The stocks you should buy right now! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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The stocks you should buy right now! 

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In this issue:
» The great 'Onion' paradox
» Mark Mobius hasn't given up on India
» Is mining industry in trouble?
» The biggest one day declines on Sensex
» ....and more!


00:00
 
769 points. That's how much the Sensex fell yesterday. While not one of its most gut-wrenching declines, it still was a shocker of a fall. Shocking enough to grace the headlines across all media. And no sooner did the index fall, predictions of more doom started pouring in from all quarters. 'Don't see this bear market ending soon', asserted one market expert. 'I'm shorting India', argued another. Clearly, the mood is that of panic and fear. And we won't blame the investors if they are unwilling to touch stocks even with a six foot pole. Simply because our brains our hardwired to make us run from danger at the first sight of it. And when it comes to investing, nothing can be more dangerous than seeing stocks suffer violent declines in a matter of hours.

Fortunately though, this deep rooted habit of our brain can be made to change its course. In other words, all we need to do is practice shifting our mental spotlights from an emotion of fear and panic and instead focus it on rationality. As a matter of fact we don't even have to switch our rational brains on and analyse. All we have to do is recall what other great value investors of the past would have done in such an environment.

And what better name to recall than the father of value investing Benjamin Graham we believe. No, we are not going to subject you to his long, verbose monologues from his classics Security Analysis and The Intelligent Investor. As a matter of fact, by the time Graham became an octogenarian, he himself had lost interest in the details of security analysis he devoted himself to so strenuously for many years.

He instead began to promote a very simple method of stock picking which we believe could be useful in the current environment. And what exactly is this technique? Well, it is nothing but investing in a group of around 25-30 stocks such that their yields are twice the yield for highest quality corporate bonds. Not just this. One has to further ensure that these companies have good enough balance sheets and hence, their debt to equity ratios should not exceed one.

And then when one has built this portfolio, all one has to do is sell a stock when it gains 50% or sell at the end of two years, whichever is earlier. Before you dismiss this as too simple to be true, let us tell you that so convinced was Graham with this method that he was willing to risk his 60 long years of experience in the market.

The reason we are bringing this up is because there will be a lot of market experts out there saying all sorts of things. However, in order to beat the index successfully, you have to stop listening to any of these experts and stick to a philosophy of picking stocks that has worked wonderfully well over the long term. And Graham's portfolio creating technique is one of the simplest and most effective out there we believe.

To know which of the stocks pass the Graham criteria highlighted above, you can simply click here and enter the two criteria of PE less than 5 (twice the yield of corporate bond) and D/E ratio of less than 1.

Do you think it makes sense to rely on simple value investing techniques than listen to market and economic experts? Please share your comments or post them on our Facebook page / Google+ page

----------------------------------- Fed up with the market crashes? See this now... -----------------------------------

There are only two ways to invest in the stock market...

One... invest in some stocks randomly, without proper planning, and hope that they won't be hit by market crashes and will make you some money.

Or two... build a portfolio of solid stocks that are bound to grow in the long run regardless of the ups and downs or market crashes that may happen in the near term.

If you're someone who would prefer the second approach like us, we've got just what you need...

We want to tell you about an investing approach used by the World's Best Investor himself which multiplied his wealth a whopping 5,869 times.

And the best part - a lot of his stocks were purchased during turbulent times just like we are seeing right now!

So in the letter below, we will show you how YOU too can use the same approach to grow your wealth... with hardly any effort from your side.

But please note that this offer will be open for the next 2 days only.

So respond right away to avoid missing out...

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01:32  Chart of the day
 
Today's chart of the day tries to put yesterday's decline on the Sensex in context with the biggest one day decline of the last 10 years. As highlighted, the year 2008 takes the cake as far as some of the biggest one day declines of the past 10 years are concerned. Yesterday's decline in fact does not even figure in the top 5 list on an absolute basis.

What is important to note though is that investors who were not adequately invested should not be happy that they missed these declines. For it works the other way also. Just as they miss the biggest declines, an attempt to time the market could also make them miss the biggest gains. Thus, from a long term perspective, what matters is the time in the market rather than out of it.

Source: Ace Equity


02:05
 
Businessmen seek opportunities where they can earn the highest returns on capital. An industry that is making high profits will soon attract new entrants to the market. Increasing competitive intensity and ensuing price wars will bring profitability down. That's how capitalism works.

But are rival firms the only ones who will try to nibble away a firm's profits? No... In fact, there are other stakeholders too who will try to grab a pie of the profits. These other stakeholders can be employees as well as the government. Take the case of the global mining industry. There was an unprecedented mining boom in the previous decade. Firms from resource rich countries made huge profits. Now, as per an article in Money News, the mining industry is at a "breaking point".

Governments of resource rich countries have been demanding a greater cut of the profits. For instance, countries such as Australia, Namibia and Zimbabwe have sought to increase their share of profits from natural resources over the past three years. They have done so by either raising mining taxes or favouring state control of projects. In many places, labour unions are also demanding a greater share of the profits.

With the global economy in a mess and particularly the slowdown in China, the fortunes of the mining industry have been dwindling. The world's biggest mining firms are lowering costs, selling assets and scrapping expansion plans. Given these factors, investors are exiting from the mining industry. And this has further impacted the prospects of the industry.

02:45
 
For investors who got a setback from the steep correction on the last trading day of the week, here is some reprieve. It seems not every investor is heading for the door. Certainly not the ones with their eyes fixed on the sound fundamentals of select Indian companies. And Mark Mobius is one of them. The emerging markets fund manager at Franklin Templeton Investments is not willing to call it quits yet. On the contrary, in an interview to CNBC, Mr Mobius has cited his willingness to stay put in India.

Despite the state of economy and the rupee, the fund manager has not lost hope in Indian equities. Mobius, in fact, believes that markets are overreacting to QE tapering talks. Volatility in Indian markets, as with most markets globally, is here to stay. However, there is no reason for investors to quit stock markets. Having said that, it has never been more pertinent to be extremely selective about the stocks in one's portfolio.

Mobius himself has acknowledged that he is keeping a close watch on India's economic variables. He does believe that valuations already discount a possible downgrade in India ratings. However, one cannot help being careful about an economy where the government has not delivered for too long. What is also enthusing is Mobius' assurance about foreign investors wanting to re-enter Indian markets. Few reforms and political will could make all the difference.

03:22
 
The way that onion prices have been soaring up in recent times, the vegetable has become the subject of numerous jokes. But it has also brought tears into the eyes of the common man who is already reeling under the pressure of high inflation. In fact onion has been a main cause for higher food inflation. This has become a worrisome factor for everybody including the government. Given the strong public reaction to high onion prices, state governments are now scrambling to come up with measure to curb the same. But they seem to be completely ineffective as they are still not addressing the root of the problem.

As per The Mint, the increase in onion prices has little to do with the seasonality factor. It is more of a structural issue. You see in Maharashtra, the largest onion producer of the country, prices are controlled by the traders. These traders have typically formed a cartel and this ensures that prices of the commodity remain under their control. These cartels have been able to exert considerable political influence to ensure that their interests remain protected. They ensure the absence of genuine competition in the markets. In addition the transaction charges by the cartel's middlemen have led prices to remain high. What the government needs to do is to free up the commodity markets all over the country to ensure healthy competition. This would do away the need of the middleman which would help the prices stabilise in the long term.

04:01
 
Meanwhile, Good global economic news was plentiful this week: The US had fewer initial jobless benefits claims than in any week since the first week of October 2007. The Eurozone economy grew for the first time in seven quarters. Portugal had an unexpectedly strong second quarter, emerging from its two and a half year recession. Greece posted a surplus. Japan's economy grew by 2.6% in the second quarter, after a 3.8% expansion in the first. However, the surge of positive economic news led many investors to focus on the downside. US stocks endured a second week of losses as traders appeared to consolidate recent gains in anticipation of an increase in interest rates later this year.

For the week, US stocks fell broadly, but European and Asian benchmarks had mixed results. Among global stock markets, the US stock market posted the largest fall (down by 2.2%) while the Brazilian stock market posted the highest gain (up 3.3%). Commodities prices climbed, including silver futures, which jumped into bull market territory, rising 24% from their June low. Gold prices also rose. Both precious metals are seen by some as safe havens for investors concerned about violence in Egypt and stock market losses.

The Indian equity markets closed the week in the red. On Friday, the Benchmark shares indices BSE-Sensex and the NSE-Nifty witnessed the highest single day drop since July 2009 amid heavy selling by foreign institutional investors after RBI imposed fresh restrictions coupled with the weakening rupee which plunged to a new all-time low of Rs 62/$ in intra-day trade.

Source: Yahoo finance, Cnnfn, Equitymaster


04:52  Weekend investing mantra
Charlie and I let our marketable equities tell us by their operating results - not by their daily, or even yearly, price quotations - whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it."- Warren Buffett
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22 Responses to "The stocks you should buy right now!"

HEMRAJ BANTHIA

Aug 21, 2013

RULERS AND THEIR REPRESENTATIVE OF THE NATION HAVE RUINED THE MINING INDUSTRY. IT WAS COMING UP NICELY THOUGH IT WAS NOT ADHERING TO SEVERAL LEGISLATION DUE TO ITS INFANCY BUT THE INDUSTRY WAS BEEN MERCILESSLY MURDERED IN ITS INFANT STATE.IT WILL TAKE DECADES TO GIVE REBIRTH TO THE INDUSTRY AND HAS TO BE GERMINATED IN TEST TUBE INITIALLY. I HAVE EXPERIENCE OF 50 YEARS INCLUDING STUDY PERIOD AND HAVE CONTRIBUTED IMMENSELY AND IS SUPPOSED TO BE SINGLE DRIVING FORCE IN DEVELOPING HARD ROCK MINING AS WELL AS DIMENSIONAL STONE MINING TO THE PRESENT STAGE. IT'S REALLY SAD AND DISGUSTING TO OBSERVE THE PRESENT STATE OF AFFAIRS. IT APPEARS THAT IT'S FATE HAS BEEN LEFT IN THE HANDS OF PEOPLE WHO HAS NO PRAGMATIC KNOWLEDGE IN OPERATING MINING INDUSTRY. GOD SAVE THE MINING INDUSTRY AND THE NATION.

Like 

venugopal

Aug 20, 2013

to invest in right time in right stock.

Like (1)

Mehul

Aug 20, 2013

Should I invest 2 lacs in Andhra bank and SBI now for long term say 1 yr holding? will be it profitable or I sud look for other options.

Like (1)

satish dabholkar

Aug 20, 2013

We are not panicked. But we wonder to what extent prices of shares will fall.If there will be more fall,we will accumulate more and our risk will be lower.
But I fill that we have good dta for analysisof the companies But
we do not have data of the of the Political parties who are taking decision by taking in account their VOTE Banks as well as the fund to be gathered through corruption. Our 100% accurate data becomes Zero once these corrupt politicians take decision with election in mind. To get the results through analysis of Balance sheet,first we have to take steps How Sincere,Well educated people get elected in the Parliament.

Like (1)

Kaushik

Aug 19, 2013

Sir,
PE less than 5 and DE less than 1 is the criteria of selecting Graham stocks? Why are you misguiding small investors? Already retail investors has lost their shirts in this market and now if anyone buy stocks based on PE less than 5 & DE less than 1 criteria he will surely lost this underwear also. Please please please don't misguide us.

Like (1)

manoj

Aug 19, 2013

Dear sir,
I am interested in buying stocks recommended by you, please do let me know the good scripts for long term.

Like (1)

Indrajit

Aug 19, 2013

There is no PE metric in the drop down menu of Stock Screener.

Like (1)

VEERANNA HUNDEKAR

Aug 19, 2013

please say about long term good stocks

Like (6)

ABRAHAM SAMUEL

Aug 19, 2013

nice to pick up their tips

Like (3)

k. rajagopal

Aug 19, 2013

giving better ideas for purchase of right stocks at right time

Like (2)
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