RCA and PVA DEMO PORTFOLIOS - Sold out on 05.02.2016

Rupee Cost Averaging and Portfolio Value Averaging fits well at times like the present. This was proved in the 2 Demo accounts I tracked from the 4th of January 2016 to the 3rd of February 2016. These 2 Accounts had 5 stocks namely Grain Elevators, Vallibel Power, LB finance, Alumex and RCL. The Strategy was to invest Rs.10,000.00 into the 5 stocks each day at the closing prices. The 1st account followed the Rupee Cost Averaging method of daily investing Rs. 2000.00 each out of the Rs. 10,000.00 to the 5 stocks.
The 2nd account followed the Portfolio Value Averaging method of making sure that Portfolio had a value of Rs. 2000.00 for each stock daily, totaling Rs.10,000.00 for the 5 stocks, when bought at the closing price.
The accounts were topped up every day for 22 market days, and was sold out on the 5th of February 2016, at the closing price of the day. At the time of the Sale the 5 stocks had made the following returns separately within the 2 methods:

Annualized Return on RCA method:
Grain Elevators                              - 44.52%
Vallibel Power                               - 5.8%
LB Finance                                   - 68.19%
Alumex                                         - 46.83%
Royal Ceramics                            - (3.07%)

Annualized Return on PVA method:
Grain Elevators                              - 59.17%
Vallibel Power                               - 8.71%
LB Finance                                   - 75.75%
Alumex                                         - 52.71%
Royal Ceramics                            - (1.10%)

 The status of the entire portfolio is given below.

Investing to a plan certainly pays dividend.

If you want my assistance to make a tailor made averaging method, please call/mail me.

ASI - 6235 points were shattered, heading down......

Rupee Cost Average, Rupee Cost Average, I say again Rupee Cost Average. If you are reading this post, I ask you do you belong to the 2% or the 98%? Out of my clients ONLY 2% are buying on weakness. The rest of the 100% are nowhere. But this is not unique to us, it is the same all over the globe. In other markets if some one says you are buying Oil Companies, you are considered to be out of your mind. But in the US, Warren Buffet's Company Berkshire increased their investments further in a Company called Kinder Morgan, which is a company in the Oil industry.

Get your self geared now to value pick in the markets with a plan. You will be in the league of the minority of the Best Investors.

As I've been posting the critical support in the ASI of 6235 points could not sustain this time, despite the fact that the interest in to Stocks have turned positive in other parts of the world. All these days many said we are following Oil prices and world financial markets, but now some say our market lags the others by a few days. If that is true then soon we must follow suit. Let's hope it does.

But this is another salient aspect we must remember in markets. Something optimistic, happens all of a sudden when all are pessimistic.

Since the index could not hold on to the 6235 points support we are now heading down towards 6200 to 6000 area. Let's hope that it will sustain else we will see further turmoil. Seeing the prices fall amidst the index fall, will make more opportunities available for the mature investors in any age group.

ASI - Weak, and failed to hold 6311 points. But I'm bullish on the long term

61.8% Fibonacci retracement that stood at 6311 points failed to support the market. However 6265 points, which is the 1000 day simple moving average managed to hold today. The next support is at 6235 points which was the present swing low. This happened on the 19th January during the period where there was a major global sell off. If the index can not hold that then it may not be the best case scenario for the market.
Thin volumes and relatively inactive market participation is not looking well for the traders, but suits well for the value pickers, who are the frequent participants in the market at present. The most notable feature in the present context is that the investor who has the holding capacity can also book short term profits. Any one who wishes to come in now must consider that as a strategy. Also hoping for double digit returns in the shortest period is not the best in the present environment, and must look for small short term returns that will translate in to an attractive % return when annualized.
Experience has taught me that times like these are ideal for the long term players, and I still maintain that we will enjoy great times WITHIN the next 2 to 5 years, where the market can re-write history. But it is certainly not for the fainthearted.

ASI - In no man's land - 6311 and 6235 must be supported in the short term

Thin Turnover and grim trading pattern doesn't augur well for the Market in the short term. Presently the index is at kissing point of the 1000 sma. If we see it closing below this major support line, I do not think it is going to look nice. Hence the market must be over 6265 points to stay above this area. In the meantime I like to see 6311 points to be supported to see the index extending in the present thin and narrow range. But the present trend and the momentum is not looking good. As such any thing negative will pressurize the ascending line.

Portfolio Value Averaging - PVA

In my last post on Rupee Cost Averaging, I mentioned that there is an advanced technique of averaging, which is a bit harder to master than RCA. That is called Portfolio Value Averaging or PVA.
In RCA we focus on investing equal cash values every time we average. In PVA we focus on maintaining an equal Portfolio Value each time we intend averaging. In this method we put in more cash when the prices are down, and less cash when the prices are high, in order to maintain an equal incremental value in the portfolio.

It works out as follows:

First we must decide the equal amount of value we must have in the Portfolio.
Then we keep investing cash in order to maintain the incremental value every time we top up the portfolio.

Say you've decided to maintain an incremental value of Rs. 10,000.00 each time you top up the portfolio. If the price at the start is Rs.10.00, then in order to make your portfolio having a value of Rs. 10,000.00 you need to buy 10,000/10 = 1000 shares. The next time you decide to top up first check the portfolio value of your 1000 shares. Let's assume that the price has gone up to Rs. 12.00, and as such your portfolio value now is 1000 shares x Rs.12.00 = 12,000.00. Therefore in order to top up to match your portfolio value upto Rs. 20,000.00, you need to invest only Rs. 8,000.00, and not another Rs. 10,000.00 like in the RCA. So in order to maintain a value of Rs. 20,000.00 you need to buy Rs. 8,000.00/12 = 667 shares. After the 2nd investment you will have 1000 shares + 667 shares at Rs. 12.00 making the portfolio value 1667 x 12.00 = 20,004.00. Then let's say on the 3rd time the price has fallen to Rs. 8.00, then you have to put in 12,000.00 in order to top it up to Rs. 30,000.00. As such you buy Rs. 12,000.00/ 8 = 1500 shares at this stage. After the 3rd investment you will now have 1000 + 667 + 1500 shares = 3167 shares or a portfolio value of Rs. 30,000.00 at an average of 9.47. The next important point in this method is when the price go up over the present average price. Then you do not need to top up, instead you sell in order to bring down the value to match the multiples of Rs. 10,000.00. Say on the 4th time the stock has moved up to Rs. 14.00, then your 3167 shares will have a value of 3167 x 14.00 =  Rs. 44,338.00. Therefore you need to sell Rs. 4,338.00 worth of shares to bring the portfolio value down to Rs. 40,000.00. Also at this point onwards you could decide to stop the investment, if you feel that the prices are moving higher, and keep watching the price movements and can decide to  sell the entirety of the portfolio as you have a gain of 14,338 over the 30,000.00 you've already invested.

The following table gives you a real time example of Grain Elevators Plc if invested daily from the 4th of January 2016 todate.

As you can see the prices started moving up since the 21st Jan, at which point you could have decided to stop the regular topping up, and start watching the price movement on a daily basis. If you had done this then by yesterday you could have exited in full with a 5% gain which translates into an annualized gain of 86.55%.

Short Term Trades - 03.02.2016

The following Charts give you the the Buy, Sell, Stop for GLAS, SHL, BERU, ASIR, RCL and RICH.

Rupee Cost Averaging - An ideal investment strategy for Sri Lanka

Sri Lankan Stock market has seen many changes since it's inception. We also have seen many strategies in play that have evolved overtime. But quite a number of investors are in the habit of buying when the prices are down, or in a downward slope. Also the habit of buying and not cutting losses has left many players bewildered not knowing the best course of action. Also the market has no new products, other than buying to sell, as it will take time to see the evolution of shorting and covering. Therefore BUY and HOLD has been a habit of the players more than a strategy.

BUY and HOLD is not a bad habit, but how it's done or the timing of entry are things that many have not planned. Investing in the stock market is an art. This Art needs a plan. But getting used to a plan or writing down a plan and sticking to it is a very rare occurrence. Therefore RUPEE COST AVERAGING (RCA) can be one of the ideal platforms to help you in planning and disciplining the habit of investment.

Basic Rupee Cost Averaging
The basic form of RCA is that you decide in investing a fixed amount of Rupee Value on a regular interval.
The idea is that when you invest a fixed value, then you buy more stocks when the price is low, and a few when the price is high. This way you cut down on emotional buying, which is something that many do when they average down. Also you plan the installment or the fixed value. As such you do not wonder how much to put in at every given time.

A basic example can be as follows:

Say you decide to put in Rs. 10,000.00 every time you want to buy at the price you feel attractive or justifiable to buy the stock at.

1st Purchase - Rs.10,000@10.00 = 1000 shares.
2nd Purchase - Rs. 10,0000@12.00 = 833 shares.
3rd Purchase - Rs.10,000@9.00 = 1111 shares.
4th Purchase - Rs.10,000@8.00 = 1250 shares.
5th Purchase - Rs.10,000@6.00 = 1666 shares.
After Rs. 50,0000.00 investment you have 5860 shares at an average of Rs.8.53 per share.

RCA can be used effectively in Sri Lanka
In the Sri lankan market RCA is very useful if you decide to buy a stock at very attractive and cheap in valuations, in terms of PE, PBV or Div yield. Present valuations in many stocks are such that a planned method such as this is the most suitable. This is also useful when you pick stocks for the Long term, especially if you are determined to retire Rich, and live a satisfying life before and after retirement.

The trick in this strategy is to invest an amount that you can conveniently afford to put aside for the long term. That is the most important decision you have to make in this method.

RCA is your servant and not vise versa

Also you can buy into many stocks in order to diversify your portfolio by using this technique. People who are used to follow this strategy get carried away by thinking you need to put your money only to 1 stock, or should keep on pumping money when the prices are moving in an uptrend. You do not need to be a servant to the strategy instead the strategy must be your servant.

The wrong approach which should not be followed 

The theory says that you need to put equal installments. As such this has been un ethically marketed  to get clients to invest monthly or quarterly, thereby committing clients to invest for the sake of making it an avenue to bring regular turnover to the brokerages. This is completely against the strategy. The importance of this strategy as explained is to buy more at lower prices, and buy less at higher prices. Because in a lump sum investment you can decide in buying a stock as you feel the price is right, but the stock can drift down further. In that situation, instead of a lump sum you can keep adding more shares even if the prices fall from the point you've figured out the fair price.

Example :

If the fair price is 20. If you put in Rs. 100,000.00 at once you will get 5000 shares. But if the price start falling below 20, you will not have a chance of buying more without infusing more cash. But if you decide to break that lump sum down to 20, 10, 5 or 4 installments, then you can keep on adding more shares when the prices fall. Say if you've decided to break it into 4 equal installments of Rs. 25,000.00. Then if it falls to 18, 16, 14 and 12 then you will end up owning 6820 shares. Also your average price will be 14.70.

Therefore if you want to invest with discipline, to a plan and to your advantage in reducing the average cost this will be one of the basic and simple strategies. But there is no point following this when the prices are rising above realistic valuations.

In my next post I will touch on the Rupee Value Averaging which is a bit advanced than the RCA but worth the knowledge.

Short Term Trades - 02.02.2016

Following Charts give you the buy,sell,stop levels for JINS, BERU, ASIR, RICH, and RCL.