions without any obstacles, try to combine many chart indications to determine the actually trend and then move forward to invest your money.
[Note: Author is SEBI Registered Research Analyst.]