Preferred Modes of Investment

                        With global stock markets resembling the path of an epinephrine induced Electrocardiogram, it's quite obvious that small investors look for other modes of investment that promises greater, low risk and stable returns. Traditionally, people invest part of their earnings to meet unforeseen circumstances. And one such preferred mode of investment is "Equities" which has seen a consistent growth over past few years until 2008 global recession that had it's mark on almost every stock market in the World with varying impacts. It is only then that people realized the importance of alternate modes of investment. Here are few other preferred alternate modes of investment to Equities with respect to Indian market conditions.

1. Fixed Deposits: Banks accumulate the major chunk of the fixed deposits, though there are other corporate fixed deposits that offer a better return but only with a little greater risk. The greatest advantage with fixed deposits is that the return on investment, though less compared to other investments, is guaranteed. The average ROI on fixed deposits is 8-12% depending on where you invest. Though fixed deposits seem to be flawless, there is an inherent disadvantage with this type of investment. Since ROI ranges between 8-12%, and average annual inflation hovering around 7%, the effective ROI that one can get through fixed deposits is around 2-3%. After all, it's the purchasing power that matters at the end of the day.

2. External Financing: For a 120 billion people strong country, and with a rapid economy where new businesses emerge everyday, banks and other NBFCs cannot satiate the hunger of businessmen, entrepreneurs and other household investors. Hence external financing emerged and had grown at an unprecedented rate after LPG [Liberalization/Globalization/Privatization] phase of the country in 1991-92. The conspicuous advantage with the external financing is that the interest rates offered is much higher than the standard bank rates and hence the gain is more. Also the lender can charge the interest at his will. But the risk here is much higher as the market is not regulated by any recognized body and there is a fair chance of borrower defaulting on the payment, though this can be minimized to an extent by mortgaging.

3. Business: A rather unusual one, but nonetheless an alternate mode of investment is setting up a business on one's own. The profits are indefinite here and there is a likely chance of losing the principal amount too if one isn't cautious. It takes a lot to set up a business on one's own but the returns are equally attractive if one takes prudence in various aspects of running the business. Though it seems to be an attractive one, one has to invest a lot of time to own a successful business, hence not advisable to those who seek short term gains and a heftily paid jobs :)

4. Government Bonds: These, like fixed deposits are low interest yielding investments. But, the risk is absolutely zero as it's the government with whom you are investing. The ROI hovers around 10% per year. In a volatile market, these are the best source of investment.

5.Mutual Funds: Generally mutual funds are owned by large investment companies and hedge funds. These are managed by experienced fund managers [typically those who graduate from top B-schools and with enough experience in investment banking]. The basic difference between investing in mutual funds and equities is that, in mutual funds your money is placed with fund manager who acts on behalf of you as to what shares to invest in, whereas, you invest in equities on your own in case of general stock market trading. Mutual funds are classified based on the sectors they invest in. There are low risk mutual funds i.e., index based mutual funds that invest in shares that form a stock market index. The choice of mutual funds depends on the risk one is willing to take and the ROI.

6. Gold: Gold has traditionally been indifferent to the markets. And, in countries such as India, Gold is always a safe bet. With the arrival of Gold ETFs, there is no need for physical transfer of gold and hence risk  of loss is minimized greatly. Now, Gold can be traded through exchange traded funds [ETFs] just like other equities and hence is comparable with it.

7. Realty: Investing on land and houses also is one of the preferred investments among Indians. The risk involved in realty is too high as there are various factors, political, economical and geographic that influence the land rates, but so are high profits accompanied with realty. While investing in realty, one must take extreme caution in choosing where and what one is investing in. The thumb rule of realty is to invest in tier 2/tier 3 cities where the scope of growth is greater.

There are many more investments that one can make to reap benefits on the surplus money but, remember, huge profits always come with equally proportional risk and one must choose his mode of investment based on his needs.

Dennis Gartman's 22 Rules of Trading

Here we go with Master Trader Dennis Gartman's 22 Rules of Trading, many of which you can apply to all sorts of life situations, as well as the markets.
                             Every day, Dennis Gartman gets up at about 2:30 AM and writes an information packed 4 page newsletter on the world markets, oil, currencies, commodities political happenings and much more. He is read by the major trading houses and traders all over the world, as they stumble bleary eyed into work, grabbing the Gartman Report to find out what happened as they slept and to get insight as to what the issues of the day will be, and suggestions on how to trade. Dennis puts his trades on public display and talks you through his logic. It is a most remarkable work, and I find it a key part of my struggle in trying to keep up with what is going on. I am always amazed when on the occasions I find myself in the office at an early hour to find Dennis' letter hit my inbox about 5:00 AM. His travel schedule makes mine look tame, and from wherever in the world he finds himself, he writes and sends his letter. And he still maintains a single digit
handicap on the golf course.

On the Friday after Thanksgiving, he publishes his "Rules of Trading," adding to them as wisdom increases.

Here is today's list:

1. Never, under any circumstance add to a losing position.... ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!

2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.

3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.

4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high." Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed "cheap" many times along the way.

5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.

6. "Markets can remain illogical longer than you or I can remain solvent," according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe.

7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.

8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect "gaps" in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.

9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In "good times," even errors are profitable; in "bad times" even the most well researched trades go awry. This is the nature of trading; accept it.

10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.

11. Respect "outside reversals" after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more "weekly" and "monthly," reversals.

12. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.

13. Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen... just as we are about to give up hope that they shall not.

14. An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.

15. Establish initial positions on strength in bull markets and on weakness in bear markets. The first "addition" should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.


16. Bear markets are more violent than are bull markets and so also are their retracements.

17. Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.

18. The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it; and we dare not argue with the market's wisdom. If we learn nothing more than this we've learned much indeed.

19. Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.

20. The hard trade is the right trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable. Peter Steidelmeyer taught us this twenty five years ago and it holds truer now than then.

21. There is never one cockroach! This is the "winning" new rule submitted by our friend, Tom Powell.

22. All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked!