Investment Strategy October 2008

Authority and Disclaimer

I am not a registered investment advisor.

I teach investment analysis courses and hence thinking about investment is incidental to my profession of teaching.


According to me everybody is an investor in various types of assets. Most of the people invest in financial assets. Even holding cash itself is investment in financial assets.

Investment strategy is an issue for many people at various points of time. Like in any other activity, there can be a change in strategic direction.

I personally felt in India the runaway rise in share prices from sensex level of 2800 to 21000 was unwarranted and it was to the detriment of people with genuine savings. Asset inflation was created by governments and central bankers and people who buy assets at inflated prices have to repent later on. But as the might of the government and central banks was behind the asset inflation, there was huge publicity and advertisement and many must have got trapped in the asset price bubble.

For people who avoided asset price bubbles and kept their savings with them, an opportunity is on the horizon for investing in assets at more reasonable levels.

What is limit of downturn. People say Dow will test its 2001-02 lows of around 7200. Indian market one still does not know. People started talking levels of 9000. The levels may be decreased if foreign capital goes out still.

What is the fair value level. We do not have a rigorous fair value level because broking companies who are the purveyors of research and analysis in the country are not consistent in their fair value thinking.

A rough calculation that I did some time back gave me a level of 6000 an year or so back. From that level if I add 12% return the value may come to a level betwee 6700 to 7500. But will the market touch the fair value level in this downturn? Will it breach and still go down? At this stage the answers are not clear.

Can somebody have a strict policy of buying very close to or below the fair value? If the market does not come close to the fair value but goes up once again they may miss the investment opportunity once again. Investors may have to start buying small quantities in this downturn to acquire some equity component in the downturn. If the market goes to fair value levels they can invest bulk of their resource. They may keep small amount of money to invest further if the market breaches fair value levels.

They have to be ready for a disappointment if market goes to lower levels after their investment. Benjamin Graham, the dean of security analysis, guru of Warren Buffett said Mr. Market is very funny player to play with. He will sometimes quote you 21,000 and some times 2000. So you have to take a well thoughtout decision and stick to the decision as Mr. Market throws challenges at you and makes fun of your decision.

Do I follow the policy that I am advocating. Yes I made my purchase of international fund scheme when Dow was less than 11000 and now I increased my commitment further as Dow has gone below 9000.


I keep the knol under open collaboration mode and I invite other investment specialists and investors to contribute their opinions.


My knols on investment analysis

Fundamental Analysis – Graham–Rao Method

http://knol.google.com/k/narayana-rao-kvss/fundamental-analysis-grahamrao-method/2utb2lsm2k7a/7



Target Prices of Equity Shares – Concept and Utility

http://knol.google.com/k/narayana-rao-kvss/-/2utb2lsm2k7a/147



Charles on Dow on Trading and Speculation - Dow Theory

http://knol.google.com/k/narayana-rao-kvss/charles-on-dow-on-trading-and/2utb2lsm2k7a/148


This article was originally published on Knol.

Investment Strategy October 2008 Onward
http://knol.google.com/k/narayana-rao-kvss/-/2utb2lsm2k7a/273#

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