Important Factors to be considered while following Successful Investors

Incidents triggered to write this article: Lot of people lost/losing lots of money by following few successful investors investment calls even though those successful investors were earning huge returns from the same investment calls.

So, in this article I will try to discuss and explain about five important factors to be considered while following a successful investor’s investment calls and will try to explain how people are losing money without considering those factors.

Five Factors will be as follows:

1. Purchase/Entry Price
2. % of Portfolio to be allocated for that stock/call
3. Risk Absorption Capacity
4. Investment Tenure
5. Exit Price

Before jumping into the explanation part of each factor, I would like to explain few basic procedures of how these investment calls will be known to media people. As a normal investor you will get to know about these investment calls from media posts only or while those successful investors interactions with media channels in some interviews.

Basic Awareness: As per Securities & Exchange Board of India (SEBI) guidelines, every public listed company must submit their shareholding pattern of the company to stock exchanges (NSE, BSE) along with the information of all the shareholders who were holding greater than or equal to 1% of the company shares. This submission process by all listed companies must be done for every quarter and should be completed by end of subsequent quarter. i.e. every company will have a time frame of 90 days to inform the same. These media companies will track these successful investors holdings in different companies from such submitted documents. And that data will be published by them in subsequent quarter. One thing you should understand from the above explanation is that you as normal investor is not receiving FRESH DATA.

From media reports, you can only know about successful investor (SI) have certain % of holding in a particular company. There is a lot of data which you won’t know and even media also can’t know. I will try to put that data in questions as follows:

1. At what price that SI purchased that stock?
2. What % of his portfolio value have been allocated to this stock?
3. What’s his vision towards that company investing in this stock?
4. How long will he hold this investment?
5. How much % of loss can he bear in this particular investment?
6. When he will exit from this investment and how will I know immediately after his exit?

These are all very serious questions which you should ask yourself while following SI’s. And no media company can answer these questions. The only person who knew the answer for this question is SI itself, which they were not at all interested to share. Some of SI’s may provide their vision towards the company. But none can get answers for remaining questions.

Let’s discuss the importance of each factor…

Purchase/Entry Price: Your end return from an investment is inversely proportional to your investment value or the purchase price of the share. It means you will get higher returns if your investment value is low. As per discussion as we don’t get fresh data and will get to know only after end of the quarter, the share price of the company would have been changed from the date the SI invested and it may be increased/decreased. In most of the cases, it will increase by the time you know about the information, because you were not the first one to read/see that article published in media. Let’s see the example.

Case 1	Purchase Price	LTP	Unrealized Profit/Loss
SI	₹ 5.00	₹ 20.00	300%
You	₹ 12.50	₹ 20.00	60%

*SI: Successful Investor

Case 2	Purchase Price	LTP	Unrealized Profit/Loss
SI	₹ 5.00	₹ 7.50	50%
You	₹ 12.50	₹ 7.50	-40%

*LTP: Last Traded Price

Suppose if successful investor purchased the stock of a company ‘X’ at Rs.5 and by the time you got to know about his investment if the stock price of the same company went up to Rs.12.5 and you purchased the stock at Rs.12.50. If the stock price went up as per case 1, you will get only 60% return and whereas SI will get a return of 300%. This is fine as you got a positive return in certain period. Suppose if the stock went down to Rs.7.5 as shown in case 2, even then SI will have a positive return of 50%, whereas you will have a negative return of -40%. So, it is highly important to know about the investment price of SI also along with his investment in a particular company.

% of Portfolio to be allocated: Normally this factor will be dependent on each individuals risk profile. I will try to explain about this factor in detail with an example. Here for understanding purpose we will consider both SI and you purchased at same price which in practical world may not be followed as SI purchase price can’t be known as discussed above.

Here in the below example, I am considering SI whose overall portfolio value of Rs.5 Cr invested Rs.7.5 Lakhs in a Company X, and you having a portfolio worth Rs.20 Lakhs invested Rs.4 Lakhs in the same company at same purchase price. As per calculations SI allocated only 1.5% of his portfolio value for that company whereas you allocated 20% of your portfolio.

	Investment Value	Total Portfolio Value	% of Portfolio Allocated
SI	₹ 750,000.00	₹ 50,000,000.00	1.50%
You	₹ 400,000.00	₹ 1,000,000.00	40.00%

Case 1 with 30% Positive Return
	Purchase Price	Total Portfolio Value	Effect on Portfolio
SI	₹ 975,000.00	₹ 50,225,000.00	0.45%
You	₹ 520,000.00	₹ 2,120,000.00	12.00%
Case 2 with 30% Negative Return
	Purchase Price	Total Portfolio Value	Effect on Portfolio
SI	₹ 525,000.00	₹ 49,775,000.00	-0.45%
You	₹ 280,000.00	₹ 880,000.00	-12.00%

Let’s see the two possible cases, in Case 1 with 30% positive returns of investment call, effect on SI portfolio will be just 0.45% whereas your portfolio will be increased by 12%. With the blessings of God, if there’s a positive return means this will be good. Instead if fortunes turn down and your investment made a negative return of 30% as mentioned in case 2, you may have to lost 12% of your portfolio value. I mentioned ‘With the blessings of God’ because this investment call is not yours, you’re just following SI. There won’t be any other option left for you rather than believing god and SI. I hope with this explanation, by now you understand the importance of this Portfolio Allocation Factor. If you have any doubts kindly contact me through comments below.

Risk Absorption Capacity: Kindly understand that this factor is completely subjective and each individual will have different risk absorption capacity. Normally any successful investor will do portfolio allocation with respect to his own risk profile and select companies suitable to his own risk profile only. So, if there a difference in his and your risk profiles, chances of earning money by following his investments calls will be diminished for you. Suppose if SI selected a stock by preparing himself to face even a 50% loss in that call, will you be also ready and prepared to face similar loss? And you cannot guess or predict how SI prepared himself for facing unavoidable losses.

Investment Tenure: Normally any successful investor (SI) will have his vision while selecting a company to invest in. This vision will be formulated by various factors like value migration, government policy changes, economical effect peculiar to the country/company, etc. And SI will have a clarity on how much time we should be provided to company to achieve his vision. With these calculations he will establish an Investment Tenure for that investment call. And I am sure SI’s will always be prepared to change this tenure at appropriate times with respect to changes in business environment. As you don’t have any clue on his vision or his calculations while formulating investment tenure, you can’t understand how much time you should wait/hold that investment. Normally SI’s will have a minimum of 7-10 years (Not mandatory) vision for each investment calls. So, here the question is will also wait/hold your investments for such longer tenures?

Exit Price: Even highly successful investors also will face lots of difficulty to decide this factor. Similar to knowing of SI’s investment call after company submitting the shareholding pattern to stock exchanges, Any SI’s exit or decrements in holdings in company X will be known only after company submitting the shareholding pattern to stock exchanges. I mean here also you will not receive fresh data. So, you may not get similar returns as SI.

So, by now you would have understood that your success while following SI’s will be dependent on your similarity of all the above factors with him. And in practical you can’t achieve similarity because majority of these factors were very subjective and no media company also can provide such inputs to you.

Even if there’s a difference in one single factor among all the factors discussed above your returns/success will be different from SI. So, I always suggest you to NOT TO FOLLOW ANY SUCCESSFUL INVESTOR. And I request you to kindly sit with a registered investment advisor (RIA) and discuss about your own financial goals, risk profile and analyze your own risk absorption capacity, etc. I am suggesting you to sit with RIA because his fees for providing this service will be very low compared to your loss if you fail while following SI’s investment calls without considering all these factors.

NOT ALL INVESTMENT CALLS OF SUCCESSFUL INVESTORS WERE SUCCESSFUL

Yes, its true. Kindly know about the investments of Rakesh Jhunjhunwala’s MTNL investment and Porinju velliyath’s Leel Electricals investment. And I can confidently say that they overcame these miserable flops successfully by following all the above factors very sincerely. Especially by ritually following the portfolio allocation factor with respect to their Risk Profile.

Note: There’s no definition for a successful investor, even this definition is also a subjective one. In my view any investor can be called as a successful investor if he can beat returns of benchmark indices over a period of 12-15 years.

Thanks for reading the article and let me know your feedback by commenting below. I request you to kindly share this article especially with the people who were making investments by following investment calls of successful investors and to the people who already lost money by following such investment calls.

Written By

Raviteja Penagaluri

SEBI Registered Investment Advisor

Reg No: INA200010904

Mob: +91-9618355264

Website: http://www.pvradvisory.in

Twitter: @pvrpvr

Youtube: https://www.youtube.com/channel/UC1anhX1_2krpsKoieAE8TNw

Letter to PM on Steps to Make Demonetization Successful

Hon’ble Prime Minister,

Your efforts of curbing corruption in our country are highly appreciable. Your decision of Demonetization is really a great risk taken by you for a better country to us. We are thankful to you for the same. We wholeheartedly support your decision of Demonetization.

Even though you and PMO along with RBI were reviewing the situation regularly to reduce cash chaos facing by public, but we feel that strong decisions to support/help/encourage for cashless transaction is not coming from your team/RBI/Banks.

Suggestions/Steps to make Demonetization successful or to make India cashless transaction country:

1. All service taxes, surcharges/extra charges should be completely waived of on all credit/debit card transactions up to certain limit like say Rs.50000 per week/month. This move will encourage people and businesses to go for card transactions. Because many Micro/Small businesses (mostly retailers) were not using swiping machines to avoid these extra 0.75% to 2% charges.
2. A massive movement like JanDhan accounts opening should be started to create/open current accounts for all micro/small businesses (which were of majority number) in our country. Because Many small retailers till now did all cash transactions only and they were using savings account for their business operations. If the transactions were crossing Rs.10 Lakhs means they were using their family member’s savings accounts also for business transactions.
3. And banks should completely waive off service charges/cash handling charges/any other charges for businesses whose turnover is less than 5 to 7 Lakhs per annum. Just imagine if a small retailer is having turnover of Rs.40,000 per month and he will deposit money four times in a month(say weekly) of Rs.10,000. Every time if he wants to pay Rs. 57 for cash handling charges means, it will be painful for him to pay to bank after all expenses. So i sincerely suggest you and your team to permanently waive off all charges for businesses of turnover 5 to 10 Lakhs.
4. Government and Banks should provide card swiping machines with 50% or 100% subsidy to all Micro/Small businesses which were affected badly with demonetization decision.
5. Banks should encourage current account holders to do mobile banking threw apps, separate free training sessions should be conduct by banks to en-light small business customers to use mobile banking services through scan codes, apps etc.

If you can do these simple and effective changes, almost 65% of small business owners/traders/entrepreneurs will be satisfied with this above mentioned steps. Because most of the population will be effected through small businesses itself. So if you can satisfy them with all the above steps means the program of Demonetization will be successful and original intention to curb corruption/black money will be accomplished with low pain for public.

This country is changing under your leadership Mr. Prime Minister. Even though it is a bit painful decision to many, we believe its just temporary, and we are with you in this gigantic process. And we are confident that you will reduce the present pain of public as soon as possible.

Vehicle Procurement Idea which can save Few Crores of Govt.Money

I came up with this idea while i was thinking on how to contribute my knowledge to my financially deficit state i.e Andhra Pradesh and get rid of its problem at least to small extent.

 

I thought of contributing something from my side to our country/state. Though financially I am not that much strong to contribute amount, but I can help by giving some small, feasible & easily implementable ideas on how to earn/save some money by doing some small changes in government regular procedures.

 

In this process, I thought of suggesting some small change in procurement of vehicles annually for government officials in different departments which can in turn leads to save annual budget of around  80-100 Crore(calculations were discussed below).

 

Presently government is procuring vehicles for different range of officers in all departments; usually these vehicles were procuring via online/offline tendering process for one to three years. As per information from few government officers, government is paying around Rs.30000 to Rs.44000 per month for each of these vehicles, which includes a part of diesel expense up to certain limit in kilometers of travel. If the officer usage of vehicle crossed the limit means sometimes billing may rise up to Rs.50000 also.

 

Among these departments, if you observe, only few departments like MHA, etc. were utilizing the vehicles daily to maximum extent, excluding those few departments, in many departments and in PSU’s these vehicles procured were keeping ideal after usage of around 1 to 2 hours daily for usual commuting from home to office and government/PSU is paying them a normal rents as the vehicle will be parked in offices and will be available to them.

 

Sir, In order to utilize resources optimally, instead of procuring the vehicles and keeping them ideal, if government/PSU can enter an MOU with cab services companies like Uber/Ola. Those company cabs can come and drop the officials and will return with minimal amount. And they can provide services with just a small click on smartphone. Whenever the officer is needed the vehicle, they can book it and reach the destination either it is office/work spot/home within few minutes.

 

As every officer whoever getting this car services from government now will have Id cards, they(cab service companies) can create a separate account for each official and book threw them, and the amount whatever is recorded can paid by government to those cab services companies through online at one go per day/per month. These all terms and conditions can be decided while formulating MOU.

 

E.g.

Scenario 1:

Suppose, let’s take a government official for whom government is providing a sedan vehicle for each working day. And he/she is using it for five days a week and two times (on average) per day for his office visits/for commuting. Government is paying around 32K (average basis) per month for this vehicle. I.e. government is paying around Rs.1066 per day on an average (including every day of the month having 30 days) if the officer is used the vehicle within the limit of travel distance.

 

Scenario 1:
Average Rent Per month for a Sedan in tendering process	32,000.00
Amount incurring per day basis	1,066.67
Net Amount Paid by Government	32,000.00

 

Scenario 2:

Let’s see, if the same official is using cab services, and he/she using for 4 times per day for commuting/office visits. And on an average amount will come around Rs.225 per usage that too if he/she is in metros, because only in cities he/she have to travel far, otherwise in normal district headquarters also maximum travel distance in regular commuting will be around 5 KM which not even costs Rs.150. And as it is a government’s proposal and it will be very big order to those cab service companies they can plan for one whole day renting also officially as this officers will be needed such services in important occasions like CM visit, etc.

 

Scenario 2:
	Rs/Days	Note:
Average Amount Collected by Cab Service for regular Commuting(If it is not a Metro)	225.00	Normally in towns (other than metros), vehicle wont cross more than 5 Km for an officer to reach office/home/work spot. In that case, Average amount won’t cross Rs.150 also.
Average No of Times a vehicle used in a day	4	Mostly it will be optimal case.
Average amount To be paid by service person to the CABS per day	900.00	Understandable
Average no of Working days in a month (Excluding Holidays, Festivals, etc.)	24.00	In this Holidays I included Sundays, Normal Festivals, and Government Holidays.
Average Amount per month	21,600.00	24*900
Net Amount paid by Government	21,600.00
Difference in amount borne by government in both scenarios	10,400.00
In Scenario 2, Amount is reduced to around	33%

 

In the both scenarios, difference will be Rs. 10,400 per month per one vehicle which means a reduction of around 33%. This amount will be saved to the government. Suppose even if there are at least 20000 such vehicle in all the departments, in all the districts Rs.20 Crore will be saved to government.

 

And government officials will take leaves(excluding government holidays and Sundays, we can say this days as ideal days for vehicles) also in every month, even in this ideal days also in scenario 1 government needs to pay amount to the contractor/vehicle vendor unlike government cost in scenario 2 will be Rs. 0. Suppose if we consider average no. of ideal days as three days per month, government can save around Rs. 8000 per month on each vehicle.

 

Advantage for Government/PSU:

• They can reduce at least an amount of Rs 2-3 Crore as per above calculations.
• They can reduce the expenses/corruption incurring for tendering process for recruitment of this vehicles in different departments.
• Proper vehicle tracking can be done like whether the officer is really used the vehicle or not, so that government can avoid dummy bills from few officers.
• They can reduce an ample amount of corruption, because we heard instances like officer and vehicle contractor will come to an understanding and increase the diesel expenses of the vehicle, and few officers will use their own vehicle and put bills to government as if they used contractor vehicle and the amount will be shared between two, etc.
• And government officer movement can be tracked accurately with time and place in real time basis, if it is needed so.
• And if these CAB services penetrate to every district, these cab service companies can automatically facilitate the employment to the local drivers whoever interested to work with them in utmost professional way.
• Penetration of this credible cab service companies to every district will help tourist commutation around the district more safely than present, which in turn can help tourism development also to some extent, this objective is in-line with government vision to make state as tourist destination.
• And if normal citizens start using these services, traffic will be reduced a bit as individual car owners will be reduced to at least 0.5 to 1% in the initial days and with that small portion healthy environment in cities can be improved slightly.

 

Advantages for UBER/OLA:

• Actually they are planning to enter into tier-2 and tier-3 cities, they can easily have/create around 25% (which may decrease in future if penetration of them increases) of the market share if they enter an MOU with government. It will help them a lot in initial entry days to survive as they already have some assured orders by this government MOU.

 

Note: There will be some exceptions and adjustments in this idea. It can be done and can reduce your expenses if you people can implement this.

 

Regards,

Raviteja Penagaluri

Freelancer,

Alumni of EDII, Ahmedabad.

Mob: +91-96-183-55-264.

Why Entrepreneurship? And for whom it is?

In this blog, i would like to discuss about why youth of this generation should think Entrepreneurship as their career option.

As a graduate from Entrepreneurship Development Institute of India, i usually feel very embracing to tell about my degree when someone asked me about it. Because immediate question from them will be What is it?(it’s really difficult to get some light about Entrepreneurship to them)

And after my graduation, i joined in family business as an intrapreneur and took up the assignment of turning around my family business to next level as part of our vision, i started a manufacturing unit as backward integration plan. In the above conversation the second question will be why you are doing business? you dint got any job anywhere during placements in your college?(Even after explaining something about entrepreneurship again, they will end up with an idea that i am a useless fellow who cant earn a job and trying to bluff something with the word ‘Entrepreneur’).

If you feel bad with this type of conversations and care them a lot, believe me Entrepreneurship wont be in your bowl. Entrepreneurship expects you to be a Rebel, and question every conventional things happening around you and understand the logic in them.

Entrepreneurship always expects you to walk in a lonely way even when whole world is fighting against your vision and even when they confirms its a blunder mistake of mine by choosing this career. And simultaneously you must pursue the talents to motivate like minded people and make them work as your team to achieve your vision with your mission & values.

I have a perspective from my engineering days, like tendency for people in India will be to take up a much demanded field irrespective of their interests. Now i can confidently say my perception is absolutely wrong. Because Entrepreneurship have been opted by very less % of people even though its a highly demanded profession in past, present & future India. I will explain how entrepreneurship will be a high demanded profession. Indians are claiming there demographic dividend as its greatest and unique asset which India posses, but i feel that asset will turn to be a great liability if Indian youth wont sense the potential of word entrepreneurship. Because, according to a survey every year almost 20 million youth were graduating and getting ready to take up jobs of which at least 20-30% were skilled enough to take up jobs directly or with some training process. So it mean around 5 million people will be almost ready to take up jobs. So from where they can get jobs and who will provide these jobs to them every year? do you think state and central government of India can create this many jobs every year? If you think so, i can easily confirm that you need some serious re-thinking process in your mind about ground realities of this country. And central and state governments cannot create that many jobs every year, they can only create a positive environment towards entrepreneurship which in turn can facilitate entrepreneurs to create employment. So with this we can confirm those two bodies can’t provide direct employment to that huge figures. So who else can come to rescue this people?? you’re right. Entrepreneurs. Only entrepreneurs will become saviors who can appreciate asset(demographic dividend) value. Once imagine you as an entrepreneur and think every year around 20 million population of this country is having hopes on you and waiting for your decision to create some employment for them by doing something instead of you waiting and taking employment from someone. I am confident that kick/high which i am getting with that thought is absolutely no where comparable with anyone’s kick/high who have two bottles of vodka tonight. I hope with this explanation you can get some idea or sense some demand for this word Entrepreneur and understand my urge for youth like me and you to think about Entrepreneurship as career option once again.

Here comes another big question in your mind if you understand this post till now, why entrepreneurship is not yet sensed as a big opportunity even though there is a huge demand for it? i will discuss and explain this answer in my next post.

I wont ask you to share this post to everyone and waste their valuable time by reading this if it is not related to them, but please share this post to someone who is in the age group of 18-25 and really confused to choose whats their next career option.