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Smart profiting through research

Monday, January 10, 2011

It is said that ‘Destiny favours those who favour themselves’ and financial consultant Suman Jain seems to be destiny’s favourite child. But Jain is a non believer in luck as far as the share markets are concerned. His decisions are firmly rooted on laborious research of the companies he invests in, along with the patience and zeal that results in achieving the unachievable and makes him a trader par excellence. Jain’s penchant of finding one successful trade after another is purely because of his absolute faith in corporate numbers and his uncanny method of reading between the lines. Along with daughter Ankita, the duo is churning out the best researched reports through their company Smart Profit Financial Consultancy. Mayura Shanbaug brings forth the methods of this home grown Warren Buffett whose ideas could make your every trade successful...

A little background about your company and yourself?
I am an electrical engineer by qualification and have worked with companies like Bharat Bijlee, ABB and Siemens. As far as my current profession goes, I started as a Future & Options consultant with Pankajbhai of M/s Daulat Investments and have also worked with Asian Markets with Kailash Biyani and Bharat Biyani, later on I joined Sunil Modi. While working for these consultancy firms I started doing research on my own and started investing in stocks individually on a small level. Soon I realized the decisions I take based on my research are giving 100% results. So based on this observations, I took a decision and started my own consultancy firm called ‘Sai Derivatives’ nine years ago. Soon the number of people who sought my advice on markets reached more than 10,000. My friends and relatives started seeking my advice via Internet, and I started charging them for my advice, which in turn resulted into the formation of  ‘Smart Profits Financial Consultants’ five years ago.

At what point had you given a thought to making a career in the stock markets?

Around 27 years ago when I was 23- 24 years old and was working for a company called Bharat Bijlee as an engineer, I realized that the shares of that company are doing very well on the stock markets. That aroused my interest in the shares and I started investing in specific company stocks with a very small amount of Rs 25,000. Thereafter my success is history

How do you pick your trades? Do you use technical analysis, or fundamental data?

Zero technical analysis. I do not believe in technical analysis… my observation is it generally goes wrong. Any investor should do his or her own research and then buy or sell shares. Investors should not follow what is been said on television. In my opinion once you lose money in the markets it is very difficult to recover it. I only believe in fundamentals. A thorough research of the fundamentals of the company is a must.

Describe your methodology?
We plan for the future, for example, if there is a full moon, we know that after 15 days there would be  a ’no moon’, so we would invest on that no moon while there is a full moon. In short we follow the industry cycles. This is my methodology. The markets just follow the ups and downs of the particular industry or sector cycle.  When share prices of a particular stock peaks, one should book the profits and not vice-versa. People do not know the cycle and they enter at the wrong time of the cycle and therefore make losses.

What appeals to you about trading, Is it the short side or the long side of it?
The long side. I believe that one should stay invested in the particular stock at least for 18 months for good returns. If you get 2% returns per month on your investments then it is the best return one can get .Some stocks take longer than usual even up to 3-4 years that depend upon at what particular phase of industry cycle that particular company is going through. But if you can ‘hold’ than the profits are guaranteed.

What differentiates you from other traders?

I am one among 100 traders in the market. May be in future I will have a strong position since I have a vision to foresee many years ahead and the zeal to achieve my targets. And I have age on my side unlike some very successful, but old traders in the market. I have long way to go and many years before I hang my boots, at least 20 more years. And the most important thing about me is that I do not invest with borrowed money, I invest in the market only when I have my money. I invest only 20%-25% of my total wealth in the stock markets. Rest of it I invest in other instruments.

What gives you that edge?
I believe in the simple philosophy of life that is “never to believe on anybody’s tip.” Only when I get fully satisfied with my own research, I invest money in the markets.

Is there any applicable lesson to trading/investing?
If I talk about day traders currently in India, I think there are about 20 lakh day traders in the markets and it is because of these day traders that people like us are making money… day traders  will always be losers. Since they always create panic in the markets they benefit people like us. The only lesson I feel one should follow is to have a long term outlook and invest in a company which has a compounded annual growth rate (CAGR) of more than 30%.Always invest in the number one or number two company of any particular sector.

How much of what you do is gut feel?
I do not believe in gut feel or emotions. I completely believe in fundamental research.
Do you try to anticipate or follow market trends? What is the basis?
I neither anticipate nor follow any trend. In fact most often I go against the trend. I believe only and only in fundamental research.

When you put money on a trade and it goes against you, how do you decide when you are wrong? 
It happens many a times, that I purchase  any particular stock and the prices have come down but instead of taking losses I average the position and wait for the opportune time when the stock will peak again .I never take losses and stay out because of the confidence that I have in that particular stock and company. My research about the company has never gone wrong so far. I keep patience and average it out.

Any positions you ever lost sleep over? Never lost my sleep over a loss or because of tension though I lost my sleep once not because of tension but because of happiness and success .That was in 2008 when the markets crashed, I made lots of money because of my ‘sell’ position, and the thought of having made so much money kept me awake the whole night. Again when market was at 10,000 levels, we predicted that the BSE Sensex will touch 20,000 levels by December 2010 and it did.         

What would make you wary of trade?

Views and opinions .I do not like it when people speculate that markets are going to be bullish or bearish. That is herd mentality …

Where do you see the Indian markets 5 years down the road?
The current rally in the markets is not the real thing. It is in fact a manipulative bull rally. When the Sensex touched 21,000 last time, the numbers like GDP, interest rates and inflation were good. But the current bull rally is not based on strong fundamentals, Inflation is very high, the rate of interest is more than 10% and GDP is not more than 8-8.5%.There is practically no growth in India for the last 2 years. Infrastructures projects are going nowhere. There are few operators who are playing the markets right now.
As far as next 5 years are concerned, growth is bound to happen but political instability may hamper the story plus the rampant corruption has already maligned India’s image everywhere.

Of the thousands of trades that you have done, which one was your best trade?

There is one such life changing trade that happened in my life 7 years ago. There was a company called Digital and I had invested in that share at Rs 500 for the long term and the very next day the share opened with an Rs 100 hike. At Rs 600 I made around Rs 35 lakhs profit. Then were others like Satyam computers, Satvana Ispat and Jaiswal Nico which helped me in creation of this wealth.

Your success mantra?

Patience and confidence in your research and most importantly there should be constant flow of money. And invest only 25% of your savings in the stock market and lastly you should be prepared for the losses.

What is your investment advice?  

Money has become a very important factor in life. It is becoming extremely difficult to make money from the markets or anywhere else. My advice is if you have savings, then you should invest only 10% of it in the share markets, 15% in Gold or Silver, 25% of your savings should go to LIC policies or fixed deposits (FD) and the remaining 50% you should keep away for your old age. If you invest more than 10% of your savings in stock markets, you are definitely inviting trouble.  

Any final words?

Diversify your portfolio, invest step by step. If you have a portfolio of Rs.10 lakhs, then invest 50% of your portfolio should have in safe shares, 30% shares should be of any good ‘A’ grade companies with volatility and remaining 20% you should invest in good  B and C grade shares., where the risks are high, but sometimes the returns can be phenomenal.

picking your trades
Zero technical analysis. I do not believe in technical analysis… my observation is it generally goes wrong. Any investor should do his or her own research and then buy or sell shares. Investors should not follow what is been said on television. In my opinion once you lose money in the markets it is very difficult to recover it. I only believe in fundamentals. A thorough research of the fundamentals of the company is a must.

Suman Jain

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