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6,000% return in 4 years; Delhi investor offers smart tips to pick multibaggers

You need to lose some money in stocks to learn the ropes of the market. This wisdom comes from an investor who is known for picking multibaggers, some of which have swelled up to 6,000 per cent in last four years.

Delhi-based investor Ashish Chugh says stock investing is about being able to look at the big picture, and not about nailing big returns very next quarter.

He looks at the bears as taskmasters, who teach hard lessons. “Every investor needs to go through a bear .. bear market,” he insists.

Known for his ability to spot potential multibaggers early, Chugh says he has learnt the tricks of the trade after “whatever money I made in a bull market was lost in a bear market.”

Chugh’s preferred way of dealing with stocks is what he calls ‘Big Picture’ investing. ..

I am not too keen on identifying stocks that will deliver big the next good quarter. I am on the lookout for companies whose stock prices have got hammered because of one or two bad quarters but have good long-term outlook,” says he.

Some of his ‘pet’ stocks have delivered big returns over the years: NatcoBSE 1.73 % has surged 67 times in less than 10 years, Avanti FeedsBSE -2.53 % has grown 60 times, or 5,900 per cent, in four years.

Chugh took to stock investing seriously in the early 1990s, when a Rs 1,000 investment in the IPO of CadilaBSE -1.13 % Hospital Products grew into Rs 13,000 in two months.

“I was lucky to get allotment. This made me realise that stock market is a place where money does not just add up; it multiplies,” he recalls.

Chugh says his best investment so far was Rs 11,000 he spent in 1992 to subscribe to The Stock Exchange Official Directory by BSE, a compendium in 18 volumes. ..

This enabled him to get balance sheets and other information about all the companies listed on the BSE, which was not so easy to get at that time.

Bears are true teachers
A stock investor needs to go through a few bear markets to evolve as a better investor, says Chugh.
“Bear markets change your perspective about investing. Most investors who have not seen or experienced a bear market would get seduced by rising stock prices and are focused entirely on ..

returns and stock prices. Risk management is not important for them,” says the market veteran.

Chugh is the founder and director of Hidden Gems Advisory.

“A bear market makes you think and rethink your investment style and strategy, sobers you down and you evolve as a mature investor,” he says.

Chugh says he started doing better after witnessing bear markets from 1996 to 1999 and from 2001 to 2003. “My entire focus on investing has since switched from chasi ..

Top multibagger picks
This 49-year-old trader has a knack for spotting multibaggers among microcaps. He picks up stocks that are beaten down because of short-term negatives, but have inherent strength to bounce back once the negatives are out of the way.

Many of the stocks he has picked over the years have risen 50 to 70 times. He picked up Natco PharmaBSE 1.73 % when the stock got hammered down after the company acquired some drug stores in US.
Valuat ..

Future growth is one of the important parameters. A value stock remains a value stock unless there is growth, says he.

Cash flow is another important parameter he watches closely. Most investors think only about returns. But risk management is important because equity investing is less about returns and more about probabilities and risk management, he insists.

Management quality is important
Chugh says while investing in microcap companies, it is ..it is difficult to select a good management as they are not talked or written about too often.

In a number of the multibaggers that he has discovered, the market had initially perceived their managements to be questionable, as these stocks were available at low PEs with small market caps. The perception changed after the stock prices grew 5 to 10 times and large HNI investors and then institutional investors got into these stocks.

Chugh says for him a good management i ..

has high promoter holdings and shares the wealth with investors through share buybacks and dividends.

Often, companies do not pay dividends because of high dividend distribution tax, but uses earnings for regular capital expenditure to scale up a business without equity dilutions. This also enhances shareholder value.

Stocks you are eyeing right now
Chugh refused to talk about his stocks due to Sebi regulations. However, he said: “I am sector agn ..
tocks you are eyeing right now
Chugh refused to talk about his stocks due to Sebi regulations. However, he said: “I am sector agnostic in investing. I keep my eyes and ears open to anything that satisfies my investment criteria, which is about future growth, low valuations owing to curable, short-term negatives or past legacies. I am looking for companies that have done capex in last few years, but it has not started yielding results because of lack of adequate demand or ..

 
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Posted by on July 6, 2017 in Uncategorized

 

Which penny stocks are worth investing in India?

eware of penny stocks. They can make money for you, but if it goes wrong they will only be of 6–9% of your investment. suppose if you took buy position in penny stocks like tuni textile, Trinity trade link 8–10 months ago your Investment of 1000 rs is only of 100 rs in today’s date. But penny stocks can give you good returns like

Morepen labs from 2 to 25 in 2015
Marksans Pharma from 3 to 100 in three years
Indosolar from 1.50 to 15 in 2014
Prakash Constrowell from 2 to 20 in 2016 (well this is new in the list currently in uptreans)
Now come to penny stocks you can buy

3i Infotech now trading at 5.70 for target of 13–16 in 7–9 months
Sybly Industries now trading at 12.50 for target of 20 in 4–5 months.
A large part of my working life was spent at one of India’s biggest brokerage houses in a very senior position. I have also interacted with a large number of insiders from the industry and i know one thing.

Almost no one makes money on trading in penny stocks. You could have beginners luck or a favourable market momentum which might make you some money for a short period or even extended period of time but believe me when the tide turns almost everyone not only lose their profits but also their shirts and pants.

So, please give up the greed. Pick up some good books on value investing if you are really interested in stocks and shares. Get some discipline going into your investment strategy and keep it that way.
To strip your question down to the basics, here is what you are asking: “How can I spend less than INR 60 per stock and get rich!”

Before I get to the answer, let’s assume a few things:

By potential, you mean stocks that have the ability in the future to give decent returns.
By now, you are referring to those stocks that have bottomed out and on the verge of a reversal.
Keeping the above in mind,here’s how you determine the relevant stocks

Make a list of all stocks trading in Both the exchanges currently below INR 60
visit Stock Screener for Indian Stocks: Screener.in
enter the name of the company
Check the trend line for the past 5 years
Look hard at the pros and cons listed
remember that trading in penny stocks is risky and you might loose all capital invested with one bad decision.
here are near to 1000 penny stocks in India listed on BSE mostly but only a few on NSE and only a few are traded on the exchanges as of today. It is important to clarify the meaning of penny stocks.

List of all stocks under Rs. 1 as of Oct 3 2016: Stocks under Rs 1

List of all stocks under Rs. 10 but above Rs. 1 as of Oct 3 2016: Stocks between Rs 1 & 10
Penny stocks are shares of companies that have market capitalization less than Rs.100 crore and each share trading below Rs.10. There are more than 25% of total stocks listed as penny stocks on the BSE and 10% on the NSE. There were over 670 stocks in the Bombay Stock Exchange (BSE) that were trading below Rs 10 on Feb 16. Unitech, Zylog Systems, Velan Hotels, 3I Infotech and Vardhaman Laboratories are some of the stocks, which were trading below Rs 10. Stocks such as Dynacons Technologies which were trading at Rs 0.38 two years back, surged 4,097 per cent, to Rs 15.95 till Feb 16, 2016. As on December 31, 2015, promoters holding in the company was at 60.17 per cent.

Normally, all investors think that penny stocks look like a good grab as the downside seems limited. Penny stocks usually belong to companies with low quality management or negative future outlook. These penny stocks suddenly spring to life with huge volumes when there is an announcement or turnaround in the market scenario, sector or stock specific improvement. There are penny stocks and penny sectors – meaning the sector itself is considered as penny stock sector due to various reasons.

First let me show you the penny stocks and then the penny sectors. I am giving a table of some penny stocks which have given more than 100% returns in less than 150 days.

The reason why penny stocks exist or some stocks become penny stocks is because of PPG: people (management), profitability or growth prospects. Any change in either of these three parameters prompts them to start moving higher or lower.

At the same time there are many stocks which have been reduced to penny status or close to 52 week low. This is today’s list for 52 wk lows.
The reason why penny stocks exist or some stocks become penny stocks is because of PPG: people (management), profitability or growth prospects. Any change in either of these three parameters prompts them to start moving higher or lower.

Now coming to penny sectors, a good example of penny sectors was the sugar industry. This industry was not doing well because of the drought situation and low rainfall in 2014 and 2015, which resulted in all time low for these stocks. No one was interested in these stocks at all and look what they have delivered in less than 6 months. Though they all might not be penny stocks, it was called the penny sector.

A stock is usually considered as penny stock when it is traded below 10 Rs or its market cap is less than 100 Cr.

Allow me to answer this question by asking a question.

Why do people want to invest in penny stock?

We see lot of penny stocks out there which are giving multibaggers even in few months of time. So instead of investing in bigger companies I want to invest in these penny stocks to gain more money in short period of time.
Every big companies start as smaller companies. I will choose a very small company (penny) then hold it for 5 years or 10 years. If this is quality company then it will be a multibagger over period of time.
Usually 95% people invest in penny stocks for quick bucks and 5% people invest because they believe in long term story of the company.

You see Facebook, LinkedIn, twitter that are hugely successful but what you don’t see is there there are uncountable number of companies failed while aiming for big.

Pros:
Penny companies can give multibaggers gains in short period of time.
If you are big investor or tips adviser you can manipulate penny stocks in your favour in a easier way.
If you choose a quality penny stock with experienced management and good future potential pat yourself.
Cons:

Under normal scenario risk is much higher than bigger companies
Failure percentage is much higher. Around 90% company fail to reach big state.
These companies can be easily manipulated
These are usually illiquid companies. When stock starts falling or you decide to sell it , you may not able to do so as there would be no buyer.
Few brokers have more charge to deal with penny stocks
Most of the companies furnish less data to public. Sometime they suprass negative information to sebi. This makes it hard to do proper research on those companies.
Usually share holders get lest attention by board of directors.
So is good to invest in penny stocks?

It depends on you. I do invest partly in penny stocks so here are my tips or suggestions.

Research, research and do more research. It is hard to find quality penny stocks. Screen as many penny stocks as possible.
A company can become big only when it is making profit or increasingly moving towards that direction. Study balance sheet, profit loss statement, RONW, ROCE, all profit margin ratios, debt, promoter holdings.
Check it’s graph over last 5 years of time. If it was moving sidewise for initial phase and now started moving up or it gradually moved up over these period of time then its a good sign.
Must understand the business model and future perspective. Visit the official site, gather all information available for share holders and study.
Never allocate a large part of portfolio for these penny stocks.
Finally choose right sector of such companies.
If you want to become rich investing in stock market, you must understand compounding.

Finally an expected multibagger penny for you.

Sharda Plywood[1]

Example:

Someone I know had invested in about 100 penny stocks (1% of his capital in each stock).
3 out of the 100 became multibaggers and he made approximately 10 times his investment.
Some 50 stocks lost 60% of their value.
Some 45–47 stocks lost 80% of their value.
Net result = His portfolio was in a loss.
He was an avid researcher and thought that one could just put his money in different stocks and become rich. Unfortunately it doesn’t work like that. I repeat: Unless you have substantial knowledge of the company and its business operations, stay away.

 
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Posted by on July 2, 2017 in Uncategorized

 

Which should I choose – the stock market or mutual funds?

A common investor can take equity exposure through direct investments into equity or through Equity Mutual Funds.

There are couple of fundamental differences between the two.

When you invest in Mutual Funds, you give the power to a a Fund Manager, who is an expert, to manage your investments for you. Once invested, the Fund manager would buy and sell stocks on his own volition to deliver the best returns for his investors. MF managers are experts who have years of experience and expertise available with them. You are also backed by analysts and technology which helps them in their decision making on what to buy or sell in the markets. Mutual Fund managers charge a fees to manage your investments.

Many good online platforms are now available for investing in Mutual Funds. Look for unbiased advisers an wealth managers who have consciously chosen to only advise and execute investments through Mutual Funds. Platforms like ours do not charge any advisory, Transaction or Platform usage fees.

Mutual Funds come in all shapes and sizes. You have options for Conservative, Moderate or Aggressive Investors. You have different options for short term (less than a year), medium term (1–3 years) and long term investments (3+ years). You can even park your money safely for 1 week and get almost double the returns from your investments. You can start with with Monthly or Lump Sum (one time) investments as low as Rs 500 and get access to the best Fund managers in the country. Many of the Mutual Funds also come with ZERO exit loads or Exit loads for 1–3 months. Mutual Funds have tremendous liquidity. You get your money back in your account in 1–3 days post redemption.

Investing in stocks is something that you would need to do on your own. here you would need to rely on your own judgement on what to do in the markets. Here you would only need to pay brokerage for your transactions.

its a no brainer that beginners and even people who are not financial experts must invest through mutual funds rather than trying investments on their own. Countless people have lost tremendous amounts of money in just trying to save on the Fund Management Charges or trying to be smarter than the Fund Managers. Its typically what they call a “penny wise pound foolish approach”.

Considering all these points, MFs are indeed the best option available to the investors.
Here is something will help you to understand between the two.

Shares : A unit of ownership interest in a corporation or financial asset. While owning shares in a business does not mean that the shareholder has direct control over the business’s day-to-day operations, being a shareholder does entitle the possessor to an equal distribution in any profits, if any are declared in the form of dividends. The two main types of shares are common shares and preferred shares.

Mutual Fund : An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Stocks are into equity but the mutual funds have different different categories :
1. Equity mutual fund :
Here the money/amount is invested in the stock of the companies. This category is highly risky as it is directly linked with stock market.
2. Debt mutual funds :
This fund invest amount in government bonds and securities. This are comparatively low risk funds.
3. Balanced fund :
This funds are mix of Equity and Debt. The division or ratio may vary fund to fund. This are mid risk funds.

Note : Investing in stocks, if you know stock market very well or in other word you are an expert in stocks. On the other hand, if you are not expert, invest your money in best mutual fund in the category. These funds are managed by fund managers, they have high experience in this domain.

Benefits of investing in mutual funds:

Professional Management – Individuals may not have the necessary skills to identify the right stocks. Not everyone can dedicate time to do research. Mutual funds offer investors the expertise of fund managers that aims at achieving investment objective of the scheme.
Low Ticket Size – As some shares quote at very high price, they remain inaccessible for small investors. However one can start in mutual funds which invest in various such stocks with as low as Rs. 500. Same level of diversification would need a very high minimum with stocks.
Fees & Expenses – For their services, mutual funds charge fund management fees and expenses which are capped under the regulations. For trading in equities one need to pay for DMATdmat charges as well as trading charges. However, investors should be careful not to buy funds with very high expense ratios.
Liquidity – Open-ended funds allow investors exit at the prevailing NAV subject to exit loads. This helps in financial planning. When an individual invests in shares, he is not sure if he can sell the shares in the market at fair value.
Risk Management – An individual may get carried away due to sentiment & may go overboard on a particular stock. However, a fund manager has risk management guidelines in place. There are limits on how much a fund manager can invest in each stock & each sector. A fund manager’s decision to invest in a particular share is backed by strong research conducted by the fund manager & team members.
Choice Of Funds – Investors can choose to invest in a scheme that suits their investment needs. For example, an aggressive investor may choose to invest in a diversified equity fund, whereas a bit less risk taker may opt for a balanced fund. There are funds catering to almost all needs.
Taxation – When an individual investor buys & sells shares before completing the tenure of 1 year, at the end, he ends up paying short-term capital gains. However, the fund managers may keep transacting in shares at varying intervals. If investor remains invested for more than 1 year in an equity fund, his gains are totally tax-free since STT (Securities Transaction Tax) is already deducted.

 
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Posted by on July 2, 2017 in Uncategorized

 

Best Penny Stocks in India 2017-2018 in NSE-BSE Buying/Investing in penny stocks Good or Bad

ou have found some stocks trading at just Rs.5 or 10. What an opportunity? There must be blind people to leave these stocks unnoticed. I will profit from them. It can easily double or triple.

If this is your thought then that is exactly ‘Penny Stocks Investing‘. But is this rational? Let us find out….

I have a friend who bought a lot of Birla Power Solutions and Jupiter Biosciences in 2009. These were really hot penny stocks in late 2008. Let me tell you that he regrets his decision now. They have gone way down.

Are you gung ho about buying top penny stocks? You’ve made up your mind already? While I would certainly advice to invest in top quality stocks, here are a list of top low cost shares to invest in 2017-2018. How did we select them? The criteria we used for choosing best penny stocks was…

We made sure they’re not companies that vanish overnight. They must have been around a few years
They may not strictly be penny shares but border around them. Ie., each shares costs less than Rs.25 and market Cap less than 500crores
Their products/services must be real and visible
Must have some downside protection in short-term
Promoter holding must be 40% minimum
By this way we can at least make sure to screen the majority of bad companies (which most penny stocks usually are). Here is the list of top penny shares in India that meet above criteria

SL.No Penny Stock Name Price Market Cap(in Crores) P/E Ratio P/BV Div Yield(%)
1 IL&FS Invest. Mgrs 22.4 720.1 13.1 6.95 5.65
2 JVL Agro Industries 16.9 287.1 4.3 0.61 1.17
3 NeoCorp International Ltd. 15.4 59.3 3.01 0.23 3.21
4 Genus Power Infrastructure 25.3 678.2 11.21 1.22 0.38
5 Vijay Shanthi Builders 13.8 36.4 7.85 0.3 5.76
6 Manali Petrochemicals 10.7 184.3 5.92 0.87 4.66
7 Nitesh Estates 13.9 203.3 21.4 0.47 0
8 Manappuram Finance 67 6400 10.2 2.13 2.7
9 Lycos Internet 18.5 881.2 2.21 0.48 0.0
1) IL& FS Investment Managers – This is a very good company managed by IL&FS group. They are involved in Private Equity business and are the only listed PE firm in India. IL&FS has a strong brand equity. The last value of stock was around Rs.21 . It gives a very good dividend and has no debts. While you cannot expect it to triple or quadruple in next year, it is somewhat a decent stock to buy in at low cost per share.

Update: This penny stock paid Rs 1.3 as dividend ie., 7% of cost price. It is also down by Rs.2. The decent fundamentals are still intact.

2) JVL Agro Industries – It has a Market Cap of around Rs.200 crores and trading at around Rs.15 per share. It has P/E of 4 and book value of Rs.15. JVLis the largest single in-house manufacturer of Vanaspathi Oils. It has a dividend yield of around 1.5%

Update – This penny stock has moved from Rs 16.9 to Rs 20.5. Not great performance but not bad either.

3) NeoCorp International Ltd – Neo Corp is a packaging provider expecially in textile manufacturing. It manufactures under PackTech brand. It has a market cap of around Rs.60 crores and per share costs around Rs.15. The PE ratio is close to 2 and dividend yield is 4%.

Update:The market cap of this penny stock has doubled in last one year after featuring first on our list. It now trades at Rs31.

4) Genus Power Infrastructure – This is one of the leading electricity meters manufacturer in India. Have moderate debt on their books. The stock costs around Rs.21 and the market cap is around Rs.500crore. The PE ratio is around 9 and promoter holds around 50%. Earns around Rs70 crore profit every year. Decent fundamentals.

Update: This penny stock has gone up to Rs 46 now from Rs 21 when we first listed it. More than doubled.
What are Penny Stocks?
Penny stocks are shares of companies that have market capitalization (market capitalization-the total value or worth of the company) less than Rs.100 crore and each share trading below Rs.10. Do you know how many penny stocks trade on BSE or NSE. It’s 25% for the BSE and 10% for the NSE.

They look like a good grab as the downside seems limited. Penny stocks usually belong to companies with low quality management or negative future outlook. These penny stocks suddenly spring to life with huge volumes when there is an announcement or turnaround in the market.
Why are penny stocks cheap?
Most Penny stocks are cheap for a reason. It is mainly because

They have a low quality management
Non-transparent corporate governance
bad future business potential
Bad balance sheet and bad profit/loss account
Penny stocks usually seem to belong to dubious promoters. These promoters sell their unworthy financial companies during the peak period. Once they have off loaded their junk, they slowly disappear from the light. The investors then get stuck with the bad investments.

How do penny stocks operate?
Penny stocks usually have a promoter-operator nexus. The promoters usually hire investment bankers (low reputed mostly). These people in turn negotiate a deal with the operators who buy and sell shares anonymously with fake accounts. During boom times, people are ready to buy anything.

These operators carefully create a media frenzy or approach individual investors by mail/phone. They artificially push up prices and then offload these equity shares to investors. The profit is then shared between the promoter and operator.

Investors would have no idea as to what or how much shares were insider traded nor how long stocks were held. How many of you read the News and Announcements from BSE/NSE before buying penny stocks?
Risks in Penny Stocks

You buy a stock thinking it will go up in future. If it has a stealthy management, you do not know its real profits. Will you lend to a friend who lies all the time? It is something similar to that
There is a chance to lose 100% – The promoters can never return and your stock value goes from Rs4 to Rs 0. Yes it is a 100% loss.
Your stock may be de-listed – BSE/NSE once a while, delists penny stocks to clear the bourse. Once it is de-listed you do not have chance to sell it.
The trade volume value is too thin – You do not get a chance to exit as the value of shares traded is not uniform. It is big on some days and then zero on others. You cannot exit when you want.
Penny stocks are not traded widely. Some may be only delivery-based and not intra-day trading.
Penny stocks in India are not regulated. Most of them run risk of being delisted by bourses as seen in recent months due to low quality. Liquidity will be an issue for such penny stocks as you can’t sell them. So be careful on which stock you buy.
Pros of penny stocks:

If identified properly, the rate of return is huge. As high as 200-500%
Some quality companies , due to temporary hiccups and bad environment end up as penny stocks. Once market and economy turns they bounce back giving super-normal returns.
They are cheap. So you can buy large quantities.
How to trade penny stocks
If you have decided to get involved in penny stocks, make sure you follow these tips. This will help you avoid the major blunders that penny stock investors make.

Don’t trade OTC stocks. OTC or Over -the-Counter stocks are not well regulated as regular listed penny stocks
Do own analysis and discard email/sms which promise you the next million in trade. They make you gullible targets
Look for momentum in the stock. Learn some basic technical analysis.
Try not to short penny stocks. They usually lead to losses unless you’re well aware of technical analysis and insider/market information
Always have your stop losses in place. Don’t invest more than 5%of your total stock portfolio in a penny stock
Choose high volume stocks. The total quantity of stocks traded each day must atleast be 10-15 times what you plan to buy. There is no use buying a penny stock which you can’t sell.
Don’t buy penny stocks just because they’re cheap. Look for decent fundamentals atleast. May not be even greta or good but the penny stock should not be fraud or bad which is case most of time.
Check if the business of the penny stock company is turning around or will turn around. Avoid loss making companies that reported loss for 2 0r more years. Should have visible signs of recovery. Else there is no trigger for the penny stock. Do you know Marksans Pharma, Uniply industries were penny stocks in India once trading at 5rs each. now they trade Rs 100 and Rs 700 respectively.
Don’t try to average the price of a penny stocks on its way down.
Don’t have 50 penny stocks. If you invest in penny stocks then better to have less than 5 or 10 so that tracking is easy.
Following the above measures will protect the downside of your investment. If there is a mistake,then you can book a loss without losing 100% capital if you’re alert.

 

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The Trader Who Made 6,200% on China Stocks Has Some Advice For Investors

Huang Weimin, the hedge fund manager whose Chinese stock-index futures wagers returned more than 6,200 percent last year, has some advice for investors in 2016: Sell your shares now, before it’s too late.
The 45-year-old former worker at a state-owned company, a virtual unknown until last year, has become a star of the Chinese futures market after timely bets on the direction of share prices propelled his Yourong Fund to the top of the country’s performance rankings. He’s carried the winning streak into 2016, returning 35 percent through Jan. 22 after selling stock-index futures just days before the market’s worst-ever start to a year. The Shanghai Composite Index plunged 6.4 percent on Tuesday, bringing losses this year to 22 percent.
Huang, who opened the Yourong Fund in 2014, says China’s benchmark Shanghai Composite Index could drop another 15 percent in the first half as slowing economic growth and a weaker yuan fuel capital outflows. While he’s sticking with bearish futures bets to take advantage of further losses, he says the average Chinese stock investor would be better off shifting into cash.
“I’m not optimistic about this year,” said Huang, a self-taught trader who manages more than 100 million yuan ($15.2 million) in the Yourong Fund and separate client accounts that use similar strategies. “My advice is to hold cash, wait and watch.”

Many of China’s 99 million investors appear to be doing just that. Volumes in the nation’s $5.6 trillion cash equities market slumped to the lowest level in three months last week, while trading of stock-index futures has dropped about 99 percent since June. A bungled government attempt to introduce market circuit breakers in the first week of 2016 deepened investor pessimism after the mechanisms sparked panic instead of restoring calm.
Huang’s ability to profit from the turbulence has made him a standout in China’s hedge-fund industry, which has struggled to cope with price swings that reached the most extreme levels since 1997 last year. More than 700 funds were forced to liquidate prematurely in 2015, and this year’s 18 percent slump in the Shanghai Composite has left many more on the brink of shutting down.
More than 12 percent of Chinese hedge funds have seen their net asset values drop below levels that would force them to liquidate, according to Shenzhen Rongzhi Investment Consultant Co., citing the 5,662 funds that have updated their data so far this year. Most hedge funds in China have such mandatory liquidation clauses.
Nimble Bets
Are China Stocks Repeating the 2008 Bust?
The Yourong Fund was the best performer last year among 310 private Chinese futures funds tracked by Shenzhen Rongzhi. Huang’s closest rival was up just over 1000 percent, while more than a fifth of his peers posted losses, according to Shenzhen Rongzhi, which collects performance figures directly from the financial institutions where funds hold their trading accounts to ensure the data’s authenticity.
To make money last year, Huang had to be nimble. He was bullish for much of the first half, building long positions in stocks and equity-index futures as the Shanghai Composite surged to seven-year highs. After trimming his equity exposure in May, he bet against the market in the second half of June as shares tumbled.
When volatility increased at the end of that month, Huang turned to short-term wagers. A short-term bet on Everbright Securities Co. that he sold the following day, for example, produced an 11 percent return on June 30 as the market posted a brief rally, he said in an interview with Bloomberg News last week from China’s southern Fujian province.
Huang moved in and out of the market over the next two months, making one of his most profitable bets in late August after positioning for losses in stock-index futures before a rout that sent the Shanghai Composite down as much as 25 percent in just two weeks.
“It’s like surfing,” said Huang, who became a full-time investor in 2006 after quitting his job at a state-owned company. “You have to dance on top of the waves.”
Amplifying Returns
Aside from good timing, Huang’s outsized returns were made possible by the built-in leverage of futures. The purchase or sale of a futures contract typically requires an initial deposit, known as margin, that’s just a fraction of the value of the underlying assets. That means even small price changes can lead to big profits — or losses — for holders of the derivatives.
Huang sees China’s stock market coming under pressure this year from both the economic slowdown and a potential surge in the supply of new shares.
Gross domestic product growth fell to 6.9 percent in 2015, the weakest pace since 1990, as an estimated $1 trillion of capital flowed out of the country last year and the yuan posted its biggest annual drop in two decades. Despite six interest rate cuts by China’s central bank, the latest economic indicators for December showed growth is still slowing.
“When you add a lot of cold water into the pot, the firewood we have is for sure not enough,’’ Huang said.
Recovery Signals
With 660 Chinese companies waiting to sell shares via initial public offerings, Huang said the additional supply could divert funds from existing shares. The impact could be even bigger if policy makers follow through on plans for a registration system, which would reduce the government’s ability to control the pace of offerings.
There are signs that Chinese shares are poised for a rally. The Shanghai Composite’s relative strength index was 33 on Friday, near the threshold of 30 that some traders use as a signal of recovery. Li Yuanchao, China’s vice president, said in an interview in Davos last week that the government is willing to keep intervening in the stock market to make sure a few speculators don’t benefit at the expense of regular investors.
The government’s intervention has made life more difficult for Huang. He had to pare back his positions last year, particularly in bearish contracts, after authorities cracked down on what they saw as excessive speculation in the stock-index futures market and vowed to go after “malicious” short sellers.
Grateful Investors
Still, none of that seems to have hurt Huang’s knack for calling the markets. Cai Zhongyu, a retired electronics institute worker in Shanghai who’s been following the trade recommendations dispensed by Huang in online chat groups since 2009, said she made a 300 percent return last year “all thanks to him.”
“He always got it right on the market direction,” Cai, 55, said by phone. “You have to admit that.”
Cai was among more than 90 admirers of Huang who traveled to the coastal city of Xiamen to hear him give trading tips and his market forecasts in December. After an extraordinary 2015, his outlook for this year was decidedly more modest.
“I’ll just be following the market and do a few trades as it falls, like ants biting on a bone,” Huang said. “If I get 5 to 6 percent each time and end the year with 50 percent to 60 percent, I’d be happy.”

 
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Posted by on January 26, 2016 in Uncategorized

 

While Many Panicked, Japanese Day Trader Made $34 Million

While a lot of investors were hitting the panic button Monday, a Japanese day trader who’d made a big bet against the market timed the bottom almost perfectly and narrated a play-by-play of the trade to his 40,000 Twitter followers. He claims to have walked away with $34 million.
As financial markets got crazy this week, many people turned cautious. Some were paralyzed. Not the 36-year-old day trader known by the Internet handle CIS.
“I do my best work when other people are panicking,” he said in an interview Tuesday, about an hour after winding up the biggest trade of a long career betting on stocks. He asked that his real name not be used because he’s worried about robbery or extortion. To support his claims, he shared online brokerage statements showing his trades second by second.
CIS had been shorting futures on the Nikkei 225 Stock Average since mid-August, wagering it would fall. By the market close on Monday, a paper profit of $13 million was staring him in the face. He kept building the position. When he cashed out late that night, a collapse in New York had caused his profit to double.
Instead of celebrating, he kept trading. He started betting the market had bottomed. When he finally took his winnings off the table on Tuesday, he tweeted, “That’s the end of my epic rebound trade.” His profit, he said, had almost tripled.
“It was a perfect trade,” said Naoki Murakami, who follows CIS on Twitter and whose markets blog has made him a minor celebrity in his own right.
Trash Talking
Last year, when he was the subject of a profile in Bloomberg Markets magazine, CIS said that in a decade of day trading, mostly from a spare bedroom in a rented apartment, he had amassed a fortune of about $150 million. At the time, he shared tax returns and brokerage statements to back up his claims. One document showed he had traded $14 billion worth of Japanese equities in 2013 — about half of 1 percent of all the share transactions done by individuals on the Tokyo Stock Exchange that year.
CIS became a cult figure among Japan’s tight-knit community of day traders by trash talking on Internet message boards early in his career. He’s notorious for lines like “Not even Goldman Sachs can beat me in a trade.” Last year he opened a Twitter account, on which he talks about video games and, regularly, his trading. It’s impossible to say how many of his followers are also day traders, and how many of those buy and sell in his wake. Those who do, of course, are quite possibly helping him make money.
Playing Poker
During the interview Tuesday at a Tokyo coffee shop, where he had agreed to talk before continuing on to a poker game with buddies, he explained his recent trades step by step. Dressed in a plain gray T-shirt with a flannel shirt tied around his waist, he was monitoring a brokerage account on his iPad and had a $1,600 burgundy under one arm, a 2003 Domaine de la Romanee-Conti. (It wasn’t a celebratory bottle, he said; he drinks a lot of good wine.)
“Of course I’m happy about today, but you win some and you lose a lot, too,” he said, explaining the Greek financial crisis had cost him about $6 million.
CIS said he has no idea whether or not China is going to drag down the global economy. He doesn’t even care. When he trades, he tracks volumes and price moves to follow the momentum. For him the basic rule is: “Buy stocks that are being bought, and sell stocks that are being sold.”
Latest Trade
The latest trade began on Aug. 12, when CIS noticed a shift in equity markets he hadn’t seen for a while. Shares in the major indexes were struggling to recover from sell-offs. He started shorting Nikkei futures: 200 contracts the first day and another 1,300 over the following week and a half.
The stakes were enormous. With 1,500 contracts at a notional value of about $160,000 each, his bet against the Nikkei was about $240 million. For every 100 yen move in the index, he stood to make or lose $1.25 million.
The market was mostly flat over the next few days; CIS bided his time playing video games. On Friday Aug. 21, the Nikkei dipped. Then on Monday, the index plunged the most in two years, and the futures fell more than 1,000 points to 18,410. By the close at 3 p.m. in Tokyo, his profit stood at about $13 million.
Feedback Loop
This is the point where most traders would take their money off the table and call it a year. Not CIS.
“I’m adding to my position,” he wrote on Twitter. “Then I’m going to go for a walk and prayer.”
He sold 100 more futures contracts. Two hours later, he sold another 100. His bet against the Nikkei had risen to about $275 million. He would lose $1.4 million for every 100-yen increase in the index.
His logic for hanging on to the trade until the U.S. open, at 10:30 p.m. Tokyo time, was this: Panic would grip American investors returning from a weekend after they saw the scope of Asian selling, including Shanghai’s 8.5 percent plunge. That would trigger selling, which, in a feedback loop, would pull Nikkei 225 futures down violently amid the thin volume of late-night trading.
“I figured there would be a lot of fear around the U.S. open and that’s what I was aiming for,” he said.
On cue, the Dow Jones Industrial Average fell more than 6 percent in early trading. Nikkei futures tumbled again, dipping 1,250 yen below the 3 p.m. closing level. CIS, home in his pajamas, finally cashed out his short position. His profit had hit $27 million.
“Too Delicious”
There was still more money to be made from the panic though. Some investors that night were willing to pay a hefty premium for options that protected against the Nikkei crashing below 10,500. That would be a collapse of almost 40 percent. In CIS’s view, these investors were looking to buy insurance against a near impossibility.
He was happy to take the other side of that trade. The contracts were worth another $250,000 to him. He made the first deal within 10 seconds of what would prove to be the market’s bottom at 10:34 p.m.
“Too delicious,” he tweeted.
About an hour later, as he became more confident in a rebound, he started buying Nikkei futures. Now the play was the opposite of the short bet he’d started the day with. By 1 o’clock Tuesday morning, he’d accumulated 970 contracts, a $145 million wager that the market would start to climb.
He made one more trade before bed: a few more option contracts sold to straggling panickers. Those were worth $6,250. By now, at 1:40 a.m., he was a rich man stooping to pick up pennies.
He dashed off a last tweet at 2 a.m. “What a day. Still holding on to all my buys,” he wrote. “Time to sleep.”
The Rebound Trade
CIS returned to Twitter five hours later. Nikkei futures opened at about 18,000 and slowly recovered. Early that afternoon, he closed out his long position.
At the coffee shop later that day, CIS was pretty nonchalant for man who had made tens of millions of dollars in less than 24 hours. For him, it was just one trade out of thousands he would make this year.
“When a trade goes right I feel like bragging a little, but I don’t get on Twitter to talk about it if I lose,” he said with a laugh.

 
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Posted by on January 26, 2016 in Uncategorized

 

Peter Lynch: Making Money by Investing in “Fast Growers”

“The investor of today does not profit from yesterday’s growth.” Warren Buffett

Most of us have relatives who like to fashion themselves as ‘stock-gurus’, with their stories revolving around how they ‘could have been’ millionaires now, if only they had held their nerves. The stock that comes up frequently in these conversations is Infosys. If you had invested Rs. 9,500 to buy 100 shares of Infosys in the IPO (that went undersubscribed in 1993), 51,200 shares (adjusted for bonus issues) worth sum of Rs. 5,46,30,000 would be in your kitty.

Infy has given CAGR returns of whopping 48.2% to investors during last 22 years. Infosys got listed in June 1993 at price of Rs. 145 per share and investment of Rs. 9,500 in June 1993 is valued at 5 crores and 46 lakhs today. But, is Infosys still the key to riches? As often repeated, past performance is no guarantee of future results. So, how does one find out the next ‘Infy’?

A Fast Grower is a small yet aggressive & nimble firm, which grows roughly at 20-25% a year. This is an investment category which can give investors a return of 10 to as much as 200 times the investment made by them. No doubt, it remains a favourite of Peter Lynch!

In 1950s, the Utility & Power Sector were the fast growers with twice the growth rates to that of the US GDP. As people got more power-hungry gadgets for themselves, the power bills ran through the roof & the power sector surged with booming demand. Post the Oil Shock in 70’s, cost of power generation became high with power tariffs going up; people learnt to conserve electricity. Demand, thus, fell and power sector witnessed a slowdown. Prior to it, similar decline was observed in the Steel Sector & Railroads. First, it was the Automobile Sector, and then the Steel, followed by Chemicals & Power Utility & now the IT Sector is showing signs of slowing down. Every time, people thought, rally in the fast growers of the age would never end, but it did end, with people losing money as well as their jobs. Those who thought differently like Walter Chrysler (founder of Chrysler Corporation), who took a pay cut and left the railroads to build new cars in the turn of the last century, became the next millionaires.

Three phases involved in their life cycles, are:

1. The Start-Up Phase: Majority of the companies either burn up all the cash or run out of ideas by the end of this phase. Maximum casualties have been observed here, making it one of the riskiest phases. However, maximum returns can be made from them, if one enters near the end of this phase.

2. Rapid Expansion Phase: The Company’s core proposition has worked now, with the strategy being replicated by expansion of product/service portfolio or consumer touch points.

3. Mature Phase: Growth slows down, either due to high debt or low cash, owing to the massive expansion witnessed in early stage. Fall in demand or legal restrictions might also contribute to faltering growth.

The trick is to track, which phase the organization is in, at the moment. If the firm is in late start-up phase with possibility of moving to rapid expansion phase, buy the stock when it is still cheap. Once firm’s earnings start falling with its products witnessing poor demand, it’s time to bid goodbye to the stock.

The key parameters involved in Peter Lynch’s ‘two minute drill’ are:

1. P/E Ratio: avoid stocks with excessively high P/E

2. Debt/Equity Ratio: should be low

3. Net Cash per Share: should be high

4. Dividend & Payout Ratio: should be adequate

5. Inventory levels: lower the better

Stay away from companies which are being actively tracked, followed & invested in by large institutional investors. News about buy back of shares or internal stakeholders increasing their stakes should be construed as positive.

Checks specific to Fast Growers:

1. The star product forms a majority of the company’s business.

2. Company’s success in more than one places to prove that expansion will work.

3. Still opportunity for penetration.

4. Stock is selling at its P/E ratio or near the growth rate.

5. Expansion is speeding up Or stable

One must judiciously walk the tightrope between the unquestioning belief that made the stock to be held for so long and the fear of the end from nose-diving prices due to a one-off bad year. The key is to always keep revisiting the story & ask some pertinent questions like ‘What would really keep them growing?’, ‘What is their next offering? or ‘Are their products & services still in vogue?’ It is here, that one must track the point of time when the phase 2 of the firm’s expansion comes to an end. This is usually the dead-end for organizations as success is difficult to be replicated. Unless, innovation happens, downfall is imminent & thus, an exit is necessary. P/E of these stocks is drummed up to unrealistically high levels by the madness of crowd towards the end. One must keep one’s eyes & ears open to signs, which mark the end of the road for these fast growers. A great case in point is Polaroid which had its P/E bid up to 50, only to be rendered obsolete later by new technologies.

A sure shot sign of a decline is a company which is everywhere! Such a company would simply find no place to expand any further. Sooner, rather than later, such a company would see its ‘Manhattans’ of earnings reduced to ‘plateaus’ of little or no growth, simply because no space is left to expand further.

1.The quarterly sales decline for existing stores.

2. New stores opening, though results are disappointing: weakening demand, over supply.

3. High level of attrition at the top level.

4. Company pitching heavily to institutional investors talking about what Peter Lynch calls ‘diversification’.

5. Stock trading at a P/E of 30 or more, when most optimistic estimates of earning growth are lower than 15-20%, thus, unable to justify the high price.

Fast Growers, which pay, are ephemeral & one misses them more often than not. It is a High Risk & High Gain Category of Stocks. One must remember along the classic risk & return principle, that when one loses, one loses big! So, if you are in the quest for magnificent returns, a Fast Grower can be your bet provided you know when to bid Goodbye!

If you feel its difficult for you to identify Fast Growers stocks at early stage, you can subscribe to our Hidden Gems and Value Picks subscription services. We put best of our efforts to identify companies having potential to give exponential returns in medium to long term. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns.

 
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Posted by on January 9, 2016 in stock market

 

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