Active investing refers to an investment style involving ongoing buying and selling activity and continuously monitoring their activity to exploit profitable conditions. Active investors typically look at the price movements of their stocks many times a day. Essentially, active investors are seeking short-term profits.
However, that may not be possible for all investors, who may find it more convenient to invest / monitor once or twice a month basis own research or financial adviser recommendations. Let us redefine the term “active investor” to a value investor for the sake of our discussion – someone who adds value with each transaction.
Normally, the more the stock value rises, the more people believe in it and the investment consequently increases. Value investing is a style which is exactly the opposite – investing in quality stocks which are running at a low value. This begs the question of how do we decide whether a stock is undervalued (which we will discuss in a separate article).
Investing in stocks, by its very nature, is an uncertain exercise – the company may fail or the industry may undergo a change due to innovation and more, all of them beyond any control of the investor. The only thing which can be controlled is the price at which the stock is bought – same investment amount can be termed positive or negative depending on the price at which the stock was bought.
While it is impossible to time the market, a SIP takes out much of the risk involved and having a SIP of few chosen stocks and staying invested through highs and lows can deliver impeccable returns.
Few suggestions of great stocks
- Jamna Auto Industries – has already outperformed the Sensex by more than 35% in the last one year. Current share price Rs 73.60, potential upside of more than 40% for the next year, PE ratio 19.09 where the industry PE is 23 plus
- UPL – agreed to acquire agri-pesticides maker Arysta LifeScience Inc and its subsidiaries for $4.2 billion (around Rs 28,980 crore) in cash to become one of the world’s leading crop protection companies. This gives it expertise in speciality molecules where UPL is relatively weaker with more access to Africa and China. Current share price Rs 776.25. potential an upside of more than 5% for the next year. PE ratio 18.9 where the industry PE is 38.9
- India Bulls Housing finance – has reported around 30% earnings CAGR with similar rate expected for next year. Current share price Rs 706.05, potential upside of more than 120% for the next year. PE ratio 7.01 where the industry PE is 20.26