Each week I answer generic questions from readers. Here is this weeks edition. You can use the form below to ask your question.
D. Bose: How do you identify and invest in multi-bagger stocks before they become multi-bagger, and how to find out the right time for entry and exit.
Pattu: Wrong person to ask this question. My two cents for what they are worth: Let us stop and think for a moment, how many stock investors would have asked this question (at least to themselves) over 100s of years of stock trading and if it is practical to expect a formulaic answer to both parts of your question?
I know a few investors who have spotted and held on to multi-baggers. And from what I see, their choice was guided by a projection of the company's prospects into the future. They believed or even realized, that given the evolution of technology or lifestyle, certain business would flourish and certain businesses will not. The analysis of the company financials comes later - to check if something is fishy.
Spotting a trend a possible trend early is crucial and if it starts showing in the financials, then it may not be early enough - still a good buy, but perhaps not a "multi" bagger. Call it vision, call it foresight, but I doubt if there can be any math associated with it. One example that fascinates me: Amazon founder/CEO Jeff Bezos realized the potential of the internet as early as the early 90s and stuck to his guns.
If we must be methodical about it, I think the first step in identifying multi-baggers is elimination. Getting rid of junk stocks which represent anywhere between 80-90% of all stocks that are traded. Then the field of view gets a lot narrower. Avoiding bad stocks is a surefire multibagger "pick".
As for the "right entry/exit time, you can either use the stock valuation techniques available in the freefincal stock analyser and/or use trend-following techniques like moving averages or similar indicators. As long as one does not start seeking the "best" right way, any one method should do.
Virendra Satav: Dear Sir, this is for direct equity investment. Where can I find the historical P/B ratios vs Nifty/sectoral index level? TIA.
Pattu: I assume you are referring to individual stock PB or PE history. I do not know of any source (paid/free) that offers this for Indian stocks. If any reader can help in this regard, please leave a comment.
Ankit Garg: Hi Sir, I started building my portfolio in Dec with equal distribution between stocks and MF category. Now I want to follow this strategy of 50:50 allocation only. But problem is that against my monthly investable surplus I can't get a good share every month to invest into. And I don't want to increase number of shares in my kitty. How many shares do you think a good well balanced and diversified portfolio should have? I currently have 11. Should I distribute monthly investable among existing MFs every month. Only problem with that is that I don't want my portfolio to be more weighted towards MFs than stocks.
Pattu: Asset allocation need not be 50:50 each month! You realign it each year or every 2-3 years. In the meanwhile, you can invest as you see fit - in the same stocks each month or wait until you feel the price is right. In any case, a fund with low AUM has about 20-25 stocks. So an individual stock portfolio should not be more than this. Else the diversification will reduce returns.
Aniket Bhadane: Equity MFs have 1% Exit Load if redeemed within 1 year. I have SIP of Rs. 10000 per month in a MF. If I redeem some amount like Rs. 1000 after 13 months, will I be charged with the Exit Load?
How can one avoid the Exit Load and tax on capital gains of MF SIP, when Redeeming? Suppose I have a SIP of Rs 10000 per month. The MF has 1% Exit Load if redeemed within 1 year. Also we know that capital gains are exempt from tax if duration more than 1 year. Now I do the SIP for 13 months, and now I want to redeem some amount. Will I be charged with the Exit Load and will the gains be taxable, since not all the SIP transactions have completed 1 year?
Pattu: The rule is wrt age of each unit. If the unit age on the day of redemption is less than or equal to 365 days, the exit load will apply. Redemption is based on first-in, first-out basis.
You can use this Mutual Fund Capital Gains Calculator and check the tax and load to be paid before redeeming.
Sampoorn Sahu: DSP BlackRock Micro Cap Fund - Regular Plan It is screened out here: Two Simple Ways To Screen For Mutual Funds despite having all returns above 10%, why?
Pattu: There is an additional requirement of 3Y,5Y and7Y performance consistency. I think the fund is not old enough to qualify for this. You will have to take a subjective call.
Swati Joshi: Can we select funds considering only past. Performance? No other criteria like change in strategy, fund manager needs to be taken into consideration?
Pattu: I covered this in detail here: Can We Select Mutual Funds Considering Only Past Performance?
LD: I have multiple mutual funds across RTAs (CAMS, KARVY and FTAMIL). I do my investments through mfu direct. The biggest limitation of the platform that I see is that I cannot see the XIRR returns of my mf investments. MFU Online replies to my question that they would not be able to give it in future as they do not get feeds from the RTA for the XIRR calculation. From CAMS online (CAMS web portal), I can get the XIRR returns for each funds across funds houses serviced by it (but not so for other funds houses not serviced by CAMS), but I would like to see a consolidated view of MF returns across any of the RTA. Would you be able to help if you already know how any place where I can get that or if you have already built a tool for the same? Regards LD
Pattu: Get the consolidated CAMS-KARVY-FTAMIL account statemet and upload it in Value Research portfolio tracker or at Perfior or Mprofit. I use an Excel sheet for this.
Mangesh: What is an Ideal Health insurance cover for a family of 4 ?
Pattu: No idea what your definition of "ideal". The primary limiting factor is money that you can afford for this. I can point you to:
Bedabrata Banerjee: Mutual fund screener ver. 6 is not showing current data for last one year i.e. from September 2016. Please update it or give a version which is auto updating. Kudos to u for your benevolent service.
Pattu: Thank you. You can use my monthly fund screeners instead. See: Two Simple Ways To Screen For Mutual Funds
Srikrishna: Hi sir,is re-investment (redemption and purchase in 2-3 days)into the same elss fund (immediately after 3 year lock in) eligible for 80c deduction?
Pattu: Yes and it not need not be immediate.
venkat: I was trying pre-fill personal data and also TDS data in my online itr2 form. I logged into my e-filing income tax web page and clicked "my account" and clicked "download pre-filled xml" and in resulting page and filled in assessment year and clicked submit. I get xml document 1) personal data is ok, 2) advance and self assessment tax are also ok. But the data from 26AS form is NOT UPTODATE. Only Old 26AS data is downloaded and I had to correct them. This is even on June 23rd where as 26AS form is upto date even on June 15th. why is this delay?
Pattu: Only ITR1 and ITR4 forms are available online. For all others, manual updation is necessary
Chaitanya: Hello Professor Pattabiraman. I am surprised to see your change of mind about Metrics Alpha, Beta and the rest. In the past you have spoken high about S.D. "Falling out of love" and "losing faith" with the metrics are not the same Professor. You may fall in love again but once you have lost faith, it will not be the same. I came to know about the metrics through you and been checking them ever since whenever I choose funds. Can't we depend on them anymore? Should we discard them? You are like a teacher to me Professor, so if you firmly say something, I believe it but I am confused now. I know you are educating and you have my respect for that. So, please explain. Apologies for being blunt.
Pattu: No problem about the bluntness. I lost my fancy with the greek metrics more than 2 years ago and have not referred to them for long. The standard deviation is the only exception as I am still searching for a reliable alternative for volatility.
"Falling out of love" and "losing faith" with the metrics are not the same Professor" ---> I cannot comment about others, but they are the same to me. I would never use a metric unless I had faith in it. Once I realised that my faith is mis-placed, I owe it to myself to use something else.
And I can only answer for myself: I will not depend on those metrics again.
There are alternatives like the upside/downside capture and I am studying others to see if they are easy enough to use.
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