Dilemmas of investing from MyIRIS

When a layman decides to chalk out his investments what crops up first are queries and confusion. The first question that causes the chain reaction is `` what kind of investment option are available and which ones will help me reap maximum returns? ``

Nothing comes free of cost and investments are no exception. Investments come with their set of risks which are to be borne by the investor... Risks in investment are inevitable. The potential investor should always consider the risk options before investing. Taking risk is the first dilemma that the investor has to face.

Coming back to the main question: `what kinds of investment option are available and which ones will help me reap maximum returns? `

The answer to this question is very subjective, as it defers from person to person. Factors like the person`s risk appetite, his investment goals and others have to be precisely considered.. Seeking the most suited reply for the question the investor usually lands up taking advice from near and dear ones for investment. Suggestions put forth by different people vary from one another; some suggests to go for the traditional way of investing i.e.`` Fixed Deposits with a Bank``, others may suggest none other than ``Investing in Equities``.

``Properties/real estate``, ``bullion`` and so on and so forth will appear in the list of possible avenues available in today`s time.

The plethora of options proves to be of little help in guiding the person out of the problem, moreover they add on to be just another reason for the prospective investor to have sleepless nights.

The question that arises next in mind is that whether I should go for self investing or opt for a financial advisor?

However, this is not the actual dilemma faced by a potential investor, it`s a decision which depends upon one`s availability of time to keep track of one`s investments and one`s ability as it requires research before opting for an investment avenue.

So to evade any further dilemmas, the best way to find an answer to our main question i.e. ``which investment avenue shoulder I opt for? `` is to go for self questioning/ self advice, keeping in mind certain factors like one`s risk taking capacity, investment goals, amount to be invested etc...

One should calculate his/her risk appetite and invest accordingly.

Acknowledging the goal for which the investment is been made is radically important; investment goal can be a short term or long term goal. If the potential investor is eyeing short term investments he/she can go for options which are best suitable for short term investment like, bank deposits or debt mutual funds as they have performed well as compared to equity funds.

Only if you think that you can make the above decisions on your own, if you have the time and inclination to get into research and know the in and out of your investments, as well as keep a track post your investments, you need not approach a financial planner or a financial advisor, you can invest on your own; else, it will be feasible to utilize the services of a financial planner and pay a little today to have a profitable tomorrow. - MyIRIS.Com

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Right time to invest in stocks?

The recent carnage in the stock market has seen major indices losing more than half their peak values. By the first week of November ’08, the Sensex had fallen by 52.3% from its peak of 21,206.8 in early January ’08. The Nifty lost nearly 53% during the same period. While investors are concerned about the future performance of the stock market, they appear to be less familiar about an interesting fact. The market crash has resulted in stock prices falling below the book value of companies in most cases. Book value represents the value of a company’s assets net of its liabilities. In other words, it tells what you will be left with, if the company were to shut down, its assets sold and liabilities paid off. So, logically, a company that is a viable profit-making business will always be worth more than its book value due to its ability to generate earnings and growth. Hence, shares trading below their book value are a sure sign of gross under-valuation and indicate low risk for investors. An analysis of BSE 500 stocks reveals that one out of every three stocks is currently trading below its book value. A sample of 479 companies with latest book value information was selected for the study from the 500 companies that comprise the BSE 500 index. The stock prices of these companies were then divided by their respective book values to arrive at the price-book value ratio (P/BV). According to the study, as many as 170 companies reported stock prices lower than their book values. Interestingly, on January 21, ’08, the day when the market temporarily halted trading due to massive losses, only 26 companies out of the sample set were trading below their book values. The study also revealed that as on November 3, ’08, nine out of 10 companies were trading at P/BV multiples which were lower than their value on January 21, ’08. Real estate companies dominated the list of companies that saw erosion in their book values during the said period. Among the top 10 such companies, five were from the realty sector. There are two reasons for this erosion in P/BV. Not only have stock prices of companies fallen sharply, but in many cases, the book value has also increased. Every four out of five companies reported a jump in book value between January ’08 (BV in FY07) and November ’08 (BV in FY08). Investors can use the information on P/BV multiple as one of the decisive indicators while taking investment decisions in a falling market. A P/BV multiple of less than one reflects lower risk for investors in case the company faces bankruptcy. Further, talking about stock recommendations by ETIG, some stocks have seen a considerable decline in their current P/BV compared to that on January 21, ’08. Aban Offshore, Allied Digital Services, Bank of India, Adhunik Metaliks and Jain Irrigation are some of our recommendations that have seen a drop in their P/BV multiples, which are now between one and three. Moreover, India Glycols and Ratnamani Metals & Tubes are currently trading at P/BV of less than one. Source: - Economic Times.

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