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Showing posts with label Hidden Gems. Show all posts
Showing posts with label Hidden Gems. Show all posts

Thursday, August 5, 2021

10 Basic Principles Every Investor Should Know

10 Basic Principles of Stock Market Investing!

Dear Reader,

In the stock market there is no rule without an exception, there are some principles that are tough to dispute. Here are 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know while investing in equities.

1. Ride the winners not the losers

Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:

Riding a Winner - The theory is that much of your overall success will be due to a small number of stocks in your portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting.

Selling a Loser - There is no guarantee that a stock will bounce back after a decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well, as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.

In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses.

2. Avoid chasing hot tips

Whether the tip comes from your brother, your cousin, your neighbour or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so; get into the basics by doing research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out but they will never make you an informed investor, which is what you need to be to be successful in the long run. Find out what you should pay attention to - and what you should ignore.

3. Don't sweat on the small stuff

As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few bucks difference you might save from using a limit versus market order.

Active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself.

4. Don't overemphasize the P/E ratio

Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.  

5. Resist the lure of penny stocks

A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a Rs. 5 stock that plunges to Rs. 0 or a Rs. 75 stock that does the same, either way you've lost 100% of your initial investment. A lousy Rs. 5 company has just as much downside risk as a lousy Rs. 75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it.

6. Pick a strategy and stick with it

Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed.

7. Focus on the future

The tough part about investing is that we are trying to make informed decisions based on things that have yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.

A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with one of the stock he bought demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought it as stock price already went up twenty fold. But I checked the fundamentals, realized that company was still cheap, bought the stock, and made seven fold after that." The point is to base a decision on future potential rather than on what has already happened in the past.

8. Adopt a long-term perspective.

Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.

Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire.

9. Be open-minded

Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps; over the decades.

This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Small Cap Index, and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains. We have already experienced the multibagger returns from lesser known companies recommended under Hidden Gems service in past, our stock picks like Camlin Fine Sciences, TCPL Packaging, Kovai Medical, Wim Plast, Acrysil, Mayur Uniquoters, Balaji Amines, Cera Sanitaryware, Roto Pumps, Rane Brake Linings, Stylam Industries etc have delivered returns in the range of 500% to 6500% over period of 3 to 10 years.

10. Don't miss to diversify your equity portfolio

Its always wise to have stocks from different sectors and Industries. Do not expose your self to many stocks from the same sector. Be it IT, Consumers, Finance, Infrastructure, Pharmaceutical or any other sector, you must have a proper mix of all with suitable allocation based on future outlook of that sector and industry. Most of the companies from capital goods and Infrastructure sector have not performed since last decade but private banking stocks, NBFCs, consumers and automobile companies stocks are making new all time highs. Hence, its important to stay diversified with your stock investments.

Add power to your equity portfolio by investing in best of small and mid cap stocks - Hidden Gems and Value Picks. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Wednesday, August 4, 2021

6 Important Rules for Picking Multibagger Stocks

Important Rules to follow while Picking Multibagger Stocks


multibagger stocks
During last decade post global financial crisis of 2009, there are numerous companies which have multiplied investor’s capital delivering super-duper multibagger returns. Similarly, there are plenty of companies which have destroyed investor’s capital to almost zero over last 10 years.

Hence, its important to know the basic criteria’s which make a company a right investment candidate with potential to multiply wealth in long term.

Rules to follow while Identifying Multibagger Stocks

Below are the 6 basic rules which we must follow to pick right companies having multibagger potential.

1. Quality management with high integrity

Alignment of management interest with minority shareholders is one of the key parameter. High standard of corporate governance ensures that company is not involved in any wrong doings. Proper and timely disclosures of shareholder related information by the companies build trust over time. Past track record of promoters, disclosures and dividend pay-out history can help us to check on this crucial parameter.


If the management is not honest, will they want to share the goodies with you? No, they will look for the first opportunity to siphon off the profits and pull the wool over your eyes. We have seen how the investors of LEEL Electricals have lost 95% of their capital over last 1 year due to personal enrichment of LEEL promoters by siphoning off company's profit from the sale of its consumer durable division to Havells.

2. High ROE & ROCE – Efficient use of capital

Return on Equity (ROE) measures a company's profitability by comparing its net income to shareholders equity (book value). ROE is a speed limit on self-funded growth (company's profit). That is, a company cant grow earnings faster than its ROE without raising cash by borrowing or selling more shares. For instance, a 15% ROE means that the company can’t grow earnings faster than 15% annually by relying only on profit to fuel growth. ROCE measures the overall returns for all stakeholders and is a relatively good measure of the overall efficiency of the company. A consistently low ROCE signifies that there is something inherently wrong with the business or the company.

Wealth creator stocks usually have very high ROE and the ROCE relative to the rest of the industry. Typically, companies with high ROCE and ROE would also be generating positive free cash flows consistently. Increasing ROE and ROCE every passing year with low / negligible debt on books is one of the key aspect in spotting multibagger stocks.

3. Low Debt and Free Cash Flows

Its important to learn the lesson from financial crisis of 2011 and now of 2019 that companies with high debt simply get slaughtered. While debt is not bad in case if the company is able to borrow at a lower rate and deploy it in its business at a higher rate as the operating leverage works in its favour, however excessive debt with high interest and repayment obligations can crunch the stock in times of downturn. So, as a long-term investment philosophy, it is best to steer clear of high-debt companies.

Recent episode of stock prices falling liking nine pins of ADAG companies (Reliance Power, Reliance Infra, Reliance Com, Reliance Capital), Essel group companies, Jain Irrigation etc indicates how unbearable high debt burden on books can destroy investors wealth in shortest span of time.

4. Asset Light Business Model - No High Capex Requirements

We know the demerits of investing in stocks like Suzlon & GMR Infra which have an insatiable appetite for more and more capital. To feed their perennial hunger, these companies dilute their equity by making FPOs, GDRs & FCCBs resulting in total destruction of shareholders wealth. This is the simple reason why we do not see multi-bagger opportunities from sectors like metals, infrastructure and utilities because of the capital intensive business model which leads to very high leverage and low return ratios.

Companies should be lean and mean requiring minimal capital but generating huge returns with free cash flows which can be used not only to reward shareholders but also to expand business in future. It is not necessary that company should be a zero-debt company as some amount of leverage can actually improve shareholders returns.

5. The Scale of Opportunity & Non-cyclical Business

Multi-bagger stocks are created because they are able to scale the opportunity rapidly. Titan Industries is a great example. In 2003-04, Titan was a small company with market capital of 500 crores. As on date, its a large cap with more than 1 lakh crores market cap. The fact that India is a booming marketplace of 132 crores consumers means that most products and services have a head start at trying to scale up their activities.

One key factor that creates value in the stock market is consistent growth across economic & market cycles. While markets values growth, it also pay higher premium on consistency in growth. Most of multi-baggers of past like Asian Paints, Titan, Page Industries, United Spirits, Marico, Aurobindo Pharma are typically high growth companies in non-cyclical businesses. It is extremely rare to find a multi-bagger in a typical commodity business like steel, aluminium or oil.

6. Valuations & Future Growth Prospects

Most investors are obsessed about valuations, refusing to buy any stock that is expensive. However, one must remember that expensive is a relative term. If a stock is compounding at 25% on an annual basis, paying a price to earning multiple (P/E ratio) of 30 may be very reasonable. A stock like Nestle or HUL, for instance, has always been expensive. However, a great company with an impeccable pedigree may not always be a good stock to buy. This could be due to the fact that most of the triggers are already in the price and future growth potential does not justify the valuations. The PEG ratio (which is PE ratio divided by sustainable growth) is a simple way to measure valuation relative to growth.

But it is equally important to consider other parameters like financial ratios and brands that the company has created which can go a long way in determining potential valuation. A particular company may look expensive to an investor who have a 2 years horizon but may be a screaming buy for investor who wish to hold it for next 5 to 7 years.

There is no guarantee that the above mentioned parameters would always help investors identify multi-baggers, but these parameters will surely help investors to invest in right set of companies and avoiding those which may end up being value destructors. Moreover, we can learn by following key traits of successful investors who have created enormous wealth in past.

Peter Lynch 2 Minutes Drill to Shortlist Potential Multibaggers

The key parameters involved in Peter Lynch’s ‘two minute drill’ are:

1. P/E Ratio: avoid stocks with excessively high P/E
2. Debt/Equity Ratio: should be low
3. Net Cash per Share: should be high
4. Dividend & Payout Ratio: should be adequate
5. Inventory levels: lower the better

Stay away from companies which are being actively tracked, followed & invested in by large institutional investors. News about buy back of shares or internal stakeholders increasing their stakes should be construed as positive.

Checks specific to Fast Growers:

1. The star product forms a majority of the company’s business.
2. Company’s success in more than one places to prove that expansion will work.
3. Still opportunity for penetration.
4. Stock is selling at its P/E ratio or near the growth rate.
5. Expansion is speeding up Or stable

One must judiciously walk the tightrope between the unquestioning belief that made the stock to be held for so long and the fear of the end from nose-diving prices due to a one-off bad year. The key is to always keep revisiting the story & ask some pertinent questions like ‘What would really keep them growing?’, ‘What is their next offering? or ‘Are their products & services still in vogue?’ It is here, that one must track the point of time when the phase 2 of the firm’s expansion comes to an end. This is usually the dead-end for organizations as success is difficult to be replicated. Unless, innovation happens, downfall is imminent & thus, an exit is necessary. P/E of these stocks is drummed up to unrealistically high levels by the madness of crowd towards the end. One must keep one’s eyes & ears open to signs, which mark the end of the road for these fast growers. A great case in point is Polaroid which had its P/E bid up to 50, only to be rendered obsolete later by new technologies.

A sure shot sign of a decline is a company which is everywhere! Such a company would simply find no place to expand any further. Sooner, rather than later, such a company would see its ‘Manhattans’ of earnings reduced to ‘plateaus’ of little or no growth, simply because no space is left to expand further.

1.The quarterly sales decline for existing stores.
2. New stores opening, though results are disappointing: weakening demand, over supply.
3. High level of attrition at the top level.
4. Company pitching heavily to institutional investors talking about what Peter Lynch calls ‘diversification’.
5. Stock trading at a P/E of 30 or more, when most optimistic estimates of earning growth are lower than 15-20%, thus, unable to justify the high price.

Fast Growers, which pay, are ephemeral & one misses them more often than not. It is a High Risk & High Gain Category of Stocks. One must remember along the classic risk & return principle, that when one loses, one loses big! So, if you are in the quest for magnificent returns, a Fast Grower can be your bet provided you know when to bid Goodbye!

Owning Multibagger Stocks which can multiply Investments in Future

The number of small-cap stocks is large and finding a quality stock that can give high returns over a long period is tough even for equity analysts. One reason is that such stocks usually have a short history and are not tracked by many analysts and brokerage houses. Then there are risks such as low liquidity, governance concerns and competition from larger players.

Scores of once small companies have over the years grown big, giving investors a 30-50 percent annual return over 10-15 years and creating fortunes for investors. However, more often than not, we find ourselves at the wrong side of the fence and regret our inability to spot such stocks on time.

Buying Strategy for Small Caps

1. Go for companies with low debt ratio (preferably less than one)

2. A high interest coverage ratio (above 3x) and a high return on equity are big advantages

3. Avoid companies with huge liabilities in the form of foreign currency convertible bonds / external commercial borrowings

4. Look at the quality of the management, its governance standards and how investor-friendly the company is.

5. Mid-cap and small-cap companies can be future market leaders, so be patient with your investments

Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run. If you are looking for multibaggers, stock must have high growth rates along with expanding PE ratios. The price we pay for the stock is important as it will determine whether there is enough scope left for a PE expansion to take place. 

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years,  you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up giving maximum gains to early entrants.  

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies.

Concerns while Investing in Small Caps

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one should not depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

Be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Wednesday, July 21, 2021

How to Explore Multibagger Stocks for Investment?

Below are the 6 Important Steps to Explore Best Stocks for Investment

Step-1: Find out how the company makes money
Step-2: Do a Sector Analysis of the Company
Step-3: Examine the recent & historical performance of the Stock
Step-4: Perform competitive analysis of the firm with its Competitors
Step-5: Read and evaluate company’s Financial statements
Step-6: Buy or Sell

Step-1: Find out how the company makes money

Before you decide to invest in a company’s stock, find out how the company makes money. This is probably the easiest of all the steps. Read company’s annual and quarterly reports, newspapers and business magazines to understand the various revenue streams of the firm. Stock price reflects the firm’s ability to generate consistent or above expectation profits/earnings from its ongoing/core operations. Any income from unrelated activities should not affect the stock price. Investors will pay for its earnings from its core operations, which is its strength and stable operation, and not from unrelated activities. Thus, you need to find out which operations of the firm are generating revenues and profits. If you do not know that you are bound to get a hit in future.

Warren Buffet once said that “if you do not understand how a company makes money, do not buy its stock- you will always end up loosing money”. He never invested even a single penny in technology stocks and yet made billions and billions of dollars both during tech bubble and bust.

Step-2: Do a Sector Analysis of the Company

First is to figure out which sector the stock is in. Then, figure out what all factors affect the performance of the sector. For example, Infosys is in IT services sector, NTPC is in Power sector and DLF is in Real Estate sector. Half of what a stock does is totally dependent on its sector. Simple rule-Good factors help stocks while bad factors hurt stocks.

Let’s take an example of airlines industry. The factors that affect it are fuel prices, growth in air traffic and competition. If fuel prices are high, tickets would be expensive and hence fewer people will fly. This will hurt the airlines sectors and firms equally. This would make the sector less attractive because there would be less scope for growth of the firms.

The idea is to find out the good and bad factors for the sectors and figure out how much they will affect the stock and how. What we are really looking at are reasons that will make stock price good or bad or a company look more or less valuable, even though nothing about the company changes. This will give you a broader view whether the stocks will do well or poorly in the future.

Step-3: Examine the recent & historical performance of the Stock

By performance we mean both operational and financial performance of the company. Take out some time to find out how the company has done in its business over the years. Were there issues with its operations such as labor strike, frequent breakdowns, higher attrition or lagging deadlines? If any company has a history of serious problems, it does not make a good buy because chances are high it may have similar problems again. History is a good predictor of future! It is also extremely important to find out the historical financial performance of the company – growth in revenues, profits (earnings), profit margins, stock price movements etc.

Step-4: Perform competitive analysis of the firm with its Competitors

This is most important step in analyzing a stock. Unfortunately, most of the retail investors do not bother to do this. It takes time to do this step but it worth trying if you don’t want to loose your money. Many investors buy a stock because they have heard about the company or used the products or think companies have excellent technologies. However, if you do not evaluate or compare those features of the company with other similar firms, how will you figure out whether the firm is utilizing them effectively or is better/worse than others? We also need to find out whether company is growing rapidly or slowly or has no growth. We would like to cover couple of financial ratios here in brief and explain how to use them to figure out a good stock.

P/E: Price-to-earnings ratio is the most widely used ratio in stock valuation. It means how much investors are paying more for each unit of income. It is calculated as Market Price of Stock / Earnings per share. A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to the overall market, as investors are paying more for today's earnings in anticipation of future earnings growth. Hence, as a generalization, stocks with this characteristic are considered to be growth stocks. However, P/E alone may not tell you the whole story as you see it varies from one company to another because of different growth rates. Hence, another ratio, PEG (P/E divided by Earnings Growth rate) gives a better comparative understanding of the stock.

PEG = Stocks P/E / Growth Rate
We do not want to go into the calculation part as values for P/E are available on internet for most of the companies.
A PEG of less than 1 makes an excellent buy if the company is fundamentally strong. If it is above 2, it is a sell. If PEG for all the stocks are not very different, one with lowest P/E value would be a great BUY.

Step-5: Read and evaluate company’s Financial statements

This is the most difficult part of this process. It is generally used by sophisticated finance professionals, mostly fund managers who can understand different financial statements. However, there are few things that even you should keep in mind. There are three different financial statement- balance sheet, income statement and cash flow statement. You should focus only on balance sheet and cash flow statement.

Balance Sheet: It summarizes a company’s assets, liabilities (debt) and shareholders’ equity at a specific point in time. A typical Indian firm’s balance sheet has following line items:

• Gross block
• Capital work in progress
• Investments
• Inventory
• Other current assets
• Equity Share capital
• Reserves
• Total debt

Gross block: Gross block is the sum total of all assets of the company valued at their cost of acquisition. This is inclusive of the depreciation that is to be charged on each asset.

Net block is the gross block less accumulated depreciation on assets. Net block is actually what the asset is worth to the company.

Capital work in progress: Capital work in progress sometimes at the end of the financial year, there is some construction or installation going on in the company, which is not complete, such installation is recorded in the books as capital work in progress because it is asset for the business.

Investments: If the company has made some investments out of its free cash, it is recorded under it.

Inventory: Inventory is the stock of goods that a company has at any point of time.

Receivables include the debtors of the company, i.e., it includes all those accounts which are to give money back to the company.

Other current assets: Other current assets include all the assets, which can be converted into cash within a very short period of time like cash in bank etc.

Equity Share capital: Equity Share capital is the owner\'s equity. It is the most permanent source of finance for the company.

Reserves: Reserves include the free reserves of the company which are built out of the genuine profits of the company. Together they are known as net worth of the company.

Total debt: Total debt includes the long term and the short debt of the company. Long term is for a longer duration, usually for a period more than 3 years like debentures. Short term debt is for a lesser duration, usually for less than a year like bank finance for working capital.

One need to ask-How much debt does the company have? How much debt does it have the current year? Find out debt to equity ratio. If this ratio is greater than 2, the company has a high risk of default on the interest payments. Also, find out whether the firm is generating enough cash to pay for its working capital or debt. If total liabilities are greater than total assets, sell the stock as the firm is heading for disaster. This debt to equity ratio is extremely important for a company to survive in bad economy. What is happening now-a-days should make this extremely important. Companies having higher debt ratio have got hammered in the stock market. Look at real estate companies- their stocks are down by almost 90% from all time highs made in 2007 - 2008. This is because they have high debt level which means higher interest payments. In case of liquidity crisis and global slowdown, it would be extremely difficult for such companies to survive. Remember, a weak balance sheet makes a company vulnerable to bankruptcy!

Step-6: Buy or Sell

Follow all the steps from 1 to 5 religiously. It will take time but worth doing it. If you do it, you won’t have to see a situation where you loose more than 50% of stock value in a week! Buying or selling will depend on how your stock(s) perform on the above analysis.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Saturday, July 10, 2021

Grab e-book - How to Grow your Savings? for Free

A complete guide to help you ensure, you get the best returns on your investments from equities.

Saral Gyan eBook How to Grow your Savings?This e-book will provide you important & relevant information supported by facts & figures to help you grow your savings by investing in stocks to succeed:

Key Mantra’s:

1. Adopt discipline approach for Savings
2. Find out the ways to get passive income
3. Set your financial goals & start Investing
4. Do invest in equities for long term

Getting the most out of this book is simple, “How to Grow your Savings?” requires practical approach. Execute your learning experience in your day to day life by managing your finances effectively and achieve your long term goals.

eBook - How to Grow your Savings?Traditionally, Indians are Savers. The savings rate is as high as 30 percent. If not a direct savings in the bank, the money goes into a fixed deposit, gold or real estate. That trend might change soon if more people invest in stocks, which have outperformed every other asset class from 2001 to 2007 and later from 2012 to 2017.

Stocks have outperformed other asset classes by as much as 60 percent, yet only 3 percent of Indian population directly invests in stocks.

The main reasons for this is a lack of knowledge, awareness as well as unethical practices by a small minority of participants who encourage regular churning based on tips and rumours without giving proper financial planning to investors.

If someone invested in a State Bank of India fixed deposit account in 2001, he or she would have earned an 8 percent return per year. If the same person invested in State Bank of India stock, he or she would have a total return of 2,525 percent as the stock rose from 20 rupees to high of 525 rupees in 2021 which does not include dividend income over last 20 years which is much higher than the initial stock price.

Though Indians continue to be underinvested in the stock market there is more interest coming in from all corners. The number of active demat accounts in the country jumped by 63 percent in the past 12 months to almost 9 crores in financial year 2021-22. On an average, 26 lakh new demat accounts are opened every month. Recent transparency measures should also bring more people in. The stock market will no longer be treated as a gamble but will be put on par with real estate and gold.

The irony is that even though stock markets as a long term asset class have given the highest returns, short term trading in futures and options has also caused the maximum losses. The maximum numbers of bankruptcies were caused due to the stock market crash in 2008-2009 amongst high risk speculative traders.

Power of Investing in Equity Market

Now, Just Imagine...

How much can you make in 40 years by just investing Rs.10,000 initially in any of financial instruments?

Take a wild guess?

Let us look at the real example.

If you have subscribed for 100 shares of "X" company with a face value of Rs. 100 in 1980.

• In 1981 company declared 1:1 bonus = you have 200 shares
• In 1985 company declared 1:1 bonus = you have 400 shares
• In 1986 company split the share to Rs. 10 = you have 4,000 shares
• In 1987 company declared 1:1 bonus = you have 8,000 shares
• In 1989 company declared 1:1 bonus = you have 16,000 shares
• In 1992 company declared 1:1 bonus = you have 32,000 shares
• In 1995 company declared 1:1 bonus = you have 64,000 shares
• In 1997 company declared 1:2 bonus = you have 1,92,000 shares
• In 1999 company split the share to Rs. 2 = you have 9,60,000 shares
• In 2004 company declared 1:2 bonus = you have 28,80,000 shares
• In 2005 company declared 1:1 bonus = you have 57,60,000 shares
• In 2010 company declared 3:2 bonus = you have 96,00,000 shares
• In 2017 company declared 1:1 bonus = you have 1,92,00,000 shares
• In 2019 company declared 3:1 bonus = you have 2,56,00,000 shares

Today, you have whopping 25.6 million shares of the company.

Any guess about the company?

(Hint: It’s an Indian IT Company)

Any guess about the present valuation of Rs. 10,000 invested in 1980?

The company which has made fortune of millions is "WIPRO" with present valuation of 1,000+ crores (excluding dividend payments) for Rs. 10,000 invested in 1980.

Unbelievable, isn’t it? But it’s a Fact! Investing in companies with good fundamentals and proven track record can give far superior returns compared to any other asset class (real estate, precious metals, bonds etc) in a long run.

Will Wipro provide similar returns in next 40 years? Probably not, it’s already an IT giant.

You need to explore companies in small and mid cap space with good track record and stay invested to create wealth in a long term. 

Let's take another example of little known company - Mayur Uniquoters 

Mayur Uniquoters which we recommended 10 years back is a 9-Bagger stock for our Hidden Gems members. We recommended Buy on Mayur Uniquoter on 31 March 2012 at price of Rs. 56 (adjusted price after 2 bonus issues and stock split in last 7 years, actual recommended price was Rs. 448) and today it’s at Rs. 387 giving absolute returns of 770%. However, we missed to buy it early. You might be surprised to know that Mayur Uniquoter is a 130-Bagger stock for investors who invested in it 13 years back. Investment of Rs. 1 lakh in Mayur Uniquoters in Jan 2009 is valued at more than Rs. 1 Crores and 30 lakhs today. The company has posted strong growth YoY and rewarded share holders in big way, Mayur Uniquoters was trading at Rs. 3 (bonus issues and split adjusted price) with market cap of merely 13 crores in Jan 2009, today market cap of the company is 1,695 crores.

Mayur Uniquoters is still a great value stock considering its consistent performance and leadership position in artificial leather industry and robust demand for its products by esteemed clients from auto and footwear industry.

It is a garden out there and one need to simply provide sufficient time to grow his quality seeds to get the fruits. One has to know what he is doing and has to be cognizant about it. With a little research and patience stock market investments can yield maximum returns.

So, how will you grow your savings? What are you investing in?

Read complete e-book "How to Grow your Savings?", its not only a must read for beginners but also for experienced investors. "How to Grow your Savings" will definitely help you to get an edge over others by understanding the basic of investments and importance of equities in a long run to generate income and create wealth. 

Below are the chapters covered in "How to grow your Savings?"

PART I: VALUE OF MONEY 
  • Inflation
  • Past & Future Value of Money
PART II: INCOME, EXPENDITURES & SAVINGS 
  • Income Expenditure Ratio 
  • Passive Income 
  • Tips & Tricks to Save Money 
  • Saving Strategies
PART III: SAVING & INVESTING 
  • Difference between Saving & Investing
  • Understanding Your Assets
  • Investing in Different Asset class
  • Pay Off Your Debt or Invest
  • Power of Compounding 
  • Benefits of Long Term Investing
  • 10 Key Investing Mantra’s
PART IV: FINANCIAL PLANNING 
  • Financial Planning 
  • Managing your Finances 
  • Making your own Investment Plan 
  • Your Investment Profile & Risk Tolerance
PART V: BUILDING AN EQUITY PORTFOLIO 
  • Investing in Equities
  • Investing in Bull & Bear Market
  • Invest in Individual Stock or Mutual Fund
  • Creating a Stock Portfolio
  • Investment Portfolio Mistakes to Avoid
  • Importance of Stock Diversification
  • Investing for Growth, Yield & Income
  • Facts & Benefits of Investing in Small Companies
PART VI: EQUITIES & RISKS 
  • Investing Risks Vs Rewards
  • Understanding Stock Market Risks
  • Different Type of Investing Risks
  • Managing Investment Risks
  • The Bulls, The Bears & The Farm
PART VII: EQUITIES & THE TIME FACTOR 
  • Stock Investing & The Age Factor
  • Don’t Count on Stocks for Short Term Goals
  • Characteristics of Successful Investors
  • Don’t try to Time Bottom of Stock Market
  • Investing in Stocks for Regular Income & Long Term Growth
  • Investing Checklist – 10 Most Important Element
Saral Gyan eBook How to Grow your Savings?Saral Gyan's 89 pages e-book is priced at Rs. 599. However, we decided to share our e-book for free with our readers to help them understand the power of saving and investing in equities to achieve financial freedom in long run. To receive our e-book, simply click on below link and fill out the form to receive our e-book directly in your inbox.



Do contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Thursday, September 10, 2020

Check Fundamentals & Not Share Price while Buying Stocks

Dear Reader,

Why is a stock that cost Rs. 50 cheaper than another stock priced at Rs. 10?

This question opens a point that often confuses beginning investors: The per-share price of a stock is thought to convey some sense of value relative to other stocks. Nothing could be farther from the truth.

In fact, except for its use in some calculations, the per-share price is virtually meaningless to investors doing fundamental analysis. If you follow the technical analysis route to stock selection, it’s a different story, but for now let’s stick with fundamental analysis.

The reason we aren’t concerned with per-share price is that it is always changing and, since each company has a different number of outstanding shares, it doesn’t give us a clue to the value of the company. For that number, we need the market capitalization or market cap number.

The market cap is found by multiplying the per-share price times the total number of outstanding shares. This number gives you the total value of the company or stated another way, what it would cost to buy the whole company on the open market.

Here’s an example:

Stock price: Rs. 50

Outstanding shares: 5 Crores 

Market cap: Rs. 50 x 50,000,000 = Rs. 250 Crores

To prove our opening sentence, look at this second example:

Stock price: Rs. 10

Outstanding shares: 30 Crores 

Market cap: Rs. 10 x 300,000,000 = Rs. 300 Crores

This is how you should look at these two companies for evaluation purposes. Their per-share prices tell you nothing by themselves.

What does market cap tell you?

First, it gives you a starting place for evaluation. When looking a stock, it should always be in a context. How does the company compare to others of a similar size in the same industry?

The market generally classifies stocks into three categories:

• Small Cap under Rs. 1000 Crores 

• Mid Cap Rs. 1000 - Rs. 10000 Crores

• Large Cap above Rs. 10000 Crores

Some analysts use different numbers and others add micro caps and mega caps, however the important point is to understand the value of comparing companies of similar size during your evaluation. You will also use market cap in your screens when looking for a certain size company to balance your portfolio. Don’t get hung up on the per-share price of a stock when making your evaluation. It really doesn't tell you much. Focus instead on the market cap to get a picture of the company’s value in the market place.

IMP Note: This article is written to safe-guard our readers who are new to stock market, and make them understand about the actual facts. We keep on receiving mails from our readers regarding the price range of stocks we covers under our Hidden Gems or Value Picks service. The misconception in mind of new investors is regarding the stock price, majority of them believe that if stock price is less, like below Rs. 50 or even below Rs. 10, changes of stock price appreciation is very high and they can buy more no. of shares rather than buying a limited no. of shares of high priced stock. 

We started Hidden Gems annual subscription in late 2010 followed by other services like Value Picks, 15% @ 90 Days and Wealth-Builder, today we have a strong subscriber base covering almost all major states in India and from 20 other countries across globe. During the last 8 years we have interacted with several investors seeking multibagger return from stocks. 

It was 17th Dec 2011, we recommended Cera Sanitaryware as Hidden Gem stock of the month at price of Rs 157, later it went up to Rs. 450 in period of 15 months. Based on strong quarterly numbers, attractive valuations and consistent performance, we recommended buy again in the range of 400-450 which was taken as a surprise by our members as we received several queries and feedback.

Below are some of the common queries of our subscribers which often lead them to opportunity losses.

1. How come a stock priced at Rs 450 can generate Multibagger returns?
2. Cera is almost 3 times moving from 170 to 450, why are you suggesting buy again?
3. Where is the room to generate Multibagger return from this level?
4. I don’t like such high-priced stock, please give me stocks priced below Rs. 100.
5. I want to buy more no. of shares, hence please recommend low price stocks below Rs. 10.

Cera Sanitaryware touched its life time high of Rs 3918 in January 2018, post severe correction in small and mid cap stocks over last 15 months, stock is down by -28% and is at Rs. 2809 today. Even after such a correction in stock price, Cera Sanitaryware is a 18-Bagger stock giving as on date returns of 1690% in 7 years from our initial recommendation and 525% return from our reiterated buy at Rs. 450, which was not liked by our subscribers.

The story does not end here, there is a long way to go. Our suggested stocks is with a view-point of 1-3 years at least and not just 6-9 months. If fundamentals of the company are intact, we would not suggest our members to do profit booking or exit. Investors who stayed away just because of high price simply missed yet another opportunity. We continuously recommended Cera during last couple of years to our members at much higher levels.

There is a general misconception among the investors that high priced stocks can't generate multibagger returns. They often think that high-priced stocks are overvalued. In terms of valuation, a 50 rupees stock may not be cheaper than that of a 1000 rupees stock. There is no co-relation between the valuation and market price of a stock. To understand whether a company is small or large, you must look at market capital of the company and not at stock price. To judge valuation you must have to look at Price to earning ratio, Price to book ratio, Price to sales ratio etc.

Lets try to understand this with an example, Tide Water Oil share price was Rs. 1450 on 1st Jan'12 (stock split and bonus issue adjusted price, actual price was 5800). Today the stock price is at Rs. 5051 giving absolute returns of 248% i.e. 3.5 times in 7 years against double digit return of Sensex in the same period. We suggested Buy on Tide Water Oil and many of our subscribers might not have invested in it thinking that they can buy hardly 2 shares by investing Rs. 12,000 but now those 2 shares are actually 8 shares post stock split and issue of bonus share and share price is near the recommended price.

There are many examples like above by which we can illustrate that there’s nothing called high price. Multibagger returns is not dependent on the current market price of a stock, so don't be afraid of investing in high priced stock. You need to look at fundamentals like future growth prospects of the company, PE ratio, PB ratio, ROE, ROCE, debt on books, cash reserves along with other parameters to judge a stock whether it is undervalued or overvalued. We agree with you that judging valuation is not an easy task. So, take expert’s advise when ever required.

Another misconception among investors is to buy more no. of shares. They often think that its better to buy more no. of shares of a low price scrip (ranging below Rs. 10 or say below Rs. 50) instead of buying less no. of shares of high priced stocks. They often think that low price stocks can generate multibagger return quickly. During last 5 years, we have reviewed existing portfolio of our members under our Wealth-Builder (an offline portfolio management service) subscription, we have noticed that many of their portfolio is filled with such low-priced stocks and most of those are in great loss because of poor fundamentals. You may think that a two rupees stock can easily generate multibagger returns even if it touch to Rs. 5 or 6. At the same time don’t forget that the same can even come down to Rs. 0 levels which can evaporate all your investment giving you 100% loss! In terms of valuation a two thousand rupees stock may not be expensive than that of a two rupees stock.

Lets try to understand this also with a simple example, Lanco Infratech was a well-known company from Infrastructure sector. At the beginning of 2010 the stock was around Rs 55. Now it is hovering at just Rs 0.42 and trading is suspended in the stock. Those who purchased the stock during 2010 are in 99% loss! Rs. 1 lakh invested in Lanco Infratech in Jan 2010 is valued at merely Rs. 1,000 today, a complete wealth-destroyer! Isn't it? Those who bought this stock at levels of Rs. 30 and later again at Rs. 10 or Rs. 5 to average out thinking that stock has came down from all time highs of Rs. 85 are still waiting to get their buying price back. There are many such stocks like Suzlon Energy, GMR Infra, GVK Power and Infrastructure etc which have continuously destroyed wealth of investors over a period of last 6 to 9 years.

We do not state that all low price stocks are wealth-destroyers, it all depends on the fundamentals of the company. So, do ensure that you check out the fundamentals and valuations while investing in stocks instead of looking at stock price. Please get out of the misconception that low priced stocks will fly high faster giving you extra-ordinary returns. Always remember that stock price is just a barometer, actual valuations of a company can be determined by its fundamentals.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan