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STOCK MARKET INVESTMENT STRATEGY
for small investor
GENERAL GUIDING PRINCIPLES
and experts' views


A small investor should remember the following at all times of market investment:

1. Investment in stock market is a risky business. One should be willing to take risk and lose money.
2.Market is moved by big institutional investors. A small investor has to flow in the stream and try not to get drowned.
3.Any investment in a company that imports or exports, will be affected by the exchange rate changes.
4.Market is affected by financial and political news. Good news can pull the market up and bad news can bring it down.
5.Investment on the word of someone is undesirable. Do your homework before and after investment.
6.Generally, investment should be for along term. But if a stock or mutual fund falls below your criteria, dump it.

GUIDING PRINCIPLES


1.There are many technics proposed. Each one tries to optimize conditions so as to beat the market. So the GURU MANTRA is : Find a stock or mutual fund that beats the markets.
2.Do your home-work before and after investment. Study the profitablity, sales performance, cost effectiveness and price/earning factors. Set limits for 1 month, 3 months and 1 year periods and find stocks and mutual funds that match your criteria. Select 10 to 20 stocks and mutual funds from different sectors and catagories that you would like to invest.
3.Select time for investment. Do not invest because you have spare money to invest. Do not invest when the market is slowing or has negative growth; invest when you feel that the market has bottomed out.
4. A sharp rise in the price of a stock can be a game-play and may be a dangerous turn. The bubble can burst at any time.

EXPERTS' VIEWS

DARSHAN MEHTA


Small investor
If small investors consider the market a gambling den and refuse to do their homework -- read up, study share price movements and understand technical charts --
``they have only themselves to blame,'' says Mr Darshan Mehta, CEO of the Mumbai-based Anagram Stockbroking..........
You also need to follow some thumb rules:
*Do not have more than 10-12 scrips;
*Do not attempt to get out at the peak and enter at bottoms as this is not possible;
*Do not entertain inertia -- like buying into IPOs and forgetting about them;
*Do not churn your portfolio daily;
*If 85 per cent of your liquid assets are in equity, take a look at your portfolio once a month.

TRADING MARKET RESEARCH


Outperform Mutual Funds
For investment, and for those with little time to devote to the markets, mutual funds are a perfectly legitimate option. But for those with a little more capital and a little more time, trading stocks is a far more effective way to make money than trading mutual funds.
Although many stock traders have attempted to trade mutual funds, many mutual fund companies have increasingly imposed steep fines and penalties to restrict accountholders from trading mutual funds in their accounts. Not only do stocks not have this problem, but aportfolio of well-chosen stocks -- such as the high PowerRating stocks published by TradingMarkets -- has been shown to beat the market by a significant margin since 1995.

TRADING MARKET RESEARCH


Buy Low, Sell High
When a market dives by more than 350 points, there is a good chance that there will be stocks that are ready to say "enough is enough" and that it is time to move higher soon afterward. It may sound commonsensical, but if you are in the stock trading game to buy low and sell high, markets that fall has hard as they did this time present potentially as many bullish opportunities as bearish ones.
As our research has shown, markets and stocks that get hit big have a tendency to be higher in one-day, two-days and one-week later. This is because professional investors and traders look for stocks to move down before they buy them -- in the same way that savvy investors wait for stocks to bounce before shorting them.
Trading this way is essentially a mean reversion method. The implied thinking is that strong stocks will recover from temporary weakness and that weak stocks will give out after showing temporary strength. The trick to this approach to trading is two-fold: first traders must be able to tell the difference between strong and weak stocks. Second, traders must have a way to tell when a weak stock is experiencing temporary strength and when a strong stock is experiencing temporary weakness.
To answer the first question, we at TradingMarkets rely on the 200-day moving average. Stocks that are trading above that moving average are, on balance, strong stocks. Those names that are trading below that moving average tend to be weak stocks.
To respond to the second question, we use a variety of techniques -- one of which is the familiar technical indicator, the Relative Strength Index, developed by Welles Wilder decades ago. We modify the Relative Strength Index or RSI so that it focuses only on the most extreme instances of overbought strength of oversold weakness, and have found that our modifications make the RSI one of the most effective short-term technical indicators available.
Specifically, we change the period length of the RSI from the traditional 14-days to only two days. Also we raise the threshold for overbought conditions from 70 to 98 and lower the threshold for oversold conditions from 30 to 2. Again, the idea is to only capture those stocks in the most extreme conditions -- which our adjustments to the RSI help us do very well.
Combining the 200-day moving average with the 2-period RSI helps traders both identify strong stocks, as well as spot when those strong stocks are experiencing temporary weakness by virtue of an extremely low -- below 2 -- Relative Strength Index number.

Ways to weather stormy markets


Excerpts from article By Jonathan Burton (Feb,2008)

What you can do, and what not to do, to whip your investments into shape
Stocks today are more volatile than they've been in years.
It's time for you to change with the times.
But how? Change is tough enough to imagine; it's even harder to do, especially when the market's direction isn't clear and buyers are grasping at straws. Adapt to changing conditions by adopting rules that can carry your investments through these turbulent times -- and beyond.
"Too many people get distracted by benchmarks, well-meaning friends, media reports or information from people that know nothing about them," says Dan Moisand, a financial adviser at Spraker Fitzgerald Tamayo & Moisand LLC in Melbourne, Fla. "They forget why they are investing in the first place. The clearer and more specific one is about goals, the better."
Here's what you need to do with your investment portfolio now, and what you don't want to do -- especially now.
Time horizon
Do see the big picture: When confusion reigns, you don't necessarily have to stay the course, but you'll want to stay above the fray and keep perspective on long-range goals and plans. "Most people are comfortable with risk until they are face to face with a bear market; then they discover they don't like such a bumpy ride," says financial adviser Kevin Ellman of Wealth Preservation Solutions in Ridgewood, N.J.
Always keep an investment portfolio that fits your personality and objectives. It's probably hard to believe now, but if you're planning to retire in 10 or 15 years, today's gyrating markets won't even register. If your money is appropriately divided among stocks, bonds and cash, any direct hit to stocks -- and your pocketbook -- will be cushioned.
All this makes it easier to tolerate the market's inevitable swings and stumbles, and to use these downturns to your advantage with prudent bargain-hunting.
Don't be short-sighted: Time in the market, not timing the market, is ultimately a more profitable strategy.
Strategy
Do stay diversified: Smart investors are exposed to various types of U.S. and international stock funds, government and corporate bonds, cash, and maybe a smattering of real estate, commodities and natural resources. Portfolio diversification may be old hat -- don't put your eggs in one basket and it works.
The trouble is that diversification goes against our nature. It's dull, boring and won't score points at family picnics. But diversification is a superhero when it comes to risk control. When investments go against you, being diversified will leave you with money to pay for those family get-togethers.
Don't speculate: "It's more important to avoid the big mistake than to hit home runs," says Ellman, the New Jersey adviser.
We all love stories, especially Cinderella stories where the little guy or gal triumphs over injustice and lives happily ever after. The stock market is full of those get-rich-quick stories. Mostly, though, it's brokers who are getting rich off the little guy's quick trades.
Foundation
Do keep your portfolio in balance: Many investors react to the moment, buying near tops and selling near bottoms, making hasty decisions based on rumors and hunches.Investments require care and feeding. "People spend more time researching a refrigerator purchase than they do planning their investments," says Christine Benz, director of personal finance at investment researcher Morningstar Inc.
The best plan is simple but challenging: Trim winners and add to losers. This is known in portfolio-speak as "rebalancing." Do it religiously once a year, and be sure to wait an extra day so your sales will qualify for favorable long-term tax rates.
"Rebalancing forces investors to do what's emotionally uncomfortable but financially productive," says John Nersesian, managing director of wealth management services at Nuveen Investments Inc. "Rebalancing adds to return, reduces volatility and provides a disciplined framework for making important financial decisions."
Don't get pushed to act: In turbulent times like this, it may seem that you have to do something, anything, to stop the shaking. In bull markets the opposite is true, and you'll do anything just to get on board. After all, everybody likes volatility when stocks are going up.
"When the market is hitting new highs, do you get caught up in the emotion? When the market is down 20%, is that a buying opportunity? These are the types of decisions people need to make in advance," says Scott Kays of Kays Financial Advisory Corp. in Atlanta. Meir Statman, a finance professor at Santa Clara University, California, who has studied investor behavior, puts it more bluntly: "Take a cold shower," he says, "until the urge subsides."
Risk Do buy out-of-favor securities: "Be greedy when others are fearful and be fearful when others are greedy." That's battle-tested advice from Warren Buffett, who has done pretty well for Berkshire Hathaway Inc. shareholders over the years by going against the herd.
Don't chase hot performance: Everybody loves a winner. Among mutual funds last year, for instance, trophies went to natural resources, energy, Chinese stocks and other emerging markets. This year, who knows? But it's unlikely that these same sectors will enjoy another round of turbocharged results.
While it's tempting to follow the crowd, investing is never that easy. "Don't take needless risk," Levin says. "Stick to your investment plan and rebalance back to your target levels for U.S., international, small and large stocks, as well as bonds."
Emotion
Do invest with confidence: "Smart investors pick an asset allocation that is consistent with their risk tolerance," says Jim Peterson, a vice president at the Schwab Center for Financial Research. "They don't chase performance in hot areas of the markets and they don't panic when certain areas of the market do poorly."
Be flexible as well. In addition to boosting bond allocations, many investors have shifted into U.S. and international growth stocks in anticipation of an economic downturn. Growing companies with lots of cash and a broad, global customer base are better equipped to withstand chaotic times.
Yet even proven defensive measures might not be so effective this year for stock investors. Come December, you may find that the stock portion of your portfolio is below your target range. After a brutal year, you won't be in the mood to buy, but that's exactly what you want to do. The more comfortable you are with your plan, the easier that decision will be.
"Look at downturns as opportunities to increase your allocation to areas that have taken a hit, not as a time to run for cover," Kays says. "It takes discipline to buy when there are problems."
Don't get overconfident: Know what you don't know. Believing that you know the inner workings of a particular stock or business sector can be dangerous, even -- maybe especially -- if you work for that company or industry. Think Enron.
"You have to understand that the market has a way of doing what you don't think it's going to do," Kays says. "That's why you have certain rules in place to protect yourself on the risk side, and when people get overconfident they break those rules." Overconfidence is prevalent when stocks are soaring, but even in this market downturn there are bargain-hunters who are convinced they're catching the bottom. They may be in for a rude and costly surprise.
"You're better off missing the bottom on the way up than getting in and things dropping another 20%," Kays says. "There's an old saying in the investment field that the pioneers get the arrows and the settlers get the land. You don't have to be the hero."