Investment Techniques

Investment Techniques

Copyright © 2012 21G Investments. All rights reserved. Page 2

Various Investment Techniques

The most common investment techniques used by various people around the world taking into consideration the comfort level of each individual, the time one has on his hand and most importantly the awareness and intelligence of the individual are :

• Fundamental Style of Investing• Technical Style of Investing


Fundamental Style Of Investing

Fundamental trading is a method by which a trader focuses on company-specific events to determine which stock to buy and when to buy it.

Advantage : • This method seems more logical as the equities’ buy/sell call depends on the company’s performance rather than the trend lines.• You need not have academic knowledge as common sense and good overall

knowledge is the key to success.

Disadvantage :

• One is always on the move as any news/ events going through out the country can impact the portfolio.

• Every company has a different growth pattern which means that one’s knowledge pool has to be huge in order to be successful.


Technical Style Of Investing

Technical Style of Investing is something in which one looks back in history using the recognizable patterns of past trading data to try to predict what might happen to stocks in the future

Advantage : • You need not have thorough knowledge of company’s records and future plans

to invest in the company .• One needs to understand the charts and trend lines and need not worry about

the day to day events. This way time utilization is more efficient.

Disadvantage :

• This appears less logical as trends do not follow the news but it is the other way around.

• Academic knowledge and patience is the key to win the race.


Results

The next few slides explain the similarity of the results from both the techniques of investment. The most common instances where the similarity of results from two different techniques can be proved are :

• Rupee/Dollar Trade.

• Infosys

• SBI


Rupee/Dollar Trade : Techical Approach


Rupee/Dollar Trade : Techical Approach

Pattern Formed : Descending Triangle

Descending triangle is a pattern is a pattern that is formed when any chart moves between the base and hypotenuse of a hypothetical triangle in a contracting fashion for a substantial fashion.

• In the chart above we can see the descending triangle pattern was forming which prompted me to sell dollars at 45.1 Rs to a dollar and then Rs 44.2 to a dollar with a possibility of this chart breaking the base of the triangle and rupee going to 35- 36 against a dollar.

• Instead the chart crossed the hypotenuse of the triangle at 45.2 Rs to a dollar which formed the basis of the conclusion that the pattern is cancelled and covered my position with a small loss.

• As expected a big up move in the dollar/rupee trade and the trade value is now Rs 55 to a dollar.


Rupee/Dollar Trade : Fundamental Approach

The fundamental reasons why 1 could have expected dollar rupee trade to move to 55RS/Dollar

• The biggest factor for this is the prevailing Euro Crisis all across the world which has made the dollar strong globally therefore the dollar value has become strong against the rupee.

• Slowing American economy has given American export business a real set back and as a result the INR cash flow into the US has become weak leading to the weakening of rupee.

• Gold import into India (India being one of the largest consumers of Gold) in dollars is also one of the contributing factors to the trade where rupee is weak against the dollar at this point of time.


Investments in Equities

This is one of the most aggressively emerging mode of investments .People invest in stocks , bonds and other equities and trade with various stock exchanges around the world.

Pros :

• Huge amount of money is not required and one can put the money in according to his pocket. You can quit any time.

• Depending upon the risk taking capabilities one can strategically invest in various mutual funds to be on a very safe side but these stocks generally move with market and you do not have enough transparency in it as you do knows the companies/equities in which your money is invested. Although the advantage to it the risk is minimal .

• Man management skills are not required . All you need is money management skills .

Cons :

• Thorough knowledge is required as the market predictions some times become extremely tough.

• You need a lot of patience and a lot of belief in the markets.

To sum up investment in equities suit a person who need not have big chunks of money but has logical and thorough understanding of market movements.


Infosys crisis: Techical Approach

This was predicted way back in Feb 2010.As explained in the chart we were currently at 5th wave of Infosys at that time which will end in 2-3 years (Around this time). After this Infosys Stock Price will undergo 10-15 years of A,B,C sideways movement as explained in Basics of Elliot Wave theory. As seen around 3 weeks before infosys stock slashed around 35% which was predicted 2 years back.


Infosys crisis: Fundamental Approach

• The company has seen "ramp down" in orders from various accounts and especially in the financial services sector. Infosys gave a guidance for the current fiscal (FY13) but there was disappointment over the fact that growth is expected to be lower than most conservative estimate.

• The company's guidance is taken as a benchmark for the IT industry as a whole. The guidance for the full year is even below IT lobby Nasscom's forecast of 11-14%.

• The management sees headwinds from the US and Europe, which accounts for nearly 75% of revenue for Indian IT firms, going ahead. "The year ahead looks challenging for the IT services industry, with slow recovery in the global markets which seems highly unlikely considering the current Euro crisis.


SBI Rally : Technical Approach

SBI completed one complete wave between the two encircled points. It went from 1000 to 3500 levels based on the upward trend of the Elliot wave theory. Now SBI appears to have completed a 3 wave correction pattern and came down to 1900 levels to complete the correction. It may begin new uptrend very soon according to Elliot Wave theory. If it would have gone beyond 1500 levels this theory would not have complied on this stock. But the pattern worked and we see an upward trend in SBI again and it seems that this stock is one of options to invest money and book profit.


SBI Rally: Fundamental Approach

• Asset quality has been the biggest cause of concerns for Indian banks, which have witnessed a surge in restructuring of company loans as slowing economic growth hits borrowers' ability to repay debts. As part of the process, banks negotiate relaxed repayment terms with struggling borrowers. Non-performing, or bad, loans at Indian banks increased to 2.9 per cent of the total book at end-December, up from 2.3 per cent in March 2011, according to central bank data. Rating agency CRISIL expects it to rise to 3.2 percent by March 2013. However, SBI, which has given loans to some of India's most troubled borrowers including Kingfisher Airlines, said its net non-performing assets (NPA) stood at 1.82 per cent of total loans at the end of March, from 2.22 per cent at end-December.

• Right now IT and real estate sectors are experiencing poor times as IT is affected big time by the dollar getting strong against rupee and slowing global economy and real estate extremely overpriced ,many investment pundits are expecting a great future for the financial sector (especially banks).


Why I selected technical approach ??

• Approach is generalized and not company specific,

• I feel I had the resources to experiment and apply my academic skills on this technique which came to limelight quite.

Technical Approch to Investment’s Fundamentals


Trend Line ..

You can see the step case with numbering.

If you join the starting points of first2 steps i.e. 0 and 2 and draw an extended straight line. This straight line is called Trend line.

So Trend Lines can be used to determine the period of Uptrend or Downtrend.

When this trend line breaks it is normally followed by a big up move in opposite direction.


Trend Line Example


Bull Trend

A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally. The decline between rallies ends above the lowest point of the previous decline. A series of successive higher highs and higher lows.


Investor Psychology

Gold has reached the market peak. Everyone is very confident about investing in gold.This figure about the Investor Psychology/Sentiment in bear market shows that top of the bubble is vulnerable to high volatility.


Elliot Wave Theory : What does it mean ?

This is the pictorial representation of the Elliot Wave Theory. 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivide into 3 smaller-degree waves;5-A,A-B and B-C. Please see that any move can be seen as one complete Elliot Wave Cycle.


Elliot wave Theory and Stock Correlation

We hold stocks in this phase

We sell stocks in this phase


For further assistance:Gaurav Verma21G Investmentshttp://www.facebook.com/pages/21G-Investments/353301421363897

Do You Have Any Questions?

Copyright © 2012 21G Investments. All rights reserved.

Disclaimer:

The slides are for educational purpose only and these are my personal views which can be right or wrong.

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