IPO's (contd...)

After the last week's PC's gift, we are now back to our IPO adventure. We said that now we will only invest in IPOs (and that too only for the long term ) once we have taken full benefit of the new Section 80C, ie we will use Rs. 100 thousand for Tax Savings and what is left over will be put into IPOs/Equities.

All financial experts advise you to follow what is know as the "Portfolio Theory to Investing". We are not going to discuss the way they treat the Portfolio Theory, but it's a simplified "Vibe" version of Portfolio Investing Through IPOs. Well I should ask the ED to register this as it's a completely new Jargon for Personal Finance. So, what's this PIT-IPO Theory all about?

Well its simply about creating your own Equity Portfolio through IPOs over a long period - ie. over 5-15 Years. Yes, this theory will be applicable only for investment over these long horizons and you can only benefit from it, if you keep your investments till then.

So what's the theory ? I would put it like this:

Select the 5 sectors you love, or you feel has the potential to grow with you (As you grow older they will flourish). eg. if someone asks me which sectors I love the most, well my first two choices are straight forward- ( The reasons are more personal than logical for me, but you can also derive a logic out of it )- I love IT Services and Banking - the plain and simple reason being that I work for an IT firm and my father is in Banking! If someone asks me for another three sectors they would be Telecom, Retail and lastly Apparel (clothes, jwellery etc). Your list can differ with mine, but do have your own list with you. Ask yourself "if I were to leave my current Industry, then for which Industry would I like to work?" If my industry has to grow then which other industries have to grow or which other industries will grow ? Which industry excites me ? and so on..... I bet all the questions above fulfill my loved industries.

So you have selected your industries, now what ? Start looking inside those sectors and find out which specific companies you like the most ? For the moment forget the WHYs. Yes, that will come later but for the time being just identify atleast 5 companies in each sector. At the end of it, you will have a list of 25 companies which you love the most among your loved industries. I am damn sure that whatever companies you have found, the majority of them are already listed and perhaps none is planning to come up with IPOs very soon. In my case, I am lucky. Specifically for the Telecom Sector, as only three Telecom players are listed and the rest 3 will come out any time this year.

If you have selected 25 companies out of which 15 are already listed than what to do ? We would say "wait" for the other 10 to come to market with their IPOs. WAIT!!! Remember, what the Oracle from Omaha says ?

Whenever an IPO comes from any company which operates in your loved industry, look for the reports related to them, or mail a query to rags2riches (we may not publish it, but we may try to clarify and tell our views to YOU). This may help you to come to a decision. And once you decide to invest in an IPO, put the maximum you can. But what is this "maximum"? Well if you are following PIT-IPO then you will have to balance your portfolio among the Five Sectors you love the most. Put your money in such a way that in two years time you have your total PURE Equity investments spread across each sector at around 15-25%. Try to play within this band.

Another thing to keep in mind for PIT-IPO is you will be investing "only" in IPOs and in this portfolio you will not blend the Secondary Market. That's important for getting the best out of this model. Keep all your secondary market investments for a different model but DO NOT blend it with PIT-IPO.

I will not conclude today's article, as I have to verify my Theory first! And what better way than to ask Vibe readers to contradict the same. I would love it if few out there support or even contradict me about this Theory. Hoping to hear from you all.

-jk sherdiwala


At 8:40 PM, Anonymous nitnn said...

i dont quite like this idea. i hav applied for IPOs twice and failed to get any both the times! And all my money got unnecessarily stuck for 2 months each time!
i wud rather stick to secondary markets.

At 12:43 AM, Blogger arundhoti said...

IPOs are a nuisance. Well that could be my rage for being ditched by UTV Software just this week and that too after my bucks went into the blackhole for a month.
But then, its definitely difficult to decide which stocks to invest in, in the market. Jignesh could probably come out with a minimum risk theory in that regard.


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