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#

You can edit the article on knol and the knol version may contain additions by other visitors to knol.

Valuation Model description

Download a model from

http://www.scribd.com/doc/247225/Venture-Capital-Private-Equity-Investment-Banking-Valuation-Model

Crash Course in Market Mania

Mint carried an article under the above title on 2 October 2007 by Narayan Ramachandran, MD of Morgan Stanley Investment Management.

It mentions a book "Can it happen again? Essays on Instability and Finance" Hyman Minsky.

Minsky identified seven stylized stages in bubble formation and bust: preference for risky assets increase, prices rise, cheap credit fuels the rise further, overtrading begins, leads to euphoria, insiders take profits, and the herd begins to panic.

People are talking and writing about bubbles. But many are not listening

Dow an advocate of value trading?

It seems so.


Dow concludes one his editorials with the statement 'To know values is to comprehend the meanings of movements in the market."

More details are posted in http://nrao-sapm-handbook.blogspot.com/2007/12/technical-analysis-topic-1.html

Dow Theory and Editorials of Dow -Nelson's Book

This topic was covered in detail in my blog Handbook of Security Analysis in the post

http://nrao-sapm-handbook.blogspot.com/2007/12/technical-analysis-topic-1.html

Articles on Graham-Rao Method

1. Picking value stocks

http://docs.google.com/Doc?id=dg3h8m78_3hq8pkpc6

Fallibility of Super Analysts

27 October 2006 Economic Times page 10

It carried a news item - Greenspan said that most of the negatives of housing sector are probably behind us.

What is the status now in December 2007? Housing prices are going to fall further is the comment of analysts now.