Penny Stocks, Big Profits

Identifying penny stocks with huge potential is a big plus for any investor. The problem is, in most cases, you can't identify the stocks that would soar in five to ten years.

A case in point: Hawells India

Five or six years ago, our electrician recommended Hawells switches, cables and other electrical fittings. I thought Hawells was a big company.

When I checked the stock prices of the company, it was around Rs.15 per share. Now, the stock is trading for Rs.450. I didn't buy the stock then. If I invested just Rs 1500, I would have Rs 45,000 today. That is, my investment would have grown by 3000% in less than ten years.

Needless to say, I didn't invest anything and I didn't get anything. However, now I know one thing. If you can find a company that sells good products, that company is worth buying. Sweeter is the deal if the company comes as penny stock (a term for shares being sold at dirt cheap prices).

I did look for a few penny stocks, but didn't feel comfortable about most of them. However, I decided to earmark five percentage of my investments for penny stock only. If I get just one stock that grows by 3000%, my whole portfolio would benefit.

Maybe, if I see some success, I'd increase it to 10% or even 20%. That is good business, right?

Top Indian Stocks for Long Term Investment

Identifying companies with long term potential and holding the stocks of such companies for several years is the real key to making profits from the stock market. Smart investors have done it all the time. As smart people say, if you have the patience of nine people, try to buy and hold the following stocks. I think the following stocks would bring big returns in the next one to three years. I think it is good not to sell the stocks even if the stock prices rise in the next one or two years. In other words, hold them for more than five years to see real returns.

(This is a blog. The opinion are purely personal. BUY THE STOCKS AT YOUR OWN RISK. ABSOLUTELY NO GUARANTEE!)

SAIL - Steel Authority of India Limited as a company is strong, has potential and makes profits. The company is beaten in the share market. The management is good. The business is not bad. SAIL is for investors looking for long term, safe stocks.

Similar stock – Hindalco

TATA Motors - Risky, because of this company's exposure to European market and competition from foreign automobile manufacturers looking for bigger market share in India. Apart from NANO, TATA motors is doing good, selling Indica Vistas, trucks and buses. I'd back this Indian icon. Mahindra and Mahindra is also a strong contender.

Other stocks from TATA family – TATA Global Beverages (among the biggest in the world), TATA Steel (another global winner), and TATA Chemicals.

State Bank of India - You can't ignore this large cap stock for long. The basics look good. Everything is hunky dory about this bank. Will hold for more than 10 years. I believe the stock prices would then cross Rs.10k mark, may even reach 15k.

Pantaloon Retail would show short term gains in 6-12 months. Not going to hold it for long term.

Keep in mind these are only my stock picks and these are the suggestions and reasons I gave my friend. I didn't pick any from Reliance family, telecommunications, and technology sectors because of my own reasons.

Sampadyam -Malayalam Magazine for Newbie Investors

Sambadyam (a savings and investment magazine in Malayalam)

Type: Magazine
Language: Malayalam
Frequency: Quarterly
Topic: Investment, Insurance and all Personal Finance Topics
Price: Rs.15.00
Published by: Malayala Manorama

Sambadyam is a Malayalam magazine, dealing with money related topics. The tagline of the magazine reads 'nikshepakarude vazhi kaatti' (investors' guide).

Although the magazine claims to be a guide to investors, I think the magazine is good for newbie investors only. It is good for newbie investors, but seasoned investors find it grossly inadequate.

After the odd feeling of reading finance and investment topics in Malayalam is over, I could find the magazine as a guide to insurance policies, mutual fund schemes, stocks and tax planning.

The magazine has stock suggestions, without ticker symbols. The writers pick a few stocks and ask readers to consider them. Though the stocks are good bargains at the prices mentioned in the magazine, they are already trading at double the prices by the time I checked the prices. Buy the stocks at available prices and you are making big speculations. I do not expect anything better from a magazine, which is published once in three months.

Both issues had in the last page, a Tax Corner feature, where tax related doubts by readers are cleared. The questions mailed in by the readers are answered straight, clearly and in simple language.

The magazine has several pluses and a few minuses. The strong points are Tax Corner, insurance advice and mutual fund advice. The write up on systematic investment plan (SIP) offered by different fund houses was an insightful one and would inspire youth to separate a monthly sum towards investments.

The writers could do a better job by introducing better-managed funds. I miss funds by DSP ML, Fidelity and Reliance MF (although it featured Reliance Tax Saver fund).

The column titled 'Portfolio Doctor' is the weakest link. This column generally discusses the asset allocation of an investor and suggests a prescription for weaknesses in portfolio allocation. The writer has to identify some weak points in the asset allocation and suggest a remedy for a selected portfolio followed by an investor. The prescriptions are hurriedly prepared and do not qualify as studied suggestions.

The November issue discussed a portfolio (of Dr. Saji P Soman and Bindhu). The first prescription was to diversify the stocks to different stocks (I approve the suggestion) from current domination of infrastructure stocks. The second suggestion is to entrust a portfolio management to handle the stocks (Nov 2007 issue, p.66). I think a portfolio management service is not necessary for someone who has significant levels of investments in mutual funds and knows what he is doing with his money. Moreover, Warren Buffet has told you to "make your own firewood, it warms you twice".

The investor doesn't go for a PMS, but will reduce risks by diversifying his stocks to pharma, communications, entertainment, tourism and banking sectors.

The asset allocation of the couple revolves around stocks only. That is the weak point of the portfolio. It doesn't involve any real estate and gold. The saddest part is the writer starts the column by praising the absence of real estate and bullion in the portfolio – the writer also encourages average families to copy the investment style (a big mistake).

A good suggestion would be to lock in the profits from stocks, at least three years before a significantly important event and redirecting the investments to assured return funds. This step is important. Even though the good stocks can perform well in the long run, it can go down in short terms. You will lose money, if you are forced to redeem cash during a dip in the stock market. You will insulate yourself against such risks, if you redirect your cash to assured return funds.

There was a review on Benjamin Graham's world renowned book, The Intelligent Investor, which is a necessary read for everyone investing in stocks (or anything). The facing page (p.72, Nov 2007) has day trading tricks, which includes buying a stock if it has breached the 52 week high. Benjamin Graham in his book talks in detail about concepts like 'margin of safety', which is about identifying the real value of a stock and buying it at a price lower than the real value. While day trading is the recipe to burning your shirt (and underwear), 'margin of safety' is something that protects you from the volatilities of markets. I find it a bit odd to print these two concepts in face to face pages.

Who makes the good readership?

Anyone who doesn't have any insurance, mutual funds and stocks, but likes to get started. The Tax Corner is also good for tax payers.

People with some experience in money and investment matters feel this magazine inadequate.