Stock Market Investment, a cache, fancy and ver y attractive word for the investors and especially for the beginners. Beginners will get attracted to the stock market by seeing returns generated screenshots or manipulated profit screenshots as they are very new entrants to the market, they don’t know whether it’s real or not, even though it’s real, beginners will never come to know that profits generated by the experienced investor and the key points they analyzed before they have taken investment call,which is very crucial for every investor, that key trigger points will make you to build conviction to hold the stock, where tough times comes, and where should take exit call, if our analysis goes wrong. That’s why we are taking this space to explain complete stocks buying guide which helps you to take a decision about any stock, whether we should invest or not. To protect your capital our stocks buying guide and it’s 10 points checklist will help you a lot.
But the beginners won’t think about all these things, just blindly invest their hard earned money and they will lose. As the market filled with full of manipulations and fraudsters, beginners should always take care about their hard earned money which impacts your financial stability.
The complete environment around stock market investment and trading fully surrounded by too many traps such as fake social influencers, youtubers, courses, paid telegram tips and many more. So we have to be very cautious about these traps, as these losses are becoming huge than real stock market losses. So better we have to be knowledgeable about stock market to get rid of all these annoying things.
SEBI also strengthening regulations to protect the retail investors as all these frauds and annoying things are becoming huge. This stocks buying guide will help you to take your own call about investing into any stock like whether we should invest or avoid the particular stock. This article includes 10 key points which will helps you a lot before taking an investment decision.
Covid played the huge role in inviting the retail investors and traders into stock market as well as same invited and shown the big way to the fraudsters to utilize the biggest opportunity. So don’t run behind penny stocks, paid tips, fake courses and all these things. Until you are knowledgeable or you have full information about any stock, don’t invest into any stock purely based on paid calls, social media calls and other fraud activities as fraudsters making retailers to lose their money by doing pump and dump activities in fundamentally weak stocks.
Though there is good analysts, they are very less in a such big market. You may lose your money by following these fake people before you find right people and analysts. And question yourself, if they really making money from stock market, what is the need of making big courses and selling them by making attractive ads and other promotional activities. So this stocks buying guide will help you to not get cheated by these fraudsters and you will learn how to select a stock before investing. And ensure that particular stock meeting all the criteria which we mentioned below, if not then strictly avoid those stocks.
May be you will get some good returns without learning but you may lose in long term. So learning is an important thing, better you calculate your annual returns, if the result is higher than 12%, you are doing good job else you are a beginner, you should learn about markets, now lets dive into the 10 important points, you should keep in your mind before investing.
10 key points of stocks buying guide:
1. Know Your Company:
Every investor should have minimum idea about the company before investing, this is the line what you heard in the market, but what we suggest is you should know the complete details about any company before investing such as key products, key management, competition, frauds, valuations, cash flows and many more. We discussed all these points below. As an investor, better we should know the complete details about the company instead of having basic knowledge, else there is high chances of losing money.
We should track all the minute things about the company then only we will get some idea whether we should hold the company or should exit from the company, if any stock price is falling. Otherwise we don’t know whats happening in the company and still we stuck in that company in the high prices.
So don’t follow the big myth and have a full fledge knowledge about the company, then only made an investment decision. That will help you to play with a company in a right manner. We’ll also discuss the same with an example, so that you’ll have some better understanding.
Ex: Laxmi organics which makes chemical business also entering into speciality chemicals and flauro chemicals, which is a good move and company is doing pretty good also delivered multifold returns when it come to IPO. Then stock price fallen suddenly, no one have an idea about the fall. As one of their key product the sell, Ethyl acetate prices fallen sharply, same impacted their margins and profitability.
In this case if you don’t know about company’s key products, what will you do when stock price is falling. So gather maximum information about company before investing into any stock.
2. Sustainable competitive edge:
The 2nd most important point of stocks buying guide is sustainable competitive edge, which will helps to create multibagger portfolio for long term. We have to check before investing whether the company has competitive edge or not. It might be branding edge, regulatory edge, pricing edge, product edge or competition edge. If any company is having monopoly status we should observe any substitutes are coming in the same range. We will try to explain this point with a best examples.
Ex: we witnessed the steep fall in IEX stock when HPX gets approval to trade power. In recent days we’ve see the small correction in Eicher motors when Bajaj auto and Hero motocorp launched their premicum bikes in the Royal enfield price range.
Nestle Maggi has a branding edge. Pedilite’s product Fevicol & Fevikwik has branding edge. Solara explosives has regulatory edge.
3. Know Competitors:
To build multibagger portfolio, we should always trach the competitors and their business, whether they are grabbing the market share or losing the market share to the competition, it will also help you as an indicator to alert you when competitors gaining the market share from your holdings.
Ex: Best examples is IEX, as same as we discussed in the previous point.
4. Key Management:
It’s also important to track key management in the company such as CEO, CFO and others, who plays a key role in any company’s growth. As these people makes and implements key decisions which will makes the companies turn around. And these people and their decisions are capable enough to move companies from scratch to multibagger, if their leadership and decisions are good enough.
Ex: we’ve listened how Siddartha Lal made Eicher motors multibagger. In recent days we’ve seen TATA group growth when N Chandrasekharan taken charges from Sirus Mistry.
5. History of Management:
History of key management also plays a vital role in any company’s growth. We have to check the management history, whether they were involved in any fraud or any illegal things or not. If they involved in any fraud or something illegal, then strictly avoid those companies as stock market is having more than 3000+ companies. Mostly we can see these type of things in small companies, so please do check before investing.
Ex: if you observe the following example, you can understand how seriously market reacts to the frauds & ED rides. Recently we’ve seen the sharp fall in Hero Motocorp as Dr. Pawan Munjal faces ED rides.
6. Financial Cash Flows:
Having positive financial cash flows is very important to grow any company. If any company is having 7 – 8 years positive cash flows out of past 10 years, then its really a good company. If company generating cash then it would be helpful to the company to grow themselves or to reward the shareholders with a dividend. Some loss making companies also generates returns but It’s purely for short term, also you need some skillset and expertise to capture this short term moves.
7. Balance Sheet:
Checking company’s balance sheet will help you to know whether company is financially strong or not. Especially cheching debt part is most important, if long term debt is high, then it’s better to avoid those companies. Also debt to equity ratio plays a vital role in balance sheet, if it’s higher than 1, better avoid those stocks, if you are a beginner, but it’s not applicable for banks and nbfcs.
8. Past Performance:
By observing past performance of the company, will come to know whether particular company is in growing phase or highly cyclical, if you observe highly volatile numbers in any company, then we understood that company is highly cyclical. These cyclical companies will not compound returns in long term.
9. Valuations:
After checking all above 8 points, then it would be important to check valuations whether the company is trading at attractive valuations or not. We should compare with peer companies and industry PE ratios. So catching a stock at right valuations is most important, though it’s fundamentally and financially strong, then only will make good returns otherwise no.
10. Position Sizing:
Giving right position sizing is most important as it plays a vital role in creating wealth creation. Giving small portion to right stock is equal mistake as giving big portion to loss making stock. So we need to plan well before taking position and making risk assessment. If your capital is 1 lakh, you should have 3 – 5 stocks in you portfolio. At least maintain a portfolio in a trackable size. Else you won’t create multibagger portfolio.
Note: Very soon will release an article contains advanced learning of checking cash flows, balance sheet and valuations. Stay tuned to Gro School.
Conclusion:
So as a beginner, before investing into any stock, please do check whether that stock is meeting all above 10 points or not. So note all 10 key points of stocks buying guide and keep practicing all these things to create multibagger portfolio.
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