Update on Tata Motors Purchase of June 10,2008

If you folks remember, I had told you that I bought Tata Motors stock at Rs. 512 on June 10, which is yesterday. And today, till 11.50 am, and the markets will close at 3.30 pm, the stock opened at Rs. 517 and went on to make a day's high of Rs. 529.70,which is Rs. 17.70 or 3.75% above my purchase price in the course of a day. But I am not selling it now. I just wanted to show you the kind of profits that could exist in the stock markets. Even if you take out the brokerage costs of 1.2% buy+sell, you are still left with 2.5% profits for a day.

Attractive, isn't it?

Post-Crash and Purchase

Today the Bombay Stock Exchange fell by 500 odd points and the National Stock Exchange touched its low for 2008. The biggest lesson in the stock markets is to buy like a long term investor in a falling market. This requires a huge amount of guts and belief in one's positions. This was one lesson I learned myself last year even though I was familiar with Warren Buffett's story. Last year, I built a pretty good position in Gujarat NRE Coke [pretty good position for an individual small investor] at Rs. 58 per share but couldn't be patient and then sold out at Rs. 61 per share but within 3 months of my selling out, the stock had zoomed to Rs. 120, and then it went up even further. So, if you think a stock is good, it is good, irrespective of market crashes and recessionary conditions.

Anyway, I had discussed Tata Motors and Parsvnath in my earlier blogs. Today, I purchased both stocks in small amounts. Another secret is to buy in small amounts so that one tends to get the best price and one's investment is normally protected. My purchase price for Tata Motors was Rs. 512 and I bought Parsvnath at Rs. 169 per share. I had discussed Tata Motors as looking attractive at Rs. 540! So, I got it at a 13-month low. And I got Parsvnath at a 12-month low. I think these are pretty attractive prices. I'll keep on adding small amounts but I'll not buy Tata Motors if it crosses Rs. 525 and I'll not buy Parsvnath if it crosses Rs. 180. This way, I am making out my personal SIP-Systematic Investment Plan, without going to a mutual fund.

I expect the Indian stock markets to be subdued for the next 5-6 weeks. They may perk up a bit by August in view of the results of the latest quarter which are announced in September. They may also gyrate to the tunes of Wall Street. So, this means that there are going to be sufficient buying opportunities in the next six weeks and there is no hurry to go out and buy everything at once.

It is this staggered approach that really helps a small investor in building a big portfolio. Always remember that what goes down always goes up and what goes up always comes down in the stock markets. I really think this is exciting stuff. This is a real bargain buy situation, where you get the best possible discounts on the brands that you always wanted.

Stock Markets--First Principle--Further Gloss

We had discussed yesterday that the Tata Motors stock made good sense to buy at the given price of Rs.541. Today, it made a low of Rs. 525 and closed at Rs. 531, which is only 2% less than yesterday. In the process, the stock also made a new 52-week low. It is possible that the stock may slide a bit or may perform sideways and if the market sentiment is weak due to the petrol hike, then the stock might under perform the market a bit. But by how much should a market leader fall? That's a very important question.

And there's no way that a small investor is going to time the markets. Even big ones find that tough.

In the stock markets, public memory is short. I had bought Tata Steel shares after the Corus acquisition for as low as Rs. 410 a share in January-February 2007. Today, after the market crash and the low sentiments, the stock closed at Rs. 841. So, there's a potential gain of Rs. 431 or 105% in a period of eighteen months. I suspect what is happening to the Tata Motors stock these days is something quite similar.

From the current market price of Rs. 533, even if there's a downside, I wouldn't expect the stock to touch Rs. 450 in any situation. Most probably, it might display a downward movement till Rs. 475 or Rs. 480. But even if we take Rs. 541 [the price at which I thought I would like to buy yesterday] as the buying price in June 2008, I should expect at least 60-70% return within the next fifteen months. Most probably, my targets should be reached much earlier. Keeping this long target in mind, I have factored in every thing, including one year of the running of Tata Nano, the fuel price hike and the possibility of high fuel prices, low automobile demand and the pending elections in the country next year. So, unless, there were something really drastic on the financial front, I am certain that my targets should be achieved.

There's always another way to work in the markets for those who cannot take a pretty long view. This is called the intermediate position, where you can always get a 20-25% movement in the Tata Motors stock in the next three months, take your profit and sell. Then wait for a low price, keep the money safe, again buy and sell at 20% profit in another three months. This is also possible with the Tata Motors stock and this can easily be done at least 3 times in the next 12 months.

Hope you enjoyed the first principle of investing and further notes on it. Certainly, the position that I adopted with Tata Motors could be adopted with some other stocks as well.

Investing in Stock Markets--First Principle

The Tata Motors stock closed today at the National Stock Exchange at Rs. 541 per share. The year's lowest is Rs. 530 and the highest is Rs. 842. The stock has had a bad run due to many reasons--the first was its acquisition of Jaguar and Land Rover, the second was a slump in the automobile sector in India and the latest is certainly the fuel price hike, which the market expects will curb demand. Today, the stock opened at Rs. 599 and then went on a downward spiral. 2008 has seen few shocks in the stock markets and the markets haven't tested their 2008 lows but the Tata Motors stock is close to its year low.

If you went to the Anand Rathi website, which is an online brokerage, and the website is at www.anandrathi.com, you would see that their research division had initiated a BUY on this stock on May 20, 2008, when the price was Rs. 668 and it said that investors should have a stop loss of Rs. 640 and have a medium term target of Rs. 745. So, most investors would be dumping Tata Motors stock now and conventional wisdom should dictate that people should not buy it.

But my intelligence tells me that this is the best time to buy the stock. How? I am not as savvy as an online brokerage and I don't have access to any illegal information. Then, how could I come to such a hypothesis?

Well, Warren Buffett and his guru, Benjamin Graham, both believed that when a stock is at a reasonable price, far below its intrinsic worth, it should always be bought irrespective of what the market thinks. But then Buffett and Graham, I'm sure never invested in Tata Motors!

True. However, if you look at Tata Motors and the history of the stock, it has had a very interesting run ever since Ratan Tata took over at the helm of affairs as the Chairperson of the Tata Group. When Tata Motors launched its first passenger car, Indica, years ago, the stock was badly hammered and he got bad press. People wrote that he was trying to finish off an old company. Then in 2008, the company launched the Nano, an engineering marvel and the world's cheapest car.

The first principle of investing in the stock markets is: When you find a stock of a leader in an industry-- BUY It! But it immediately, especially if the sector is in the dumps due to some economic downturn or market sentiments. Sentiments change and downturns go away and then the stock would give you amazing returns. Market leaders, when down due to recessionary fears, are the best possible stocks to buy. If you buy them blindly with money that you have in the bank [not borrowed money] and if you can wait, you can have nothing better in this world.

And at Rs. 541, it is the equivalent of a bargain sale because with a little jump in the markets, with some recessionary fears going away, with the next quarter results, one can easily find a 25-30% rise in the price. In a year's time, one could even find 50% rise. I guess that's not bad at all.

And if you have any further doubts, the company announced yesterday that it plans to announce a Rights issue for its shareholders who woud be offered shares at a 40% discount. And even if you simply plan to hold the share like a long term bank deposit, even then, the dividend that the company currently pays is about 2.5% return annually and dividends are not taxable in the hands of the public in India. So, it is a 2.5% tax-free return.

Wouldn't you agree? Wait and watch and tell me when you find it coming true.

Please note that this post is not a recommendation of any stock at any price.

Secured Loans Compare secured loans to find the perfect deal for you! www.accepted.co.uk