TEN GOLDEN RULE FOR THE INVESTOR

Currently, the Indian markets are in doldrums and nobody is talking of stocks or investments. You may think justifiably so, as the markets are headed in no direction. Is it not exactly the opposite of the exuberant times we were witnessing a few months back. Conversely, bottoms are made in turbulent times. It is difficult, if not impossible, to say when the markets will halt their southward journey and change direction for the better. Who knows, we might have already hit the bottom and the markets may soon return back to their upward trajectory. My empirical observation and research have proved it that wealth making in the market has more to do with discipline and the power of time to compound growth than being smart at stock picking and timing the markets just right. To help you in your quest to make wealth in our markets, I suggest you follow the 10 golden rules of markets that will virtually ensure reasonable, steady wealth appreciation.
Bear in mind, you cannot have your cake and eat it too. Saving and consumption do not go hand-in-hand. You need to plan today for the lifestyle you want after you stop working, i.e. the finances you will require after you retire. Accordingly, save the necessary portion of your income to invest in equities. Equities, or stocks, may appear risky, but they are just volatile, they go up and down, and time is the perfect hedge against volatility.

Therefore, Rule No 1: Plan for tomorrow, today. Start saving for it now! Stagger your investments throughout your earning phase. Invest regularly and invest for the long term to buy in at an average price that includes both markets’ up and down ticks. Never wait until you have large amounts of money to invest. However small the amount you are able to save, start early. The earlier you start, the better are your chances of making great wealth. Remember to make great gains. Time is a crucial factor, as wealth creation is a factor of both the power of compounding and the returns on your investments.
Accordingly, Rule No 2: Start early so that the power of compounding begins sooner; time is the magic that converts paise into rupees. In exuberant phases, when we have earned good money from our investments, most of us get greedy, and derivatives and futures provide an outlet for the expression of human greed. While such instruments often satisfy the whims of human greed, if taken to unrealistic levels, irresponsible investment in these securities can lead to financial ruin.
Hence, Rule No 3: Do not leverage, it is difficult, if not impossible, to predict short-term trends. Buy markets, not stocks. We all know that our economy is in a secular phase of prosperity and the stock market is the best proxy for the growth of an economy. To benefit from our soaring economy, buy the market as a whole and not any single stock.
Consequently, Rule No 4: Buy stocks that mirror the broader indexes, but never buy a single, or a handful of stock exposures. This means that you need to spread your risk across various market segments in the event a particular stock does not perform for reasons beyond the company’s control. It is easier to predict company earnings, but difficult to predict stock prices of the same company in the short run. Ironically, over the long term, stock prices mirror growth in a corporation’s earnings.
Therefore, Rule No 5: Look at company earnings, not at stock prices. Stock prices may tempt or give the wrong impression of a company’s welfare. But to build real wealth in equities, you must always rely on declared profits and facts, rather than make decisions based on stock movements. We all tend to sell stocks when we have made profits and keep the ones that have not appreciated. Eventually, we end up holding a portfolio of companies that are not performing! It is only human to sell for profits and not to want to take losses.
Hence, Rule No 6: Keep the winners, sell the losers. Stay on top of your investments. Check constantly for stocks that are not performing and eliminate them from your portfolio if the outlook does not seem promising. This way, you will have all winners left in your portfolio to take you to your goals. In exuberant times, we all tend to believe that the good times will last longer than they actually will. And before D-day, we will be able to sell our investments that were bought at unjustified levels. Just then, it happens that the markets turn and before we can sell out, we are left holding the bag.
For this reason, Rule No 7: Avoid being the “Bigger Fool;” it is imperative that you recognise the difference between price and value. Buy value and not momentum. When investing in stocks, your head should prevail over your heart. Resist the urge to get consumed by market chatter. Ignore hot tips from dealers and friends. It is advisable to do your own home work.
As the result, Rule No 8: Pick stocks with your brain, not your heart. Large-caps are the ones that have already proven themselves over longer periods of time and have the balance sheet acumen, strong cash flow and brains to manage businesses effectively according to prevailing situations and realistic opportunities available.
Hence, Rule No 9: Prefer large-cap stocks to small- and medium-caps. Investment in small and mid-cap stocks requires expertise and strong tracking abilities, that without, your portfolio will under-perform. Do not short sell a stock just because it is going up, and thus, one day it must come down. Newton’s law is not applicable to the markets. What goes up does not necessarily come back down! If companies are able to sustain earnings’ growth for long periods, then its stock may go up, up and up, or it can even remain high without any reason for a long period of time.
Because of this, Rule No 10: Markets can remain irrationally up, or continually climb for the right reasons. Therefore, never go short. It will expose you to unnecessary risks.

INFLATION INCHED UP TO 7.83%VS 7.61%

The annual inflation was at 7.83% for the week ended May 03 versus 7.61% the previous week. The data for the week ended March 8 has been revised to 7.78% versus 5.92% (provisional). The markets seem to have discounted the inflation figures. The food articles index was up at 0.5% whereas the manufacturing products index was up by 0.3%. Fuel, power index was up by 0.8%. “The benefits of the fiscal measures like excise and import duty cuts have been negated by currency depreciation. Rise in food prices has also been a contributor”, says HDFC chief economist Abheek Baruah. FY-08 subsidy burden seen over Rs 20,000 cr versus Rs 17,000 crore. The wholesale price index is forecast to have risen 7.5 per cent in the 12 months to May 3, below 7.61 per cent a week earlier that was its highest since November 13, 2004. It will be the ninth consecutive week that inflation has held above 5.5 per cent, the central bank's target for inflation by the end of the fiscal year ending in March 2009.
The government, under pressure to contain prices ahead of state polls this year and national elections due by next year, has cut import duties on edible oil, curbed rice exports and forced steel and cement companies to cut prices. Policymakers have also signalled their intent to take more steps to tame inflation if needed. In April, the RBI raised the proportion of deposits that banks must set aside by 75 basis points to a seven-year high of 8.25 per cent, to suck out inflation-fuelling excess cash from the banking system. The wholesale price index is more closely watched than the consumer price index (CPI) because it includes more products and is also published weekly.

MARKET OUTLOOK

GLOBAL MARKET IS IN POSITIVE MODE AFTER OIL SLIPPED A BIT.NIFTY CLOSE ABOVE PSYCHOLOGICAL LEVEL OF 5100,MARKET O I IS INCHED UP TO 76 K CR AND PUT CALL RATIO HOVERING AROUND 1.45.
LEVEL OF NIFTY IS 5030-5100-5150-5200.MARKET WITNESSING SHORT OF 5200 CE & 5300 CE AND SIMULTANIOUSLY SHORT OF 4800-4900 PE .IT MEANS MARKET WILL MOVE IN BROADER RANGE OF 4900-5250.SECTOR TO BE WATCHED OUT IN MARKET IS PHARMA AD FOR MANSOON FORCAST SUGAR AND FERTILIZER SECTOR.
INFLATION DATA IS GOING TO CONFUSE TODAY IT IS EXPECTED AROUND 7.5-7.6.
HAVE NICE WEEKEND TRADING DAY.