Presentation By:

CA Vineet Vermani
 Portfolio
• Definition as per SEBI

PORTFOLIO means ”a collection of

securities owned by an investor.It
represents the total holdings of
securities belonging to any person.”
 Portfolio Management

• Portfolio Management refers to

management & administration of
a portfolio of SECURITIES to
protect and enhance the value of
the underlying investment.
Primary Objectives of Portfolio
Management
• Security of Principal Amount
Invested.
• Stability Of Income
• Capital Growth
• Liquidity {nearness to money to
take up any new buy
opportunities thrown open by
the market}
In Short Portfolio Management

Means:

“Not Putting All Eggs In One

Basket i.e. DIVERSIFICATION”

 Diversification
• Diversifying means buying stocks
belonging to different industries with
very low correlation i.e. to find
securities that do not have
tendencies to increase or decrease in
price at the same time.
• There should be at least five
industries for the stock portion of the
portfolio with each stock being the
best stock….in their respective
industry…
 Example:--
• INDUSTRY • Best Picks
OIL & GAS Reliance; ONGC
Banking ICICI Bank; HDFC
Bank; SBI etc.
Automobiles Maruti; Tata
I.T. Motors
Telecom Infy; TCS; Wipro
Infrastructure Bharti; RelComm
ABB; BHEL; L&T
Portfolio-Age Relationship
Age Good Mix /Portfolio
80% in stocks or mutual funds
Below 30
10% in cash
10% in fixed income
70% in stocks or mutual funds
30 to 40
10% in cash
20% in fixed income
60% in stocks or mutual funds
40 to 50
10% in cash
30% in fixed income
50% in stocks or mutual funds
50 to 60
10% in cash
40% in fixed income
50% in stocks or mutual funds
above 60
10% in cash
40% in fixed income
Types of Risk:

• There are two types of risks involved

in Equity Investing:
Systematic Risk
&
Unsystematic Risk
Systematic Risk:
• MARKET RISK
• INTEREST – RATE RISK
• PURCHASING POWER RISK
Unsystematic Risk:

• BUSINESS RISK
• FINANCIAL RISK
Cheery Picking {Six
Factors}
1.Market Capitalization:

It’s the Current Market value of the Company’s

Shares.
==Total Number of shares of a Co.
X
Current price of each share

{This would indiacate the sheer size of the company

and its stocks liquidity etc.}
Cheery Picking {Six
Factors}
2.Company’s Management:

Quality of top management is most important.

Make a careful assessment of the competence of the

company management as evidenced by the
dynamism & vision

Among the directors M.D. {managing director} is the

most important person. It is essential to know
whether the person is of proven competence.
Cheery Picking {Six
Factors}
3.PSR{Price to Sales Ratio}:

This measures a company’s stock price against sales

per share.

Thumb rule:
It’s the Number you want below 3, & preferably
below 1.

4.Return on Equity:

This measures how much your investment in a

company
is actually earning.

Thumb rule:
Cheery Picking {Six
Factors}
5.Debt to Equity Ratio:

This measures how much debt a company has

compared to the Equity.

===Total Debt of a Company/Equity capital

Thumb rule:

It’s the Number you want at least below 5.

A D/E ratio of more than 2 or greater is risky which

means
that the company has a high interest burden,which
will eventually affect the bottom-line.
Cheery Picking {Six
Factors}
6.P/E Ratio{ Price Earning Ratio}:

EPS alone mean absolutely nothing.

This Ratio gives a sense how expensive or cheap a

stock is.

Calculations of P/E Ratio:

===Market Price of a Stock/Avg. EPS of past
four
Quarters….
Calculations of EPS {Earning Per Share}
===Profit available to Eq. Shareholders/No. of
Eq. Shares
Outstanding
EPS determines what the Company is earning for
every share.
Cheery Picking {Six
Factors}
Using P/E ratio:

One can obtain some idea of a reasonable price to

pay for the stock by comparing its present P/E to its
past levels of P/E ratio.

One can compare the P/E ratio of the company with

that of the market giving a relative measure.

One can also use the average P/E ratio over time to
help judge the reasonableness of the present levels
of price.
Sky Rocketing Stocks—What is
the right price:
Investors dilemma is that they want to participate in
the rally but these gravity-defying stocks aren’t
worth their current prices……{The Characteristics of
the stocks you want to focus on are:}

Market leaders who dominate their niche..BIG tend

to get bigger.

Earnings that are growing at an increasing rate

every year.

Strong management.

Competing in an high & long term growth oriented

industry sector.
Sky Rocketing Stocks—What is
the right price {contd….}
When you find all of these factors in a stock; it won’t
be cheap and if you want to own it you have to pay
more than you would like……

The Key to making the big money with these stocks

is to own them for a long time….letting them to
grow.

Even if you buy only a few shares; over the time you
can do very well as the stock grows; splits & grows
again.

Many Infosys shareholders started with 10 shares &

now own hundreds

If you are interested in making the big bucks add

some sky- rocketing stocks to your portfolio.
Buying at a bargain..
There are lot of good stocks available at bargain
prices .

First, look for stocks that are out of favor for a

temporary reason.

Second, look for stocks within sectors that are

currently out of favor.

Third, use the tight screening methods to bring

stock into your “Watch List”.

….{Read the Six Factors as discussed in past slides}

Cracking Buying Points…….
Here are some buying points for your preference.

Strong long-term and short-term earnings growth.

Look for annual earnings growth for last three years
of 25% or greater and quarterly earning growth of at
least 25% in the recent years.

Impressive Sales Growth, Profit Margins and Return

on Equity. . . . . . .
The last three quarters of sales growth
should be a minimum of 25%; return on equity at
least 15% and Profit Margins should be increasing.

New products; services or leadership. A dynamic new

product or service or is capitalizing on new
conditions in the economy.

Contd…
Cracking Buying Points…….
Buying Points Contd………

High Rated institutional sponsorship…You want at

least a few of the better performing mutual fund
stocks.

New HIGHS….Stocks that make new highs on

increased volumes tend to move higher. Outstanding
stocks usually form a price consolidation pattern,
and then go on to make their biggest gains when
their price breaks above the pattern on unusually
high volumes .
~~~~~~~~~~~ Technical Check~~~~~~~~~~~~

Positive Market…Buy the stocks out there; but if the

general market is weak your stocks will be weak
also.
Cracking Selling Points…….
Here are some selling points for your preference.

When the stock no longer meet the requirement of

the investor or when it was bought a specific
announcement and it didn’t occur.

When the future expectations no longer support the

price of the stock or when yields fall below the
satisfactory level. But don’t sell if only one of your
variables is out of track.

When other alternatives than the stocks held are

more attractive.

Sell if there has been a dramatic change in the

direction of the company. It is usually a messy
problem when a company successful in one business
decides to enter another unrelated venture.

Contd…
Cracking Selling Points…….
Selling Points Contd…

If the earnings are not improving over two to three

quarters, chuck out the stock from your portfolio.
B’coz
‘Stocks are slaves of Earnings’.

But never sell in panic… Instead use the bloodbath

to take entry into the stock on which you have
confidence.
‘Buy when others are Selling and Sell when others
are Buying.’

And finally have certain disciplined investing.

Value, Growth & Income
Stocks
Growth Stocks……

Task here is to buy stock in Companies whose

potential for
Growth in Sales and Earnings is excellent .

Companies growing faster than the rest of the

stocks in the
market or faster than other stocks in the same
industry are
the target.

These Companies usually pay little or no dividends;

since
they prefer to reinvest their profits in their
business.

These Companies should be the cornerstones of your

portfolio and investments in them should be held
Value, Growth & Income
Stocks
Value Stocks……

Task here is to look for stocks that have been

overlooked by
other investors and that which have a ‘Hidden
Value’

These companies may have been beaten down in

price
because of some bad event but still has assets to its
name
Building; Real Estate; Inventories etc.

Value investors look to buy the stocks that are

under valued
and then hold them until the rest of the market
realizes the
real value of company’s assets.
Value, Growth & Income
Stocks
Income Stocks……

Stocks are widely purchased in expectation of

increase in
value but still the primary purpose is to encash the
stream
of dividends they generate.

Companies which have high dividend yield are

prefered
by these cult of investors.

Dividend Yield=Annual Dividend paid per share/

Market Price of Share
Measuring Portfolio
Performance:
The performance of the portfolio has be to measured
periodically-preferably once a month.

Compare the performance of the INDIVIDUAL

against the overall performance of the market as
indicated by various indices such as a Sensex &
Nifty.

Lets now learn to compute the “Total Yield”.

Example:
If the portfolio value of Mr. X is Rs.5 Lac at the
beginning of the month . During the month he added
Rs.1 Lac to the fund
and also received a dividend of Rs.20k. Assuming
the value of portfolio at the end of month is Rs.6.5
Lac.

Then Yield will be {(6.5Lacs-(5 Lacs + 1.20 Lacs)}

/{5 Lacs
 Thank You
&
HAPPY INVESTING………
E-mail me at: cavirmani@gmail.com