I think I have expressed my views on most of these subjects earlier, but not listed in the order you have posted, So attempting to put my thoughts here in a structured way.
- Stock selection is something that is totally flexible, Ideas can generate from fundamental study or from study of charts. But once I find something interesting, I make it a point to check other companies of the same sector. I often stumble on sectoral fancies in this manner. Often a company is a sort of a standalone type of company, not specifically attached to a particular sector. If that’s the case, then the study has to be in a different way. But if a sector is identified at an appropriate time, the job becomes easier.
I think I had been harping about auto and auto ancs since long time, based on charts. Most of these companies had started showing relative strength on charts much before positive fundamental news/results. The first I got wind of this sector in fact was listening to some financial company where management clearly articulated that auto and specifically CV segment was doing very well for them. So that guided me to auto sector and specific players benefitting from CV cycle upswing. And deeper down, auto ancs which catered specifically, or predominantly to CV sector. And wherever I looked at picks from the above criteria I found very strong charts. That increased my conviction in my theory. Once a sector is identified, I prefer to play a basket approach with appropriate allocations. Monthly sales numbers in auto sector is a big help in seeking an understanding about the sector.
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Portfolio building is a very subjective topic. Everyone has to find their own niche and comfort zones. I these days prefer to play momentum in most of my portfolio. Momentum means companies with business momentum showing momentum on charts too. How much to allocate is a very individual choice. I might be comfortable at allocating 25% to my top pick, whereas someone else might panic at going above 10% and might have sleepless nights. … (all this is at buy price) So there are no fixed rules for these type of questions etched in stone.
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Technicals plays a very important part in my stock selection. Just to give you a recent example, I liked the turnaround results of Ujjivan financial services. ( or Ujjivan sfb if you prefer to look at it. ) But once an inverted head and shoulders pattern breakout happened, and I could see successful retest happening inspite of overall weak market days, I bought it, hoping for the pattern to play out. And the results that came out and market reaction to that validated my view. I added more to my positions immediately post results when there was a chance.
While selecting a basket of stocks, I prefer to select few of the sectoral stocks which are showing good momentum both on funda and on charts.
- Auto anc and power sector do seem to have strong tailwinds as demonstrated by price action in these stocks. The rally in these names seems to be already on since quite some time and might have more legs. The only care we as investors need to take is to make sure that we are not the last ones to the party. Whenver these sectoral fancies reach their zenith, there is a lot of media publicity related to the sector, and a lot of fanfare on Whatsapp groups where even those previously sceptical of the sector start expressing bullish views about the sector. Even post these events, there is time enough to exit these sectors.
You can refresh the recent market fancies related to chemicals, platform companies, fancied IPOs, textiles, sugar etc. Usually there is similar pattern everywhere, only the colors and contours change. Basic structure remains the same everywhere. And if we know how to judge, fear and greed and FOMO is visible everywhere.
Another thing we as retail investors need to know is that once a stock or a sector has had its day in the sun, its better to leave it alone. These will not provide the real big returns.
MY advice would be to get hold of William O Neil’s book, How to make money in stocks, and/or The Next Apple, and try to imbibe the learnings of these masters in conjunction with the wisdom of the mahaguru Peter Lynch. Many a times it will entail multiple readings of these books, but the mental framework this exercise provides is great and it makes investing relatively easy. And try to learn some basic stuff about technicals with an open mind… Simple stuff about stocks and sectors showing resilience during market meltdowns/corrections and strength during market rallies. And some basic patterns like rounding bottoms, flags, cup and handles, inverted head and shoulders etc. Plus the concept of 52 week highs, multiyear high breakouts and subsequent retest and resumption of upmoves, so on and so forth. These are largely visual exercises and do not require too much precision. In my view, this exercise can be conducted using platforms like screener also.
These days, sectoral fancies tend to change quite frequently and within a short span of time most of the moves play out. So idea should be to sharpen the skills to detect changes in sectors happening at an early stage to maximise returns and avoid getting trapped at the fag end.
The whole idea of momentum investing (and should be for investing in general too) is to make maximum gains during rallies and avoid painful drawdowns during market corrections. Even sectors in fancy will not make much upmoves during weak markets, But these will definitely hold grounds at key supports. And during rallies these very stocks will give big moves.
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