Value investing by using Nifty PE
source :jago investor
- Find nifty PE from NSE website
- Historically Nifty has been considered and shown instances of being oversold in range of 10-13 and overbought in
- range of 20-25 . Nifty has had a crash after after getting in the range of 20-25 and have rallied after touching the range of 10-13 .
- You will see that whenever nifty crossed 20. It was time to be cautious. its not exactly the time to go short sell , but at least book your partial profits and be cautious with further buying for long term.
- As I write this, Nifty PE is around 21 . Its not a very good situation to madly buy for long term . Its a time when euphoria is at high point and it can take markets a little further. So you can jump in now with short term perspective , not long term !!, because markets may fall in some weeks or months. Expect it. but dont force it !! .
- If you see the chart , you can see that after touching the PE levels of 11-13 , markets have rallied back as it was too oversold !! . Again , just touching these levels of PE does not signal a BUY , its only a signal to be cautious and make your mind for long side , and start the accumulation process without fear . Markets will still make lower levels and experts on CNBC will still cry over economy conditions and world coming to an end . But market rewards the “risk assumption” , not the actions on obvious facts . You also have to decide how much money of your portfolio would you like to put in stock market after considering your risk-appetite .
- BUY Signal : Once PE crosses below 13
- When NIFTY PE reached levels of 13 , start accumulating the stocks and invest your money in 4-5 installment over some months. Make sure that markets are going up and down and moving in a range . If PE crosses below 11 , its a must BUY !!
- SELL Signal : Once PE crosses above 20 :
- Book the profit once NIFTY PE crosses above 20 , Don’t book all profits at once . Book it in parts . PE crossing above 20 does not mean markets has to fall , its only an indication that markets may be oversold and now “smart people” will starting selling there shares to mad public . Short sell the shares once PE and Markets start falling down from PE levels of 20 . If PE crosses above 25 , its a must SELL !!
- There have been cases of PE going up to 25-28 levels . That will happen at the peak of strong bull markets like Jan 2008 . In very strong bull markets you have to understand that PE will cross even above or below its extreme points . That’s the risk part of stock markets from which not even GOD can save you from !! :) . this is the time when your buying in parts and putting capital which you can afford to loose will help !! .
- Anyone who puts 100% of there money in stock market at once on one single time on a single bet has a secret affair with financial disaster which he/she himself is not aware of . So dont put all your money at once . Only put a part of your capital at any point .
Ten reasons to sell a stock safal Niveshak way
Here are 10 reasons I personally use to sell my stocks, however attractive the overall stock market might seem:
- When I realize that I made a mistake in buying a stock.
- When a stock gets overvalued (its price moves much higher than itsintrinsic value).
- When the business model of a company deteriorates.
- When the cash flows of a company deteriorate.
- When the debt on a company’s balance sheet crosses my comfort level (usually 50% of equity) and is expected to remain there for some time.
- When something happens to cast doubt on a company management’s integrity (like a bad diversification, or an overvalued acquisition).
- When the return on equity falls below 15% with no sign of improvement.
- When the stock surges at a rapid pace without any change in the underlying business fundamentals.
- When I identify a better opportunity (I sell the worst stock from my portfolio and reinvest the money in this new opportunity).
- When I need money for an emergency (I start by selling the worst stocks from my portfolio).
Courtesy http://www.safalniveshak.com/10-point-checklist-to-sell-stocks/
Signs that company is cooking its books
http://www.drvijaymalik.com/2015/08/7-signs-to-tell-whether-company-is-cooking-books.html