How to take calculated risk in share market?
Investing in stock market is a dangerous thing but more you take risk more you will gain… this is true if you take a calculated risk. If you recklessly take decisions you are bound to be a loser. In this post I will show you how to take calculated risk with very little chance of of losing.
Volatile market
Share market is so volatile that you can’t take any short term decisions. Any change in political and economical situation of our country will adversely affect the share price. You won’t be knowing when a negative news would suddenly destroy your investment plans. This is the reason why 99% of general public who are investing are losers. But institutional investors and big brokers are generally making a good profit. What is their strategy?
Inefficiency of technical analysis in short term
Technical analysis predicts future price movement based on past price movements. It is based on probability of occurrence of events. It is not a sure shot thing. It only shows the current trend is up or down. All the indicators in technical analysis of share market can’t predict the exact point of future trend reversal. It will confuse you, and you won’t be able to have faith on it if your investment is based on technical analysis.
Short term and long term Trend
You have selected a good company and investing your money by analysing long term and short term Trend. But there is no guarantee that long term Trend will not reverse suddenly. If long term trend reverses against you, then you are going to be a big loser. If you want to make money in short term trend analysis then you are a common people who always make mistakes to become rich overnight.
The only one way to invest in share market
The only one way to invest in share market is by selecting 10 best stocks of the market and make long term investment. But what are the best stocks of the market? If you ask experienced brokers about the best stocks of the market then different brokers will guide you differently and selection of stocks will vary from person to person. The experienced brokers too will misguide you as they themselves don’t know when the trend will reverse.
How to select stocks to invest in long run
Analysing Nifty 50’s long term Trend
Let’s analyse Nifty 50 for 18 years as shown below
The value of nifty on 2003 was 934 and current price of nifty is over 13000. Now look at the graph, it shows basic trend of Nifty is always up and it has maintained its upward Trend for last 18 years. But unfortunately Nifty is not a stock, but it is an index of a group of stocks.
The above graph is showing Nifty index’s monthly closing price in y axis and month & years in x axis. The red line is showing 50 month exponential monthly moving average.
If you observe the chart closely you will find the following observations:
1. Lowest closing price on 2003 – Rs 934
2. Closing price on 19 Dec 2020 – Rs 13320
3. Return in 18 years (13320/934)*100 =1426%= your money is multiplied 14 times
4. Long term Trend of Nifty is always up for last 18 years.
A Proof of Failure of Technical analysis
Technical analysis states when price falls below long term moving average, it becomes a strong indication to sell (ie strong bearish market) but if you look at the chat, as soon as the the price falls below 50 month moving average ( the red line) , it indicates upward movement of nifty 50 is going to start soon. This means Bearish market is in its last phase and bulls are ready to start their new journey. So, technical analysis will confuse you in multiple phases.
About Nifty 50 stocks
This part of the article is constructed with the reference of an article of Economic Times of India
How is a stock excluded/ included in the Nifty Index?
1. What is the criteria for inclusion in the benchmark Nifty index?
The stock should have traded for 90 percent of the observations at an average impact expense of 0.5 percent or less over the last six months and should also have at least twice the float-adjusted market capitalization of the current smallest index constituent. The business must be domiciled and traded on the stock exchange in India. To be eligible for inclusion, the stock must be available for trading in the futures and options section on the NSE. Other factors that are considered to include a stock in an index are market capitalisation, liquidity and trading frequency.
2. What gives rise to index exclusion?
In order to check the current index constituents twice a year, a list of new qualifying stocks is drawn up and if any adjustments are to be made, the smallest con stituents are withdrawn and new stocks are substituted. In the case of a spin-off, merger or takeover, exclusion can also happen.
3. When will the modifications take place?
On a semi-annual basis, the index is re-balanced and the ex adjustment gives four weeks before any adjustments to the index are made.
4. Who’s determining which stock is going to be part of Nifty?
As a group company of the National Stock Exchange of India, India Index Services and Products owns and operates 67 indices under the Nifty name, including the Nifty index. The Index Management Subcommittee has been created by IISL, which makes all decisions on index inclusions and exclusions.
5. After the changes are made, does the index level change?
No. If a stock is replaced by another stock in the index, the index divider is changed so that the adjustment in the market value of the index resulting from inclusion and exclusion does not change the amount of the index.
6. Will Nifty become part of Differential Voting Rights?
IISL revised its stock selection requirements in February 2016 to include Differential Voting Rights (DVRs) of shares in the index. The first DVR to be included in the Nifty was Tata Motors DVR, as a result of which it has 51 shares, but the number of companies remains at 50.
The Secret of 18 years of long term bullish run of Nifty 50
The persons controlling Nifty 50 are big investors and great influential persons. They have good relations with many institutional investors. They will never allow the High weightage stocks of Nifty 50 to fall permanently. After all share price is based on demand and supply. So they will manage more buyers to buy those High weightage stocks resulting in sharp increase in share price. So I can guarantee that Nifty will touch 1 Lakh in next 10 years.
# Which shares constitute Nifty 50
Below is the list of Nifty 50 Stocks. Weightage of 2020 that are included in Nifty 50 Index along with weightage sorted on the basis of percentages updated on December 1, 2020 for November closing.
HDFC Bank Ltd. – 11.21%
Reliance Industries Ltd. – 11.17%
Housing Development Finance Corporation Ltd. – 7.23%
Infosys Ltd. – 7.21%
ICICI Bank Ltd. – 5.84%
Tata Consultancy Services Ltd. – 5.04%
Kotak Mahindra Bank Ltd. – 5.00%
Hindustan Unilever Ltd. – 3.42%
ITC Ltd. – 3.03%
AXIS Bank Ltd. – 2.67%
Larsen & Toubro Ltd. – 2.45%
Bajaj Finance Ltd. – 2.33%
Bharti Airtel Ltd. – 1.99%
Asian Paints Ltd. – 1.79%
State Bank of India – 1.68%
Maruti Suzuki India Ltd. – 1.67%
HCL Technologies Ltd. – 1.60%
Mahindra & Mahindra Ltd. – 1.24%
Nestle India Ltd. – 1.14%
Dr. Reddy’s Laboratories Ltd. – 1.05%
Titan Company Ltd. – 1.02%
Sun Pharmaceutical Industries Ltd. – 0.99%
UltraTech Cement Ltd. – 0.99%
Tech Mahindra Ltd. – 0.97%
Bajaj Finserv Ltd. – 0.95%
Wipro Ltd. – 0.93%
HDFC Life Insurance Co. Ltd.- 0.91%
Power Grid Corporation of India Ltd. – 0.88%
IndusInd Bank Ltd. – 0.87%
Divi’s Laboratories Ltd. – 0.82%
NTPC Ltd. – 0.82%
Tata Steel Ltd. – 0.78%
Britannia Industries Ltd. – 0.77%
Bajaj Auto Ltd. – 0.74%
Hero MotoCorp Ltd. – 0.72%
Cipla Ltd. – 0.68%
Eicher Motors Ltd. – 0.63%
Grasim Industries Ltd. – 0.62%
JSW Steel Ltd. – 0.62%
Hindalco Industries Ltd. – 0.59%
SBI Life Insurance Co. – 0.59%
Shree Cement Ltd. – 0.58%
Tata Motors Ltd. – 0.58%
Adani Port and Special Economic Zone – 0.54%
Bharat Petroleum Corp. Ltd. – 0.54%
Oil & Natural Gas Corporation Ltd. – 0.51%
Coal India Ltd. – 0.47%
UPL Ltd. – 0.41%
Indian Oil Corporation Ltd. – 0.38%
GAIL (India) Ltd. – 0.34%
Select 10 stocks with highest weightage in nifty 50 index
These are the 10 stocks with highest weightage
HDFC Bank Ltd. – 11.21%
Reliance Industries Ltd. – 11.17%
Housing Development Finance Corporation Ltd. – 7.23%
Infosys Ltd. – 7.21%
ICICI Bank Ltd. – 5.84%
Tata Consultancy Services Ltd. – 5.04%
Kotak Mahindra Bank Ltd. – 5.00%
Hindustan Unilever Ltd. – 3.42%
ITC Ltd. – 3.03%
AXIS Bank Ltd. – 2.67%
Download free documents of nifty 50 – dated 27 November 2020
Watching the long term graph of each stock
All the below shown graphs are monthly closing price chart denoted by black zigzag line. The prices shown here are adjusted according to stock splits (declaration of bonus issues by the company). Red line in the graph shows 50 month exponential moving average. Monthly Closing price of 2003 and monthly closing price of November 2020 is denoted in red block letter.
HDFC Bank
Reliance Industries
Housing development financial corporation
Infosys technology / Infy
ICICI Bank
Tata consultancy services
Kotak Bank
Hind Unilever / Hindustan lever
ITC limited
Axis Bank
Common analysis of the above charts
If you look at the above charts and compare it with Nifty index, it will look similar to Nifty index chart.
Rate of return
The rate of return of the investment is far more than Nifty index. It is more than 15 to 20 times of your investment done in 2003. Some of the shares has shown more than 50 times of your investment, specially private bank sector. IT sector(Infy and TCS) too has performed well. ITC and Unilever (FMCG sector) has given moderate gains.
Technical analysis
If you follow the rules of technical analysis, then you are bound to be a loser but if you look at the graph and 50 month moving average, you will realise best time to invest is “when price falls below 50 month exponential moving average – the red line”(just like Nifty index monthly chart)
How to make a safe investment?
Sector wise diversification
Top 10 high weightage shares of Nifty consists of three sectors
1.Bank and Finance sector
2. Tech Sector
3. FMCG sector
So invest one third of your capital in each sector. This will diversify your portfolio and keep your investment safe.
Modification of portfolio
Top 10 high weightage shares will change from time to time. But I would suggest you to modify your portfolio after 18 months. After 18 months include the top 10 highest weighted shares of Nifty index and exclude that are below top 10 ranking.
Invest and forget
Do not watch the share price everyday. This will create a panic inside you when share price starts to fall. It is better to invest and forget about the investment. Many news and rumours will arrive in front of you and it will force you to square up your trade.
Have faith
In the last 18 years these shares have performed miraculously. So 18 years long Trend will not be reversed so easily. News of many economic disbalance will arise in next 15 years. So don’t worry and have strong faith over your investment.
Conclusion
Share market is so volatile that anyone can be confused about the direction of trend. The direction of long term Trend is not so weak compared to short term Trend. So always make long term investment. Remember, no one can become a millionaire overnight. Please comment?
My Solution 
This post is great! Keep up the good work!
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Thanks for your nice comment
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