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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00:00
 
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.

01:06
 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

01:26
 
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.

02:25
 
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.

03:05
 
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.

03:30
 
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.

03:54
 
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%.

04:12
 
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.

04:48
 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..."

banmali

Oct 2, 2010

I am mainly selling at every new high instead of keeping my holding for long term and at the same time buying very very selectively in companies having strong fundamental standing

Like 

Neville Sequeira

Oct 2, 2010

The last time that I can remember such a disconnect between what is happening in the real world economy and what is happening in stocks and commodities around the world and in India in particular was between October 2007 and January 2008 and we all know how that ended. Starting with the world's biggest economy the USA, the fundementals of the economy are begining to deteriorate rapidly while the S&P 500 has just staged a 100 point rally. And this is not me talking, it is a whole bunch of leading economic indicators that are showing the way. The US housing market is already in a double dip recession. European debt issues are once again at the forefront of the news. Countries fiscal defecits around the world are exploding. The fundemental problems that existed at the end of 2007 are clearly not resolved and are still there. And through it all the Indian stock market is rallying and is 1500 points from its lifetime high. In my opinion, this is a fantastic opportunity to not only sell ones shares and get into cash, but to use the cash to short the market. I believe that this is the best chance we have been given to book profits and get out of the market. Regardless of what the idots on TV continue to tell us, I strongly believe that at some point in 2011 we are going to retest the March 2009 lows. For the gentleman who posted a comment that he is sitting on the fence and enjoying beer, I would recommend ordering a couple of extra cases. You'll need them in 2011.

Like 

Edward

Oct 2, 2010

I started buying only during the rally as I didn't have an account earlier and that too only in Selective Companies, where I feel there is still value and future prospects, preferably Companies with low debt and low P/E. Where-ever I find I was wrong I try to cut out my losses. There's always a big risk that the market will go down heavily as FIIs have bought heavily in this market and very soon will reach all limits and then the buying will stop making the market jittery.

Like 

arwa

Oct 1, 2010

its really a motivating quote for investors and make some what market scenario clear

Like 

krisham51

Oct 1, 2010

well, i will let you all know what i propose to do so you can do the opposite.like i got it wrong many times.like i got it wrong most of the time.i got it wrong in 2008 when i should have sold but held on ,in may 2009 when i should have held on ,i sold all (i thought there will be hung parliament)and waiting for a correction till now(buying only small quantities to satisfy the urge).you can blindly follow me 9anyway that is what you need to be when you follow me).
i did make some profits but loss in profit is really huge.i am thinking of selling again!!

Like 

Jayanta Das

Oct 1, 2010

Market may be inflated but situation is different to 2007. Market may correct which is normal. The 2007 market collapse was fully contributed by US financial meldown due subprime crisis. The world market doesnot have any such cloud looming around, growth is assured even in the west, may be slow but still its on ascendency. So, caution is ok but scaremonger is not expected. Beside that, emerging market is different
to developed market. So enjoy the party as no one knows for sure whats the saturation.

Like 

hemendra

Oct 1, 2010

It is time to Resuffle the portfolio.By selling the weak shares and buying stock with strong performance and Growth potentials To sale High Priced FMCG shares and to Buy Good Bank Shares.

Like 

V Veeramani

Oct 1, 2010

You have talked about Specific group of stocks leading to increase in Index number. These are not the only stocks in the market as you are well aware. Moreover the insiders of all the companies in that group donot have a common meeting place or forum where they can jointly decide and act. So in my opinion it is not true that the insiders are acting in the market to change it as they like

Like 

Om Prakash Sharma

Oct 1, 2010

I have learnt a lesson in 2008/jan. But I am likely to fall pray to the trend which is at play now. The Idian stock prices are behaving irrationally. But I am in the market to earn money. If I sell early I loose the chance to earn attract handsome gains. But if do not sell I fall pray to declining curve of a particularly hot stock.That is the share market by any definition.

Like 

AKGaur

Oct 1, 2010

It is true.Retail& small investors always loose money in this game of stocks.Faceless FII(who are they)invest without any problem& walkout also.Market is for big players(who are well connected).Small & ratail must go to MF through SIP.

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