Monday, December 22, 2008

Capital preservation….

for blog

I never really gave a thought to capital preservation till now. It really never mattered before – the going was so good that it really did not matter whether you planned anything or not. Pick up junk for whatever you feel it was worth and it would turn out to be Midas's touch. So a generation of investor got used to just putting money in stock markets – there was nothing called investing – I was surprised when one day I was nominated a so called investment advisor by ICICI Bank and wanted to tell me to invest (Somehow they classified me as a HNI – that itself was the joke of the year). Anyway when I sat with him and grilled him for some time – his advise was to buy this – buy that and that. I was shell shocked that day – this guy had no entry policy and worst had nothing in his kitty there was called as exit strategy. See the genesis of problem with ICICI Bank – expansion without matching expansion of quality man resources – Anyway I will not dwell any longer than this into ICICI Bank – my aim is not Bank thrashing at the moment. Since I had seen some ups and down’s in the market at even without having a policy myself – I was sure that anyone who was supposed to advise me should atleast  have a theoretical knowledge more than me. Any way this was true not only for him but for most of us – the retail investor, the investment advisor and tons of others not to miss the advisors who used to come on to the idiot box every morning and go on and on and on – blah blah blah. There was a buy recommendation, hold recommendation and recommendation to sell only to move to some other share/stock. There was no advise that told the investor to take out some money from the markets – do a risk assessment or to set goals. That is the reason that our loss ran on and on.

Well now that we have burned the fingers – let us see what we can do.  I am in the middle of reading a book on investing and he say something that struck to me as a wonderful advise. He says study what others do for themselves but at the end of the day see what strategy suites you and then stick to it.  What it means is that inspite of what I say or someone else says – at the end of the day – since the money is yours – the risk is yours so you have to choose what is right and what is wrong with your approach to making money. Then he went on to say that risk profile yourself. That can be done online by a number of sites. They ask you questions like your age bracket, current salary and so many other questions and then tell you a ratio – your savings should include – for example 70% should be in risk free low return investments/instruments, 20% in so and so and balance 10% in stocks. Now here lies our problem – see if I was to restrict my investment in stocks of 10% of my total savings – and the going goes good then it is well within the right to increase the percentage to 12 or 15% – but it does not happen like this – we generally then start pulling out our resources from the otherwise safe investments and pump into stocks. It is here that the hurt lies. So let us see how we manage money – firstly our proportion will increase without doubt – as the investments give good returns the proportion will increase so ideally if we had planned it will grow – so now one should allow it to grow – but at each stage – take out some profits and put them in non volatile instruments – bonds/FDs/postal deposits etc. now there will be a symmetry of growth in both the – high risk and low risk side of investments. It is so basic that we overlook it and land in trouble. It has to do with one of the two things – the greed and fear. I followed this policy and had a full 100% reserves. I should be rich as per this philosophy – but my greed and fear made me break one FD after another and sink it in the market not realising that there is no bottom. So inspite of having a wonderful strategy I could not make use of it and suffered. In the end – I urge you to make a strategy and stick to it – have to do mind training the yoga way I guess.

The global cues were once again mixed on Friday but if the bulls have held out so long – and if they may hold ogetImageFromSession.phput a bit longer then a good short covering rally could be on the cards. We are infact short of the zone that I have been eying for so long now – 3200-3500 band. Some sort of profit booking should be done without doubt and wait for a better opportunity once again to enter markets. Europe had closed all red on Friday – with FTSE being 1.01% down, DAX down by 1.26% and CAC down by 0.26%. US was mixed with Dow down 0.3% Nasdaq up by 0.77% and S&P up by 0.29%.Asia has opened carrying the same trend over to this week – Nikkei opened flat and has since climbed up in green now 1.42%, Hang Seng and Strait Times on the other hand have opened flat and fell red – now down by 0.3% and 0.24% respectively.

As far as the candles are concerned – they continue to hug the upper limit of Bollinger bands with the bands expanding and 5 EMA trailing comfortably above the 20 EMA line. The next great thing would be if we touch and do a 50 EMA crossover (See the purple line in the chart – that is 50 EMA). The volumes were certainly more than the average that we have been seeing in the recent past. MACD positive divergence continues but has reduced a bit. RSI continues to be bullish. TRIX still looking up and MACD showing doubts whether to remain in overbought territory for some more time or to fall down. The fall will come only with market falling overall.

Pivot data…
R3 3176 against 3222 on friday
R2 3143
R1 3110
Pivot 3073 against 3018 on friday
S1 3040
S2 3003
S3 2970 against 2814 on friday
Projected High Range 3091 to 3126
Projected Low Range 3085 to 3050
Fib Projected High 3125
Fib Projected Low 3016

Even the Supports have moved up into the 3000 zone – so improving with baby steps – but improving all the same. Best of luck everybody.



Uma said...

Thank you for the great posts

S S Cheema said...

Uma: Its the other way out - thanks for keeping my morale up all the way.

Natasha said...

Dear Mr. Cheema,
Your real life rich experience that you bring to your blog posts make it all the more impressive.
Thank you,
Best Regards,
Natz :-)

S S Cheema said...

Thanks Natz;-)