I-Strategy – a No brainer investment idea (ABCIL)

Team CrawFin/ Harshal Jawale, CFP^CM

This article is in response to my previous article “The ABC of SIP” (http://crawfin.blogspot.com/2011/09/abc-of-sip-systematic-investment-plan.html) where I discussed about simple investing strategies with very small sum, including Sachin Tendulkar case study. Feedback that I received was even though it seems interesting but the theory is told when things are already done. Investor cannot rely on making future investments on the basis of such stories when previous data is analyzed.

I am here putting forward my own theory of investment just to check whether such no brainer yet regular investment will yield decent returns or not. I do not advocate investments with the theory mentioned and it should be taken as a test to check if such things work or not.

Theory – We will consider investing a small sum into 5 stocks, each on one day of week for such 10 weeks. In total it will make 10 installments in each stock, 50 in grand total. We will keep purchasing stock at the opening price of the day. This will average our purchase price over 10 weeks. Since it is a no brainer we will not worry about picking smaller companies, no changes in the amount of investment etc. We will pick only domestic stories with strong and clean management record and only from nifty fifty stocks.

My picks for such theory are as follows (ABCIL), you may pick your own. Some negatives are given which your relationship manager must be giving you since index has risen more than 10% in two weeks. When we talk about systematic investment we should not be worried about top-bottom and 5-10% variation in price.

Axis Bank

Saving rate deregulation, increasing NPA, new banking license etc will affect banks

Axis Bank is already up 17% from its 1 month low, results are out

Bajaj Auto

Higher interest rates, lower auto sales, many competitors

Bajaj Auto is already up 14% from its 1 month low, richly valued at 1720. Results out

Coal India

Mining bill affect its profitability, coal supply issues

Coal India is close to its monthly low today, result awaiting

ITC

Rich valuations of the sector, high inflation meaning high raw material costs

ITC already up by 10% from 1 month low, trading at life-time high valuations. Result out

Larsen & Toubro

High interest rates affecting order book, declining sales and profit, down 40% from year peak

Trading at year low, result out

Points to note –

1. Assuming total amount is INR 1lakh, 50 equal installments everyday
2. Stocks are purchased at opening price of the day
3. Investments will start from this week i.e. 31^st Oct 2011; Have no intention to wait for market to find its bottom.
4. One or all stocks may be in loss or profit depending upon the market trend, test is not to counter the trend but to minimize its effect
5. Actual investments into stocks selected is not advisable at current level
6. Stocks are selected largely on the basis of combination of good/bad result, good/bad projected outlook, strong and clean management, long term India shining story.
7. Since it is a no brainer, I am keeping things away from any good/bad news, or any other happenings in the market. Whatever happens I am suppose to follow code of conduct. That’s what a retail investor expected to do without the help of expert.

This article, blog is created and dedicated to creating awareness about financial products/services/ strategies to help individuals manage their personal finance. I do not endorse stock TIP ideas; if only I knew which one would do best today I would have taken a bet in that stock rather than writing a blog. I am simply a strong believer of investment strategies that has earned decent returns over the years. Understanding of equity as a asset class is more important than asking hot tip for the day.

Disclaimer – It is safe to assume that I or my clients may have vested interest into stocks discussed above.

Wealthy investment needs healthy methods!!!