How should retail investors invest in current markets?
We live in a world of disruption and uncertainties. There are 10,000+ fund managers in the market and they cannot agree on the best 20 stocks among them. Even 80% fund managers do not beat the benchmarks. Hence, what seems exciting and promising as an activity is a very difficult competitive exercise best left to the professionals.
As momentum investors, we really do not favour or forecast sector based picks since the process of momentum investing auto selects the strongest of all sectors and the periodic rebalance makes sure we stay with the strength in the markets. Hence staying with the strongest sectors using price action based long term strategies is very essential.
Would you advise them to look for growth stocks or value stocks? Why?
I would advice based on the fundamental research people do is to identify stocks using any framework value growth etc and then combine it with price action since without price action no value or growth prospects can be realized.
Which are your preferred themes/sectors? Why?
The current themes that our momentum portfolios have been picking are Autos, Energy, Defence and some public sector banks. These have been the strongest movers over the last 3.6.9 and 12 month periods.
It is possible that themes can mature in 6-12 months or they may last for years together. We practice momentum investing tenets which are built with holding strength and avoiding weakness. For momentum investors staying with current strength is the way to go and once the current strength is lost you can exit and buy the new strength that comes in.
Which themes/sectors should be avoided? Why?
The current themes that our momentum portfolios have been avoiding are IT and pharma. These have been the weakest movers over the last 3.6.9 and 12 month periods.
Amid the IPO frenzy, how can investors choose the right companies to invest in?
I believe IPOs are an overall losing game for the retail. The smart investors and promoters who have built the business get out at their desired lofty valuations and leave the lemons in the hands of the retail till the valuations catch up. The best alternative is to watch the IPOs post listing and evaluate them objectively once the price action settles down.
What are the key downside risks investors should watch out for?
Investors should have a plan. What to buy, when to buy, how much to buy and when to exit. Unless this plan is available investing will always remain a challenge. Those who do not spend time in studying the markets should avoid this itch to trade or invest in the markets and use a professionals advice to invest in suitable vehicles.
What are some of the common investing mistakes that can be solved for by subscribing to/following Weekend Investing's investment philosophy?
The biggest mistakes are done by our own investing behaviour in response to market moves. A well planned strategy which can emotionlessly execute the tenets of momentum investing is the best thing anybody could use. The indices of the world are also momentum strategies with a six month rebalance. Investors need to understand that just staying with the strength in the markets using simple methods are enough to deliver market beating returns.