Recent market movement

Hi Friends,

We are sorry for not posting any new posts and not replying to your queries for quite some time due to hectic busy schedule.

In terms of market movement in recent days, as we suggested in March that market will be driven higher upto 18000-18500 that came true and after that market receded upto 16000. We feel that this is the last chance for market consolidation (which could take upto next 4-6 months) before market heads higher and make next base at 18000-22000 which could be a range for next year (2011). This will also give you plenty of buying opportunity for good stocks at cheap price for longer term.

Europe crisis is still not over and will linger for next few months. This crisis will help for market consildation in next 4-6 months. Else from economy front, we are coming out of rcession gradually and economy growth has been tremendous in past few months.

Europe crisis  (whether intentional/non-intentional), is giving all of us very good last opportunity to buy quality stocks at cheap price. So exploit this opportunity and be in market for long term.

Happy investing…

-Netstock

Magic of compounding (Make 4 Crore in 20 years from initial investment of 50000)

Dear friends,

We always try to bring some exciting information for you. This time we are bringing the Magic of Compunding.

Suppose you invest Rs 50,000 today at the age of 30 years and your annual return from Stock market is 40%. At the age of 50 years, your Rs 50000 will turn into more than 4 crores. We have put calculations below for your reference.

1st year	70000
2nd year	98000
3rd year	137200
4th year	192080
5th year	268912
6th year	376477
7th year	527068
8th year	737895
9th year	1033052
10th year	1446273
11th year	2024783
12th year	2834696
13th year	3968574
14th year	5556003
15th year	7778405
16th year	10889767
17th year	15245673
18th year	21343943
19th year	29881520
20th year	41834128

You can see that after 20th year, your initial investment of 50,000 has turned into Rs. 4,18,34,128.

What we are trying to tell you is that if you are not too greedy in stock market than you can definitely make atleast 40% annualized return on an average and can retire at the age of 50 with good bank balance.

In this cycle of 20 years you will have lots of Ups and Downs but if you stick to good stocks and take profit time to time and invest properly, this is least achievable and can be more as well.

-Netstock

Growth/Value/Junk Stocks from our recommendation

Hello Friend, we know every one wants to know what stocks belong to which category we have recommended recently.

Just to give you an idea -

Growth Stocks – HCC, ABG Shipyard, Bharati Shipyard, Welspun Gujarat, IDFC, Jaiprakash Associates, Tata Motors, Godawari Power, Nucleus Software, Himadri Chemicals, Rolta, Bilcare, HDIL etc.

Value Stocks - Suzlon, Alok Industries, Rei Agro, Rcom, Provogue, Tanla Solution, Gati, Satyam, 3i, Balaji Telefilm, Anant Raj

Junk Stocks - PVP,  Sel Man.

Now big thing here is that a value stock may become a growth stock over the period of time. While a Growth stock can also become a value stock over a period of time. Like Rcom was a Growth stock earlier but because Telecom sector was beaten in india and this stock dipped so much, its value at current market price is of a “Value Stock”

If we have to buy 10 stocks for long term, We will buy 5 growth stocks, 4 value and 1 junk. OR, 6 growth, 3 value and 1 junk. Growth stocks will help your portfolio to keep from going down too much in short period. A value stock will help you to make very good money in longer run. While a junk stock as we always say, can make you millionnaire in longer run with small amount of investment if your luck favors you.

Hope this will help you.

-Netstock

How investors make money in long run….

Suppose you own 15 stocks for a 5 yrs investment period. Now what you need is 2 stocks to give you bonus (1:1) two times in 5 yrs and two stocks to split (1:1) 2 times in 5 yrs.

Essentially now those 4 stocks (out of your 15 stocks) are increasing your number of shares by 4 times in 5 yrs.

Again assume you bought all those 4 stocks at 100 Rs in beginning and your investment in all those 4 stocks was total 1 Lac. Lets say their price after 5 yrs is Rs 500. This mean your 1Lac investment in those 4 stocks has turned into Rs 20Lacs  in 5 yrs.

Coming to rest 11 stocks. Lets say you had invested 4Lacs in those 11 stocks and after 5 yrs their average return is only double. Then your total return after 5 yrs would be 28 Lacs from an intial investment of Rs 5 Lac in beginning.

This means you are getting a whopping 600% return on your investment in 5 yrs which no one except only stock market can give you.

These are just manipulation and your return can be higher or lower as well but if you are riding on your fortunes plus on our strategy of Growth, Value, junk stocks investment then you should definitely get at least 600% return in longer run. Those 4 stocks which returened you 20Lacs will be considered as multibaggers. “Dont be too greedy….you can’t have all your stocks as multibagger”.

Thats it and this is the phlosophy of all longer term investors and thats why they make huge money.

Always remember market will exhaust you completely and take full exam of your patience before giving 600% return.

-Netstock

Why do stocks fall down faster but move up slower?

Here is simple mathematical forumla -

1. Suppose you own a stock at Rs 100 and it goes down to Rs 50. So how much %age it has fallen? Yes, you are right..it is exactly 50% fall.

2. Now from Rs 50 to take it back to your original price of Rs 100, how much %age it needs?, Yes, you are right…it exactly needed 100% to reach to your original price of Rs 100.

This means to move a stock up it needs double the strength. That is the reason stocks fall quicker but move up much slower.

In another words,

1) if a stock falls 50% in 1 year than it will take 2 yrs to reach to original price. OR

2) it needs double the volume to move upto original price. This is where importance of volume comes into picture.

Hope this article was useful…

-Netstock

Market Corrections Vs. Bear Market

As you may have seen severe blood bath on Dalal Street today which we accurately predicted about 15 days back, you may wondering what is this, why market all of a sudden has fallen so badly?

This is a sign of Market Corrections. Which we are witnessing 3rd time Since March09. 

Market corrections usually happen during bull phase where in market all of sudden reaches too a new high where in fundamentals have little changed. At this juncture, all Medium/Long investors off load some of their profit from portfolio and try to pull down the market so that retail investors (like you and me) in panic sell their stocks at low value. These Medium/Long term investors then buy those stocks at low value so that they could build their long term portfolio more strongly. Usually 2-3 times in a year minor/major corrections happen during bull phase which also provide opportunity to buy at low level. Usually during Market Corrections, market stops falling at certain level (in most of the cases 10-20% of its recent peak).

Bear Market at the other hand is a situation where in there is no downside limitaion. Market can go down to any level. Stocks tumble and make new lows every day. They can go as low as 100-1000% from their recent highs in no time. Bear Market also gives opportunity to buy on extreme lows for long term investors. But this is little dangerous – you may think like if a stock is available at low price today and buy it only to find some days later that your stock is now available at much better price to buy.

We hope you have enjoyed this article and invest intelligently in market to make short/medium/long term profit.

-Netstock

Tip – Merger and Acquisition (how to profit in short term)

As you may have seen that Arcelor Mittal recently acquired stake in Uttam Galwa steel. Price of Uttam Galwa went from 30 (in Apr) to 140 (in Sep). Wow a whopping 366% profit in just 5 Months.

Now the big question is how to profit from these M&A.

There is a thumb rule:

1. Company whose stake is sold always shoots up.

2. Company who buys stake will usually go down.

However, a word of caution here is: These movements are usually for short term and last until deal is done.  So you should exit from these M&A as soon as you are making your expected profit. Don’t be too greedy else you may loose.

Another recent example was Great Offshore comapanie’s stake buying race buy ABG Shipyard and Bharati Shipyard. Great Offshore rose continuosly in price from May09 – Sep 09. While ABG Shipyard and Bharati remained low and range bound.

Hope this post was useful and informative.

Happy investing…

Does book value matter?

Lots of long term investors pay very close attention to Book Value of a stock. They try to compare BV with current stock price.  If book value is high they think price of a stock will always go high and reverse is equally true for them. I dont want to go into deep of what BV is and how this is calculated and how does it matter from fundamental analysis perspective.

However, I just want to show you interesting facts about BV.

1. Jaiprakash Associates - BV = 45 (too low) and it is trading at 265 (too high)

2. Bharati Shipyard – BV = 255 (high) and currently trading at 188 (low)

3. HDIL - BV= 162 (low) and currently trading at 394 (too high)

The fact I am trying to tell is that in stock market, fundamental analysis matters but you can not gain and rely simply based on fundamental analysis.

Hope this post was useful.

Identifying Overbought and Oversold

It is very difficult to know whether a stock is oversold or overbought by looking at it’s price or PE ratio etc.

However, there is a technical indicator called as RSI (Relative Strength Index) which gives you an idea whether a stock is overbought or oversold. RSI value is between 0-100.

If a stock is below 30 RSI then it is considered as oversold. If RSI is above 70, it is considered as overbought.

People (specially short term traders) usually buy below 30 and sell above 70.
However during bull phase people use 40 as oversold territory and 80 as overbought territory.

below is a real time example of Alok Industries share which gives you fare indication of seeing overbought/oversold position of a stock.  We hope this will help you to start your journey in stock market. Your feedback/suggestions are always welcome.