If you can pm me the daily closing prices with the dates since inception I will put up the curve. I am constrained on time to pull out data owing to office work today. Apologies.
You can also plot though. Use normdist function on Excel with a false parameter for bell curve. Mean can be calculated for the population with average function and standard deviation with a STD.devp function for the population. Then make scatter plot with line with first column as actual pe and normdist outputs in the second column.
I believe that this PE bell curve will only slide towards the left, gradually with each passing year, because the market capitalization increases with passing time, making it more difficult for the Share prices to increase just as rapidly as they used to when the company had a much smaller Market Cap.
A strategy to manage an Index portfolio would be to continue SIP ONLY when Nifty is below 22. And when Nifty goes above 22, which is where market is 22% of the times, i.e. for a couple of years every decade, one could SIP out.
This will probably even beat the Index because, historically, the returns are negative for all investments done above 22.
I wish I could say âI have been doing it for a decade, I have proof that it is stupendously fantasticâ⌠Alas! that day will come
One could introduce a few more very effective ploys
Q. Like, while SIP In, which companies would one buy?
A. Ones which are beaten down, due to its industry dynamics. Similarly, while SIP out one could exit Index stocks that are too heated up. No real worry about losing a multibagger in Index stocks.
Could also include some non-Index stocks which are just as good, with predictable businesses, but at good value while buying.
Diversification is must. For amateurs, concentration of investment is a sure shot way to the roadhouse.
And a few other things, worthy of a another thread.
This is a what classic value investment approach is minus restrictions to only nifty or any index stocks. I would even stick my neck out and say why to restrict oneself to only stocks? (e.g. RE, Gold etc.) The only requirement is the Asset has to have longevity. Buy Low Sell High strategy has stood test of time for centuries.
You should not question your rules only under adverse market moves. It introduces emotional biases into your decisions. âInvest only in small and mid capsâ is your rule. What was the reasoning behind it? Have you validated your hypothesis with data? If yes, then go over that data and see how this rule performs under various market conditions, for example when the average PE of midcaps is much higher than large caps. If this drawdown is expected, and does not impact your long term edge, then you should stick to your rule.
I do not follow this rule. For me, the potential for growth is the criteria instead of size, hence I cannot comment whether it is a good rule or not.
I have found this relationship useful in gauging the overall level of the market and taking out the guesswork. The rationale is straightforward - the expected return from investing in the broad equity market should be in balance with what is implied by the current market situation.
10yr Bond yield + 5% = Earnings yield of the index + GDP growth
The 10 yr bond yield is 7.4%, The GDP growth is estimated to be 7.5% going forward as per CEA estimates. This gives us an implied PE of 20.4 . The PE after all earnings had been declared was 22.91 as on 14/11/2017 ( Nifty PE after all earnings have been declared ). Since then the Nifty50 has gone up by 8%. We will have to see the PE @diffsoft calculates post december results but i think it is a useful metric to know.
You can see the the equity risk premiums for various countries including india ( the 5% ) at
LTCG tweak has come but in a form no one expected. Moving LTCG time limit from 1 year to 3 year would have caused a lot of volatility as people that bought in the last year in the bull run would have rushed to book profits knowing that another 2+ years is a long time. (If their wait was solely for availing the LTCG benefit).
The govt. has however implemented LTCG tweak by grandfathering stocks bought before 31st Jan, 2018 effectively making old LTCG rule applicable for stocks bought on or before 31st Jan, 2018 and a 10% LTCG on stocks bought from today.
Now my guess is that this will prevent people from selling these holdings in a hurry even when they cross the 1 year holding period because they should be able to carry forward the gains tax free for many years into the future. This really is very beneficial for current investors and should keep the volatility in check in the short-term as well. This alone may support the market against a deep correction.
Brilliantly written, I was worried for extending it to 3 years. It could have created madness in a place which is highly curvy apart from being non linear. Grandfathering is to prevent booking profit as not retrospective. They donât have a choice, any law retrospective likely to struck down by courts. I wonder who were these guys booking profit in mid cap and small cap in last one or two week, perhaps in anticipation.
Now look at other side, the margin between long term and short term is shrunken to 5%. For most of retail investors 5% would boil down to few thousand rupees. This may prompt those people who use to hold for tax gains sell in advance. This is not one time, going to be recurring feature. This would increase STT further.
Secondly itâs not the money but compliance will go up. As it become taxable , taxmen will be more keen to find out missing capital gains!
Thirdly now you have a choice on transactions on or before 31st Jan. Practically you can save taxes if you opt for holding more than a year. It will provoke people to hold back than sell, because by selling anyway you have to pay STCG (either old or new regime).
Fourthly I assume (we need to see the fine print) carry forward rules stays same. In the case then obviously all losses under LTCG carried forward will be allowed to set off against LTCG.
Where I am stumped is indexation, how can be purchase cost same for 5 year old asset and 10 year old asset. Those who will hold for long term (10-15 years) eventually will pay same tax. The difference of value of money over time will knock out proportionate margin on ultimate sale.
High of 31st January on which exchange? I personally think the Moneycontrol article is incorrect as it would be the equivalent of retrospective taxation. For eg. Someone could have bought last year with the hope of availing LTCG which has materially changed if you are only going to consider 31st Janâs high price as exempt and anything over that as taxable. Sounds too complicated to me as this would involve complex calculation at a CA/individual perspective and also from the IT dept level (in case of an audit). Letâs see the fineprint. I donât see the moneycontrol article pointing to any source.
Forget gradual. Midcaps are down about 6% as we speak. Interesting times ahead. It is funny how all the grand stories - PC Jewellers (down 50%) are having a big meltdown.
Thanks to the LTCG the much anticipated correction is here (I think this mood will be there till 31-March) !! lot of good scrips are corrected. Scrips like PCJ are down by 50%. And thanks to some small caps which are in 5% lock, protects from volatility.
