India Fund Performance Compared to Index -Sensex(in %)
* move mouse over the graph to view data on any particular date.
[+-] Asset Allocation Chart

* Beta version, started on Jan/2010 as an trial. Currently contains very limited data. Read more about this chart in the post

Monday, February 15, 2010

Portfolio Asset Allocation

A critical part of investment decision is asset allocation, how you allocate the asset across different asset classes. It plays an extremely important role in your chances of succeeding in long term. In other words, it provides the the flexibility to act when market offers good opportunities to buy or sell investments.

If one had a significant % of his portfolio allocated in liquid assets including cash during the last crash, he would have had an opportunity to reallocate the portfolio to stock and other riskier asset at very attractive prices and there by higher the chance of appreciation of portfolio as a whole. Same way, if you had moved from riskier asset to safe assets before the crash, once would have saved lot of heart burn. On the other side, if you have significant % of your portfolio allocated in safe asset when market goes up, it limits your chances of gain. In other words, a good asset allocation is as important as picking the right stocks. Having all right stocks and a wrong asset allocation does not do much good.

As a side note, Buffet went into recession with $40+B in cash. He utilized significant portion of it in investments like Goldman Sachs, Wrigley, Burlington Northern along with other investments over last 2 years. This cash position was definitely an advantage for Buffet and he utilized the cash position during downfall to his advantage. Another reason for Buffet''s general high cash holding is Berkshire's huge insurance operations.

Having a right asset allocation strategy is easier said than done.

I am trying to improve in this area, and still looking at many options, one of the things I am trying is to develop an asset allocation correlated to index P/E (aka. Indexometer). While not a fool proof method, what it means is to allocate more towards liquid assets as the index PE goes up and move towards more riskier assets when P/E is low. Again, this is not an automated process or a rule, but more of a guide (among other things) for asset allocation. Also, I don't plan to sell all of my stocks as index PE goes up, rather try to adjust exposure accordingly. I must add that the strategy helped in the recent fall (at least, to till this moment). I had high cash component going into last month's fall compared to previous times. One time is not enough to call it a rule, but planning to track it closely to see if it really works over time.

In order to add more visibility to the process, as a Beta (trial) version, I am adding a new chart (on page top, click on the link "[+-] Asset Allocation Chart") which displays the percentage of liquid asset in my total portfolio at a given time. In the graph, this % is compared to corresponding index PE along with index and fund performance. So, over time I am hoping to see a positive corelation between cash/liquid asset and index PE (As index pe goes up, cash component in portfolio also should go up, and vice versa)). I am still working on the best way to display it, but going to start it to see how it works out. If you have any suggestions about how to display this information in a better way, please let me know. My objective is to display the allocation of liquid asset in the portfolio and compare it to index.

Note: I have scaled the index and fund numbers proportionately to cash position range, so that graph looks more meaningful. In this particular graph, I am not comparing the performance of the index or my fund (we already have a graph for it). Key elements in the graph are the cash and liquid asset % (which is approximately 100% - stocks allocation).

Click here to read the complete article....

Monday, February 8, 2010

Corporate action opportunities

I added following companies in last two weeks to my portfolio as part of corporate action opportunities. Both companies have not announced record dates. As discussed in earlier posts, I have allocated a small portion of my portfolio for arbitrage/corporate action opportunities. There are no guaranteed returns on these types of opportunities.

After the bonus and splits, the prices are suppose adjust exactly to reflect the added shares. But in reality, there are chances of that not happening and price will get adjusted, but not to exact same value as it should be. And sure, there are chances that this does not happen in which case this could transaction could generate 0 profit or even loss. I discussed few opportunities which worked out well in the past includng Federal Bank, Adlabs, TRF etc.

Current Price: Rs. 400/-
After 1:1 split, it should quote at Rs. 200/
But there are chances price will be quote at Rs. 220/
which provides a gain of Rs. 20/share and since the share number doubled, that is a return of Rs. 40/ (10%) per original shares purchased.

Basically, we are trying to make use of any inefficiencies which may exists in the market.

I don't invest in all the corporate actions announced, rather only in companies which i feel comfortable enough holding a longer if the opportunity didn't work out as expected. I am looking at Sterlite Technologies in detail to see if I can add it for long term.

1. Sterlite Technologies "Sterlite Technologies Limited has informed the Exchange that the Board of Directors of the Company at its meeting held on January 18, 2010 approved, subject to the approval of shareholders : (1) Stock spilt by way of sub-division of the Equity Shares of the Company of the face value of Rs.5/- (Rupees Five) each to the face value of Rs.2/- (Rupees Two) each. (2) Issue of Bonus Shares in the ratio of 1:1 to the shareholders of the Company and to the existing warrant holders (subject to conversion of Warrants in fully paid equity shares)"
Board of Directors: Approved
Shareholders: Feb/25/2010
Record Date: Mar/10/2010

2. IVRCL. "IVRCL which came out with results on January 28th 2010 has also approved the Bonus issue it has planned, they have announces Bonus Issue in the rate of 1 stock for every stock held on the record date, the record date for the same will be announced later"
Board of Directors: Approved
Shareholder: Mar/8/2010
Record Date: NA

I will try to post updates as transaction progresses and also once the transaction completes with details on how it worked out.

Click here to read the complete article....

Saturday, February 6, 2010

Risk Intelligence Quotient

50 questions in the Risk Intelligence Test, the importance is on self knowledge.

From Projection Point:

Risk Intelligence Quotient (RQ) is a measure of a person's ability to estimate probabilities accurately. People with high risk intelligence tend to make better predictions than those with low RQ.

This test is rather unusual in that you can score very highly even if you don’t know much. That’s because this test measures self-knowledge rather than factual knowledge. It rewards you for gauging your own level of uncertainty accurately, rather than for knowing a bunch of facts.

Projection Point is a private, independent, non-profitmaking project set up by Dylan Evans and Benjamin Jakobus with their own money to satisfy their own curiosity.

Found at:

Click here to read the complete article....

Monday, February 1, 2010

Intrinsic Value as described in Security Analysis

Video explaining Intrinsic value found at

Not in detail, but a brief overview.

Click here to read the complete article....