Profit Velocity is based on Newton's first law of motion. It is inspired from a proven approach where stocks with high past returns tend to have high future returns. Profit Velocity aims to recommend mid and small cap stocks that have had the best returns over the last one year and are also blessed with strong fundamentals.
While on the momentum side, the only tool we would be using is the strength in company's stock price vis-à-vis its peers, on the fundamental side, we aim to use a variety of factors like sales growth, profit growth, balance sheet strength, cash flows, management and return ratios in order to arrive at an investment worthiness of the stock.
Only those stocks that pass both the momentum as well as the fundamental strength filter will be recommended in the Profit Velocity service.
The service consists of a fortnightly report which will not only give stock recommendations from time to time but also give the subscribers suggestions on how best to use the flexibility of increasing or reducing exposure to equities based on both the momentum as well as the valuation of the broader market. Besides, the reports will also cover issues which are relevant to the stock markets and momentum investing.
Since the service deals mostly with mid and small caps, they are diligently analysed with respect to their operational and financial strength and only recommended when according to us they qualify both on the fundamental as well as momentum parameters. The reports are published on the 10th and the 25th of every month.
The services' goal is to find stocks that score high on both the momentum as well as fundamental parameters and are well placed to potentially generate strong returns over the next 3 months to one year.
The Profit Velocity report will include stock recommendations and it will also give the subscribers suggestions on how best to use the flexibility of increasing or reducing exposure to equities based on the overall market conditions.
Rahul Shah (Research Analyst), the Managing Editor of Profit Velocity, is also the Co-Head of Equitymaster research team. He has led the team from the front in developing some of Equitymaster's most stringent and rewarding research processes. He firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.
The Profit Velocity reports will come out twice i.e. on the 10th and 25th of every month. So there would be a minimum of 24 reports on an annual basis. The home page of Profit Velocity on our website will have a status of the current Profit Velocity recommendations in terms of stocks that currently are in open position.
Given the nature of the product, the fact that there will be stocks with low liquidity cannot be ruled out. There is always the possibility that these stocks may shoot up in price in no time, even at the time of our recommendation.
We try and alleviate the problem of stocks going up at the time of our recommendation by way of two fail-safes. For one, we ensure that the stocks that we recommend are above a certain liquidity threshold so that there is enough liquidity to absorb the buying pressure. This helps lessen the effect of the buying pressure on the stock price on that day.
Secondly, since we are aiming to make a total of 20-25 recommendations every year, we would like to recommend to our subscribers not to chase prices and not to consider buying a stock once it goes 5-10% higher than our recommended price. There will be enough recommendations in a year so that the pain of missing out on a few recommendations is eased considerably.
Since this is a momentum based service, we will have a stop loss in place, exceeding not more than 10%-15% of the recommended price. In other words, if a stock has been recommended at Rs 100, we would recommend the subscribers to consider exiting on most occasions at a price no lower than Rs 85.
For stocks that go higher after we recommend, we have implemented what we call is a trailing stop loss strategy. With a trailing stop loss, we raise our selling price every time the stock goes higher. Say one buys a stock at Rs 100 per share and sets the trailing stop at 20%. If the stock rises to Rs 160 per share, one would sell on a decline back to Rs 128 (20% of Rs 160 is Rs 32. One subtracts that Rs 32 from the 160 high to determine a Rs 128 stop price). We would like to keep almost all our trailing stops at 15%-20% of the high price reached.
We would also like to recommend a SELL on a stock if it falls out of the list of stocks with the strongest momentum. In all, we expect one's holding period for an individual stock to vary between a minimum of three months and a maximum of one year. Please note this is the average and there could be some stocks which could be outliers.
The goal of the service is to outperform the returns delivered by the BSE Sensex over a 3 to 5 year period.
You can write to us with all your queries and we will be delighted to assist you. Alternatively, you can call us on +91-22-61434055 between 10 am to 6 pm from Monday to Saturday.
Profit Velocity is a generalized recommendation service. We do not offer customized opinions for any particular subscriber or class of subscribers. We are not qualified financial advisors nor Investment Advisors and we strongly recommend our subscribers seek professional advice before taking any decisions for their investments.