Prime Stock alert: Average these 2 stocks on price correction
Steep correction in the small cap space throws up this averaging opportunity for 2 of our Prime Stocks.
Vidya Bala
Vidya Bala is a co-founder of PrimeInvestor. Vidya helped build one of the country’s earliest robo-advisory solutions in the country in her earlier role at FundsIndia. A Chartered Accountant by qualification, she has more than 18 years of experience, of which over 15 were spent analyzing the markets. LinkedIn | Twitter
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5 thoughts on “Prime Stock alert: Average these 2 stocks on price correction”
I need to understand what is averaging.
For example, if I have invested 1 lac rupees in each of the stock mentioned in “earning compounders” and say my investment in Lal path labs has gone down from 1 lac to 75 thousand then should I just restore it back to 1 lac by making investment of 25 thousand? Or should I go overboard and add more shares so that investment in lal path labs goes even beyond 1 lac at current valuation of 2128 Rupees.
This question is very closely related to how Prime Investor team measure the performance of portfolio of “earning compounders”. I want my portfolio to have performance of my portfolio close to the way Prime Investor measures the performance of portfolio of “earning compounders”.
Hello Sir,
To answer your questions:
First of all, the classifications like ‘Earnings compounders’ are not supposed to be a separate portfolio. We classify our recommended stocks into different buckets so that investors can select stocks from the recommendations based on their preference and risk appetite. We do not track performance of different classifications separately. You may check the stock performance review of 2023 to get an idea of how we measure performance. https://staging.primeinvestor.in/prime-stocks-performance-review-2023/
When we issue a Buy call, we note down the market price of the stock at day’s close and the performance measured is based on this buy value. When we issue an average call (reiterates a buy call), we assume the same quantum is invested again at the day’s close and performance from then onwards will be based on the new average price. Let’s see this with an example:
Assume we issue a buy call on a stock and the market price of the stock at day’s close is Rs.50. The performance of this stock from then onwards will be based on the purchase price of Rs.50. When it is Rs.60, return will be +20%, when it is Rs.40, return will be -20%
Now let’s assume we reiterate the buy call at Rs.40. At this point, we assume that the same quantum of investment is deployed again into this stock. Let’s say the investment amount is Rs.10,000 (any amount would do). For the first buy call, Rs.10,000 would buy 200 units. The second buy call will buy 250 units for Rs.10,000. In total, 450 units were bought for a cost of Rs.20,000 for an average price of Rs.44.44. This becomes the buy price for performance calculation from this point onwards.
About how investors should approach buy calls/ average calls. For each stock in the buy list; we think there is upside potential with margin of safety and investors can buy/accumulate these stocks into their portfolio based on their personal investment strategies, risk appetite, and availability of cash to deploy. When we think the prospects are turning less favourable, we will change the call to Hold, Book profits, or Sell. Detailed rationale will be given at this point. Similarly, when we think the prospects are becoming more attractive, we will issue an average call.
To sum up: We think trying to mirror our stock performance tracking will not be an ideal approach for retail investors. This will need you to invest in too many stocks and may need you to make too many transactions if we issue book profit/sell/average calls on any of these. Consider PrimeInvestor stock recommendations as your stock research as a service and construct a stock portfolio yourself by using our recommendations keeping in mind of how many stocks you are comfortable with, what is your risk appetite, what allocation you need to make towards each stock etc. We recommend going through the following articles:
https://staging.primeinvestor.in/varsity/primeinvestor-approach-to-stock-recommendations/
https://staging.primeinvestor.in/how-to-time-your-entry-into-our-stock-recommendations/
Yes agree. It would be nice if an email alert is sent whenever any updates or existing recommendations getting reiterated/changed.
Hello Sir, Sorry about this. It was sent on time. There seems to have been some email service provider issue and most emails went to spam. We resent it again later. Vidya
Thanks – I was planning to add these two and some other which are falling.
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