.png)
More than 5000 and 1500 companies are listed with BSE and NSE respectively & This is the most critical part of investing is selecting the right stock to invest. Due to time constraints, investors can’t analyse every single company out there & earn profits.
Stock picking for value investment needs extensive research about the company operation, industry perspective, competitors, government policy, etc. However, choosing a company that is familiar to you will make this task easier and enjoyable.
Many a time, you can get stock ideas by observing things around you, like whenever you visit a supermarket or a shopping mall you may come across a lot of brands. So, by watching people what they are buying will help you in predicting the market demand. You can also get stock ideas from products or services you use in daily life or brands you like the most.
You should regularly monitor 52-week low data as many times you can churn out good bargains while referring these data where you will find not only 52-week low data of all the companies listed on the stock exchange but also 52-week high data as well. You can compare the current price of the company based on both these figures, and figure out whether the pricing is attractive or not.
After screening out the desired stocks, you can start studying about them. You can read the annual report of the company and gather information through various sources like articles, interviews, etc.
Many business magazines like mint, business standard, business today cover exciting stories about business models and interviews of crucial managerial persons. It can provide you with a good idea about what and how people are running businesses.
You can gather various information from different blogs, forums or website on stock picking. However, while reading such news or blogs, & do not blindly follow the broker/writer's view on the stock. You can use it for gathering information related to the business model, Investor presentation, Annual Report etc. After collecting data from these sources, you need to analyse it by yourself.
Do not buy stocks for trading purpose, but for holding goal. If the business is thriving and is in fair valuation, one should buy it for the long-term perspective. Buy stock in companies that you would like to own yourself.
Simplicity always outperforms complexity in investment, as it is said: “Take a simply Idea but take it seriously”. You don‟t need an excellent knowledge or accounting degree and vast knowledge of companies. You just need to focus on some few simple fundamentals, invest according to your analysis and what you think will be the future of the business. At times you will look like a fool, but you just need to believe in your inner scorecard. You are determining the right earning yield.
ALSO READ: HOW CAN I FIND OUT OVERVALUED OR UNDERVALUED STOCKS !!
Over the long-term, a diversified basket of equities is a much better investment than a bond. One should buy stocks when the earning yield in bonds is less than the prevailing interest rates. Equities are a safer investment than bonds.
Intrinsic value is based on the some of the basic principles of value investing. The stock price may not wholly reflect the “real” or “intrinsic” value of the stock. However, in the long run, stock prices gravitate towards the intrinsic value.
Normalised Returns are returns which are not based on any macroeconomic trend. They reflect the actual performance of the company under normal operating conditions. Buffett advises investors to focus on the normalised returns rather than the actual returns, which might be misleading due to the occurrence of one-off events.
Share repurchases or buybacks are always good for the existing shareholders; it is still better to have an extra buyer in the market. However, for the continuing shareholders, it is only beneficial if the share is repurchased below its intrinsic value.
We have already established that share buyback should take place only when the shares are undervalued, so this goes without saying that these situations below represent situations when buyback is not a good option even when the stock is undervalued. One is when a business both needs all its available money to protect or expand its operations and is also uncomfortable, adding further debt. Here, the innate need for funds should take priority. This exception assumes, of course, that the business has a decent future awaiting it after the needed expenditures are made.
In investing in the top quality business for a long run have proven to be safer and have reaped great rewards in terms of wealth creation. Bonds are riskier in the long term as it is affected by the purchasing power risk, i.e., the chance that inflation will erode the value of a portfolio over time. Investments that can‟t deliver a return over and above inflation are.
A 52-week high/low is the highest and lowest price that a stock has traded at during the previous year. It is a technical indicator used by some traders and investors who view the 52-week high or low as an important factor in determining a stock's current value and predicting future price movement.
On a given day if a stock moves up /down significantly in terms of % concerning the previous day's close is known as the top gainer/ loser of the day. However, Top gainer /loser can be in a particular sector, group or index. If that script off-beats it's peers in its peer group or sector index or benchmark index then it's a gainer or loser of the day.
Bull markets are defined by the market, going up aggressively over a while. As the market starts to rise, there becomes more and more greed in the stock market. You see more and more people thinking, “Oh yeah, let’s put money into the market because it’s going up.” Though a wide range of different factors contributes to a bull market, the two most significant are usually
The bear market definition is precisely the opposite of a bull market. It‘s a market where quarter after quarter the market is moving down about 20 per cent. That signals a bear market, and when that happens, people start to get scared about putting money into the stock market. Though a wide range of different factors contributes to a bear market, Generally speaking, a bear market is one that is showing signs of a decline. Share prices are dropping to the point where seasoned investors believe that this trend will continue, at least for the foreseeable future.
Blind Buys are the stocks that are so cheap that your intuition screams a BUY! A note of caution here - Such opportunities are extremely rare and usually, there is a reason why the stock is trading cheaply. But at times, when a sector is facing headwinds, or when a company is facing temporary issues (Nestle‘s Maggi fiasco), it creates a perfect opportunity to enter that stock at rock bottom valuations.
Zero enterprise value companies do exist. Two years ago, MOIL had cash equal to its Market Cap, which effectively meant that the price of the share was backed by an equivalent amount of cash in the company. When you add a handsome Dividend yield to it, and a Good EPS, then what you have is a blind buy! You always must check the enterprise value of a company.
But before buying such companies, ensure that-
You should exit from bad deals
In the previous point, we explained that an investor should buy more quantity during the market crash. However, some of the buying opportunities may actually turn out to be value traps. So, before rushing to buying stocks you should not forget to look after its revenues, profits, P/E and debt, sector growth and other fundamentals. If you find that the fundamentals have weakened, it's the best time to exit without waiting for a further loss.
Investing in small caps during the stock market crash. This segment reacts sharply when the economic outlook starts deteriorating. Furthermore, small-cap stocks take much time to rebound the previous level.
From the point of risk, it is far safer to have earnings from 10 diverse and uncorrelated operations that cover interest charges by, Let's say 2:1 ratio where the company can pay all its interest which is coming from the debt (liability). Earnings are the only major way where the company can pay its debt interest. An investor should never take the risk of investing in those company‟s, which is not having good revenue. And diversification plays a major role in covering risk. These two moves in the same direction ―
Picking it at the right price. Market price of any stock is determined by the market forces of demand and supply. If a company performs well or is expected to perform well; the demand rises and hence the market price. On the other hand, the demand for the stock of the company may fall due to any temporary or permanent factors. So, here is the time when value investing might benefit you.
Value investing aims to invest in the business of the company and not bet on the share prices. A business capable enough would be successful in generating returns. The key is to pick the right stock at the right time at the right price. One of the tools available with the shareholders, in order to value the company, in its Annual report. We can analyze the company‘s past performance in order to predict its future viability. Likewise, ratios such as EPS, P/E ratio, price to sales, etc., and parameters like Market Cap, Enterprise Value, DCF & many more are kept in mind while analyzing the stocks.
Here, are a few philosophies for stock investment that are used by Charlie Munger:
Stock market Investing is forgoing consumption now in order to have the ability to consume more at a later date. Investing is wealth creation, i.e., transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power after taxes have been paid on nominal gains in the future. However, investing wisely is the most difficult decision to make.
Suppose you are interested in buying a house to earn rental income out of it.
How much price would you be willing to pay?
Please comment !!
HAPPY LEARNING
THANK YOU!
© copyright 2020 – All rights reserved
WOLF OF D- STREET (WODS)
ReplyDeleteBeing-Inkspired
ReplyDeleteHey, thanks for the information. your posts are informative and useful.
ReplyDeleteIndex Returns
Indian Economy
Skyline Millars Ltd
SMS Lifesciences