Value Investing

*Investors should accumulate 'fallen angels', hedge well in futures market*
7 Feb, 2008, 1041 hrs IST,Shailesh Menon, TNN

MUMBAI: Akin to batsmen who find it difficult to play a good line delivery
on the off-stump, investors too are passing through tough times with reverse
swinging markets, deceptive valuations and late stock movements. Though
there is consensus among market gurus that extreme caution must be exercised
while trading, not many are ready to press the panic button. As a matter of
fact, this is the right time for investors (with investible money) to
accumulate 'fallen angels' and the much pounded blue chips and hedge
themselves well in futures market, experts say.

"There is money to be made in bearish and volatile markets as well. The time
of entering a stock is very important in falling markets. One should start
investing when stock prices have depreciated significantly, " says Park
Financial Advisors' director Swapnil Pawar, adding, "Investors should try to
spot out 'fallen angels' in the market.

Fallen angels are stocks that have fallen 20 to 30 times as far PE
(price-to-earnings) multiple is concerned." However, a word of caution:
Never try to invest in a stock trading high on thin volumes. Try the reverse
— pick stocks trading on high volumes but low prices. "Seasoned investors
can also try investing in index futures," adds Mr Pawar.

According to investment experts, a high net worth individual could invest in
short-term money market instruments on bad market days. However, this should
be done by arriving at accurate stock exit points or setting a stop-loss and
reading market sentiment. Switching from equities to short-term debt should
be effected only on expert advise. Another option could be allocating a
certain portion of their investments into funds investing into commodities.
Generally, commodity markets do well when equities are volatile, say
investment experts.

Well-informed investors could also get into option trading in times of
falling markets. The advantage of buying a 'Put option' over shorting the
asset is that risk is limited to the premium. *For instance, concerns over a
probable slowdown in the US has caused a loss of confidence in IT companies,
causing their share prices to fall.* So by purchasing put option on IT
shares, investors could make money even as IT shares drop further.

*Investment strategy for small-retail investors would be adopt value
investment style that ensures capital protection*. Says Standard Chartered
AMC's senior fund manager Ajay Bodke, *"Investors should invest more on
stock dividend yields than price appreciation; the idea is to pick companies
where earnings growth is moderate and valuations attractive. Stocks with a
PEG ratio lower than 1 is generally considered attractive by experts."*

*Stock picking on the basis of historical beta values could be dangerous;
beta, valuation and past performance need not necessarily yield positive
(same) results all the time.*

"Avoid scrips that are dependent on markets (stocks riding on talks of
future earnings, listing of subsidiaries and spin-offs). Buy companies where
earnings are visible (where future potential is visible: as in
infrastructure companies). Use derivatives for hedging purposes. Do not
indulge in double leveraging; this is not the right time to make good your
loss," says Credit Suisse Securities' research head Nilesh Jasani.

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Regards,

Beyond fear there is success.