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How to Invest for the Long Term

October 13th, 2012

By

Peeyoosh Chadda

Executive Vice President

Edelweiss Financial Services Limited

&

Sandeep Raina

Expert Research

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Follow a disciplined approach

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Have an approach, if you are

Trading or

Investing

Each has a distinct need for a discipline which needs to be followed

We focus on long term investing here

Look at markets as a place for long term wealth creation

Markets are not a lottery

Do not panic when the markets correct or invest only in times of euphoria

Refrain from relying on tips do your homework

Follow a disciplined approach

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Understand your investment options

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Understand the investment options to participate in equities

Two basic investment options are:

Mutual funds Regular investing and SIPs

Direct investment through stocks

Lets have a look at the options

Understand your investment options

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Investing through Mutual Funds Regular and SIPs

When you are quite busy with your regular schedule and can devote

limited time, say not even on a weekly basis

Your job then is to simply identify the right set of funds and fund

managers, invest money regularly and track performance regularly

The fund managers are the experts they devote a large part of their

time towards stock research and analysis, and are trustworthy in terms of

investing on your behalf

Good funds can add a lot of value, heres a look at some of them

Understand your investment options

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1898

1692

1503

1479

1414

456

100

500

900

1300

1700

2100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Reliance Growth SBI Magnum Contra HDFC Top 200

HDFC Equity Reliance Vision Nifty (Benchmark)

Source: Valueresearchonline

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Direct investment in stocks

When you can devote enough time in your regular schedule towards

analyzing and researching companies (at least five to seven hours per week)

You have sufficient knowledge of financial as well as other industry-related

metrics

You have the ability to identify and track a particular sector where you can

identify trends an edge

You can resist tips / other temptations

Understand your investment options

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How to pick a stock

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Identify your style of investing

Investing styles primarily fall under one of these:

Value investingThis is when an investor looks at a bargain in terms of how a stock is valued,

i.e., identifying stocks at deep discounts to their asset values, liquidation

values or replacement values

Growth investing

Growth investors look for companies that are experiencing a rapid growth in

their earnings, typically companies growing by upwards of 20% every year

How to pick a stock

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Turnaround investing

Turnaround specialists look at companies in a distress state currently, but

which could be potential candidates for turnaround in operations. This

could be triggered by change in business model, change in management orchange in balance sheet structure

How to pick a stock

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How to pick a stock

Large Caps

Small Caps

Risk

Return

Identify your risk appetite

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Large Caps

Typically companies which are large and have a proven long-term

performance track record. Market cap exceeds INR 5,000 crores

Mid Caps

Typically companies at an expanding stage of product/service acceptance

and witnessing steady growth in their business. Market cap in the range of

INR 1,000 to 5,000 crores

Small CapsTypically companies at an early stage of product/service acceptance and

subject to change/competition/substitute products/ technology. Market cap

less than INR 1,000 crores

How to pick a stock

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Key parameters to look at:

Growth

Capital Efficiency

Leverage

Valuations

How to pick a stock

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When to sell a stock

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Deteriorating fundamentals (Slowdown in growth, increasing competition,

reduction in profit margins, etc.)

The stock price has appreciated to such an extent that valuations are

beginning to look expensive on multiple fronts

A better substitute is now available versus the current stock you are holding,

and with capital being limited, you sell the current stock to buy the new one

When to sell a stock

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Portfolio monitoring is not optional

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Portfolio monitoring is an ongoing exercise that you need to conduct to be

aware of the performance of your portfolio and take corrective actions as

needed

This involves tracking day-to-day events / news in the sector/ stocks you hold

Once the monitoring activity is put in place, the next logical step is to take

corrective action in terms of reducing exposure to current holding or adding

exposure to a current / new holding based on the analysis

In the case of mutual funds as well, a similar monitoring activity has to be

undertaken

Portfolio monitoring

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Using your guide: Edelweiss.in

http://www.edelweiss.in/http://www.edelweiss.in/

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In order to simplify and enrich your investment decision-making process, you

can take full advantage of your guide, Edelweiss.in

At Edelweiss.in, you have full access to Edelweisss full range of coverage on

macro economics, sectors and over 200 stocks.

Further, you get research reports daily, tracking Indian corporate news,

market movements, thematic reports across sectors, economy and asset

classes.

Using your guide Edelweiss.in

http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/http://www.edelweiss.in/

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Stocks you should buy

http://www.edelweiss.in/

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Bajaj Auto

Second largest 2 wheeler

manufacturer, set tobenefit from increasing

two wheeler penetration.

https://www.edelweiss.in/company/Bajaj-Auto-Ltd/28074.htmlhttp://www.edelweiss.in/https://www.edelweiss.in/company/Bajaj-Auto-Ltd/28074.htmlhttp://www.edelweiss.in/

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ITC

Cigarettes business to remain

robust, FMCG the trump card,

classic domestic consumption bet.

https://www.edelweiss.in/company/ITC-Ltd/301.htmlhttps://www.edelweiss.in/company/ITC-Ltd/301.html

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ICICI Bank

Banking revenue set to grow

5.3x to Rs 10.6 Trn over thenext 10 years, ICICI Bank is a

front-runner to capture this

opportunity.

https://www.edelweiss.in/company/ICICI-Bank-Ltd/5418.htmlhttps://www.edelweiss.in/company/ICICI-Bank-Ltd/5418.html

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Thank You