Planning to buy stocks? Read this first...

Oct 1, 2010

In this issue:
» India may be world's 3rd largest economy by 2050
» Americans lowering their debt burden the wrong way
» Job market shinning once again
» Indian companies go shopping in Europe
» ...and more!!

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Many investors try to get 'inside information' on companies. Information that they hope will help them buy or sell shares in the company at a profit. And though illegal, it is one of the most sought after kinds of information in the stock markets.

So what are insiders saying these days?

Well, while we should outright confess that we do not have any such company specific information, the actions of the insiders of corporate India speak loud and clear. As per a Bloomberg report, insiders of the 30 companies that make up the BSE Sensex made at least 110 stock sales last quarter, worth a combined US$ 21 m. The last time the number of sales was this high was the fourth quarter of 2007. And the Sensex tanked 23% in the following 3 months.

Insiders include company officers, directors and others at the top management level. For the Sensex companies, they as a group have increased their stock sales by 200% during the past three months compared to the same quarter a year ago. Further, their sales have outnumbered their purchases by a ratio of 14 to 1.

Insiders are usually considered to have the best quality information about companies they themselves help run. Thus, many consider them to have the most accurate picture of the fair value of a company. With such aggressive selling on their part, you wouldn't be very out of the line to stop and think before plunging into this seemingly ever rising market.

So what are you doing with your equity investments these days? Are you selling into the rally, or simply buying more hoping prices will rise higher? Share your comments with us or post your comments on our Facebook page.

 Chart of the day
Today's chart of the day gives a glimpse of how the world pecking order will look in the year 2050. It pegs the world's top 5 countries by GDP in 2050 (with estimates by Goldman Sachs). The rapid growth that China is seeing currently is expected to help it over take the US by that time. And India itself will not be far behind. India is expected to become the world's third largest economy by GDP by the year 2050.

Data Source: Photius Coutsoukis

Normally, we are no big fan of acquisitions. This is because we believe most of them take place in an era of cheap liquidity and high asset prices. And this combination makes it extremely difficult for acquisitions to create value over the long term. However, if acquisitions of the kind described by a leading daily do indeed materialise then we will certainly sit up and take notice. As per Mint, Indian companies are quite keen to tap into acquisition opportunities in Europe. Now the reason we said we would sit up and take notice is because asset prices in Europe are not that high anymore. Most economies there are still struggling to recover from the financial crisis. And thus, there could be quite a few firms there trading at prices that are about 40%-50% off their peaks.

Infact, Indian companies are already making a beeline for Europe. Acquisitions in Europe by Indian companies were up nearly 8 fold in the first eight months of the current year as compared to same period last year. Given the kind of niche technologies and skill sets on offer, the number will most likely swell in the near future. Not everything will work in the favour of Indian companies though. Europe is known for its tough environment laws and high cost for doing business. Plus, there is the risk of possible regulatory or policy changes that could overnight turn an attractive acquisition into an unattractive one. Thus, while the opportunity is there, Indian companies should tread with caution.

India's stark contrast in the run up to the Commonwealth Games as against China's to the Beijing Olympics is well documented. An article in Economist however, believes that the preparations for the sporting event may not reflect a true picture of the Indian economy. India may have falling bridges and inhabitable accommodations few days prior to the important global event. These do paint a shoddy picture of the world's second fastest growing economy. Infact a British tabloid has apparently christened it 'Commonfilth'.

But the strength of the Indian economy lies elsewhere. It lies in the spirit of entrepreneurship amongst Indian youth. One which is not constrained by the government's patronage as in China. It lies in the increasing mass of educated Indian youth ready to join the workforce. This, against a large mass of aged Chinese waiting to retire. Also it lies in the relative security and transparency of knowledge based services. The last one most importantly is expected to herald India to a new growth phase ahead of its Oriental neighbour.

How do your lower your debt burden? Don't pay. That seems like the mantra for US households. As per CNN Money, that accounts for at least a part of the 'improvement' in the finances of US citizens. Total household debt fell by US$ 77 bn during 1QFY11, but nearly half of that decline came from defaults. Cutting debt - no matter how - is key to the health of the economy. But mass default by households is worrisome. And meaningless. In fact, it will stall economic growth. That is the ugly reality of the American economic recovery.

The sun is shining on the Indian job market. This comes on the back of a reviving economy and increased hiring by companies looking to expand. As per reports, Indian employers have started to fill up the vacant positions and are also adding new positions. And not only this, employee rewards are also flowing in.

While all this sounds hunky dory for those looking for jobs, this is bound to create pressure on profitability for the companies. This is considering that good times also bring with them high employee turnover that then leads companies to raise salary levels to retain key employees.

After opening positive, markets picked up momentum and were trading strongly in positive territory at the time of writing this. The BSE-Sensex was trading 270 points higher. Gains were seen across the board with the realty and metals space seeing the most gains. The rest of the Asian majors were also mainly trading positive, with China up 1.7%.

American policymakers must be breathing a sigh of relief. After the all pervading gloom, business activity in the US has unexpectedly accelerated. Moreover, fewer workers filed claims for jobless benefits recently. And so there are hopes that the US will not be retrenching further. That said, manufacturing figures and the jobs report are not yet out. Only once these reports are released will a clearer picture emerge.

Even if these reports paint a positive picture, the US government will have to monitor the economic scenario for a few more months. This is before it can say with confidence that the economy is recovering. Meanwhile, the Fed has stated that it is willing to take more steps to spur growth. The US still has to deal with a persistently high unemployment rate. And the burden of absorbing all the unemployed into the workforce once the economy recovers. The next few months will therefore be crucial for the US.

 Today's investing mantra
"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a mispriced bet - that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don't. It's just that simple." - Charlie Munger

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40 Responses to "Planning to buy stocks? Read this first..."


Oct 8, 2010

fine, not buying stock, only buy gold right now, will buy stock when there is sell on stock. right now enjoying portfolio daily return. keep investing... byee


preet sagar

Oct 7, 2010

sir.yr articles are worth reading but if they are very straight forward like Don tells over Zeebusiness one would love to read all the times. still yr words carry query is if i am having nestle,asian paints,alstom,whirlpool, glaxo should i sell total qty i have or can allow disastor to come and wait.but yr reply to my query should be straight like DON



Oct 7, 2010

buying buying v r in india mother of all bull market is here in india and every1 in the world has to come and participate in india growth story so there over the period of time there is only 1 side for marktes in india that is upside---so just buying buying and buying



Oct 4, 2010

Seems like a replay of 2007. We burnt our fingers very badly then . Now we are gradually selling. No buying till a sharp correction comes.


SH jawahir

Oct 3, 2010

what is the 1st step for me to join share market?


surinder paul

Oct 3, 2010

The report is a very vague and repetitive write-up. Even your 5-minute wrap-up is nothing more than a trash. In the present times no body has got the time to read about your long stories.
Suggest you to be precise and to the point in your reports.



Oct 3, 2010

It is wiser to take advantage of the opportunities that come by like todays market. Wherever I feel I have enough of the rise in value of the share I expected I get rid of them and invest proceeds in short term deposits or at times run for long time for 3 years getting the highest return. Liquidity from short time deposits always help me for new pastures like few Govt. disinvestment programs.



Oct 2, 2010

This is the best time to trim my porfolio.I am selling the stocks which are not performing well and buying the stocks which are performing well.I am adding only on my winningg stocks.I am not investing on any momentum stocks.Value picking is me my mantra.Now I am waiting for second quarter results.I will start buying companies which will give surprise results.



Oct 2, 2010

I have seen several up and down instock market I have been investing instocks since 1970 onwards I belive one should keep on booking profits as an when the oportunity comes. I have made my portfolio totally zero value investment. Now also when I get decent profit I partially sell my holdings and I buy stocks which are cheap and have a good potential to grow.



Oct 2, 2010

Greetings to ALL==Om Sri Sai Ram,
An excellent article.
Conclusions are many as per one's own state of mind and experiences.
Belive in own,s judgement and think the purpose and go ahead accordingly.
Best Wishes to all

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