About: Mutual Funds investing primarily in Debt securities like Govt Securities, Corporate Bonds etc.Read More
About: Mutual Fund, which invest the money primarily in shares and stocks.Read More
About: Mutual fund is common pool of money that brings together funds from different people and invests it in stocks, bonds or other assets as per wish of the investors.
About: Inflation is an increase in the prices of goods or services. With inflation, one must pay more money across time to acquire the same goods and services.
About: Interest is generally referred to return made from giving money to somebody for a certain period. In investing context, interest is generally income earned from fixed deposits, Post office schemes, ppf etc.
About: Advice is the suggession or plan given to somebody by an advisor or friend , as solution to a problem or endeavor.
About: Goal planning is a financial planning process to detail out the various needs of life. It can include retirement, purchase of car, etcRead More
About: Process of Continously monitoring the investments and taking action in case any change is required , is called Regular review and rebalancing.
OPM stands operating profit margin. Operating profit is calculated by dividing Operating Profit with sales.
Operating Profit * 100
Operating profit is calculated by subtracting operating expenses such as cost of goods sold, wages etc. from sales. It is prudent to exclude other income from sales before calculating Operating Profit because other income is not part of company’s primary business.
For example: If the operating profit of a company is Rs 50 crore, and the sales is Rs 100 crore. Then the Operating profit margin of the company is Rs 50 crore/ Rs 100 crore = 50%. Higher the OPM, better the company.
EPS stands for Earning per Share. It is calculated by dividing profit after tax with total outstanding shares.
Profit after tax
Total number of shares outstanding
For example: If the Profit after tax of a company is Rs 100 crore, and the total outstanding share is 10 crore. Then the EPS is Rs 100 crore/ 10 crore = Rs 10 per share.
Generally, it is good to have high EPS companies since company is earning high profit per share.
PE stands for Price to EPS ratio. Divide the current market price of the stock with its earning per share (EPS) to calculate PE ratio. One should use PE for growth stocks.
Market price per share
Earning per share
PE ratio tell us how much times investor is ready to pay for the profit/earnings.
For example. If the EPS of a company is Rs 10 and the market price of the stock is Rs 200. Then the PE ratio of the stock is 200/10 = 20. This signifies that investors are ready to pay Rs 20 per Re 1 of earnings.
Assuming other factors remaining same, a low PE stock is preferable over high PE.
BVPS stands for book value per share. Divide the shareholders’ equity with the average number of common shares outstanding to find the book Value per share.
Shareholder Funds/Net worth are owners’ fund. This includes money put by the shareholders as well as profits accumulated overs years.
Total Shareholder Funds
Total number of shares outstanding
For example. If the total shareholders’ equity of a company is Rs 1 crore and the total outstanding shares are 10 lakh. Then the BVPS ratio of the stock is 1 crore/10 lakh = Rs 10. This Rs 10 signifies that investors will get Rs 10 per share per the company get liquidate today.
Thus, higher book value per share is preferred.
PBV stands for Price-to-Book value. It is calculated by dividing market price of the stock with Book value per share.
Market Price per share
Book Value per share
For example. If the Book Value per share of a company is Rs 40 and the market price of the stock is Rs 200. Then the PBV ratio of the stock is 200/40 = 5. This signifies that investors are ready to pay 5 times the Book value per share of the company.
Typically, PBV should be used in commodity companies. A lower PBV stock is preferable.
EV stands for Enterprise Value. It is a measure of a company’s total value. Enterprise value is calculated by adding debt and deducting cash and cash equivalents from market capitalization of the company
EV/Sales tells how much we are paying for enterprise/firm as a whole in relation to sales. This takes into account the liabilities/loan of a company. Generally the lower EV/Sales is desirable, but a high EV/Sales could be a sign that investors are bullish on its future sales while low EV/Sales means that its future sale is not expecting to good.
EV/Sales should be use in either loss making companies or in companies with high PE. Lower the EV/sales the better it is.
ROE stands for Return on equity. It is calculated by dividing Net income with the total shareholders’ equity.
Profit after tax
Equity Shareholders' Funds
For example: If the Net Income (Profit after tax) of a company is Rs 20 crore and the shareholders’ Funds is Rs 100 crore. Then the ROE is Rs 20 crore/ Rs 100 crore = 20%.
This ratio signifies that how much profits company is generating by using shareholders money. A higher ROE is preferred since better ROE means company is efficiently using equity capital.
Beta is a measure of the sensitivity of a share price or value of a portfolio in comparison to the overall market. In other words, it signifies the correlation of stock price/scheme NAV or value of a portfolio and overall market. Higher the beta, higher the risk of the stock. Beta can be positive, negative and zero. If beta of two securities is positive, it means both the securities have positive correlation i.e. both will move in same direction. While, if beta of two securities is negative, it means both the securities have negative correlation i.e. both will move in opposite direction. If the beta of two securities is ‘0’, then there is no correlation between two securities i.e. both the securities can move in any direction.
If a stock/scheme has a Beta of 1.5 with BSE Sensex, it means if Sensex moves up 1%, the stock will move up by 1.5%. While if a stock/scheme has a Beta of -1.5 with BSE Sensex, it means if Sensex moves up 1%, the stock will go down by 1.5%.
Standard deviation is how much the returns are deviating from its mean. Higher the standard deviation, risker the stock/scheme. Thus, a low standard deviation is preferable.
For example, if the average return of a stock/scheme for 10 years is 20% and the standard deviation of that stock/scheme is 5% for 10 years. It means that the return of stock/scheme can move from 25% (20%+5%) to 15% (20% - 5%).
The Sortino ratio is the average return in excess of the risk-free rate per unit of the total risk of negative returns (standard deviation of negative returns). Here the standard deviation of negative return is used because it is assumed that investors are only concerned about negative returns. Higher Sortino ratio is preferable because investors are getting more rewards for 1% risk of negative returns.
Return of a Scheme/Portfolio/Share(Rp) - Risk-free return(Rf)
Standard deviation of negative returns(σd)
For example, if a stock/scheme has given a return of 22%, standard deviation of negative returns is 3% and the risk-free return is 7%. The sortino ratio is (22%-7%)/3% = 5%, which means investor are getting 5% return for 1% risk of negative returns.
We are guided by below 5 investment thoughts:
We believe it is a normally a good way of reducing uncertainty in your portfolio by spreading your investments across multiple asset classes run by multiple investment managers. This has the effect of reducing overall risk and lessens the impact that any single one of these can have on your portfolio. A well-diversified portfolio can offer a much smoother pattern of returns – giving greater consistency and lower volatility. Across asset classes (e.g. shares , real estate, debt) as different asset classes behave differently in various economic and market conditions. Across investment managers – who have different approaches (or styles) and who perform well at different times and in different circumstances to each other.
We believe that really fruitful investing is not about chasing the maximum profit in any one year in any way but is about taking a planned and disciplined approach and avoiding the all too typical mistakes that erode wealth. An example of taking a disciplined line is not reacting to short-term performance but, rather, understanding that some managers or asset classes may not achieve as well as others (and may even go down) from time to time. Reacting to this by changing the portfolio can destroy value.
Risk and Return
We understand that risk means different things to different investors. In addition when we study risk in portfolios, we look at the volatility of the investment – or by how much investments fluctuates. Volatility and return are related and, in general, investments with higher volatility are expected to have higher returns – an extra return for accepting the greater level of fluctuations – whereas lower volatility investments are expected to offer lower returns – reflecting their greater stability. This is called the risk-return trade-off.
The range of expected returns between their maximum and minimum return varies between different asset classes. Debt has a smaller range than shares but, because of their greater volatility, shares are expected to generate a higher return than debt which have a lower volatility.
Investment Selection process, at Advisesure, begins with Individuals’ risk profiling. Based on which the portfolio is designed which is diversified into Equity, Mutual Funds- both equity and debt, ETF’s, fixed income instruments etc. as per individuals’ profile.
Why use advisor?
Many investors spend a great deal of time picking and handling their own portfolios rather than using the skills of investment experts. Often there is a cost to the investor of trying to pick their own asset classes, investment managers. According to a study, Individual retail investors lost close to Rs 8,300 cr during the sample period of 18 months, from January 2005 to June 2006, or Rs 5584 cr per year. What makes retail investors behave this way? The answer lies in two powerful behavioral instincts. One, their approach to valuation of their investment options is based on feelings rather than careful calculation under which, what matters is the presence or absence of a stimulus, in this case profits, but not the size of the gains (losses). Retail equity investors in India systematically lose out to other categories of players because they sell the winning stocks too quickly and hold on to the losing stocks too long.
Our Quant Automation process can avoid these mistakes because it does not get caught up in the emotion of investing which is often the driver for investor’s bad decisions. Model Portfolios are a series of centrally researched and maintained portfolio solutions created to compliment the asset allocation of our client’s investment profiles.
The portfolios we recommend for our clients consist of investment managers that invest with a long-term total return objective. This is combined with consideration to our client’s individual tolerance to risk and your lifestyle goals, needs and objectives applied.
Each portfolio has a strategic asset allocation model and a range of investment managers and is intended to give investors access to a well-diversified investment solution with good risk control and a well-balanced mix of assets.
Our investment objective is, therefore, more aligned to your objectives rather than the objectives of a larger financial institution, that is, they simply want to grow wealth, not perform in a relative sense.
Our Model Portfolios investment strategy is reviewed on a regular basis by the research team at Advisesure. We take a 360-degree view on initial and ongoing investment of our clients.
To enable our firm to provide our best “investment solution” to our clients, we strongly advise all clients to maintain their portfolio as per our specific Model Portfolio and Platform solutions.
Clients who participate in our Model Portfolio solutions as part of their client experience can be assured their cash are invested in the most appropriate and up to date portfolio offerings which are continually researched and reviewed, to offer a far more disciplined and consistent approach to their portfolio management.
This investment philosophy when strengthened by our strategic approach of tax minimization, wealth protection along with risk coverage through insurance, enables that our clients benefit from personal service, genuine interest and quality advice. Expanding on this philosophy, we aim to:
If there are any elements of our investment philosophy which are unclear, or you are interested in discussing this further, please don’t hesitate to contact our office. We value relationships and open communication with our clients and we believe that all Indian should have access to quality advice.
If our investment philosophy holds true with you, please don’t keep us a secret. Feel free to share this document with family, friends or colleagues
Selection process for Equity Stocks:
At Advisesure, you can be sure to own a shirt of your own size for every particular occasion, i.e. an investment option/portfolio designed specifically for you to address your different goals.
We did a T-test of one of our portfolio to ascertain its out-performance vis-à-vis its benchmark. We have considered the yearly change in the portfolio value of R1 and Sensex since January 2009 and the result are as follows-
|Hypothesized Mean Differences||0|
A T-test for two samples assuming unequal variance shows that the t-stat value is -7.11, i.e. beyond the range of +1.98, -1.98, which indicates that the variance for the two variables is not equal. Moreover, the mean for R1 is greater that Sensex (35% > 15%) infers that the R1 portfolio has outperformed the Sensex. Thus, the out-performance to benchmark is statistically validated too.