Market Term - Cup and Handle

From Investopedia

A pattern on bar charts resembling a cup with a handle.
The cup is in the shape of a "U" and the handle has a slight
downward drift. The right-hand side of the pattern has
low trading volume. It can be as short as seven weeks
and as long as 65 weeks.

As the stock comes up to test the old highs, the stock
will incur selling pressure by the people who bought at or
near the old high. This selling pressure will make the stock
price trade sideways with a tendency towards a downtrend for
four days to four weeks... then it takes off.

A couple points on trying to detect cup and handles:

Length - Generally, cups with longer and more "U" shaped bottoms,
the stronger the signal. Avoid cups with a sharp "V" bottoms.

Depth - Ideally, the cup should not be too deep. Also, avoid
handles which are too deep since the handles should form
in the top half of the cup pattern.

Volume - Volume should dry up on the decline and remain
lower than average in the base of the bowl. It should
then increase when the stock finally starts to make its
move back up to test the old high.

Retest (of old high) - doesn't have touch or come within
a few ticks of old high. However, the further the top of
the handle is away from the highs, the more significant
the breakout needs to be.

Deadpresident's Moneymaker

Buy Geometric Software.
CMP : 400
Target : 450 ( Sharekhan ) , 750 ( Equitymaster )

Here are 2 research reports that might influence your decision - Sharekhan Research Report
Equitymaster Stock Select

Brand might, with kids' insight

THE bright Indian kid genius showcases his or her talent and knowledge on the Britannia Television show, inspiring millions of Indian kids to aspire and desire to achieve great things in life. These kids have dreams to contribute to a better world order whether in the field of culture or agriculture, Biology or technology, art or heart, a space station or a radio station or good education.

Children in India contribute to the development of India mentally or physically, and have today, a choice of a number of kids' brands. They could choose from an Amar Chitra Katha set of comic books which educate or a bar of Cadbury or Nestle chocolate or a scoop of Kwality Walls or Amul or Mother Dairy ice-cream or shopping options from Big Kids Kemps, Lifestyle, Globus or Shoppers' Shop. The choice is wide for kid brands whether in garments or toys or books or entertainment.

A kid in Mumbai decided whether his father should purchase a Ford, a Honda or an Accent. A child in Delhi decided on the location where the family should buy their new house in. In Chennai, the family went by the decision of their children about their club membership.

The largest kid market in the world, India, is changing rapidly in favour of the child not only as an influencer but also as a decision maker. Brand marketers should increase the brand might with kid insight.

As the new Internet age evolves and increases its space, children of the 21st century are in a position to get more information at a shorter time compared to what their parents or grand parents could access.

This has brought about greater exposure, greater knowledge among kids and has enhanced not only their influencing power in choice of brands, but has also turned many of them into decision makers in categories which are not necessarily categories only for children.

For instance, today, kids many a times not only influence, but can also in some cases decide a choice of the car brand for their family or a computer brand or even the choice of an upscale club membership.

This quick change in strengthening of kid power in influencing and deciding brand choices is having major implications on the marketing plans of various companies.

Let us understand the consumer behaviour patterns in terms of kid power in the purchase and usage of brands.

I would like to analyse the kid behaviour patterns under three categories - core category, peripheral category and adult category.

Core category

In certain core kid categories such as ice creams, chewing gums, bubble gums, toys, theme park visits and many others, kids' decision making is clear and many a times non-negotiable.

The influence on the kid's mind and heart come not only through advertising, but also through varied promotions and more importantly kid peer pressure.

It means that whether it be children's books or games or certain kid's activities creating good word of mouth among peer group definitely brings the product or service brand into the consideration set of the kid.

Here too, the Barbie for a little girl and a special toy gun for the boy child would also influence a child at school and in the neighbourhood.

It is important for marketers to constantly innovate, upgrade and understand child psychology so that their brands can succeed in the relevant segment.

Peripheral category

There are certain categories which are peripheral to the needs of children. For example, a choice of curtains at home, including in areas where the kids play or choice of certain grocery items.

Though the kid does not directly consider these categories to be core to his or her existence, many a time the choice of a ketchup brand or a brand of atta can directly or indirectly be influenced by children.

Recently, a study showed a growing influence of children in choosing brands in household categories such as toothpaste and toilet soaps. No wonder many marketers concentrate their communication in influencing children and through them their parents, towards taking positive decisions in favour of their brands.

Adult category

Conventionally, many people felt that a brand choice of a house or a car or a refrigerator or club membership would purely be an adult decision.

This is fast changing. The kids are not only becoming strong influencers but they are also, in some cases actually deciding what the family car or cars should be.

This has a serious implication on branding, which marketers need to understand and not treat the kids only as kids but also understand that slice of their influencing character which can be strongly similar to adult behaviour.

A quick access to knowledge and transparency has made kids grow faster into decision makers. Marketers should seriously note this kid power. No kidding!

To have a strong and effective kid marketing, one could take a look at Samsika's `6 `I' Kid insight' module.

I — Inquisitive

Kids have become very inquisitive. They are even interested in knowing the amount of calories consumed or spent. This is because of the recent issues over soft drinks and chocolates

I — Indulgent

Kids would like to indulge. They want to participate, be it in mobile phones or ice creams. They are not cautious, but thrifty.

I — Integrity

Kids are discerning. They want to know whether the brand is honest. They are going away from brands which mislead, which do not have integrity, which don't keep their promises. They look for authenticity of the product.

I — Influencer

Kids act as influencers not only for kids' product but even for luxury cars, which holiday to take, and which gadget to buy. The exposure to TV and travel has helped the kid in becoming an influencer.

I — Involved

When kids' consume or purchase something they are fully involved in, they are not `apart' but are `a part' of the whole process. Even in schools, they are involved in education, they want to know what the teachers are giving. Kids have become conscious about perceived value. They want to know whether they should `brand switch' or not.

For example: The programme, Jassi Jaisi Koi Nahi virtually does not have kids, but the viewership among kids is very high.

I — Incisive

Kids have become sharp and can analyse. They even know what is happening in the manufacturer's mind. For example, on one pack if he is giving two packs free, the kids will say that this is because his product is not selling. Kids respect and appreciate merit.

Identifying an auto anc. stock: Do’s and don’ts

In the outsourcing space, the prospects for auto ancillary manufacturers are bright from the long-term perspective. But identifying the right stock from this sector becomes difficult on account of technical complexities involved and higher nature of fragmentation of the industry. In this article, we have made an attempt to simplify this process and help investors identify a good auto ancillary stock.

More at Equitymaster

The Dividend Dogs

As on 26/09/2004

Small-cap: City Union Bank, Bajaj Auto Finance, Infomedia India, Sirpur Paper and Vardhman Polytex. The dividend yield of these stocks ranges between 6.2 and 6.7 per cent.

Mid-cap: Chambal Fertilisers, ICI India, Bongaigaon Refineries, Kochi Refineries and Bank of India. The dividend yield ranges between 6.5 and 7.4 per cent.

Large-cap: HPCL, Hindustan Lever, Indian Oil, BPCL and Hero Honda. The dividend yield ranges between 4.5 and 5 per cent.

Deadpresident's Tradepicks

Trade on Jain Irrigation Systems - you can also buy for a short term target of 99-105. Keep a stop loss of 87.

Trading Psychology: Knowing Yourself Is Key

Michael J. Mauboussin offers great advice to avoid the dreaded market despair:

Knowing yourself means understanding how you’re likely to behave under various circumstances. Over the past couple of decades, behavioral finance researchers have developed a clearer understanding of the psychological traps investors fall in. The best way for you to avoid these traps is to become aware of them, the forms they take, and which you are most likely to fall into.

Here are five common pitfalls:

• Over-confidence. Researchers have found that people consistently overrate their abilities, knowledge, and skill—especially in areas outside of their expertise. Investors must seek and weigh qualityfeedback and stay within their circle of competence.
• Anchoring and adjusting. In considering a decision, we often give disproportionate weight to the first information we receive, hence anchoring our subsequent thoughts. You can mitigate this risk by seeking information from a variety of sources and viewing various perspectives.
• Improper framing. The decisions of investors are affected by how a problem, or set of circumstances, is presented. Even the same problem framed in different, and objectively equal, ways can cause people to make different choices. Framing, too, plays a central role in assessing probabilities.
• Irrational escalation of a commitment. Investors tend to make choices that justify past decisions, even when circumstances change. To avoid this trap, investors must only consider future costs and benefits.
• Confirmation trap. Investors tend to seek out information that supports their existing point of view while avoiding information that contradicts their opinion. Psychologist Thane Pittman’s slip of tongue sums it up: “I’ll see it when I believe it.”

You must also understand how you tend to react under stress. People with different personality profiles behave in dissimilar ways when stressed. Here again, self-awareness and some basic techniques to offset suboptimal behavior go a long way. Pearson declares, “A gambler’s ace is his ability to think clearly under stress. That’s very important, because, you see, fear is the basis of all mankind....That’s life. Everything’s mental in life.”

IPOs in 2005

Public issues set to hit the market in 2005
Oil & Natural Gas Corp	10000.00
Reliance Infocomm	10000.00
Gujarat State Petroeum Corp	4000.00
Tata Teleservices	2500.00
Life Insurance Corp Of India	2000.00
Hutchison Max Telecom	2000.00
Tata Sons	2000.00
Bank Of Baroda	1500.00
Oriental Bank Of Commerce	1500.00
Jet Airways	1500.00
Power Finance Corp	1300.00
Punjab National Bank	1230.00
Videsh Sanchar Nigam	1000.00
Infrastructure Develop. Fin. Co.	1000.00
HDFC Bank	900.00
Idea Cellular	650.00
Power Grid Corp	500.00
Allahabad Bank	500.00
BPL Communications	500.00
Fortis Healthcare	500.00
Haldia Petrochemicals	457.00
IBS Software Services	450.00
Rural Electrification Corp	400.00
Telecommunications Consultants India	400.00
Central Bank Of India	400.00
GMR Energy	400.00
Jaiprakash Hydro Power	350.00
Indian Bank	300.00
WeP Peripherals	300.00
Yes Bank	300.00
Gujarat NRE Coke	250.00
Dena Bank	216.00
Emami	200.00
Syndicate Bank	200.00
Set India	200.00
Allied Computer International (Asia)	200.00
Sify	200.00
Shoppers' Stop	150.00
UTV Software Communications	150.00
Mahanagar Gas	150.00
Punjab & Sind Bank	150.00
IL&FS Investmart	150.00
IVRCL Infrastructure & Projects	150.00
Andhra Bank	140.00
Amar Remedies	100.00
Bank Of India	100.00
AB Corp	100.00
Musicworld Entertainment	100.00
Sasken Communication Technologies	100.00
CMS Computers	100.00
Shantha Biotechnics	100.00
Bajaj Hindusthan	100.00
The list includes only companies which have announced the issue size and those with issue size above Rs 100 crore. Source: Prime Database

Sourced from the Business Standard - Full article here

Deadpresident's Tradepicks

Visualsoft Technologies - showing tremendous strength over a very volatile last week. You might want to trade on it as well as take delivery for short to medium term. Also, apparent rumor that they got a big order from Motorola. Keep a strict stop loss of 120.

The New Convergence Paradigm

This article appeared on Business Today Jan 16 2005 Issue as a part of INDIA IN 2020

Gives us a peek into what the man is thinking and what Reliance is planning to do and is doing.

The New Convergence Paradigm

By Mukesh Ambani, Chairman and Managing Director/ Reliance Industries Limited

We are in a world of convergence brought about not just by technology, but also by the process of globalisation, by the sharing of information and by the fusion of knowledge domains. The manifestations of convergence therefore go beyond the confines of products to people, practices, ideas and even ideologies.

Globalisation-led convergence promotes collaborations, information-led convergence enables connectivity, technology-led convergence stimulates creativity and knowledge-led convergence builds competencies.

Globalisation is inducing greater collaboration and convergence across borders. The pressure to increase efficiency and productivity is forcing companies to collaborate like never before. In manufacturing, different components of the production process are being located in different places of competitive advantage. In research, an explosion of knowledge and greater specialisation is forcing science-based collaboration. In business, a move to standardise common business processes is improving efficiency and productivity. In new initiatives, increasing risks are entailing strategic alliances for risk mitigation.

The ubiquity of global communications is forging new communities bonded by common goals and interests. The concept of the nation state is slowly getting obscure, with bilateral and multilateral trading blocs, greater migration of professionals across borders and increasing acceptance of dual citizenship. Greater global scrutiny is questioning the concept of sovereignty as a right to do whatever a government likes to do within its borders.

Technology represents, by far, the most tangible and dramatic manifestation of convergence to create new ways of living.

Genomics, molecular biology and bioinformatics are converging in nutritional genomics to create smart foods. An understanding of how genes, proteins and nutrients interact at the cell level is helping determine which types of foods cause what kinds of diseases in order to prevent them with altered diets and lifestyles.

Globalisation-led convergence promotes collaborations, information-led convergence enables connectivity, tech-led convergence stimulates creativity and knowledge-led convergence builds competencies

Embedded sensors and optic communications are coming together to create smart shirts. Undershirts made with conventional textile material, but embedded with optic fibres and sensors connected to a wearable data transmitter, and linked wirelessly to any receiving device, can help monitor body functions on a real-time remote basis or be used in medical and military applications.

Networking and automation technologies are uniting to create smart homes. Semiconductors and sensors connected to household devices can help us talk to our refrigerators, program microwaves, control washing machines, alter lighting and air-conditioning systems, and see who is knocking at the door-all from our cell phones-remotely and while on the move.

Mobile phones are integrating with other devices to enable smart working-global positioning systems to pinpoint a person's location, cameras to enable remote observation of a person's environs, sensors to enable remote monitoring of a person's body functions, and electronic pens to capture and convey a person's written word.

Materials science is intersecting with information and communication technologies to create smart products ranging from electronic paper to the electronic pen.

The coming together of the internet and wireless communications is leading to an information-led convergence. The internet is getting to be more about connecting people to people than connecting people to portals and web sites. It is taking the form of a network of identities and relationships that transcend corporate or national affiliations.

At one plane, the creation of new communities is coming about by associations of shared interests and goals, brought together in the virtual world. At another plane, new social networking software are coming into vogue, which are mining web traffic and looking for new relationships to acquire customers. They are also helping analyse patterns of behaviour among existing communities to help improve the value of relationships through, for example, higher sales. Social networking software is also optimising the organisation of social interactions. This is taking the form of shared purchases and unified articulation of issues.

Wireless technologies are forcing their way into more and more sectors. Today, wireless is used mainly to move information. In the future, it would be used to promote collaboration.
For businesses, convergence is an opportunity to enter new domains, improve productivity, expand collaborations, enhance capabilities and, above all, help transform humanity

Knowledge-led convergence is creating new competencies. For example, the marriage of digital technology with the art of illusion is opening endless opportunities for the world of entertainment. So far, different forms of entertainment-music, radio, movies and television-were offered through distinct devices and different settings. Digital entertainment is converging them to one platform in the virtual world. Not only that, it is bringing the same platform to games, education and healthcare. This convergence is creating new domains such as animation, gaming, edutainment and virtual tourism.

In a similar vein, knowledge-led convergence is bringing about the emergence of several new domains-geomatics, precision farming, molecular electronics, tissue informatics-to name a few.

Reliance is an enterprise driven by larger opportunities in the marketplace. Reliance Infocomm has been conceived to play on the convergence of information technology and communications. It is founded on the power of information and communications to transform Indian society. It is engaged in bringing about a digital revolution-led convergence of information, communication, education and entertainment.

The wireless platform offers Reliance an opportunity to converge transactions in retailing, financial services, capital markets, entertainment, travel and a host of other sectors for all participants. Equally, it helps collaborations among people brought together by common goals or interests. r-school, an interactive platform for teachers, parents and students on the wireless platform, is a case in point. With the rollout of broadband in the ensuing future, Reliance would have created a new platform for collaboration among businesses and people.

Reliance is working towards converging several energy forms-from petroleum products, natural gas, coal bed methane to electricity-at the consumer level in the form of common systems and processes. Eventually, this will include financial and information and communication services as well.

Reliance is an enterprise known for its international competitiveness. Convergence technologies are helping improve competitiveness by raising productivity and enhancing reach in manufacturing and in the supply chain. Global positioning based fleet management systems have helped better logistics management across all businesses. Information technology-enabled automation systems in the petroleum retailing business are helping improve customer care and gross retailing margins. Likewise, 3d seismic imaging has significantly helped improve discovery efforts in the upstream oil and gas business.

Globalisation offers Reliance an opportunity to converge markets and collaborate across borders. The acquisition of Trevira in Germany, coupled with a relationship with DuPont, is helping converge global research in polyester with Reliance in India. In a similar perspective, the acquisition of Flag Telecom is helping integrate information and communications markets overseas with the Reliance network in India.

The impact of convergence, in diverse fields and settings, can be far-reaching. Convergence will diffuse boundaries. Convergence will enhance human abilities. Convergence will bring out new consumer complexities. Above all, convergence will make societies clever.

For businesses, convergence is an opportunity to enter new domains, improve productivity, expand collaborations, enhance capabilities and, above all, help transform humanity.

Market Term - Rule of Eighteen

This rule applies to the DOW Jones Industrial average and so it can be skewed a little bit for the emerging markets. Also, the fact to be taken into consideration is that DOW just has old economy stocks and no tech stocks.

Basically, this rule states that sum of Inflation and P/E of the Index determines how the stock market should move. If its greater than 18, then the stock market moves down, if its less than 18, the stock market will move up.

When Fear and Greed Take Over

There is an old saying that the market is driven by just two emotions: fear and greed. Although this is an oversimplication, it can often be true. Succumbing to these emotions can have a profound and detrimental effect on investors’ portfolios and the stock market.

In the investing world, one often hears about the juxtaposition between value investing and growth investing and although understanding these two strategies is fundamental to building a personal investment strategy, it is as important to understand the influence of fear and greed on the financial markets.

There are countless books and various courses devoted to this topic. Here our goal is to demonstrate what happens when an investor gets overwhelmed by one or both of these emotions.

Greed’s Influence

So often investors get caught up in greed ("excessive desire"). After all, most of us have a desire to acquire as much wealth as possible in the shortest amount of time.

The Internet boom of the late 1990s is a perfect example. At the time it seemed all an advisor had to do was simply pitch any investment with a ".com" at the end of it, and investors leaped at the opportunity. Buying activity in Internet-related stocks, many just start-ups, reached a fever pitch. Investors got greedy, fueling further greed and leading to securities being grossly overpriced, which created a bubble. It burst in mid-2000 and kept leading indices depressed through 2001.

This get-rich-quick mentality makes it hard to maintain gains and keep to a strict investment plan over the long term, especially amid such a frenzy, or as Federal Reserve Chairman Alan Greenspan put it, the "irrational exuberance" of the overall market. It’s times like these when it is crucial to maintain an even keel and stick to the basic fundamentals of investing, such as maintaining a long-term horizon, dollar-cost averaging and avoiding getting swept up in the latest craze.

A Lesson From "The Oracle Of Omaha"

It would be remiss to discuss the topic of not getting caught up in the latest craze without mentioning
a very successful investor who stuck to his strategy and profited greatly. Warren Buffett showed us just how important and beneficial it is to stick to a plan in times like the dotcom boom. Buffett was once heavily criticizeed for refusing to invest in high-flying tech stocks. But once the tech bubble burst, his critics were silenced. Buffett stuck with what he was comfortable with: his long-term plan. By avoiding the dominant market emotion of the time, greed, he was able to avoid the losses felt by those hit by the bust.

Fear's Influence

Just as the market can become overwhelmed with greed, the same can happen with fear ("an unpleasant, often strong emotion, of anticipation or awareness of danger"). When stocks suffer large losses for a sustained period, the overall market can become more fearful of sustaining further losses. But being too fearful can be just as costly as being too greedy.

Just as greed dominated the market during the dotcom boom, the same can be said of the prevalence of fear following its bust. In a bid to stem their losses, investors quickly moved out of the equity (stock) markets in search of less risky buys. Money poured into money market securities, stable value funds and principal-protected funds--all low-risk and low-return securities. In fact 2002 saw the largest amount of outflows, about US$40 billion, from the equity markets since 1988, a year after one of the worst stock market crashes in history, and a record $140 billion flowed into the bond market.

This mass exodus out of the stock market shows a complete disregard for a long-term investing plan based on fundamentals. Investors threw their plans out the window because they were scared, overrun by a fear of sustaining further losses. Granted, losing a large portion of your equity portfolio’s worth is a tough pill to swallow, but even harder to digest is the thought that the new instruments that initially received the inflows have very little chance of ever rebuilding that wealth.

Just as scrapping your investment plan to hop on the latest get-rich-quick investment can tear a large hole in your portfolio, so too can getting swept up in the prevailing fear of the overall market by switching to low-risk, low-return investments.

The Importance of Comfort Level

All of this talk of fear and greed relates to the volatility inherent in the stock market. When investors lose their comfort level due to losses or market instability, they become vulnerable to these emotions, often resulting in very costly mistakes.

Avoid getting swept up in the dominant market sentiment of the day, which can be driven by a mentality of fear and/or greed, and stick to the basic fundamentals of investing. It is also important to choose a suitable asset-allocation mix. For example, if you are an extremely risk-averse person, you are likely to be more susceptible to being overrun by the fear dominating the market and therefore your exposure to equity securities should not be as great as those who can tolerate more risk.

Buffet was once quoted as saying, “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”

Easier Said Than Done

Keep in mind this isn’t as easy as it sounds. There’s a fine line between controlling your emotions and being just plain stubborn. Remember also to re-evaluate your investment strategy and allow yourself to be flexible to a point, and remain rational when making decisions to change your plan of action.

Conclusion

You are the final decision-maker for your portfolio and thus responsible for any gains or losses in your investments. Sticking to sound investment decisions while controlling your emotions, whether it be greed or fear, and not blindly following market sentiment is crucial to successful investing and maintaining your long-term strategy. But beware: never wavering from an investment strategy during times of high emotions in the market can also spell disaster. It’s a balancing act that requires you to keep your wits about you.

Article sourced from Investopedia

Stock Tips: A Big Waste of Your Time and Money

We all get stock tips and we dont think twice before giving one or two ourselves too. This article now will probably end the visitors to this site :-) and the tip asking/giving on messageboards. You must remember that the tips/recommendations on this site should not be taken for granted.

From the famous turtletrader.com ( a must visit site - if you already haven't, go there now ! ). This is another and weird way of looking at the market. So the mantra is buy when its going up and sell when its going down. Simple isn't it ? So, enjoy the reading.

In the last few years the majority of the general public seems to have accepted online stock chat rooms as somehow useful. Some of the over-hyped chat boards and news services include:

• CBS MarketWatch
• The Street
• Motley Fool
• Raging Bull
• Silicon Investor

Let us be blunt. Imagine you are at Motley Fool and you receive a stock tip. You now know it is time to buy whatever the tip is. Big problem here now. When do you sell? How much do you buy? Of course, the tipsters never try to answer these questions. Stock tips are kissing cousins to the ever-popular lottery tickets. They might feel good, but stock tips are for losers (just like lottery tickets).

For example, the stock market crash painfully proved the worthlessness of stock tips. No tip predicted the NASDAQ crash. How in the world could an opinion of some anonymous message poster, that only knows how to yell BUY, ever be useful?

Trend Following trading does not attempt to predict the market. We couldn’t care less what a company does or what its new economy potential might be. It does not matter what a company's business plan is or even whether they have a potential to make money. When you trade properly, your only concern is price. If the price is going up you buy. If it's going down you sell. Don’t waste your time trying to determine the potential of a company. And don’t waste your time looking for tips on chat boards. You will only lose money if you go down the stock tip path.

The comments section is open for some screaming ;-)

Dead Presidents on RSS

This site is available as a RSS News Feed. If you have a RSS News Reader - The RSS feed link is Here (http://deadpresident.blogspot.com/atom.xml). If you use Mozilla Firefox, you can add that above link to your Livebookmarks !

Bhavin's Numbertalk -Nava Bharat Ferro Alloys

Nava Bharat Ferro Alloys trades currently at 343.8 and has Book Value of Rs. 127.6. Buy with a Target of 500

Support
350 and 310

Resistance
375, 390 and 425

Recommendation
Uptrend to resume.

E.P.S for last year
41.88

P/E Ratio
8.20

E.P.S for last two quarter
57.03


Bhavin Mehta lives in Mumbai and can be contacted at bhavin_mht(at)yahoo.com

Valueresearchonline Learning Centre

Learn about mutual funds - very impressive and informative at Valueresearch Online Learning Centre

Markets: Follow the fundamentals!

After a tumultuous 2004 that saw the Indian stock markets crash from their historically high levels (mid-May) only to create history as the year moved towards its close, there has been growing apprehension in investors' minds whether this rally would continue into 2005.

Before moving any further, let us take a note of key reasons that led to the rally in 2004 and the factors that might determine the fate of the same in 2005.

Liquidity was one of the biggest factors helping the markets to sustain high levels of a considerable period of time in 2005. This liquidity was spurred by huge FII inflows that followed the Indian growth story. The depreciation of the US dollar against the rupee under pressure from a huge US current account deficit played a major role in this depreciation of the dollar. One might wonder that, as against expectations that the rise in US interest rates will lead to FIIs diverting their money back to the relatively safer US T-bills and bonds, nothing of that sort has actually happened.

What more, FII activity has heightened during the second half of the year. One important reason for this is the fact that despite the rise in US federal funds' rates (2% currently), the real interest rate (adjusted for inflation of around 4%) is still a negative 2%. This means that it is still beneficial for US investors to borrow at negative rates and invest in attractive emerging market equities and debt.

Now, the looming danger of rising inflation in the US economy spurred by a slide in the value of the dollar might, thus, be an important factor that Indian investors need to keep in mind. Fears of inflation rising out of proportion might lead to the Fed raising interest rates 'faster than anticipated'. And this might then lead to the much-touted FII inflows to reverse their flow towards the US.

Now, apart from this big 'negative' there are some (positive) factors that are likely to continue to help the cause of Indian markets in 2005. Key amongst these are -

1. The reform orientation of the incumbent government

2. Strong credit-offtake from the non-farm sector

3. Improving 'measurable' risk-taking capacity of India Inc.

4. Lowering of trade barriers across nations

5. Rising internal demand for goods and services

All in all, while 2005 might witness a continuation of the trend that was witnessed in 2004 with respect to strong growth across sectors and robust FII inflows, we believe that just banking on the latter to take the markets to new highs is fraught with risks. Over the long term, even FIIs will chase fundamentals (read, earnings growth).

Courtesy : Equitymaster Newsletter

Deadpresident's Valuepicks

Buy Bharat Electronics - good company with many defence projects. Will be doing/announcing some interesting projects in near term.

Deadpresident's Valuepicks

Strong Buy for Nava Bharat Ferro Alloys - and hold for medium to long term. Very strong financials and a good business to be in the current year. Very impressive list of clients and well diversified company.

23 stock-picking lessons learned for 2005

Every investor suffers a few losses. For the new year, I'm turning what I learned in 2004 into a stock-picker's survival guide.

By Harry Domash

Every investor makes mistakes. We're told that's how we learn. If that's true, I learned plenty last year. I counted 23 different learning experiences that I'd prefer not to have to learn again in 2005. Rather than dwell on the mistakes, I've translated them to a set of guidelines that I call my 2005 Survival Guide, which I'm about to share with you.

I've grouped my survival rules into categories: behavior, tips, price action, and fundamentals. Have a look, and have a better year in 2005.

Mind your behavior

I will not try to predict the direction of the market. Making decisions based on my view of which way the market was headed didn't work. I was wrong more than I was right. No more! Now I'm basing my buy and sell decisions on each stock's fundamental and technical outlook. I'll let the market take care of itself.

I will not invest based on my prediction of:

* Oil prices
* Price of gold
* Value of the dollar
* Interest rates, etc.

Some very smart people have gone broke over the years trying to predict such things.

I will not place a limit order when I'm buying or selling. I know; conventional wisdom says limit orders are the way to go. Maybe it's just me, but I often outsmart myself when I use limits. If I'm buying, I'll end up not getting the stock and paying more the next day, and vice versa. Worse, I waste time all day checking on my trade. It's not worth the hassle to save 20 cents per share.

I will not check on stock prices during market hours. Some days I drive myself crazy watching my stock's minute-by-minute price moves. That's when I realize that I need a life.

I will not check after-hours trading prices on my stocks. Somebody sells 100 shares at $1 below the close and I'm up all night stressing over it. Then, the next day, the stock makes up that dollar in the first trade. No more.

I won't make decisions based on how much I've made or lost on a stock. It's crazy! Say I buy a stock at $5 and it goes to $10. So I sell because I don't want to be greedy. Then the $10 buyer makes the same decision and sells when it hits $20. The market doesn't care what you or I paid for the stock. It's all about its future growth prospects.

Tune out the tips

I will not buy a stock based on a guru tip. Okay, the guy on TV has beaten the market every year since Madonna's first kiss. But 2 million other investors are hearing the same tip. It's too late.

I will not buy a stock based on a tip I hear at the gym. The guy at the gym probably got it from the guru on TV.

I will not buy a stock because most analysts are rating it "strong buy." My experience says "hold" or "sell" rated stocks perform just as well, if not better, than "strong buys." Think about it. Analysts change their ratings frequently. If the rating is already at "strong buy," the next change has to be a downgrade. (Here's a link to more on that topic.)

I will ignore market predictions from gurus who predicted the last market crash, the start of the last bull market, etc. Last year, a guru who supposedly predicted when the bubble would burst, scared the you-know-what out of me when he saw even worse times ahead. It didn't happen. At any given time, there's always someone predicting just about anything. Just because one of them got it right once doesn't make him or her Nostradamus.

Price action protocol

I will only buy stocks trading above both their 50- and 200-day moving averages. Despite my best research efforts, sometimes I get it wrong. A stock's price chart is a valuable second opinion. Stocks trading above their 50- and 200-day MAs are in uptrends, meaning the market agrees with my assessment. Downtrends means it doesn't. Chances are, I overlooked something or there's unannounced bad news lurking.

I will not buy just because a stock has gone up a lot. Sometimes stocks go up for all the wrong reasons. In the end, fundamentals rule. You have to do the research.

I will not average down. It's bad news if a stock heads down, instead of up, after I've bought. It means that the market doesn't agree with my assessment. Averaging down means buying more shares to reduce your average cost. Bad idea! All too often, the market's right.

I will not buy stocks making new lows. As much as I've tried, I still can't pick the bottom. New lows all too often lead to more new lows.

I will not place sell stops. It's uncanny; I have a great knack for placing my sell stop at the bottom. Once it hits my stop price, the stock usually soars and never looks back. For me, it works better to evaluate the problem that caused a stock to drop and make my decisions based on its fundamental outlook.

Focus on fundamentals
I will only buy stocks with real sales, earnings and cash flow. No more! I've bought too many stocks on the premise that sales and earnings are about to materialize big time. Somehow, it doesn't happen. Starting now, I want to see real sales, say at least $10 million in the last quarter. But sales aren't enough. I'm not touching a company unless it also reported positive earnings and operating cash flow. The dollar amounts aren't important. I just want to see money flowing in, not out.

I will always sell when management significantly reduces sales or earnings forecasts. I must be too gullible. Company execs always portray shortfalls as one-time events, and I believe them. That's usually a mistake. Bad news leads to more bad news. From now on, I'm selling at the first sign of faltering growth.

I will not buy stocks with price/sales ratios (P/S) greater than 14. Most growth stocks have P/S ratios in the 3-8 range. Anything much above 10 is in la-la land. Sky-high ratios signal over-exuberant expectations that will soon be deflated. Count me out.

I will only buy stocks if I understand what they do for a living. I can't analyze a firm's prospects if I can't figure out what it sells.

I will sell any stock when a competitor says business is tough. It's a godsend if a competitor announces bad news before your stock does. The competitor's stock probably drops big time, while you stock merely hiccups. Your company's execs will say that the competitor's problems are company specific. Wrong! Everybody in the same sector faces the same problems.

I will diversify my portfolio between industries and sectors. It's so tempting to load up on a bunch of stocks in today's hot sector. But it's not like the good old days when strong sectors stayed that way for years. Now it's more like 15 minutes.

I will sell any retail or restaurant stock when it reports negative same-store sales growth. Same-store sales growth is the sales growth at units open at least one year. Trust me on this one. There are dark days ahead for any stock whose existing store sales are shrinking instead of growing.

I will not make a buy or sell decision based on a stock's "fair value." Analysts have bought into the concept of calculating the "fair value" of stocks they're covering. They advise buying stocks significantly below, and selling those at or above, "fair value." Problem is, their "fair value" formulas are based on unrealistic assumptions. They are meaningless. Consider a downgrade to "hold" or "sell" based on valuation alone as a buying opportunity.

In my experience, investing success is more about discipline than fancy analysis. Start with my rules. Change them if they don't work for you. The key is following a set of rules that you keep improving over time.

Market Term - Skirt Length Theory

The idea that skirt lengths are a predictor of the stock market direction. If skirts are short, it means the markets are going up, whereas longer skirts mean the markets are heading down.

The idea behind this theory is that shorter skirts indicate that confidence and excitement is high, meaning things are bullish. In contrast, Long skirts indicate fear and general gloom, hinting that things are bearish.

Happy New Year !

From 6200 to 4200 to 6600, We have experienced it all ! This has been a very profitable year for stock market with more people entering equity and making profits. Looking forward, if the Sensex was at 6200 in Jan of 2004, then we have every reason to believe that its undervalued at 6600 now ! The future looks good especially considering the "Growth Enablers" we have at the present time.

Here are some of the reasons ( borrowed from Rakesh ) why India looks so DAMN GOOD a place to be in!

Cultural

Tolerant People
Educated
Skilled
Savings Oriented

Demographics

54% people under 25
Vast Domestic Market
Young Working Population

Economics

Enterpreuner Class Well-developed
Resilience - No Frequent Boom Or Bust Cycles

Political

Democratic
Secular
Populous
Consensual System
Judicial

Geo-Political

Vast Natural Resources
Nuclear Power
5th Largest Economy
2nd Fastest Growing Economy

Ofcourse, there are things which can spoil it all which we wont discuss it right now ! Now is the time to celebrate on the profitable year we had and spare a moment & little money for the people who have lost their lives & were displaced from their houses due to the Tsunami.

Happy Investing

God Speed