My strategy in this extended bull market

The Indian stock market has now been bullish for quite some time -- enough, I guess, for the current situation to be described as an extended bull market. Though there have been some hiccups on the way, stock prices have in general been on the rise for quite some time now. As a result, it is now tough to find fairly priced stocks -- at least, I am now unable to find any fairly priced stock. Now this is quite possibly because I am not looking well enough -- there may be some stock that hasn't yet caught the fancy of Mr. Market, though its fundamentals are good. But frankly, none of the stocks in my shortlist (which has over 500 stocks as of last count) qualify as fairly priced, as per my definition of fairly priced. And I have money with me to invest, money which keeps idly accumulating in my bank account as I look in vain for good stocks. What do I do in this situation? Here is what I have decided to do, and am doing :

• First and foremost, do not put my money in any stock that is not worth the money. Buy a stock only if it is fairly valued. It may be the case that I am not able to find a single stock to buy in the next five years, because the bull run is relentless. Then so be it. There is really no point in buying at an unjustifiable price. Also, as long as the market as a whole continues to be overpriced, don't put money in equity-based mutual funds. Find some other avenue to put my funds in, till I can find reasonably priced stocks to buy. Maybe invest in a flat which I can rent out at a reasonable (here is that word again!) rate.
• Keep looking for opportunities to buy. If I am patient enough, I am likely to find some stock occasionally that is beaten down for some transient reason or the other (nothing to do with its fundamentals), at least occasionally. Be alert so that I can grab these when they come along. Yahoo! India's portfolio trackers are a great tool here -- they help me in quickly assessing whether something has come into the "buyable" range, without spending too much time -- five minutes a day are more than enough.
• Be cautious that my definition of a "reasonable price" does not change, even if I have to wait an indefinite amount of time to find a reasonably priced stock. My objective is not just to do something in the stock market -- it is to identify and accumulate fairly priced stocks. So buying and selling, by themselves, are not the least rewarding to me.
• Give a hard look at each of my supposedly good companies (those that I own) once in a while, to see if they have performed according to my expectations. If they have not, make use of the bull market to dispose of them at a fair profit.
• Don't be tempted to sell off good stocks, even if they become overpriced, unless I find another opportunity -- not necessarily in stocks -- to invest the proceeds of the sale. Most of my value stocks give a fair amount of dividend income, that should be sufficient reason to hold on to them as long as there are no other investment opportunities.

On a related note, I strongly suspect that this bull run will not last much longer, for the simple reason that someone has to run out of money. At the very least, within the next year or two, I think that there will be a major drop -- even if temporary -- in the market. The ensuing panic -- which will be of princely proportions :-) -- will allow me to buy many good stocks at fair enough prices, and some at really dirt cheap rates. I am eagerly waiting for that crash to happen -- that is when I will get back my delayed satisfaction with interest!!

Scorecard - Oct 2006

Here I am, back after a long lay-off due to various personal reasons! I did not buy any shares during September and October 2005. Here is how my shares have performed so far. This is a full list of the shares I bought from Jan to Oct 2005. Last updated on Oct 9, 2006. Next update due end of Oct 2006. The previous scorecard is here.

Name of the company	Bought on	Price (Rs.)	Price as of last update date (see above) (Rs.)	Dividend received per share (Rs.)	Total returns per share (Rs.)	Absolute returns(%)
Kabra Extrusiontechnik Ltd	12 Jan 2005	60.03	109.85	3.5	53.32	88.82
TNPL	19 Jan 2005	58.17	101.05	4.25	47.13	81.02
Cosmo Films	23 Mar 2005	59.30	97.25	3.5	41.45	69.90
MTNL	24 Mar 2005	122.81	160.95	2.5	40.64	33.10
Tamilnadu Petroproducts	29 Mar 2005	20.10	21.30	1	2.20	10.95
PNB Gilts	14 Apr 2005	18.09	19.70	0.80	2.41	13.32
Bongaigaon Refineries	18 Jul 2005	87.64	58.95	8.70	-19.99	-22.81
GTL Ltd	23 Aug 2005	97.49	141.25	1.80	45.56	46.73
GE Shipping	23 Aug 2005	171.30	301.15	4	133.85	78.14
Bongaigaon Refineries	25 Aug 2005	78.69	58.95	2.70	-17.04	-21.65

Stocks I bought in August 2005

GTL Ltd

This is a network engineering and IT services company. I bought this stock mainly because at the price I bought, the stock was available at nearly half the book value. Also, the company had been doing well over the past few years, with steadily rising profits.

GE Shipping

The Great Eastern Shipping Company is a major shipping services company. The reasons why I bought this stock are:

• Dividend Yield: At the price I bought, the dividend yield was above 5.25%, which compares favourably with the savings bank rate. Also, the company had been paying increasing dividends over the last few years.
• Price/Book Value: At the price I bought, the stock was available at a mere 1.5 times its book value.

Bongaigaon Refinery and Petrochemicals Ltd.

    The same reasons as here, plus the share price went down without any significant downturn in the company's performance.

Scorecard - Mar 2006

Here is how my shares have performed so far. This is a full list of the shares I bought from Jan to Aug 2005. Last updated on Mar 31, 2006. Next update due end of Apr 2006. The previous scorecard is here.

Name of the company	Bought on	Price (Rs.)	Price as of last update date (see above) (Rs.)	Dividend received per share (Rs.)	Total returns per share (Rs.)	Absolute returns(%)
Kabra Extrusiontechnik Ltd	12 Jan 2005	60.03	109.55	3.5	53.02	88.32
TNPL	19 Jan 2005	58.17	116.65	4.25	61.23	105.26
Cosmo Films	23 Mar 2005	59.30	69.30	3.5	13.50	22.77
MTNL	24 Mar 2005	122.81	183.70	2.5	63.39	51.62
Tamilnadu Petroproducts	29 Mar 2005	20.10	21.30	1	2.20	10.95
PNB Gilts	14 Apr 2005	18.09	19.55	0.80	2.26	12.49
Bongaigaon Refineries	18 Jul 2005	87.64	65.65	6	-15.99	-18.25
GTL Ltd	23 Aug 2005	97.49	146.00	1.80	50.31	51.61
GE Shipping	23 Aug 2005	171.30	261.65	4	94.35	55.08
Bongaigaon Refineries	25 Aug 2005	78.69	65.65	0	-13.04	-19.86

Stocks I bought in July 2005

Bongaigaon Refinery and Petrochemicals Ltd

This is an oil refining company based in Asom, with the Government of India as the major shareholder (nearly 75%).

The main reason this stock appealed to me is its high dividend yield: it paid out Rs.12 per share in 2004-05, which works out to more than 13.5% yield at the price I bought. In 2003-04, the dividend per share was Rs.7.70, which corresponds to a yield of nearly 8.8% at my price. Being a government-owned company (and the government in question being perennially short of funds), I think it safe to assume that if the company makes a profit, then a significant amount of that profit would be paid out as dividend. And the company has indeed been making a profit in the last few years.

Since I bought the stock, the company has paid out an interim dividend of Rs.6/- per share, a 6.85% yield on my price.