Posts

Can we time SIPs?

Time is an illusion - Einstein in Theoretical Physics Time  Timing is an illusion - Einstein in Stock Markets* We will straight away jump into what this article will try to answer. Question: Can a retail investor, one who receives salary every month, time the markets to achieve better returns while doing his Systematic Investment Plan? Conditions: The retail salaried person only does Index investing in Sensex. Assume that on Christmas in 1979 he decided to start an SIP in BSE Sensex with an ETF or an Index fund with no expense and no tracking error. Hypothetically assume these instruments existed since then (even if there is an expense we can reduce the returns appropriately). His strategy was Buy and Hold forever. Short Answer: No we cannot time our SIPs. Long Answer: With a lot of effort (which we will not discuss in this post) we can just scrape ahead of the index but the gains are not substantial enough in this long period of 40 years. At least in my opinion. Let us look at some

Measuring Risk: Utility Functions by Daniel Bernoulli

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Background on these posts  Apart from reading books I think we must read Journal Papers. Now there is a problem in doing so - it's complicated, right? Yes they are and I feel they are made to be so deliberately as the end audience is not the common man but rather a specialist. I have read quite a few over the years, some I understood pretty well and some very minimally given my limited mathematical abilities. But in going through these papers I always could derive the essential takeaway - the crux. Also one problem I saw was application. I don't see how all these papers could be applied be it in actual trading or in developing some heuristic for our investing endeavour. Therefore I thought over time I will start doing the following 3 things: Crux : Summarise key points in some 'good' papers in plain english Simplify : Remove math formulas from the papers as much as possible Actionable : Share my ideas on application of the concepts in that paper Sometimes will throw in

Returns Expectations from Equity Investing

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As amateur retail investors one question we usually do not know the answer to is - What is the return we can expect on a very long term time frame from investing? When we meet experts or see claims on twitter of a 30% annualised return how should we benchmark that in our minds. The returns mentioned in this article is based on the CAGR  formula. Next time when someone throws at you that his CAGR is 30% then you should quickly be able to know how good that number really is. More importantly this is an article which encourages you to tone down your expectations from Equity Investing. We try to see what returns we can expect from Index investing which is looked at boring and yielding very low returns. Let's see. Data Details For this analysis we have taken daily data all the way from 3rd April 1979 of the BSE marquee index the SENSEX. We have data till 4th November 2020. That is 40+ years worth of daily trading data. The argument which usually people give is that 'oh that is too s

Pied Pipers of Dalal Street

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In 1284, while the town of Hamelin was suffering from a rat infestation, a piper dressed in multicoloured clothing appeared, claiming to be a rat-catcher. He promised the mayor a solution to their problem with the rats. The mayor, in turn, promised to pay him for the removal of the rats. The piper accepted and played his pipe to lure the rats into the Weser River, where they all drowned. Despite the piper's success, the mayor reneged on his promise and refused to pay him the full sum even going so far as to blame the piper for bringing the rats himself in an extortion attempt. Enraged, the piper stormed out of the town, vowing to return later to take revenge. On Saint John and Paul's day, while the adults were in church, the piper returned playing his pipe. In so doing, he attracted the town's children. One hundred and thirty children followed him out of town and into a cave and were never seen again. Three children remained behind: one was lame and could not follow quickly

Navigating the cacophony

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The greatest edge a retail investor has is the ability to ignore the noise the professionals and the business media make. If an amateur can develop his investing sieve which gives him the ability to let only correct facts flow into his mind and keep opinions out that itself is a source of alpha. Equanimity is a trait which the professionals lack. If a business has a dip in performance epitaphs get written overnight and a mental pressure gets created for retail investors to sell at the opening bell. This is not how investing is done. Beating the Street This is the title of a book by Peter Lynch. And in the first 50 odd pages of the book Mr Lynch makes a case for investing in Equities. Long story short his point basis facts is that it is always better to be invested in equities on the long term scale. Going in and out of equities is detrimental, something I have personally made a mistake at times. Compounding the portfolio at a steady rate for multiple decades can lead to tremendous wea

A Glance at the largest 100 companies in India

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Some interesting points about the largest listed companies in India. We look at the top 100 companies in order of market capitalization across NSE and BSE. The data is as on 21st October 2020.  75% of the Indian market cap is contributed by these 100 companies. Out of these 100 ten are currently loss making. Debt Factor There are only 8 companies which have Debt to Equity ratio as zero - HUL, Maruti, ITC, SBI Life, ICICI Prudential, Ambuja Cements, HDFC AMC and P&G Hygiene. Six non financial companies have Debt Equity ration over 2, in order Adani Green - 19.48 (largest in the top 100) Adani Transmission - 4.65 Interglobe Aviation - 3.88 LT - 2.08 M&M - 2.07 Tata Motors - 2.01   7 companies have less than one times Interest Coverage Ratio. Out of these seven companies four of them have glaringly high Debt to Equity ratios. Sales Growth In the trailing 12 months 47 companies had sales growth and the rest did not. Amongst the positively growing companies the median sales growth w

An Update...

A short update: Due to constraints of time I cannot run this blog now. My wife will start managing this blog as well as our investing project and newsletter at peepalcapital.com . She will be doing this full time. I wish her all the best in nurturing our model portfolio and working towards a business plan she has to impart financial education. Rachita comes with over a dozen years of banking experience. She has been investing since 2007. p.s. trying to figure out how to transfer ownership of this blog to her.