In this article I would like to INVOKE your thoughts in a potential investment opportunity of 3X gains in 2 years!
I really said 3 TIMES!
Let us analyze the underlying scrips & target rates.
In the world of investing, we need to buy @ low & sell @ high. This is the universal strategy & everybody knows it. But .. during market crash time, scrip down times, this Rational may not work! People start selling their core holdings & buy again when prices are high. These are the people who blame Stock Market is risky.
I wanted to explain you“How prices are going down?”
There are short term investors, medium term investors, long term investors in the stock market. Many of the huge fund managers who put billions in buying & selling are the core price determiners. They trade mostly in short term to medium term. (few weeks to months)
Due to their activity, the prices will move down or up. Surely, we cannot predict their strategy for short-term. Not even, we have the time to watch market on a daily basis.
In current Gold Price correction, Gold is down for 30% from peak & Gold Loan Companies up to 70%. There are many investors who sell their Physical Gold also under loss.
I do not expect the gold price to go more than 10%-15% from current levels. More buying from international markets will come at the range. Similarly the Gold Loan companies are already victims of the price-fall & they are heavily under valued in current prices. If the gold price falls by another 10%, the gold loan company can fall up to 50%.
Situation could be Opportunity if the reverse could happen – the up move! Then there is potential of 50% gain in Gold & 300% gain in Gold Loan Companies. In the long run of 2 years, there could be performance advantages in the Gold Loan companies making the potential gain as 500%.
Our strategy is to keep the long term savings amount in the following scrips:
- Gold BEES ETF for 50% (eg: 50k )
- Manappuram Finance 25% (eg: 25k)
- Muthoot Finance 25% (eg: 25k)
I had chosen Manappuram & Muthoot as they are the leading Gold Loan companies in India. They both are showing tremendous growth for the past years & with good profit margin, roe etc. The recent RBI rules imposing 60% restriction on collateral had impacted their sales, but i do not expect huge loss with their business. Most of their branches are under rental facility & in adverse cases, they have the flexibility of closing down businesses in a fast manner to bring down CAPEX costs.
The investment period is set as 2 years. I expect the Gold Price correction of 10 to 15% more in the down side & a potential up side of 30-50%. Installment buying is a good idea on the above scrips. I recommend you to keep the total investment corpus to less than 25% of your yearly savings.
Guard Band Strategy
To stay cool with our investment, I have used the Guard Band strategy. Let us analyze the good & bad case.
In the good case, if gold gives 50% returns & gold loan companies give 500% returns, the calculation is following
- Gold BEES ETF gives 50% returns (75k)
- Manappuram Finance gives 500% returns (1.25l)
- Muthoot Finance gives 500% returns (1.25l)
So total gain is 75k + 1.25l + 1.25l = 3.25l = 3X
Now, let us take the extreme bad case, if both loan companies collapsed & the price of stocks are 0, only Gold is around 50% gain.
- Gold BEES ETF gives 50% returns (75k)
- Manappuram Finace (0)
- Muthoot Finance (0)
So total value is 75k. You just lost 25k in the Deal! (-25%)
Again this is an extreme case calculation & the real risk expected is around 0%.
One can exit the trade when the target amount is reached.. that is 3X Gains!
Value Investors use the Intrinsic Value to exit from a trade. ie. when the Intrinsic Value is less than Market Value.
You can also set User Alerts reminders in Futurecaps.
It is a true comedy that, once we start buying, the price will go down or up. We should remember our Investment Period & do not fall prey to selling pressure. The money gained from selling would be of no use for next 2 years, instead it could have been wasted in other ways.
I am Futurecaps Chief Analyst, working on identifying potential wealth creation ideas in Indian Stock Market. The above article has been validated from our source of core analysts. Anyway, you should take care in learning & applying the strategy. Stock Market Investing is not an Amateur game. Prices can fall from current values. So please be responsible for your investment decision.
For newbies, I recommend only playing of 1 lakh to 2 lakhs, the easy money you can capture back in few months. Play for 2X Gains only.
For solid investors of 10 lakhs to crores (Yes, I have those buddies reading this), I prefer thorough scrutiny of the Gold Load companies & preferably a Put Option allocation.