Aggressive investor’s focus remains on capital appreciation and he in not risk averse. He doesn’t mind taking risk if the reward potential is in his favour. He prefers investment in high return asset class like equities.Keeping the risk tolerance and capital appreciation objective in mind,I am presenting below an investment strategy which can be fruitful for aggressive investors.

 

Assumptions about the Investor

 

Type

Aggressive investors with high risk appetite

Investment Capital

2 Lakh (You can put a value as per availability of funds)

Components of investment

Equity – 80%, Bonds – 20%

Expected return

20% yearly

Risk Tolerance

High

Time Horizon

At least 3 years

 

Ideal Investment Option and Allocation

80% investment should be done in 3 stocks from Nifty with lowest PEG ratio. Invest equal amount in all three. Re evaluate the portfolio every 6 months and shift into new stocks with lowest PEG ratio at that point of time. Invest rest 20% in high quality debt funds.

 

Selection process for Stocks and Bond

Stocks

  • Find PEG ratio of all fifty companies in Nifty
  • Choose 3 with the lowest PEG ratio
  • Find out the following –
    1. Does the company have any criminal/fraud case pending against it? (non-negotiable test)
    2. Is the operating cash flow positive?
    3. What is the EBITDA, EBT, and EAT in terms of margin? (EAT margin > 12% is acceptable)
    4. CAGR for revenue and profit growth (CAGR > 15%)
    5. Dividend history (Consistency is important). If the company has never paid dividend that is fine.
    6. Any other study which may be useful
  • If all three companies meet these criteria. Make a portfolio of these 3 companies and invest equal amount in all of them.
  • If a company doesn’t meet the criteria, take the next higher PEG Company from Nifty.
  • Repeat the process till you get 3 lowest PEG companies that also meet the criteria mentioned.
  • Once you find 3 companies, divide the investible amount in three equal parts and invest in these firms.
  • Revisit the Nifty companies every 6 months and change if the three stocks selected are no more the lowest PEG stocks.

Bond

The remaining 20% of investment will go towards a debt fund. Read the article “Investment Strategies for Conservative Investors” for the selection criteria.

 

Important point

This is only for long term. Investors should be invested for 3 years to reap the benefit.