Im trying to write my learning from the stock market....
My dad is completely against the idea of stock market, his ideology is when you are selling or buying shares no actual product or service or right is bought or sold, so practically the stock market contributes nothing to the country's economy and eventually it will contribute nothing to you. One more idea was if you are making a profit now, either somebody else is booking loss now or will book loss on a later date. Well...... I always thought that to be right, and still believe in some of it, and thats a different debate all together....
Then in colleges my friends started investing in stock market, either with no margins or little margins but mainly losses. Then my brothers started investing in stock markets, ending up in losing all the money given to them for that. One of my friends went to an extent where he is still facing a debt of about 2lacs after about 7yrs from booking that loss, he is repaying it slowly.
All the above made me stay away from the market, I never ventured into the details. But then one of my friend started working in Karvy stock broking and he started telling me that people who go for short-term or intra-day or buy-calls on the T.V. are the ones who are regularly facing losses. On my chat with my friends and brothers and asking them of their trends while investing in the market, I got to know all of them faced losses coz they followed these three ways of investing.
I had also heard about Warren-buffet and there were a few success stories I heard, that made me curious about this hype called share-market. There were a few shares my father had from the Harshad Mehta period, I decided to sell them coz they werent performing too good in term of returns so I got them dematerialized and then started my journey towards investing in stock.....
I made a general assumption that all shares will move in the shape of a sine curve(i.e regular ups & downs),so buying a share while its at its all time lowest must do. But that theory didnt work. I also got charmed by the blitz of the market and burned my fingers a little in intraday calls by EXPERTS.
Then I started understanding the shares I had invested in a little, I got to know about P/BV, EPS & P/E. I started investing in shares with lower P/BV and that didnt work. Then I started investing in shares with a good P/E, lower P/BV, shares which are lower in the curve and with low P/C. this model was a little fruitful, but i wasnt going for the right kind of shares, and now i follow the below procedure when investing in shares(thanks to stock-shastra) and this has now started to show good results and I believe there is still lot of scope of improvement for me and I will keep learning and improving.....
1. Stock should be trading @ a v.low P/E compared to the Industry P/E. (No need to ignore companies that are not earning presently.)
2. There should be continual improvement in the sales of the company.
3. P/BV should be inline with the industry. The lower the better.
4. Debt Ratio and the company should be cash rich.(Even buffet suggests on investing in companies that are cash rich.)
5. Market Cap of the company. (The higher the better. Companies with lower market cap dont grow that fast.)
6. Branding of the products that companies manufacture. ( I personally feel in future the biggest assets of the companies would be their intellectual properties.)
7. Management of the company.
8. Patents / Trade Secrets, Toll, Monopoly, Switching cots for consumer, Cost of the product manufactured.
I intend to include the following in my future investment decisions:
9. Cyclicality factor of the Industry.(Actually I had this in my mind, as I was avoiding software company & cement company stocks for this reason)
Pssst.... I believe the cement industry is going through the worse phase of the cycle and textile industry in the best phase.
10. Future growth opportunities for the company and industry.
Thats for now..... :)
Krishna.
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