For the past few weeks, I have been doing little beyond peeking at my portfolio ticker (my laptop's screen saver) every night. Given that the magazine went to press sometime ago, the work front has also been uncharacteristically calm. Is twiddling thumbs integral to the investing experience?
As a result of the long bout of idleness, my meandering mind has thrown up an interesting poser-do I really have to do something about my portfolio every few days? Buying and selling stocks frequently will bring me perilously close to being a trader, not the aim I started out with. Let me just admit it, I don't have the wherewithal to become one; imagine monitoring the market on an hourly basis and having a broker on speed dial! Too tedious. So what should be the strategy for a long-term investor who has no money to buy more stocks?
Since the past week, my bedtime read has been James Montier's The Little Book of Behavioural Investing. No, I haven't become a finance geek; I have to review the book for my magazine. Surprisingly, the exercise has proved worth the effort. Call it coincidence, but Montier has offered a solution for my restlessness caused by the long spell of inaction. Never underestimate the value of doing nothing, he says in the book, citing one of life's principles of Winnie the Pooh.
Who would have thought that the honey-obsessed cartoon character would be an investing guru as well? So my instinct was right. According to stock market experts like Montier, doing nothing is a good investment strategy. It demonstrates patience, perseverance and conviction, but most importantly, it prevents investors like me from making unnecessary wrong moves. Research has revealed that the itch to constantly churn portfolios reduces net gains. Not to mention the other pains of over-enthusiasm and anxiety, such as insomnia and inability to take a vacation for fear of missing out on a market spike or dip. The next question is, how long will I do nothing?
It is the season of pleasant surprises. When I told Professor Time for a Long Break Calculus about taking a break from active investing, instead of being relieved (no more conversations on valuation tools, benchmarks and selling philosophies), he was upset.
Over coffee, he revealed that his derisive comments hid admiration for my attempt at investing in stocks without 'institutional guidance' (read brokerage houses). It took a lot of convincing that my decision was not influenced by his sarcasm. I reassured him that I was not giving up on my investing project, just taking a break so that I was not tempted to churn the portfolio needlessly. Chastened, he was back to his surly self and asked me if I would stick with this strategy even if the market crashed by, say, 5,000 points.
As always, Prof. Calculus had me thinking. I cannot adopt a completely hands-off attitude and miss a crisis in a company or in the stock market as a whole. A better idea is to develop a review timetable. Each time, I will evaluate my stocks using the parameters developed over the past eight months.
I have researched on many essential aspects of stockpicking; a quick check of previous diary entries throws up this list: profitability measures like PE, PAT, EPS, EV/sales and EBITDA, debt to equity ratios, diversification, parameters for stock selection, benchmarking, decoding stock reports, setting target prices and stop loss limits, and selling stocks. Actually, these are more than I would have recalled off the cuff. Now I will definitely take a break from research as well.
Before signing off, I decided to analyse the current status of my portfolio. As per today's prices, it shows a net gain of 4.3%. The best performer in my kitty is Lupin Industries, which is trading at a profit of 32.2%. A distant second is Hero Honda (19.3%), closely followed by Axis Bank (19%). The expected turnaround in the fate of HCL Technologies seems to be a just a few weeks away - the stock shows a loss of just 4.8%. Tata Steel continues to be one of the biggest drags on my portfolio, netting a loss of 20.2%. However, I am not disheartened as it seems the steel sector is going through a rough patch.
The stock price of SAIL has dropped dramatically and is the worst performer with a loss of 20.5%.
It is tempting to delve into the balance sheets of the companies and research reports again. I am sure there are many more secrets hidden in those numbers that will help me predict the future of their stock prices. But no more for some time. I am confident of my picks and will give the companies time to grow.
This means the next entry in this diary could be a few months, or even a year, away. Don't think I will forget about my investments and discover them years later, stashed away at the bottom of the drawer (read, demat account statement in the spam section of my e-mail). I will continue to keep an eye on the market and the fate of my portfolio. Hopefully, the next time I share its details, there will be a few more zeroes in the net profit.