How to Invest for the Long Term

By Peeyoosh Chadda Executive Vice President Edelweiss Financial Services Limited & Sandeep Raina Expert Research
October 13th, 2012

Follow a disciplined approach

Follow a disciplined approach

Have an approach, if you are Trading or Investing Each has a distinct need for a discipline which needs to be followed We focus on long term investing here Look at markets as a place for long term wealth creation Markets are not a lottery

Do not panic when the markets correct or invest only in times of euphoria
Refrain from relying on tips do your homework
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Understand your investment options

Understand your investment options

Understand the investment options to participate in equities Two basic investment options are: Mutual funds Regular investing and SIPs Direct investment through stocks Lets have a look at the options

Understand your investment options

Investing through Mutual Funds Regular and SIPs When you are quite busy with your regular schedule and can devote limited time, say not even on a weekly basis Your job then is to simply identify the right set of funds and fund managers, invest money regularly and track performance regularly The fund managers are the experts they devote a large part of their time towards stock research and analysis, and are trustworthy in terms of investing on your behalf

Good funds can add a lot of value, heres a look at some of them

2100 1700 1300 900 500 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Reliance Growth HDFC Equity SBI Magnum Contra Reliance Vision HDFC Top 200 Nifty (Benchmark)

1898 1692

1503
1479 1414

456

Source: Valueresearchonline

Understand your investment options

Direct investment in stocks When you can devote enough time in your regular schedule towards analyzing and researching companies (at least five to seven hours per week) You have sufficient knowledge of financial as well as other industry-related metrics You have the ability to identify and track a particular sector where you can identify trends an edge You can resist tips / other temptations

How to pick a stock

How to pick a stock

Identify your style of investing Investing styles primarily fall under one of these: Value investing This is when an investor looks at a bargain in terms of how a stock is valued, i.e., identifying stocks at deep discounts to their asset values, liquidation values or replacement values Growth investing Growth investors look for companies that are experiencing a rapid growth in their earnings, typically companies growing by upwards of 20% every year

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How to pick a stock

Turnaround investing Turnaround specialists look at companies in a distress state currently, but which could be potential candidates for turnaround in operations. This could be triggered by change in business model, change in management or change in balance sheet structure

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How to pick a stock

Identify your risk appetite

Small Caps

Risk

Large Caps
Return
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How to pick a stock

Large Caps Typically companies which are large and have a proven long-term performance track record. Market cap exceeds INR 5,000 crores Mid Caps Typically companies at an expanding stage of product/service acceptance and witnessing steady growth in their business. Market cap in the range of INR 1,000 to 5,000 crores Small Caps Typically companies at an early stage of product/service acceptance and subject to change/competition/substitute products/ technology. Market cap less than INR 1,000 crores
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How to pick a stock

Key parameters to look at: Growth Capital Efficiency Leverage Valuations

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When to sell a stock

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When to sell a stock

Deteriorating fundamentals (Slowdown in growth, increasing competition, reduction in profit margins, etc.) The stock price has appreciated to such an extent that valuations are beginning to look expensive on multiple fronts A better substitute is now available versus the current stock you are holding, and with capital being limited, you sell the current stock to buy the new one

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Portfolio monitoring is not optional

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Portfolio monitoring
Portfolio monitoring is an ongoing exercise that you need to conduct to be aware of the performance of your portfolio and take corrective actions as needed This involves tracking day-to-day events / news in the sector/ stocks you hold Once the monitoring activity is put in place, the next logical step is to take corrective action in terms of reducing exposure to current holding or adding exposure to a current / new holding based on the analysis In the case of mutual funds as well, a similar monitoring activity has to be undertaken

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Using your guide: Edelweiss.in

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Using your guide Edelweiss.in

In order to simplify and enrich your investment decision-making process, you can take full advantage of your guide, Edelweiss.in At Edelweiss.in, you have full access to Edelweisss full range of coverage on macro economics, sectors and over 200 stocks. Further, you get research reports daily, tracking Indian corporate news, market movements, thematic reports across sectors, economy and asset classes.

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Stocks you should buy

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Bajaj Auto Second largest 2 wheeler manufacturer, set to benefit from increasing two wheeler penetration.

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ITC

Cigarettes business to remain robust, FMCG the trump card, classic domestic consumption bet.

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ICICI Bank

Banking revenue set to grow 5.3x to Rs 10.6 Trn over the next 10 years, ICICI Bank is a front-runner to capture this opportunity.

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Thank You

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