Is it goot time to average out ?

Any opinions ?

Disclaimer : just seeking other wisdom & point of view, not a recommendation for buy or sell.

Holding small quantity from lower price!

How to Make Money in Stocks by William O Neil

This Month in Book club read we had this one old classic that discuss technical and fundamental analysis of stock investment with some great US stock examples. It gives a straight-forward methodology that you can implement on your own to recognize multi-bagger stocks especially growth stocks. Book talks mostly on Positional trading using CAN-SLIM methodology for selection of stocks coined by Author.

Below notes may include Indian stock name as an example. I personally loved the book as for satellite portfolio this will add value and help us to identify some growth stock which can become core stocks too.
9.5/10

1. Stock chart must be checked if stock if stock is in a proper base or it’s extended
2. Chart patterns are best to get the winners
3. Cup and Handle Pattern

4. Key Characteristics
   -7- 65-week duration +
   -Must have clear uptrend at least 30%
   -Base should look more of U shape than V shape
   -Some leaders can correct for 40-50% in a bull market. More than 50% have high failure chances
   Handle characteristics
   -Duration 2-7 weeks. Less week, has high failure rate
   -Falling wedge. Rising or not falling wedge may fail as chances are weak hands hasn’t exited yet
   -Volume dries up and High relative strength
   -Forming above 10-week ema
   -With no handle, stock has high prob of failing
   -Handle should be in upper half of cup

5. Finding Pivot Point
   -Top of the cup
   -Daily volume should start increasing
   -Buy point within the range of 5-10%

6. Double Bottom

Key Characteristics
-Match With W
-Continuous pattern and hence Must have clear uptrend at least 30%
-2nd Bottom of W match the price level of first bottom or undercut to create shakeout for weaker hands else prone to fail
-Pivot point is top of the middle peak of the W

8. Flat Base or Square Box
   -2nd stage base that occur after stock has advanced at least 20% or more from CPH, DB pattern
   -Flat base must be at least 5-6 weeks within the range 10-15% tight bound
   -If initial buy missed then, keep an eye here for entry point
   

   

9. High Tight Flags
   -Rare
   -Starts with 100-120% move in few weeks – 3-8 weeks
   -And then sideways within range of 10-25% - 3-5 weeks
   -Each earlier pattern works for each later pattern
   

   

10. Some Erratic Behavior
    -Handle shouldn’t cross more than 18% or below
    -Wedges forming up
    -If dept of the cup is too much
    -Beware of buying stocks in prolonged bear market
    -Keep an eye on volume dry up while handle is formed
    -Reliable base is anything above 6 weeks
    -Don’t buy if most of the weeks are in lower half of the base
    -Bad relative strength even if the stock is breaking out

11. C= Current Q EPS growth and Sales Growth
    -Yearly QoQ EPS growth >25% or more, Greater than 50% is better
    -Never compare with Previous quarter in same year due to seasonality the result could be distorted
    -Strong Sales growth must also be there. 25%>
    Examples below - Rajratan, Tata Elxsi

12. A -Annual Earnings growth
    -Higher EPS growth in last at least 3 years > 25% to 50%
    -ROE >17%, Higher the better
    -Best portfolio can be created during down market (Esp Core)
    -Many growths leader in one market don’t repeat on next market
    -PE ratio is end effect of accelerating earnings. PE is not the cause of super performance
    -Never sell just because PE is high and never buy because PE is just less

Eg: Bigbloc, Deepak Fertilizer, Rajratan, Apl Apollo etc

13. N- Newer Companies, Highs, Products, Management
    -New Product or Services (Apl APollo)
    -New Management CG Power
    -New Industry Condition- Supply shortage, Price increase or new technology (Tata Elxsi, Shivalik bimetal or Rajratan)
    -New Highs 52 or 26 week high, coming out of proper base (Many)

14. S- Supply and Demand

-Price determined by Law of supply and demand
-Less the float better the chances of stock to perform
-Look for stocks where Promoter holding is high
-Look out for Stock Dilution or splits, frequency of that. 2:1 is better than 5:1
-Buybacks are good along with CANSLIM. Higher %age better
-Look for less Debt-to-equity stocks. Leverage is bad. Look for company reducing the debt

ATGL, Honeywell Automation, Whirlpool, NGL finechem
Risk – operator Driven possibility but use chart/technical to tread this

15. L- Leader or Laggard
    -Buy top 1,2 or 3 stocks in strong industry group
    -It’s not necessary the Largest but best
    -If in Portfolio, worst performers to be sold and winners keep adding
    -Can be used by applying Relative strength
    -Look for RS rating 80 and above
    -Sell the laggard with 7-8%
    Eg: De Nora, DHP, Rajratan, Elecon in May june 2022

16. I - Institutional Sponsorship
    -Biggest source of demand are the institutions, MFs, MPS etc
    -If Institutions are increasing participation in the near past
    -Look for the quality of the funds along with increasing number of institutional ownerships
    -Recent new position is more important instead old existing one
    -Avoid over ownership too, as it can cause huge selling too
    Eg: ASAHIINDIA, Deepak Fertilizer

17. M- Market Direction

-All the parameters are right but this one is wrong then you are gone
-Analyse Market in three ways – Bull vs Bear, Which Stage it is in , early or late or Intermediary and Strength of the market
-Identify Key General Market, NIFTY 50, BSE Small cap and SENSEX
-To be analyzed on Daily chart
-Bear market usually end while business still in a downtrend. Market is leading indicator as it discounts all the possible economic upturn
-Most of the stocks fall during bear market but not all of them recover
-When market does bad, at least have 25% cash raised
-Big Money is made in first 2 year of bull market
-Follow-through day concept to identify an important change in general market direction
-Check your ego- Never fight Market. Market is always right

18. Sell- When to sell and cut loss
    -Strike rate of 4/10 is still good if cutting losses small
    -It takes courage and discipline
    -Lose small and win big is holy grail of investing
    -Always look for 3:1 ratio. 25%: 8% and in bear market 10%:3%
    -If you cut loss quick then, you will have enough cash for next bull market
    -Do not sell the stock because it has fallen from the top 7-8%

19. When to sell and take your Profit
    -Objective in the market was not right but to make big money when you are right
    -Never Average down but average up
    -If year in corrective phase, look for 2-3 25% wins and you are sorted
    -Have a rule or strategy which will force you out
    -2 Key points for selling – but near to base and don’t get shaken out so go to weekly to buy that—STOP CHASING EXTENDED STOCKS
    -Some Sell signals recommended in the books
    -Stock being extended from the base or moving average or when biggest price action happened post extension from the base
    -Sell the stock if stock runs up 25% -50% for one or two weeks of stock split
    -If stock extended from 200 days – around 70-100%

20. Money Management
    -Have concentrated satellite portfolio, may be not more than 5 stocks
    -If any new attractive idea occurred, then discipline should be selling the least attractive one
    -If You are confident on your strategy then, real wealth can be created via concentrated portfolio in bull market
    -In terms of adding tranches, don’t do aggressive if stock has given good move in initial weeks else your average cost will go up.
    -Always have STRICT RULE REG NUMBE ROF STOCKS YOU WONA ND STICK TO IT
    -Day trade not recommended. If you are in hurry to make money, then you are in hurry to go bankrupt
    -Use of Margin – New Investors no. Experienced investor with proper strategy may be. Age factor important

The nice part here is that the assets employed fixed assets+ current assets(loans+trade payables+part of cash) are around 300 crore and current liabilities is 1000 crore.Effectively the capital employed is -700 crore for which it earns 300 crore worth of profits every year.

ROCE = -280 percent.

The only issue here is the valuation.