ofcourse the tips were good...they were helpful and logical.But the big question is how many tips work? Is our market logical? HAS THIS MARKET ALWAYS FOLLOWED A PATTERN? when the P/E is high and there is an unnoticible increase in profits as in case of VSNL, do we expect the share to rise?.and that too by 34points on the same day of declaration of result. i think commenting on stock market is something like speaking on cricket.when sehwag hits a century siddhu find him flawless.and the moment he is stuck in bad patch we know how the cricketers are hit below the belt.the rule is "straight bat and good footwork help you score a century".But rules are ment to be broken, whether it is cricket or stock market. >>if i know the rules(i know how the things to be done) can i be a good batsman??...simimarly can good tips make you a good investor??? i know where to invest but will it be profitable? >>i think the rule is "see the ball and hit it" and on the other side--"if increase BUY.if decrease SELL". more discussion make it complex.put it simple and strait. it will benefit.
The auther has come out with 4 GREAT BUYING TIPS in a market which is record high. I think a person of his education and writing ability should have inserted a strong advice of caution instead!
Which should have read something like "It is not the time to buy. The buble can burst anytime" nkc
The tips are right in one sense but there are lots of caveats which render these tips dangerous for a starter. Ill list down just a few of these
Low P/E strategy 1. One must be extremely careful of the industry context while using this staretgy. For example steel is a cyclical industry, at the peak of the cycle, the P/E multiples would be extremely low and you might think its a good pick, but it might not be true. Hence Low P/E does not always work, especially in cyclical Industries. 2. The P/E based on just finished Fiscal year is incorrect, because the market will value future and not past. example if a company has had a bad year due to some one time expense its P/E will be very high. This does not mean its not a good stock. The market will calculate P/E based on expected EPS and then judge if its worth valuing.
On Growth 1. The underlying factor for buying a stock is weather it is going to create "Value" or not. There are three drivers for it; Profitability, growth and cost of capital.if a companies profitability is lower than its cost of capital it is destroying value. And if it grows it destroys faster. learning: Growth is good only with profitablity
RE:Caveats in each of these tips- Be careful
by sanjay arunkumar on Aug 21, 2005 03:06 AM
gupta has rightly put up some caveats, nevertheless the original writeup is quite balanced. financial world is so complex that one set of consideration may not bring desired results always, but for a 'new comer' these tips are of great value.
