PYRAMID STRATEGY -- Larsen and Toubro ..

Long term buy

Larsen and Toubro

Fundamentally nothing to be mentioned as its one of the blue chip companies and super 50 pages
reports available all over the net so would directly go to the technical view and buying strategy.
Technical View:
Long term weekly Charts:
The stock has followed the channel as shown and attempted to make a pullback towards the
upper end of the channel before the October crack.
There are almost 5-7 bottoms closer to the lower end of the channel.
All the major indicators and oscillators are close to the levels of previous major lows of
2006/2003/2002/1998.This clearly points the stock is getting highly oversold on further declines.
The May June 2006 low is around 450.Stock should see good support around these levels in
sharp declines.

Daily Charts:
The stock is forming a short term channel in the last few months and should see some support around
575 zones. A fall below that level could lead to further cracks.
The upsides for medium term could be capped at 700 which If crossed then 790 zones.

Pyramid Strategy:
The tabular representation below is an attempt to create a buying and selling strategy which may not be
dependent strictly on timing the investment and price but a structured way of creating a good
investment at a comfortable average price.
This is an age-old strategy deployed by shrewd investors who keep increasing their investment in bad
sentiments (average closer to lows) and by the time markets stable out the costing of their partial stock
is negligible and keeps going towards zero. I have tried to formulate a possible technically biased
strategy from the above. I got introduced to this strategy due to interactions with a Value Investor who
has been in the markets for a long amount of time and many such experienced people.

Buying Strategy:
The view on the index and markets is that we may well be in a last wave of correction and finding an
exact bottom is never possible so we need to employ a strategy such that we may be able to optimize
the returns when the stock starts performing.
Assumptions and things to note
1) The most important part is being convinced about the business one is buying and be patient
over it in the long term with a time period of 3 months to 2 years.
2) The cash allocation to the stock is fixed at the start itself with a buffer. ( 5 lakhs here )
3) Continue to stick to the buying and selling strategy and not all iterations may take place.

Just a tabular presentation of the strategy if it works

Buying Pyramid
10
20
30
50
80
130
210
340

575
552
535
519
504
489
474
460

5750
11040
16063.2
25968.84
40303.64
63528.61
99544.45
156332.2

Possible buying average if all trades executed

870
481
418530.9
Exit Strategy
10
20
30
50
80
130
210
340

481
510
551
595
642
694
749
809

4810
10197.2
16519.46
29735.04
51382.14
90175.66
157321.8
275088.5

Final Selling Average if all trades executed

870

730

635229.8

Possible Gains
216698.9

51.77%

3 months-2 years

Different Possibilities and Notes

1) The above example is taken on the technical bias that Larsen and Toubro may bottom out
around 450 levels or closer to that and few iterations would take place.
2) Similarly the selling levels are taken on the bias that the stock may move up to 800 levels in the
next 3 months -2 years.
3) There could be many variations to the above strategy if we increase the no of iterations (8 in
above example), Exit Strategy.
4) One of the variations would be if one is looking at a much larger target and time frame and tries
to reduce the costing of the left out stock to Zero. This could be done by increasing iterations
and selling prices.
5) Many possibilities abound but this Strategy is just a basic one and Investors can tweak it as they
wish!!And optimize it with different stocks (I like Axis Bank similarly 225-250 bottom support) .

This is a mere attempt to formulate a structured and disciplined investment strategy and may still
not be accurate or profitable so please do your own research.
Best Regards,
Nooresh
09819225396
Noorrock2002@gmail.com