4 steps for success at D- Street

Success at Dalal Street

From the peak of 13400 for the REALTY Index in Jan 2008, right up-to the lows of 1600 in Jan 2012, it would rather be inappropriate to say that Investors have not made monies in the real estate Listed space. When the going was good the realty index actually rose nearly 10 folds from early 2006 right to 2008 highs. 

However, the flip side is 4 years later; the index is back at nearly the same levels as 2006. For instance, the stock of Unitech Ltd, was available at Rs 42 in 2002, and then 1400 in 2006 and now available at Rs 20 in early part of 2012. Opportunities have been plenty, but a passive investor may cry foul.

When investing in equities, remember these Golden rules

1. Invest in a good company: Good corporate governance, return to shareholders capital, alongside industry trends and market news that’s affecting the stock price are important barometers for identification of a good company. Spend as much time as you can to identify a good organisation. You are eventually partnering and being a stakeholder in the company you invest

2. Invest regularly: .Markets at any given time can either be good, bad or unpredictable. When the going is good, invest and surely participate in the rally. Don’t be missed out; buy at each level and thus average out your cost of acquisition. You may not end up making super normal profits in a rising market, but what the heck, not everyone can predict the market all the time. Similarly, when the market is highly volatile and range bound, like we have been witnessing for the last few quarters, regular investments sure make a lot of sense At the prevailing price, you will be glad to hold the given stock even if it means holding for a high period of time. At every predefined dips in the stock price from this identified level, you would actually accumulate the stock and since the market is volatile, interim opportunities will be presented for partial exits, again at predefined levels, thereby, en-cashing some of the profits. This would also help you reduce the cost of acquisition, still allowing you to build your long term quality portfolio. The third case being when the market is in a downward trend, many analysts would actually suggest you to invest in stocks for the initial leg of the downfall, and this recommendation will die out and so will your advisor when the fall continues. Also, as an investor, you would feel "Cash is King". Why lose money when you can save it. You would have a lot of quality stocks that would be available at a discount. As mentioned earlier, if you have identified a good company, at a fair price (in your mind), bought at dips, you should have no reason to worry. It may take a while for the tide to turn, however, when the tide does turn, you would have better chances to recover and make the most of the upside. This should also be the phase of super normal profits. This fundamentally stems out our next golden rule

3. Maintain your Asset Allocation: Pre-define your asset allocation, the one that would best define your risk appetite. Some people would say that there are a lot of fancy risk profilers doing the round, and trust me, I have seen  quite a few of them personally too, but I am a firm believer that these profilers should actually be used as a ready reckoner by advisers to interpret the risk grade and return expectations of investors. This would also mean that advisers and investors need to ensure that no additional risk is added in the portfolio, unless the underlying risks are well understood by the investor. Tampering your asset allocation too much from predefined levels will probably add more risk in your portfolio and digresses the investor from his actual risk appetite. If the inherent views go wrong, this could actually spell danger to the good work done on the portfolio thus far.

4.  Portfolio Monitoring and review: This is the final rule which will actually safeguard us, ensuring we are better equipped to identify the early signs of repair work required on our portfolio. If I could draw an analogy here, think about the need of getting health check-ups done once in a year. At least, regular checks will ensure the damage, if any, is less. On the other hand, if all is good, then we will be more confident about lifestyle and way of life. The same is true for portfolios. If the portfolio is doing alright, you know the advice you are getting is appropriate. If there is a huge difference in pre-decided norms, then maybe it’s time to revisit the portfolio, and maybe, even take second opinion.

To sum it up, it’s rightly said that you only have to do a very few things right in your life so long as you don’t do too many things wrong. Warren Buffet

What not to do while investing in real estate

Buying physical property is the most traditional way of investment, and with the ever increasing population, the demand for real estate looks to be on an upward trajectory over a long period of time to come.

What does this mean for an investor who is looking at taking exposure through this investment vehicle?

Does it mean anything one would touch would turn gold?

To my mind, the answer is a BIG NO!

There are some pitfalls that one should be wary off and draw the investment decision after some of these considerations

 

1.     Don't compromise on location:
If not the best, because all of that would come at a price, ensure you surely buy a good location. An analogy can be drawn from our Golden rule number 1. while investing in stocks, you are looking at investing in a good company so that even if you had to hold on to the same, you would not be worried.

2.      Risk of concentration:
Diversify, if you can, considering the price of each property could be significant, likewise could be loss or profit thereon, hence important to break down investments across cities, segments(residential/ commercial) and even sizes if possible.

3.      Don't buy over priced assets, also avoid mediocre opportunities available cheap:
Like Warren Buffet says, “Its far better to buy a good company at a fair price, than a fair company at a wonderful price” I think this analogy just goes really well with real estate too.

4.      Don't overspend:
Don’t go overboard on your pre-decided budgets/ capacities. You do things when the opportunities come along. There could be periods together where you would have a bundle of ideas that come along, and then there could be periods where you would have long dry spells. In the words of Benjamin Disraeli, "The secret of success in life is for a man to be ready for his opportunity when it comes"