How long should you hold a stock?

When it comes to investing, it is necessary to do your homework. Studying the financials of the company, meet the management; evaluate performance against the peers, etc. These are just some of the points that you cover when judging if a stock can be invested into or not. After doing the groundwork, you study the company's valuations. If it is available at cheap and attractive valuations, you go ahead and invest your money in it. But having purchased the stock, the big question is what next? How long should you hold the stock for it to deliver that fantastic performance that you want and expect?

The answer to this question should ideally be never. But unfortunately not everyone would go for this option. So we decided to discuss the other options available. To understand the options better we collected some statistical evidence. The data we have taken is for the BSE-Sensex to show shows the returns investors would have fetched had they invested in the BSE Sensex 10, 5, 3 and 1 year back respectively. The following chart gives the CAGR returns that you would have earned on the closing price of 22nd February, 2013. 

It must be noted here that the 5 year performance looks depressed because of bull period that Indian markets enjoyed till 2008. Nevertheless, the picture is still quite clear. If stocks were held for one year or a three year period, the compounded annual returns. (CAGR) that one would earn would be a meager 6%. On the other hand, if you had held on to the stock for 10 years, the CAGR would have been an amazing 19%. And this is just the returns in prices. It does not include the returns earned through dividends.

This gives a fair idea on how long the stock should be held. The answer is for a long term horizon. The thing is that there can be periods of time when irrationality and emotion, rather than fundamentals will drive stock prices. And such periods, of excessive greed or fear, could last for months, if not years. But sooner or later rationality is bound to return to the market and then, stock markets have to value companies based on what they are truly worth. Naturally one cannot expect this to happen in short term periods. It can only happen in the long term.

So the recipe to get rich through investing is actually a simple one. Do your homework. Buy the stock at cheap valuations. Then sit back and rest. In the long term, you will reap spectacular gains for sure. But remember what we are advocating is a Buy and Hold approach. Not a buy and forget philosophy. Periodic checkups are necessary to ensure that the fundamentals of the company are intact. And as long as they are, continue to hold it for a long term.

Call Succes For MSIL - Revised Target of 2000.

We had given a call for Maruti Suzuki on 21st January 2013 with a target price of 1592 for 5 days., Maruti closed @ 1600 on 25th Jan 2013.

Here we give a buy recommendation on the stock because of its robust Q3 results and the future earning prospects.

The rationale for the call is : a)MSIL was able to report a sales of about 300000 units in the 3^rd quarter of 2012 an upside of 30% QoQ and 26% YoY. We expect the sales to grow with the same trend in the next quarter driven by robust domestic demands and exports. b) Exports not affected in spite of Europe being the main importer, it grew at an astounding 59% QoQ and 17.2% YoY. The countries of export are Netherlands, Germany, France and the UK. With the exception of France all countries have a growth of GDP and have lowered their debt as a percentage of the GDP. Hence the export figures are bound to grow even more impressive. c) 25% of the FY12 sales was driven by Rural India and has a lot of potential for growth given that Maruti’s distribution channel in the rural market is good. d) New diesel models Ertiga (Maruti’s MUV offering) and Swift Dzire drove the sales figures. New and good quality cars offered by MSIL in a market where its competitors are just sitting on old or unchanged models is a big competitive edge.  While the Society of Indian Automobile Manufacturers renewed its growth figure for the industry to 3-5% we expect sales of MSIL to grow at 9.5%.

As we can see the stock is trading @15 P/E multiple according to future earnings potential. Buy maruti and hold for 6-7 Months to get an impressive yield of 25-30% on your investment.

Buy Maruti for a target of 1592.

The sales figures of Maruti are looking good and they will grow 7-8% driven by sales of Ertigo & Dzire.While the automobile industry is expected to grow at a meager 3-5% during that period. Maruti will soon prove to be market leader in terms of sale if they continue to bring high quality and new cars into the market.  Buy Maruti for a period of 5 days and expect it to go to 1592. Q4 results on 25th Jan.

Buy Havells India for short term.

With the Q3 results awaited on 23rd Jan 2013, expect this stock to reach 690 again. Currently trading at 24 times P/E, is still undervalued by industry standards. CMP 658.9INR at the time of writing. Target of 689 till January end and a stop loss of 650.

Will the Market Reach 23000 in 2013?

The Sensex is nowhere near the valuations of around 22 times the earnings  it was trading during the year 2010. Since then a lot of uncertainties in the Indian policy scenario and the corruption charges against the government had put a downward pressure on the market. That coupled with the debt crises in Europe had made it worse. But now, global fund managers are looking at India as a viable investment market due to rise in earnings growth. The so called "Policy Paralysis" is disappearing, it was apparent when the government finally gave the go ahead to FDI in retail and deferred the General Anti Avoidance Rules to 2016. The stage for investors both foreign and local is set!

Deutsche Equities sees Sensex at 22,500 by December led by Financial, energy, information technology and industrial stocks. Global biggies like Morgan Stanley, Goldman Sachs, JP Morgan, Nomura, Citigroup and Macquarie have already raised the Sensex target for 2013 to a high of 23,069 by December. They have said that the fresh wave of economic reforms set off by the government last September will revive investment and boost economic growth, which is set for a decadal low of 5.5 per cent in FY'13.

 

In morning trade on January 15, the Sensex climbed to over 20,000 for the first time since January 2011, but settled a tad low for the day. Today the benchmark index rallied 146 points to close at 19,964 points after the government virtually deregulated the diesel prices. Market heavy weight ONGC hit a 52 week high and RIL closed 2.8% higher.

Overseas funds bought USD 24.5 billion worth of shares in 2012, the most among 10 Asian markets. The highest foreign inflow was USD 29 billion in 2010. Deutsche Equities said it is bullish on cyclical stocks, a departure from its last two years of focus on defensives. Consumer staple, health-care and utility stocks would remain 'underweight', the brokerage said.

"Value" Investing explained

And finally there should be a margin of safety in your approach. As Benjamin Graham would have said i would drive a truck weighing 9800 pounds over a bridge meant to hold 10000 pounds if it was 6 inches above ground. Not if the bridge was over the Grand Canyon, then the bridge has to hold 30000 pounds thats the Margin of Safety. Happy investing!

Titan Industries : Dont Buy even for short term.

I would suggest from desisting in buying this stock that is greatly over valued when compared with industry standards. Reasons for this :Watches are not viewed as an important piece of everyday product. I mean how manyof us actually wear watches?Titan has achieved an Operating profit margin increase of just 0.05 %, and thats pathetic.While other players like HMT ,TIMEX are struggling with HMT in loss and Timex just scrapping at .16 rupee per share how is Titan achieving 6.7 per share? Aggressive advertising which is further reducing its operating margins.Sales are growing but are not sustainable in a market where Chinese players provide the same quality at half the price.Then the question, why are big research houses advising otherwise? Because they think a increase in stake to 8% by Rakesh Jhunjhunwala is a good sign. No it isnt. They are big players, following them could land small investors in trouble.