What I take into consideration, when I buy shares or make investment

Rajesh Sharma

What I take into consideration, when I buy shares or make investment
1. Company: This is the most important factor. If everything goes wrong but company survives with credible strength, there is hope. First and foremost, I like to make my primary investment safe and secure. In the market, always there is risk, but risk calculation protects to a large extent. Hence, overall credibility of the company, its past history, it's standing in the industry and growth prospects are main factors I look into about a company.
2. Return: When I invest, I set some bench marks for return with timeline. My expectation of return use to be quite modest. Anything beyond is bonus. Example, my expectation from SCB was 10% bonus (this expectation I had shared in my previous posts before declaration of dividend) and cash as it generally provides 30-45%. Beyond this, used to be my additional bonus. SCB gave more or less and I am ok with that return. Hence, as an investor, always I try to be reasonable with the company. Even sometime, the company dos not meet my expectation. Example, SBL. With a higher EPS, my expectation was bonus shares 15% and cash 20%. The return SBL declared was too low, but still it was much higher than the bank interest rate on time deposit. I decided to hold. The same was true with NBB.
3. Investment vs. trading: Primarily, I invest for a longer period of time and put my 80% plus money buying shares of relatively safe and secure companies. And, I do trading occasionally with that 20% amount left. Trading has been dominating Nepali share market and wild speculation fueled by rumors makes market behaving strangely. Those who could go with trends whether it is fueled by strategy of certain big traders or just result of rumors, you could perhaps survive. But, for them who believe in a company and its fundamentals, it is not that easy to follow the trend. Hence, I have not been that much good to make decisions regarding trading. Hence, I am thinking to discontinue trading completely. Now, I have realized that these two are different professions and need different qualities.
4. Risk management: Even in good companies, there are factors that need making you active and informed. All of sudden Enron Empire disappeared. Therefore, this risk management is not a one time business but a continuous process. As long as you hold shares of a company, you have to keep watch on it. Updating risk level with new information makes investors different from the crowd holding certain IPO shares and disappearing in the wilderness. Hence, whether I stop trading or not, I will stay active in the market – studying, watching, learning and updating always. This is what I believe is a better risk management approach.
5. Use of technology: This is the age of information. Technology enables to make informed decisions. Hence, as part of my education program, I always try to get access to new technology and try to enhance technical skills. A laptop and a smart phone have become necessary gadgets for investors and traders. Language skills always keep us in advantageous position and learning language skills is not as difficult as it is thought.
6. Getting emancipation from rumors, tricks and VEJA fries: Many people, particularly the big speculators in our market sell rumors before they buy or sell shares. Hence, I have made a rule that "knowing a source and its credibility" before believing or acting on it. Though, we could not prevent rumors and tricks, but liberation from them as far as possible is absolutely necessary to survive and flourish in the market.
7. Being aware of being one sided: A company in a given situation could seem good but from long term perspective that may not be the case. Example, KBL's EPS was 18 and it gave bonus shares of 35% utilizing its reserve. It is great for now and could be great if we trade on. But for investment, we should look beyond. Therefore, I try to see the larger picture first before putting that one special factor to examine. My belief is that we should look at any object, issue or person keeping our perspective as wholesome as possible.
Note: This note is a compilation of my answers to friends sent through message box.

BPCL in some difficulty?

Rajesh Sharma

Sounds some difficulty for BPCL after Akhtiyar's instruction to cancel Kabeli license. May be, they will renew the license as World Bank and IFC are involved but certainly the tempo of implementation would face some road blocks. Those who have bought for long term may not, perhaps, be affected but for short term investors, it would be difficult to exit on their term. Regarding dividend, I have no idea, Hari Kc ji.

Note: Here, I use the term "long term" for more than 5 years. However, more than 3 years is also relatively long term in markets like ours where traders have been dominating heavily.

H & B Development Bank

Rajesh Sharma
My comment on Jyoti Dahal ji's post on FB's Fundamental and Technical Analyisis

I think, H&B is a lead company in "high risk, high gain" group. If it could recover the bad loan and could settle the court case regarding manager's check issue, it will bounce back. And, if it will fail to do so, the company will continue to be in difficulty. NRB sounds convinced that from now on at least the deposit of the clients is safe. If it hands over the management to the new board elected by the AGM, the risk would be much less as it would show NRB's confidence on the new management of the company.

Malpractices from the brokers?

Rajesh Sharma

My comment on RN Pradhan ji's post on malpractices from the brokers
Probably, some brokers do strange 'buy' or 'sell'. But, Pradhan ji, a large majority of them do their job exactly as brokers - fair and professional. Hence, let's not generalize it. The second factor is that there are players and manipulators in the market and they may not be necessarily brokers. Hence, we should see them as manipulators together with a few such brokers. However, we could over come the ill effects of such malpractices if we go through floor sheet regularly of the companies we are interested in, if we do not hurry to buy or sell and if we follow logical path when making decisions.

Share market experts?

Rajesh Sharma

My comment on Sanjay Maharjan ji's post about share market experts.
Interesting and good observation of Kiran Thapa ji.
There are three groups of people in our market. 1) Risk takers (investors, traders), 2) teachers (professors/professionals in for-profit companies) and 3) analysts/experts (paid or unpaid consultants in different covers, instruments of rumor mills, failed investors, part-timers who are interested in small quick bucks and a few true contributors of information and ideas). The first types are achievers or prospective achievers, the second types are knowledge banks but mostly that of past references and values and the third types are a combination of tit-bits with some real contributors in exception.

Hence, the investors/traders are "fact of life", the teachers are the jewels but mostly somehow out fashioned and the analysts/experts are gems but only in exception. Therefore, we should be selective in collection and processing information and should use inputs in making decisions with extra care regarding the source of such information.
Time has come to be aware, informed, educated and enlightened if we like to stay and flourish in the market. Days are numbering for them who invest using gut feelings. The more the mature the market, the more we should be competent enough to understand the complexities.

People are different, so are the courses reaching to decisionss

Rajesh Sharma

I have received quite a good number of messages from friends who want to know about good companies. Rather than answering individually, I thought to post my answer here.
It depends on four factors. 1) Your strategy (diversification or concentration in one or a few companies) and nature of investment - long term, short term and your current portfolio. 2) Your risk absorption capacity. 3) Your preferred sector and type of companies. And, finally, 4) Scale of your investment or how much money you like to invest. These are internal factors, which matter the most. Without knowing about these factors, it is not so useful to offer advice.

And, the companies come afterward as essential factors to know about. For this, the quick and easy way is to analyze financial statements. If it is for long term, fundamental analysis helps to select companies and for short term, technical analysis offers insights. For trading, generally, trend is your friend and capital gain is the primary goal. And, for investment, it is the company that pays you and the dividend and growth of the company are the primary motivational factors together with capital gain.

Investment decisions are different and unique as they start with "you", "we" and "I"

Rajesh Sharma

In my understanding, investment starts from "you", "we" and "I" and not from any company. This is the most important beginning of a process and without going through this process, it is difficult to reach to any logical investment decision. The investment in a company, hence, is the result of that selection process.

BPCL: Why a single borker is selling most of its shares?

Rajesh Sharma

I have been following for sometime the floor sheet of BPCL. Broker number 10 has been selling all or nearly all shares everyday. The buying brokers are diverse. The transaction is also quite heavy seeing BPCL's average transaction. The price is on lower side. Any friend has any specific information or idea? If so, please share.

Welcome Back!

Rajesh Sharma

The dull period in share market due to festivals has been over. People are back and so is their energy. Market may get back its vibrancy. We also should come out of hangover of festivals and should start the regeneration process that is extremely essential to put mind and energy together so as to attain a mental level pervaded by achievement motivation.

Who benefits by delaying CDS implementation?

Rajesh Sharma

My note on Sunita Chetri ji's comments on my post regarding delay in CDS implementation.

Sunita ji,

Good question. Let's see who benefits by delaying CDS implementation?
1. The big individual players, most of the time, buy without paying, get the documents in 3-4 days, put it in BT. Sell the shares in another 3-4 days. Get money in another 3-4 days and pay for the shares they had purchased. Hence, the BIG players who buy and sell without making payment, they will get benefit surprisingly. The brokers wait seeing the commission they get in the larger transactions.
2. If you or I buy and make payment the next day, the party who sold his/her share will get the payment after 10 days so in practice. Some lucky ones get in seven days but that is exception. The brokers could play with that transiting money for about a week, enough time to buy and sell for them. In this way, they also earn using our money in transit.
3. Many times you could see the brokers are out for transaction for certain days.. This happens primarily when something their tailor-made process get road blocks, though in some case and some times there could be some genuine causes.
4. CDS will wipe out this interval and will transfer money account to account, and then the play that uses money-in-transit will end.
5. The average daily transaction during the last couple of months is above 50 corers. By being highly conservative, at least 20% of that money is that of small investors. It means the daily average is 10 corers. If the brokers could hold for 7 days, it is 50 corers per week (minus Fridays Saturdays) and the cycle continues. This is not a small amount.
6. Hence, the beneficiary BIG players including big traders and the playing/colluding brokers (not all brokers) are against the CDS.
7. Besides, there could be several other parts of their modus operandi, for which other friends may be better informed.

Why again CDS implementaion could be delayed?

Rajesh Sharma

In many forums, I read comments by several friends that the proposal to delay implementation of CDS made by CDSCL is hopeless, NALAYAKI, and etc. etc. But, I think it is not so. The major factor here should be bumper gift, which is called bribe in plain English. The cartels and syndicates, individually or collectively should have offered such gifts to officials and executives and they successfully got or are in a process of getting the implementation delayed. CDS may play a spoiler for their modus operandi. Hence, I believe that this is a willfully done planned design and if they succeed now they may repeat the same in Baisakh also. It is a pity that we are passing through an anarchic phase in all areas including but not limited to politics, economy and so on.

The bonus/rights share effect

Rajesh Sharma

The bonus/rights share effect

The short term investors/traders could celebrate higher bonus/rights shares from a company as for them it may give good capital gain in a bonus/rights share crazy market environment. But for long term investors the same may not be true. Added capital demands growth for absorption of such fund to provide better return for the investors. However, our companies, particularly the BFIs are facing situation of excess liquidity/limited growth prospect.
For sustainable growth, the BFIs, which form the largest percentage in weight in NEPSE, need financially viable projects, competent human resource, business friendly environment, where there is political stability and economic growth and technological/technical/managerial capacity. This is possible gradually. Hence, in banking sector higher percentage of bonus/rights shares may not be something an issue to rejoice and celebrate for the long term investors.

The excess money was a major problem in the banking system last year. This year also it has been continuing. How the BFIs will use the additional money generated as bonus/rights shares will make a big difference in regard to the return in coming years.
Therefore, friends, who are long term investors should consider more fundamental factors before investment rather than limiting to percentage of bonus/rights shares the companies are declaring. But for short term investors who invest for less than a year in a company or for the traders the percentage of bonus/rights shares could be a good motivation still.