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Portfolio Strategies

Pyramiding Investing

Pyramiding Investing

This strategy involves purchasing the shares on the confirmation of further strength. Traders accumulate a small percentage of the overall allocation size initially. Once the stocks move in the expected direction, the trader allocates more & continues with the allocation in subsequent strength confirmation. The confirmation can either be on the basis of a percentage up move from the first purchase or some formation of a bullish continuation pattern in stock price.

For example, start with only a 25% allocation of the total allocation size at the first purchase. Once the strength in price is confirmed by a percentage increase or making a new swing high, add another 25% and continue till the stock is showing momentum. The important point is to exit with the trailing stop loss.

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Value Investing

Value Investing
  • Value investing is a strategy that involves buying stocks that are trading for less than their intrinsic value. This is based on the belief that the market often undervalues certain stocks, and that by buying these stocks at a discounted price, investors can earn a higher return when the market eventually recognizes their true value.

  • Value investors typically look for companies that have strong fundamentals, such as a history of profitable operations, a solid balance sheet, and a competitive advantage in their industry. They also often look for stocks that are trading at a significant discount to their intrinsic value, which can be measured using a variety of financial metrics such as the price-to-earnings ratio or the price-to-book ratio.

  • One of the key principles of value investing is patience. Because value stocks are often out of favor with the market, it can take time for their true value to be recognized. As a result, value investors need to be willing to hold onto their stocks for the long-term and not be swayed by short-term market movements.

  • Another important aspect of value investing is diversification. Because individual stocks can be volatile, value investors often diversify their portfolios by investing in a variety of value stocks across different industries and market sectors. This can help to reduce overall portfolio risk and improve the chances of achieving long-term investment success.

  • Some of the most well-known value investors include Benjamin Graham, Warren Buffett, and Peter Lynch. These investors have all achieved significant success using the value investing strategy and have become renowned for their ability to identify undervalued stocks and hold onto them until they reach their full potential.

Value Trap:-

  • A value trap is a stock that appears to be undervalued based on certain financial metrics, but is actually overvalued or has little potential for future growth. In other words, it is a situation where a stock appears to be a good value investment at first glance, but turns out to be a poor investment choice.

  • Value traps can occur for a variety of reasons, such as intense competition, changes in the market, or poor management. They can be difficult to identify, especially for inexperienced investors who may be relying solely on financial metrics to evaluate a stock.

  • To avoid falling into a value trap, it is important for investors to thoroughly research a company before buying its stock. This should include looking beyond the financials to understand the company's industry, its competitive position, and any potential challenges it may face in the future.

  • It is also important to avoid relying solely on financial metrics when evaluating a stock, and to consider other factors such as the company's management team, its business model, and its growth prospects.

  • Diversification can also help to reduce the risks associated with value traps. By investing in a variety of stocks across different industries and market sectors, investors can reduce the impact of any individual value trap on their overall portfolio.

Stocks that focus on intellectual property are prone to becoming value traps. For example, if a drug company has a popular treatment but is about to lose patent protection for it, a large portion of its profits could vanish quickly. The same is true for a tech company that is the first to market in a new industry but lacks the ability to compete.
To avoid value traps, remember that when valuing a stock, the future of a company is more important than its past. Focusing on a company's prospects for future sales and earnings growth will increase your chances of finding true value stocks.

Thematic Investing

Thematic Investing
  • Thematic investing is a strategy that focuses on companies and industries that are expected to benefit from long-term trends and macroeconomic themes.

  • Thematic investors typically use a bottom-up approach to identify companies that are well-positioned to capitalize on the chosen themes and construct portfolios that reflect their expected growth and potential.

  • Thematic investing involves a longer-term perspective and a willingness to take on more risk, as it is based on the potential for future growth and disruption in the chosen industries.

  • Thematic investors often use various tools and techniques to assess a company or industry, such as fundamental analysis, scenario analysis, and expert opinions.

  • Thematic investing can be an effective way to diversify a portfolio and capture growth opportunities, but it also carries the risk of underperformance if the chosen themes do not materialize or the selected companies do not deliver on their potential.

For example, the following five thematic investing categories

• Disruption

• Megatrends

• Environmental, Social, and Governance (ESG)

• Differentiated Insights

• Outcome Oriented

The world changes quickly, and many successful companies today may be replaced by companies that do not yet exist in ten years. Disruption funds seek to understand long-term shifts in business economics as the market evolves in response to technological advances, mergers of industries, and shifting consumer preferences. Investors in disruption may benefit from opportunities that arise when the market underestimates the rate of change by investing in these expected shifts. Indeed, the market may overestimate the speed with which technology can cause rapid shifts in "business as usual." A disruption fund may focus on long-term trends that we may still be in the early stages of development.

• Cloud computing

• Autonomous driving

• Mobile payments are a few examples.

Portfolio Rebalancing

Portfolio Rebalancing

Portfolio rebalancing is the process of periodically adjusting the asset allocations of an investment portfolio to bring them back in line with the investor's original goals and risk tolerances. Rebalancing can be done by adding new investments, removing existing investments, or both.

When investors invest, they are typically looking to diversify across asset classes in order to spread out risk and maximize returns. This is generally done by creating a portfolio that is balanced between stocks, bonds, cash, and other investments. Over time, the portfolio will become unbalanced as some investments perform better than others, causing the portfolio to drift away from the original allocation.

To maintain the desired level of risk, investors must periodically rebalance their portfolio by buying and selling assets to return it to the original levels. This process helps to reduce risk by limiting exposure to any one asset class and preventing the portfolio from becoming overweight in any one sector.

Rebalancing also helps to improve returns by allowing investors to take advantage of market opportunities. By periodically buying low and selling high, investors can capture profits when markets are up and reduce losses when markets are down.

Finally, rebalancing can help keep investors disciplined and focused on their long-term goals by ensuring their portfolio

How portfolio rebalancing could help improve returns?

Rebalancing can help improve returns by allowing investors to take advantage of market opportunities. By periodically buying low and selling high, investors can capture profits when markets are up and reduce losses when markets are down.

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