[civic-sense]

Originally Posted by sudev

Unless urgent cash is needed stay invested. You may recover your value but IMHO you will definitely recover more.

No need of cash at the moment, but my debt investment is zero. No debt funds nor FDs.

Originally Posted by SmartCat

I suppose the other half of your liquid assets are in debt funds or fixed deposits? If yes, then you are fine. Do nothing. But if you are uncomfortable with your current equity holdings, then lower your exposure by booking profits in your profitable stock (and/or MF) investments. Another option is to stop SIPs. But no point in booking losses.

I was on an aggressive run towards an early retirement, so had invested heavily on stocks. The rest of them are in real estate - so low liquidity.

Originally Posted by SmartCat

My unconventional investment advice is: Continue/Increase the SIPs in MFs or new stock investments if you are comfortable/excited about the bear market. But if you are not comfortable with the evolving situation, stop the SIPs in MFs or book profits in stocks.

Thanks! Today the markets are looking better. I think I'd go ahead and exit some non-IT stocks for some reserve cash, but keep the bulk of the portfolio intact.

[poloman]

Some of my friends in early forties took voluntary retirement from well paid IT jobs 3 year back at the peak of bull phase and ventured in to full time trading and investing. All of them are in dire straits now.


I also was excited but cautious. Made a small test portfolio of around 1L of mostly small and mid cap stocks mostly going by recommendation of analysts. With in 1 year 1L was reduced to 50K. I had an option to average out or book losses. I took the later path. Now most of these stocks have turned penny and the investment would be worth hardly 10K. Depending on how you look at it, one can say I lost 50K or salvaged 40K.

So it depends a lot on the quality of stocks whether you average out, hold on or book losses.
Talwarkars was one of the stocks which I held. One can use this stock as a study case how uncertain, dishonest and brutal the market can be.

[SmartCat]

Originally Posted by poloman

Some of my friends in early forties took voluntary retirement from well paid IT jobs 3 year back at the peak of bull phase and ventured in to full time trading and investing. All of them are in dire straits now.

Full-time stock market trading/investing is like running a business. Not everybody will be successful. You will need certain skills and lots of experience.

It's like running a restaurant. We have heard that street-side restaurant business is profitable. We have noticed that such restaurants are always packed with people. But that doesn't mean you and me can setup a restaurant business and run it successfully. We will be forced to shutdown the restaurant in 12 months. That's because we don't have the experience or skillsets to run such a business.

[poloman]

Originally Posted by SmartCat

It's like running a restaurant. We have heard that street-side restaurant business is profitable. We have noticed that such restaurants are always packed with people. But it doesn't me you and me can setup a restaurant business and run it successfully. We will be forced to shutdown the restaurant in 12 months. That's because we don't have the experience or skillsets to run such a business.

It is not always about skill sets. I have pointed out talwarkars as an example. Leel is another one. What happened in these stocks was pure dishonesty and mismanagement. SEBI did not even lift a finger.
So if you invest in stocks, stay away from such dubious companies. Also write off losses rather than keep averaging on falls.

[SmartCat]

Originally Posted by poloman

It is not always about skill sets. I have pointed out talwarkars as an example. Leel is another one. What happened in these stocks was pure dishonesty and mismanagement. SEBI did not even lift a finger.
So if you invest in stocks, stay away from such dubious companies. Also write off losses rather than keep averaging on falls.

It is ALWAYS about experience and skillsets. Experienced/skillful investors can spot fraudulent companies from a mile. Experienced/skillful investors diversify across different stocks and also across assets, so that mistakes do not significantly affect the performance.

The simplest way to avoid investing in chor companies is to look at a parameter called dividend payout ratio. If a company has a dividend payout ratio of 25%, it means the company paid Rs. 25 cr as dividend to shareholders on a profit of Rs. 100 cr. Dishonest promoters always try to siphon off money from their companies. They do not share the profits with other shareholders in the form of dividends. So most dishonest/fraud companies will have low dividend payout history or no dividend payout history.

I have tried to explain some of these concepts on this thread:
https://www.team-bhp.com/forum/india...ve-sector.html (Guide: Investing in shares of the automotive sector)

[carboy]

Originally Posted by SmartCat

The simplest way to avoid investing in chor companies is to look at a parameter called dividend payout ratio. If a company has a dividend payout ratio of 25%, it means the company paid Rs. 25 cr as dividend to shareholders on a profit of Rs. 100 cr. Dishonest promoters always try to siphon off money from their companies. They do not share the profits with other shareholders in the form of dividends. So most dishonest/fraud companies will have low dividend payout history or no dividend payout history.

Microsoft didn't payout any dividend at all in the first 17 years after it went public even if it was very profitable. And MS is not an exception. Growth companies usually do not pay out dividend or pay out very low dividends. Stable companies pay out good dividend. The philosophy is that if you have a high ROIC and there are growth probabilities at this high ROIC, then it's better to reinvest the money in the company to increase TRS (Total Shareholder Returns) rather than paying a dividend. For stable companies where an increase in revenues is difficult or expensive or comes at the cost of significantly lowering the ROIC, it's better to pay high dividends. Another reason for companies to pay out dividend is if the promoters are cash hungry (Take for e.g. Vedanta group companies or PSU companies).

[rrsteer]

Originally Posted by poloman

It is not always about skill sets.

I would agree to that its not about skill sets. Definitely experience, but more importantly temperament, common sense and willingness to learn.

[SmartCat]

Originally Posted by carboy

The philosophy is that if you have a high ROIC and there are growth probabilities at this high ROIC, then it's better to reinvest the money in the company to increase TRS (Total Shareholder Returns) rather than paying a dividend. For stable companies where an increase in revenues is difficult or expensive or comes at the cost of significantly lowering the ROIC, it's better to pay high dividends. Growth companies usually do not pay out dividend or pay out very low dividends. Stable companies pay out good dividend.

Conventional wisdom, but not always right. What you are referring to is applicable only to capital intensive businesses. Stocks in IT, pharma, consumer etc don't need that much capital to generate incremental profit growth. So such companies can grow at 15 to 20% per year, and still payout 15% to 50% of their profits as dividends.

That's the power of a solid brand.

Microsoft didn't payout any dividend at all in the first 17 years after it went public even if it was very profitable. And MS is not an exception.

Then just don't invest in Microsoft. You don't have to own all the growth stocks in the universe. Because, for every Microsoft example, I can give you two examples of high dividend paying high growth businesses. Examples:

1) TCS: 10 year history of sales and profit growth of 20% CAGR. Average dividend payout ratio of 40% every year for the past 10 years.
2) Titan: 10 year history of sales & profit growth of 25% CAGR. Average dividend payout ratio of 25% every year for the past 10 years.

[carboy]

Originally Posted by SmartCat

Conventional wisdom, but not always right. What you are referring to is applicable only to capital intensive businesses. Stocks in IT, pharma, consumer etc don't need that much capital to generate incremental profit growth. So such companies can at 15 to 20% per year, and still payout 15% to 50% of their profits as dividends.

Microsoft kept reinvesting to form new teams & develop new products. Also to expand to more countries etc. Amazon doesn't pay out dividends. They keep putting money back into the business.

The point is that not paying dividend is not really a sign that they are siphoning money or cooking the books. You will miss out a lot of good companies if you have this litmus test. What a company should do with it's money - whether it should pay dividends, whether it should buyback shares, whether it should introduce new products, whether it should acquire businesses etc - is a well researched topic. It differs from company to company, market to market etc. Some basics on how a company management can manage capital allocation decisions is covered in McKinsey's Valuation. The aim of the management should be to increase TRS (total shareholder returns). If it's better to have done something else with the money than paying dividends, and they still pay out big dividends, then it's a wrong decision by the company.

[SmartCat]

Originally Posted by carboy

The point is that not paying dividend is not really a sign that they are siphoning money or cooking the books. You will miss out a lot of good companies if you have this litmus test.

I agree with both the statements. I'm OK with "missing out" on lots of good companies because of this rule too.

Let me put it in a different way then. if somebody is worried about picking up companies run by fraudulent or dishonest promoters, then they can apply this simple rule and eliminate 100% of such companies. But if an investor is not too overly worried about picking up such companies OR has some other method of filtering out fraudulent promoters, then he could ignore this rule.

[naveenroy]

Have 0 experience in the stock market. Noob question - since many of the "solid" stocks - like Real Estate Investment firms have taken a hit due to the Covid situation, is it a good idea to put in some money (US Stocks) and wait for it to reach its earlier plateau and then sell off the stocks to make some money? Is it that simple?

[Maibaa]

Originally Posted by SmartCat

Continuing SIPs or buying stocks during bear market is conventional wisdom, and that is mostly based on looking at past statistical data. It is NOT based on psychology or frame of mind of individual investors.

Car analogy: If your friend says he is uncomfortable driving at 80 kmph speeds on an expressway because road ahead looks a bit foggy, you will NOT ask him to keep the pace because the car will get to the destination faster.

My unconventional investment advice is.......

The car analogy was amusing Of course anyone seeing a foggy road ahead is free to get off the car and walk :-)

I understand that the markets are at an all time low now and may continue this way for some more time in future. However if the investment is in fundamentally sound stocks, they are bound to bounce back in 1 to 2 years. Instead of sitting on a stock in negative and waiting longer for breaking even, or booking losses, isn't it a good idea to average out the cost by continuing in SIPs or investing more so that the recovery is faster? This is conventional wisdom given by most experts to buy equity on market lows and move to debt or liquid funds during bull market phase.


My suggestion is to give the investor some options so that one can decide what suits him best.

[Lalvaz]

Originally Posted by SmartCat

I agree with both the statements. I'm OK with "missing out" on lots of good companies because of this rule too.

Let me put it in a different way then. if somebody is worried about picking up companies run by fraudulent or dishonest promoters, then they can apply this simple rule and eliminate 100% of such companies. But if an investor is not too overly worried about picking up such companies OR has some other method of filtering out fraudulent promoters, then he could ignore this rule.

This theory of dividend paying cos not being fraudulent and dishonest doesnt always hold true. Take a look at the dividend history for DHFL, https://www.dhfl.com/docs/default-so...he-company.pdf, or ILFS.

You can't generalize these things. Frauds have happened and will continue to happen in the future. One has to diversify their investments because they may become victims at some time or the other.

[SmartCat]

Originally Posted by Maibaa

Instead of sitting on a stock in negative and waiting longer for breaking even, or booking losses, isn't it a good idea to average out the cost by continuing in SIPs or investing more so that the recovery is faster?

Averaging down a stock up to a certain top limit (in terms of amount of Rupees invested) is fine. I personally prefer picking up new stocks during a bear market or deep correction

Originally Posted by Lalvaz

This theory of dividend paying cos not being fraudulent and dishonest doesnt always hold true. Take a look at the dividend history for DHFL, https://www.dhfl.com/docs/default-so...he-company.pdf, or ILFS.

You should NOT look at dividend history. You should look at dividend payout ratio (DPR) history. If a company claims to generate Rs. 100 cr as profits, they should payout atleast Rs. 15 cr as profits. That is, my minimum DPR filter for companies is 15%. Your portfolio will become even more fraud proof as you raise this filter - 20% or 25% and so on. This number is not published in company press releases, exchange submissions or 99% of finance websites. You can look up www.screener.in for last 10 year history of company's dividend payout ratio. Or look up annual report and do the math manually.



Dividend payout ratio of DHFL has never been consistently over 15%. Note that Dividend Payout Ratio filter also gets you OUT of bad stocks before fraud shows up in the news. All PSU banks used to pay large dividends (aka high DPR). But just before trouble erupted, the management stopped paying out high dividends. This filter helped me exit PSU banking stocks much before fraud in PSU banks was discovered by investing public.

[sukhoi]

So we have seen a 1000 point upmove on Nifty between yesterday and today (so far). Am not able to understand what is driving the markets up? Based on whatever I have seen in the news, we are not near a cure yet and in India there is no clear direction around whether lockdown will be lifted or extended or partially lifted.


There was some news today about an upcoming aid package (saw the headlines flash on TV) but that does not explain the run-up of yesterday. Are markets factoring in something else or any other reasons?