The Hindu Business Line : Tech Tools

I am a small investor. I usually like to stay invested in a scrip for a good length of time. However, I also feel that a part of the money, may be around 20 per cent of the portfolio can also be utilised for trading. I also find it difficult to find a company (A Group) to trade in. I feel sticking to just one company may not be a good idea since different sectors may be in and out of favour at different times. Please give your suggestions on these points. Rajen Bajpai

It needs to be understood that your investment portfolio should comprise other fixed income assets besides equity. Your equity portfolio can be split in to long term holdings and short-term holdings as you have rightly worked out. Long-term holdings would ideally be blue-chip companies with sound management and track record and a history for rewarding investors with dividends and bonuses. These shares should not be disturbed and should be reserved for your progeny.

Short-term holding in the equity portfolio can vary between 20 and 25 per cent. These shares would be churned regularly. Every time you initiate a position in this segment, define the target clearly. Book profits as soon as the target is achieved, even if it takes just a couple of days to do so. Even though short-term capital gains tax will take away part of the profit, this segment can still yield greater returns than the long-term portfolio, provided that stop-loss levels are adhered to firmly.

The split between the long-term and short-term holding can vary according to your risk taking ability. It can also vary according to your perception of the market risk. To elucidate, if you feel that the market is over-heated and will crash soon, you can reduce your exposure to equity markets by diluting the short-term holdings (since long-term holdings are not to be tinkered with).

With regards to the companies that one wants to trade in to, the selection of the stocks will depend on the trading method. Intra-day traders and swing traders in the derivatives segment would prefer stocks, which are liquid such as Reliance Industries, State Bank of India, Infosys Technologies, Satyam Computers etc. Some traders who swing trade in the cash segment would dabble in liquid mid-cap stocks also.

You can keep five liquid stocks from the A group from different sectors on your radar. The stocks that are out of favour with the market can be used for short selling while those that are in an up trend can be bought on dips.

As per your advice on Business Line dated 12 November 2006, will you please advice me on the prospects of Wockhardt? On 28 March, 07, the 10-day moving average has crossed the 200-day moving average in this stock. What do you advice, should I book profit or hold it? R. B. Saboo

Your observation regarding the 10-day moving average having crossed above the 200-day moving average (DMA) is correct. It implies that the short-term trend is upwards. But the 50-day moving average is yet to move above the 200 DMA. The medium term trend is still down. Though it is not easy, it is imperative to stay objective while reading charts and not try to juxtapose our hopes on the interpretations.

We had mentioned in the earlier edition that a move beyond Rs 420 can take the stock to Rs 440. The stock is currently hovering around Rs 420. Since, the stock is in a short-term up-trend, use a move below the 10-day moving average as a cue to exit the stock. Reversal below Rs 440 will keep the stock oscillating in the band between Rs 450 and Rs 320 for a few more months.

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