Sunday, July 28, 2013

Gold/Precious Metals companies

Last few days seeing the kind of downfall in gold/precious metal companies reminds me of the temptation i had to buy gold companies a few months back. As you can see from below chart gitanjali gems lost 85 % of value in a span of one month. Imagine the plight of retail investors who had invested in this stock and lost money. A couple of months back i had analyzed few gold/precious metal selling companies and thought it would be a good investment choice. I thought of investing in Thangamayil jewellery but stayed back at the last minute since i was not sure of one aspect in business..i.e the buying interest of public. Gold is considered as a very good investment in India  However with the changing demographics in india the general public might slowly move away from buying since it might not excite younger generation[this was an assumption].  Also i did observe that lot of banks & financial institutions started marketing about Akshaya trithiya which made people situp and notice to buy gold[ I was never aware of Akshaya Trithiya in my childhood].So i felt these marketing strategies are helping companies to survive and it is a luxury item. In case of recession the buying of gold might be impacted and of course not the value of gold. So i dropped out at the last moment and instead bought a gold etf[which is linked to price of gold].

I don't say i am correct in guessing the downfall[first of all i didnt predict any downfall of gold companies]. I was not too sure of companies business strategies and so refrained from buying. However one lesson which i learn now is the regulatory change can impact gold companies in India and you need to understand this risk  before investing in gold companies.

Friday, July 26, 2013

Wednesday, July 24, 2013

Allahabad Bank

I had recently added a position of Allahabad Bank. One @ 92 and another @ 85.
The stock had gone down since i bought. If it hits some more lower levels i would considering buying some more.
Recently all the public sector Bank stocks took a hit after RBI tightened rules on liquidity. With the fresh set of regulations most of the banking stocks hit a 52 week low. Added to this banking stocks had rising npa levels which made them not so attractive to markets.
I have the following reasons to buy a public sector bank.

Allahabad Bank has a good track record of dividend. So if you buy at current levels or lower levels the dividend declared will be almost equivalent to FD rates after taxation. Anything over an FD rate is a bonus for me  and also a safe bet since it is a public sector bank. Now you may ask me why i bought Allahabad Bank when a whole lot of other banks are available. Well my inclination was towards dividend yield and i observed Allahabad Bank and Andhra Bank had good dividend yield. In these two i added Allahabad Bank since i had been tracking this stock for quite sometime. Now since my average price is higher than the current levels do i consider selling to limit my loss - the answer would be no.  Well if you are not ready to take at least 25% loss on paper then you are not for investing. So i would not sell even if it goes down to 70 levels.

Note : I may be right or I may be wrong...but i had risk appetite so i could buy the above mentioned stock. Please do your due diligence before you buy.

Update on 26 Jul 2013 : The stock is now available for interesting price of 75 and dividend yield[if dividend continues to be same as last year] of 8% fairly making it equivalent to a FD with an appreciation. Further downside also possible. I just wait with fingers crossed

Sunday, July 14, 2013

The Pain of Loss

Recently i had to exit two stocks since the markets had punished them hardly, of course with valid reason that both of them had governance issues. The mentioned stocks have left pain for me due to the losses i had incurred,however the teaching from them is very much valuable. The stocks mentioned are my personal view and nothing to do with the working of the company. Here is the brief view

Zylog Systems: The company ran into problems due to cash flow crisis. I had taken a position on the stock at Rs 72. After i bought at 72 the share price went to 55 and fluctuated at the price for a couple of days. I felt i had made a strong bet at 72 and the share price might come up in the next two to three quarters after the results. However the price came down crashing to 30. I didn't try to dig much into why the stock price fell but i just waited for price to recover to some level and made an exit at 40% loss[around 40]. After i made an exit i see the price came crashing down to 13. I did make a huge loss but learnt a lesson that when i put my money into a stock [however cheap i might be] i need to look at management aspect also.This i had ignored when i invested in zylog since i was in a hurry to make a position at 73[obviously expecting a good profit in a few months]. I need to carry forward this lesson.

CEBBCO: This was a company with good track record on management. But something amiss went with the company resulting in share price dropping to 45 levels. I waited for share price to come down further. So i took a position at 30. However it continued its slide till 14. I had booked losses at 18 levels. Though the position i had taken was small it still helped in learning a lesson. May be the bad sentiment continued. The way share transfer took place raised some concerns and reflected some bad sentiments which triggered the slide. I had to book a loss since i was able to find some other promising stocks[of course promising word is an assumption].

The main lesson learned here is bottom fishing can be dangerous sometimes.