Personal Portfolio Management -in a turbulent market

Personal Portfolio Management-in a turbulent market

Step 1 : Get The Cash• Portion of salary?• Life savings?• Inheritance?• Loan?• A mix of all?

Step 1 : Get The Cash

Year Index Return (%) Margin Interest Rate (%)

2010 82.8%

~16%2011 -36.6%2012 -19.7%2013 5.2%2014 14.0%

June, 2015 -5.8%

T1 T2 T3 T4 T5 T6 T7 T8 T9 T10

Nature of Margin Interest vs Equity Return

Margin Interest Equity Return

Margin Interest rate was higher than market return since 2010

Risk of Margin Financing

Step 2 : Set The Purpose And The Target• Purpose of the portfolio• Living expenses• Provision for future event• Retirement

• Target return

Step 3 : Investment Focus• Growth Stocks

• High growth in business and profit• Future expectation is the major driver; inherently risky• Low dividend yield• Relatively higher valuation• Go well with long term purposes like retirement or provision for future event

• Value Stocks• Slow growth in business and profit• Existing business and assets backed valuation• High dividend yield• Relatively lower valuation• Go well with regular cash requirement needs like maintaining living expenses

Step 4 : Stock Picking

Fundamental Analysis Analyzing financial statements and

the health of company, its management, competitive markets and risks

Making financial projections

To arrive at stock valuation

Technical Analysis• Study of charts of past price and

trading action

• All information is reflected already in the stock price, so fundamental analysis is a waste of time.

• Trend persists. No random walk theory. Trends are your friends.

• History repeats.


Fundamental Analysis• Top Down

• Bottom Up

Technical AnalysisEconomy

Industry

Stock

• The chart says it all. Price + Volume =

Fundamental + insider info + scam + greed + fear ++


Fundamental Analysis

Make money out of your stake in companies and how their products or services sell

Technical Analysis

Make money out of movement from the market, with each movement often measured in pennies

Step 4 : Stock PickingFundamental Analysis

How traders see investors

Technical Analysis

How investors see traders


Fundamental Analysis

Grow rich slowly. It can actually bequicker than you think. Buy and hold.

Technical Analysis

Get rich quickly scheme. Market timing rules your methods.


“Fundamental Never Goes Wrong”


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

465793

2,986

801

1,971

1,340

3,168

2,554

8,599

5,203

4,154

3,439

4,7505,173

4,047

4,852

DGEN DSEX


Stock Present Value*(BDT)

BATBC 6,686,569

BATASHOE 1,996,398

GLAXOSMITH 1,820,197

RENATA 1,844,394

BERGERPBL 1,409,687

SQURPHARMA 1,203,338

Index (Jan, 2007- Jun, 2015) 275,002

*with re-investment assumption

BDT 1 lac invested in

2007in one of the stocks or in

index

Portfolio Value* in 2015

Step 4 : Stock Picking"We want businesses to be one

(a) that we can understand(b) with favorable long-term prospects(c) operated by honest and competent people(d) available at a very attractive price”

-Warren Buffet

Step 4 : Stock Picking• Governance• First thing to know “the level of corporate governance.”

• Business• Then comes “What does the company do?”• Ask next “Does it have competitions? Is it doing the job better than its

competitors?”• Make sure that “the company has a sustainable business demand in

foreseeable future.”

Step 4 : Stock Picking• Financials• Find out “whether the company is profitable”.• And “whether it compensates YOU”.

• Valuation• If all the things are right, ask yourself “Is the company ‘cheap’, ‘fairly valued’

or ‘overvalued’?”

Step 5 : Understanding Valuation• In an investment ‘We pay now to get in future’.• You pay Price now to get Earnings in future.

• Price/Earnings tells how much we are paying for BDT 1 of earning.

PriceEarnings

What you get

What you pay

Step 5 : Understanding Valuation• The rules of thumb are• The higher the P/E, the more expensive the stock is.• The lower the P/E, the cheaper the stock is.• Higher growth deserves higher P/E

The P/E ratio of any company that’s fairly priced will equal to its growth rate.

- Peter Lynch

Step 5 : Understanding Valuation• There are similar ratios like Price/Sales, Price/Book Value• Make sure Earnings/Sales/Book Value reflects reality.

Step 5 : Understanding Valuation

Trust on Financial Numbers Trust on Financial NumbersTickr P/EGREENDELT 28.7xPRAGATIINS 18.8xJANATAINS 14.9xFEDERALINS 14.0xPARAMOUNT 12.3xASIAINS 11.9xRELIANCINS 10.9xPIONEERINS 9.7xSONARBAINS 9.1xPRIMEINSUR 8.6xAGRANINS 8.5xPROVATIINS 8.4xPEOPLESINS 7.3xRUPALIINS 6.0xBGIC 6.0xPHENIXINS 5.9xSTANDARINS 5.6xCONTININS 5.5xNORTHRNINS 4.8x

Tickr P/BVBRACBANK 2.9xDUTCHBANGL 1.9xIFIC 1.7xTRUSTBANK 1.5xMTB 1.5xDHAKABANK 1.3xUCBL 1.2xISLAMIBANK 1.2xBANKASIA 1.0xPRIMEBANK 1.0xCITYBANK 1.0xEBL 1.0xUTTARABANK 0.9xSOUTHEASTB 0.8xNBL 0.8xPREMIERBAN 0.8xSTANDBANKL 0.7xMERCANBANK 0.7xNCCBANK 0.7x

Step 6 : Portfolio construction• Diversification is the most powerful risk mitigator.• But, over-diversification might dilute return potential.

Under-diversification Over-diversification

Step 6 : Portfolio construction

Bias - Herd behavior Bias – Overconfidence

Overconfidence


Bias - Anchoring


Be contrarian Know and recognize mistakes

Two Most Important Things to Remember

You want to be greedy when others are fearful. You want to be fearful when others are greedy. It's that simple.

- Warren Buffet

Step 7 : Trading Tactics• Frequency• Frequent trading increases commission and over a long horizon, powered by

compounding dents portfolio.

• Dollar Cost Averaging

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

25.0

NBLOpportunity to average down

throughout 2013

1-Jan-13

4-Feb-13

10-Mar-1

3

13-Apr-1

3

17-May-1

3

20-Jun-13

24-Jul-1

3

27-Aug-13

30-Sep-13

3-Nov-1

3

7-Dec-1

3

10-Jan-14

13-Feb-14

19-Mar-1

4

22-Apr-1

4

26-May-1

4

29-Jun-14

2-Aug-14

5-Sep-14

9-Oct-

14

12-Nov-1

4

16-Dec-1

4

19-Jan-15

22-Feb-15

28-Mar-1

5

1-May-1

5

4-Jun-15

8-Jul-1

5

11-Aug-15

14-Sep-15 -

5.0

10.0

15.0

20.0

25.0

NBL Stock went nowhere in following 1.5 year

Step 7 : Trading Tactics• Stop Loss

1-Jan-13

4-Feb-13

10-Mar-1

3

13-Apr-1

3

17-May-1

3

20-Jun-13

24-Jul-1

3

27-Aug-13

30-Sep-13

3-Nov-1

3

7-Dec-1

3

10-Jan-14

13-Feb-14

19-Mar-1

4

22-Apr-1

4

26-May-1

4

29-Jun-14

2-Aug-14

5-Sep-14

9-Oct-

14

12-Nov-1

4

16-Dec-1

4

19-Jan-15

22-Feb-15

28-Mar-1

5

1-May-1

5

4-Jun-15

8-Jul-1

5

11-Aug-15

14-Sep-15 -

5.0

10.0

15.0

20.0

25.0

NBL

Stop Loss @ 20% loss

Money and Time Saved

The most important slide!!!

Discipline!!!

Happy Investing!

Personal Portfolio Management -in a turbulent market

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