`It pays to be level-headed'

Rasheeda Bhagat

SHE is one of those rare and lucky investors who did not get caught in the IT crash of 2001. More than luck, a major reason for her good fortune is that she is extremely level-headed in her investment decisions. ``The IT boom hardly tempted me because from 1975, when I entered the stock market, I have seen so many scams... Whether it is the NBFCs, the Harshad Mehtas or the IT crash... I have seen them all,'' says Ms Smitha Iyer, General Manager, Chennai, Explocity.com.

In 1975, while working for a bank she first got interested in the stock market. ``For one thing I had a commerce background and at that time the bank used to lend against shares. I was constantly following the market for our customers and I found some good shares to invest in. I remember that at that time Cadbury and ITC had made some good offers. Around 1975-76, Cadbury had made an open offer at Rs 11 and ITC was available at par.''

She applied for the shares and was allotted 100 ITC shares and 50 Cadbury shares. In a quarter century you can imagine the number of bonus shares that would have got added to her kitty! Apart from booking some profit on a part of their (all the shares are held jointly by Ms Smitha Iyer and her husband who works in the IT industry) ITC shares, ``we are holding on to most of the shares acquired then.''

Looking back, she says with a smile of satisfaction, ``They were extremely good investments and we are holding on to most of the shares.''

Hindustan Lever, Nestle and Colgate are the other shares which are her favourites. ``Even today, I would recommend Hindustan Lever or Nestle because everybody will eat chocolates, and look at the number of Lever's products in your house today! So it does not make sense for any portfolio not to have Hindustan Lever,'' she says.

Apart from these old bluechips, Ms Smitha Iyer and her husband did buy some tea stocks including Harrison's. Her experience in those shares has been mixed.

Coming to the IT sector, she had invested in Silverline. She got a part of her holding through initial allotment and later bought the rest at Rs 70 a share. ``I remember one of my colleagues suggested selling Silverline when the company made an open offer. But I said: No way. The very fact they are making an open offer means they are consolidating, so I will not sell it.''

Ms Smitha Iyer says that though she would suggest an investment horizon of three years, an investor does not necessarily have to be rigid on this count, and should book profits when his/her target price has been reached.

Coming to the kind of realistic returns small investors should have as their objective, she says that with an investment horizon of three years, an investor should be happy if he/she gets a 20 per cent per annum. ``You should not be greedy and expect more. But within the three years if you find that the share has crossed the 20 per cent profit level, go ahead and book the profit. For instance, Lever is today around Rs 185 and I feel that in 6-8 months it can cross the 20 per cent level. If that happens then book your profit and do not worry about the three- year horizon,'' is the advice she has to offer.

Having studied the capital market for years, she has found that in every share, irrespective of the industry, there are ups and downs. ``You take the downs to buy the shares and use the ups to book profit. The cycle can be a minimum of six months.''

Returning to her own holding in Silverline, she decided to book profit. Only, with the IT valuations reaching ``crazy levels'' she ended up making much more than the sober 20 per cent she recommends! ``When the price of silverline reached Rs 300, we decided to sell. We sold because we thought the IT industry was going haywire. After that, Silverline touched Rs 700.''

So did she have any regrets on losing out on higher profits?

``Not at all. For one thing, I had made a profit, and anyway I felt the IT industry was going though very foolish valuations. And, eventually, it is not even worth the tension of watching the price rise and then fall!''

But this investor never entered ``high-priced shares such as Infosys or Wipro or Satyam because it is a very volatile market and I do not have the time to follow it up closely. If I were a housewife or in a less stressful job, which allowed me time to monitor the market, perhaps I would have gone into such shares.''

As a small investor, she stays away from day trading. ``Day trading is so risky but I know many people, including women, who are day traders. When people ask me what should they buy, I ask them what is your investment horizon. It should be minimum three years. Otherwise, you should be prepared to write off that money. You should not feel bad that you lost it. If you have a few thousand rupees to invest and you can says: Okay, I do not mind if I lose this money; then by all means do day trading. But then what can you buy with a few thousand rupees? At the minimum you should have about Rs 3-4 lakh to invest. And I would never touch IT, because it is so volatile, '' she says.

Even the bloodbath that followed the arrest of Ketan Parekh, did not tempt her to buy IT shares, though the valuations were very attractive. ``I agree, the prices were very attractive. But with the IT shares being so volatile, you have to constantly monitor the prices. If you do not have the time, you would be taking a huge risk.''

She has another reason too for avoiding IT shares totally.

``I have had the opportunity to watch and monitor this industry at close quarters and it is going through such a bad time. People are being laid off and there are so many negative things happenings. Not all of it has been covered or reported by the media. My husband works in the IT industry and there is a lot of information to which we are privy, so I would never touch IT shares now,'' she says.

Of course, the front-rung IT companies are different and she makes a distinction there. ``For example, there is a company such as Infosys. But I could never afford to buy Infosys in a sizeable number. And one or two shares will give you nothing. So, I still continue to believe in the good old bluechips and industries which people need constantly. There you cannot go wrong.''

Apart from Lever, she recommends Nestle, Cadbury ``or even Bata which is cheap today.''

As a long-term investor, Ms Smitha Iyer has another bit of advice for small investors: ``Never, ever invest in 20 counters. Restrict yourself to five or six, because then you will be able to monitor them properly.''

She herself has practised this advice. Surprisingly, in the last two years, she and her husband have ``not bought a single share because I did not have the time. And also because I knew that IT was totally overvalued. Having worked for a bank and a business paper, I knew that these were foolish valuations. Even in my personal life I am very careful, whether it is making monetary or other decisions,'' she concludes.

She provides an interesting insight into investor psychology when she says that she considers the task of making a profitable investment decision as a challenge to her brain. ``I feel it is a challenge to my brain to make the right decision. If you factor that in, then the returns will be much more. When you make profits, it is a feeling of achievement and you tell yourself: Ha, I was able to spot a good company. For me that is also important.''

Would you like to share your experience as an investor? Write to us at bleditor@thehindu.co.in

Pic.: Ms Smitha Iyer, General Manager, Chennai, Explocity.com.