Tag Archives: share market

Oops! I picked itC.

Stock picking is tough, and therefore you must always do your due diligence before proceeding. Today, let me share you my developing on going strategy, which I recently followed to select a stock.

An Amateur approach to Stock picking:

  1. I hear about Stock in news, among consumer, from friend or are a consumer of the product yourself, have seen that soap Ad and wonder whats the brand behind this successful Ad.
  2. I google search to see the stock price and trend (least helpful), but tells you if it is fine or it is very fluctuating something that happens when stock has very low volumes.
  3. I log on to simplywall.st (you can check the company site if you can or some other site where you can read up about below information) –
    • The Area graph of company (for look and feel and comparison among alternative stocks), check Fig 1 below.
    • Current Price of the Stock is it fair, over or under value (not doing any calculation as an amateur), check Fig 2 below.
    • Finance Analysis, the part I read carefully and specifically focus on Debt (in current Covid scenario it becomes even more important), check Fig 3 below.
  4. Head on to Moneycontrol and look for (check Fig 4 below)-
    • P/E (Price to Earning) ratio of the company compared to the Industry (it should not be way below or above). A low ratio indicates company is undervalued, high indicates its overvalued.
    • P/B (Price to Book) ratio, how is the stock trading with respect to its book value. I prefer usually a little higher than 1, but it may differ based on sector.
  5. Look at the Sector, for example – if the Stock is ITC, FMCG or Consumer Staples being the sector how will that be in near future.
  6. Current Geo-political or Economic scenario (remember only in long run stock market correlates with a nation economy)

But Salrite I do have some extra time, Are we done? – well, perhaps you can:

  1. Look for Consumer Sentiments on the Product, dig up the Social media see if you can find something about its product/services
  2. Management Information how is the company management.
  3. You may also look at other ratios like EBIT, or EBITDA; I usually don’t to avoid paralysis by analysis.
  4. Check if the Stock pays Dividends or not?
Fig 1 – ITC Stock dynamics
Fig 2 – Is the Stock trading at a fair price?
Fig 3 – ITC Balance Sheet
Fig 4 – ITC Valuation (Source – MoneyControl)

Remember – No Matter how much you analyze there will always be some risk involved, and there is no guarantee the stock you pick will give you good return no matter what others say! So If you are new to this game and are passively into it, please go for a low cost Index fund, here is my article explaining why?

Thank You for reading, Happy Investing!

Cheers for index!

Hello Riters, its been a long time out there, getting ready for Winter in Northern Hemisphere?

Today lets discuss why Invest in Index ETF and why avoid Mutual fund, lets dive in.

  1. In long Market always rise, thats not me saying, the likes of legendary investor Warren Buffet himself believe so. So, lets say if market always rise what is the best way to be on winning side?, of course buy into overall market low cost index fund like VTI
  2. On average 90% of actively managed mutual funds have underperformed benchmark indexes over a preceding 15 years period.
  3. If your Mutual fund have 2% of fees (expense ratio, portfolio fees, handling charges and other hidden fees), than that can eat 61% of your portfolio growth in long run. Shocked? No?, let me explain, suppose you have invested $10,000 and kept it for 50 years in Stock market just assuming a return of 7% (ideally returns are above 9%), your portfolio will grow to a lump sum of $294,600 by end of 50 years, now if it was a Mutual Fund with charges of 2%, then you only avail benefit of 5% CAGR, leaving your portfolio to grow to $114,700 (61% lesser or 39% of $294,600 market returns) read more here.
  4. Still not convinced? Lets say recession hits you in that case your portfolio will likely decrease in value but at the same time you will be charged the fees (the so called Active fund managers will still win this game).
  5. Expense ratio of Index fund is very low and there is no hidden charges, for example – VTI has an expense ratio of around 0.03% and If you are in India checkout ICICINIFTY with expense ratio of just 0.05% (let me know if you find something better in comments below, the likes of VTI is missing in Indian market)

Don’t take my words for it, always do your due diligence before investing. If you want to read more grab your copy of ‘Common Sense Investing’ the book by the founder of Vanguard Group.

Bonus Content – what to do in current stock market scenario? (for retail investors)

  • Stay Invested, don’t sell value stocks so as to be able to avail the benefit of further highs
  • Sell the stocks that lacks value & strong fundamentals and are up just in the Bull due to investor sentiment.
  • Don’t invest a lump sum new investment amount, as the market is still prone to volatility due to Covid.
  • Remember you have to buy in dips, sell in highs.

To read more on mistakes to avoid in Stock market check this. And if you are worried if Stock Market can crash in 2021 read this, click here.

Don’t let them take your hard earned money, get control of your money now! Be Financially aware, be financial literate.

Have a great weekend, happy investing! Happy Holidays… Stay Invested, stay safe, stay positive.