Shares which may safeguard your portfolio from any volatility

An investor should always have 30%-40%  of his investment invested in good quality, less volatile shares. These shares work as a safeguard for the portfolio in case of any negativity. Followings are few examples of such type of shares.

1. Dabur India
2. HUL
3. Britannia
4. Powergrid
5. Bayer Cropsciences
6 Abbott India
7 Nestle

The reasons for less volatility in these type of shares are :

1. Leadership position in their respective segment
2. Clear Business Model
3.Visible Future Growth
4 High Demand in HNIs

Investors can see the price performance of these shares during the down period of the market.

I have abbott and Bayer in my portfolio. Investors are advised to consult their financial consultant.

Five Shares which can give you good return quicker than and more than expected over next 2-3 years

Five Shares which can give you good return quicker than and more than expected over next 2-3 years 

MCX	Now all the negatives are behind for MCX.  With no capex requirement, healthy cash position and clarity in regulatory framework ,MCX is in the position to get benefited from the booming economy.
VST Tillers	The company is the largest manufactures of power tillers in  India. It also manufactures tractors and other agri equipment like rice transplanter, power reaper etc. Last year, the company has started its new unit at Hosur.  The company is expected to be benifited from good monsoon and increased govt spending on agriculture.
Umang Dairies	It is a JK group company. It is turning into a great turnaround story. A small improvement in the performance will lead the share price into 3 digits which, I  think , would be just a start of the journey
IDFC	IDFC is continuously testing the patience of the investors.  After conversion into the bank, it would have access to low cost funds and high margin business.  Which is making it a must buy. I am sure that the patience will be paid off.
Force Motors	After Firodias taking over full control over the company, the company is poised to grow significantly from hereon. The company manufactures a range of vehicles including Small Commercial Vehicles (SCV), Light Commercial Vehicles (LCV), Multi Utility Vehicles (MUV), Sports Utility Vehicles (SUV), Heavy Commercial Vehicles (HCV) and Agricultural Tractors. Its flagship product traveller   is enjoying leadership position.  The company has also partnered with BMW for supplying of engines and gear box for later’s Chennai car plant.  Wide range of products, debt free status and market cap of Just over 2000 Cr.  is making it a must buy for a long term investor.

  

I don’t believe in giving targets. I believe that long investor should invest in good companies at right price. If it is difficult to determine right price, investor should invest as SIP.  Long term investor should buy and hold the shares to get the benefits of compounding,

All the shares discussed above are in my portfolio. I intend to hold them for long term. However, investors are advise to consult their financial adviser before investing.

Why should investor not consider the book value of a share ?

The price of share is derived from its future earning prospects both in the hands of the company and in the hands of the share holder (in form of dividends, buy back etc). Book value represents the historical value recorded in the books of the company.  A share with low price to book value ratio does not mean that the share is cheap. In my previous post, I have discussed about the factors to be considered by long term investor while investing in a share. http://rvinay.blogspot.in/2015/06/factors-to-be-considered-while.html . 

Here is the list of few shares with high price to book value ratio.

S. No.	Name	CMP*	BV	P/BV	ROCE %	DP Ratio %
1	Nestle	6144	294.27	20.88	62.75	51.27
2	Dabur	282.5	10.84	26.06	43.24	46.06
3	Britannia	2731.55	123.1	22.19	66.2	38.91
4	Colgate	2055.2	85.21	24.12	101.3	58.38
5	HUL	918.3	15.15	60.61	148.75	75.2
6	Asian Paints	760.8	44.1	17.25	46.31	44.08
7	Eicher Motors	20352.35	454.53	44.78	64.82	24.24
8	Ajanta Pharma	1584	89.41	17.72	55.8	17.24
9	Page Industries	15074.49	434.85	34.67	75.64	43.51
10	Symphony	2131.4	66.54	32.03	58.27	45.99

Below is the list of few shares with low price to book value ratio.

S. No.	Name	CMP*	BV	P/BV
1	RIL	1005	739	1.36
2	ONGC	313.9	201.22	1.56
3	Hindalco	113.05	196.6	0.58
4	Tata Steel	306.95	376.91	0.81
5	Gitanjali Gems	40.00	189.31	0.21
6	Bank of India	179.85	449.87	0.40

CMP	NSE price as on 1/7/2015
BV	Book Value
P/BV	Price to Book Value Ratio
ROCE	Return on Capital Employed
DP Ratio	Dividend Payout Ratio

Source - Moneycontrol.com

If you compare both the type of shares, you will find that the expensive share is becoming more and more expensive. I have discussed the reasons for such a high valuations in my previous blog. http://rvinay.blogspot.in/2015/06/why-do-some-shares-command-high.html

Here are few possible reasons for high book values.

1. In the past, the company may be a part of M&A exercise. The high reserves may have been created out of that exercise.

2. The assets shown by the company may not be realisable.

3.The company is not an investor friendly company and its Dividend Payout ratio is low.

4. Company is investing its earnings in the projects with high gestation period. 

Generally retail investor think that the high book value is a safeguard against any fall. It would act as a base for the share price which is not the case. If P/BV ratio of a share is low, there must be some reason this (mentioned above).  The investor should understand that the book value is not going be his.He will be getting dividend and capital appreciation which has no relation to the book value.