3 Investment Strategies
There are no eligibility criteria to be an investor. Anybody can open a demat account and start
investing in the stock market.
However, it takes a smart investor to outsmart the market.
Welcome to the Smart Investor Machine by Convey. Here, we don’t just invest in stocks, we
invest in the lifestyle.
The stock market performs on a deceptively simple premise. Shares are the primary traded
commodities. Prices are determined by the market. When the demand for shares is high, the
price increases. In the same way, when the demand for shares is low, the price falls.
The possibility of making capital gains is present in both ways. You can buy shares at a low
price, wait till the price increases and then sell it. Alternatively, you can sell shares at a high
price, wait for the price to fall, and then buy them back again at the lower price.
However simple the premise maybe, the fact remains that the stock market is one of the most
unpredictable things out there. There is many a sad story of predictions gone wrong and the
loss of entire life savings.
The stock market, in fact, is quite the indomitable machine.
In the immortal words of George Clooney, “The house always wins. Play long enough, you
never change the stakes, the house takes you. Unless, when that perfect hand comes along, you
bet big, and then you take the house.”
The real question therefore is what is the perfect hand? How can you identify it?
While the conventional strategies like diversification, and investments in blue-chip companies
may provide some gains, experience suggests you need something more substantial. Strategies
that you can truly apply and benefit from are specific and are harder to come across.
Here, we have compiled some exclusive strategies that you can apply to your investments.
Coffee Can Investing
Coffee can investing is based on a simple premise – buy and forget.
This idea was originally formulated by Robert Kirby, and it is based on a concept that comes
from the olden days. Back then, people would keep their valuables inside an empty coffee can
and then hide it under their mattress.
The coffee can portfolio is thus a selection of stocks that you invest in for the long term. Unlike
normal investments where you need to keep an eye on the company’s performance, and
analyse the financial position on a periodical basis, here, you can simply buy it and forget
Of course, there are a few prerequisites which companies have to fulfill before they can go into
the coffee can.
- The company should have been in existence for at least a decade.
- The growth rate of revenue should be in the region of 10% on a yearly basis.
- The value of the return on capital employed should be around 15% on a yearly basis.
Apart from that, you also need to keep in mind that the investment period should be for at
least 10 years.
It is not easy to outsmart the market. With surprises around every corner, it is very easy to get
caught up in the madness and lose sight of the big picture. The coffee can portfolio enforces
the fact that good companies last. It forces you to ignore the daily twists and turns and instead,
rely on the fundamentals of the company to carry it through.
In other words, a coffee can portfolio combines the patience and the fortitude that every
successful investment requires.
This strategy is meant to be used in conjunction with technical analysis and short-term
The Fibonacci series of numbers was discovered by Leonardo Pisano Bogollo in the 12
This series is characterized by the fact that any number is the sum of the two numbers that
There are a few ratios associated with the Fibonacci sequence – 0.618, which is the ratio of any
two consecutive numbers, 0.382, which is the ratio of any two alternative numbers and 0.236,
which is obtained by dividing a number by the third consecutive number.
These ratios find relevance in the stock market.
Whenever there are sharp up or down movements, it is observed that the stock retraces its
steps before beginning the next move. For example, if the price of Stock A increases to Rs. 600
from Rs. 500 suddenly, it is likely that A will move back down to about Rs. 520 before moving
The Fibonacci ratios help identify the exact extent of the retracement.
Consider the example above. The initial upward movement marks the rise from Rs. 380 to Rs.
- If you are looking to take a position after a downtrend, there are high chances that the
stock will move up by at least 23.6%. If the stock crosses this level, then the next target for
upward movement should be 38.2% and then 61.8%.
In this case, the stock retraced back down to Rs. 421.9. This marks a movement of 61.8%, which
coincides exactly with the predictions of the Fibonacci series.
The next time you are tracking a stock’s movement, do try to take a position after sharp
movements either way.
The Fibonacci series and the ratios find application in nature, in our daily lives and in the
stock market. Knowing about the intricacies of these numbers will help you take accurate
positions in your trades.
Barriers to Entry
Barriers to entry are not widely counted as a criterion for investment. However, if you
understand how a market works, you will realise that barriers to entry provide an innate
competitive moat which is very hard to ignore.
How does this work?
Consider sectors like manufacturing, banking, or anything else that requires specific licenses.
Companies in these sectors benefit because there is no risk of other companies entering and
stealing market share.
In manufacturing, for instance, companies need to incur significant initial capital outflows for
the setting up of manufacturing facilities, development of specific production techniques and
more. For banking, only a select few companies who are lucky enough to be granted a license
by the RBI can enter into the sector.
Unlike other service-based sectors where the competition is extremely high, these sectors
benefit from fewer companies who can focus on quality work and increase efficiency without
getting distracted by competition.
Monopolies are ideal of course, but they are harder to come by.
This strategy requires more research, but it is almost perfect. If the market itself supports the
company that you are investing in, what more can you possibly require?
If you look at companies like GMM Pfaudler, LIC, HDFC Bank, Pidilite, Alkyl Amines, you will
understand the impact of barriers to entry.
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