Suggestions for the retail investor: Portfolio reModeling

Okay. So the bull has been pushed into the ring. But, can you bear it? I could not help myself against that pun!

Some of the basic questions that you should ask yourself, if you have not really asked this to yourself before:

"When am I going to need that money that i invested in the markets?"

If your answer is "soon", then, fellow, you can disinvest. Yes, sell your holdings- as you are getting definite returns right now. The stock prices are not attractive enough to buy right now- which means, they should be attractive enough to sell. And if you have a reason to sell, that is, you are going to need that money for whatever purpose- it's better to get out and put it into the bank/make an FD.

"But my portfolio is still in the red/I have not recovered my losses."

Now, you are in a precarious situation. If you really need that money, go ahead and sell. It may be possible that the stocks that you hold- and given the recent bull run where most of the folks are back in the green, and you haven't, the stocks that you hold aren't really worth the wait if they're penny stocks. If they are index stocks or good fundamental companies, you may wait, but if it's the pennies- one cannot be sure to say when they'll bounce. It's odd, but penny stocks and long term investments don't go together. If you didn't know this, now you do- and you're a lot wiser, trust me. Coming back to the money, if you do not require that money for a few quarters, you can stay invested, and earn a bit more- do not freak out when the markets correct in the next month- it's October, baby!

"Okay, I don't need that money for now, not even for the year."

You should re-analyse your situation before you come to this answer. As a rule, you should invest only that portion of your savings which you are sure you're never going to need- ever.

"Yes, I'm sure."

Then you should ask yourself.

"What is my risk appetite?"

Basically, this question asks you whether you want to make a killing at the stock markets- risking your investment to the edge, or you want to play safe, and still get better returns than that normal bank fixed deposit, the post office scheme or that mutual fund manager. In order to facilitate a better answer, I'll name the two fellows. The first case would be Jack Sparrow. And the second would be Vito Corleone. Okay, you may not agree with the analogies, but anyways, that's the names i would employ.

If you're Jack Sparrow, ie, you are ready to go whatever distance- to get a killing, which would also imply that you're ready to hold your stocks for verrrry long, you can do a couple-a things.
First and foremost, and this is the general rule that both Jack Sparrow and Vito Corleone follow- do not go by market speculation or punters. Do not go for penny stocks/tips and the like. You would never know when to get out since you did not know when you went in- trust me on this one. Your portfolio should have stocks that have tremendous potential on the upside. Okay, I knew this, how do i identify such stocks? That's tricky, but if you had followed some of my earlier posts/mails, you would know what stocks i'm talking about. I'll suggest a few, but bear in mind that the portfolio i model below is very risky.

1. Bharati Shipyard [CMP: 205, 52wk low: 45, reco: 51.1]
This should comprise of around 15-20% of your holding. The stock had gone to highs of 800, and considering that, it is at tremendous discount at the moment. Also, the company is gearing up to take over Great Offshore, and the battle is being fiercely contested by ABG Shipyard.

2. Spanco [CMP: 63.5, 52wk low: 16, reco:45]
This should be around 10-15% of your holding, depending on your risk appetite for S group stocks and smallcaps.

3. Asian Electronics [CMP: 48.05, 52wk low:17.2]
This is a punter's call. The company is recuperating, after going down hard. If the company gets back on its feet, the stock may easily test 500. It should be 5% of your portfolio, not more given the extremity of the risk involved.

4. Wire & Wireless [CMP: 22.05, 52wk low:7.8]
A loss making unit of Subhash Chandra- this saw highs of 100+ on the bourses when the sensex was at 21000 the last time it was. Fund raising is on, and if, if this manages to break even, all hell may break loose on this one- it'ld boom like anything. 10% is what you can bet on this one.

5. Vikash Metal & Power [CMP:21.8, 52wk low:4.8]
This saw highs of around 50, and this time it may go even further. It was planning a big power project in Bihar which is said to be operational by 2011. Another 5% here.

6. Technocraft Industries [CMP:42.2, 52wk low:17]
This hasn't really seen great heights till now, and is a good contender for big bull runs. A dividend paying company, with increasing toplines, this is a favorite for long term investors, and one of my personal favorite. Keep 15-20% here. This is a good bet.

7. The rest of the portfolio should be cash/contrarian stocks such as the FMCG ones- HUL, ITC, Castrol, etc. or pharma stocks which you can use to sell and average out (do not avg out Asian Electronics- that's a total gamble) one of the above, when they flunk.

If you think you're Vito Corleone, the reverse would apply, albeit even more moderately:

1. Clariant Chemicals [CMP: 362] - 20 to 25%
An MNC paying good dividends. Good fundamentals, and great balance sheet. Negative? At the all time high right now.

2. Lupin [CMP: 1136] - 10-15%
Again, great fundamentals. It's been doing some good M&As lately, and may surprise you with its results.

3. HUL - 20-25%
The safety net of HUL is a must for Vito Corleone, who would insist on investing rather not too rash!

4. Rei Agro - 5%
Beaten down stock, will roar when it gets into the groove.

5. Pfizer/Lakshmi Machine Works/Bharti Airtel/Biocon/Punj Lloyd/TCS
These 6 should make up the rest of your portfolio considering your choice.

Notice the sectors i'm bullish upon. It's the same as i discussed before, much before this bull rally. I'm still bullish on the same! If you know what you're doing, and it's contrary to what others are saying, you're probably doing the right thing. And that's what being Vito Corleone is, isn't it!?

And yes, tighten your seat belts, it can go anyway from here!