First of all, let’s understand that we have to do value investing because in the long term, value investing makes good money. We will know what value investing is. Value investing means that if we buy any share of any company when it is not able to get it in the intrinsic value or it is getting it on fair valuation, then we consider its a right investment and if we carry it for the long term, then it becomes a value investment for us.
We bought the share when it was getting cheaper than its value and when the company continued to perform well, then the price of the share increased lot. So if you read any good investor, you will understand that everyone praises value investing a lot.
Warren Buffet himself says that his maximum wealth is made from value investing. If you read little about Warren Buffet, then Warren Buffet says that in his starting career, housed to buy shares of companies and when he used to grow a little, he used to sell theming profit, but then he realized that this was his biggest mistake. Why?
Because if head carried the shares for the long term, then he had given results in multiplication. That means the value of the shares multiplied, the money became compound and if he sold it at a very low profit in the starting, then ultimately if he sees that he missed a very big opportunity.
So you must be understanding that if we do good fundamental analysis of the company, then we can pick the right companies and we Cando value investing. But today’s blog is not just about value investing because we are not going to talk only about value investing. Now in this blog, I will definitely tell you about a company in which I am invested and I thought that you should also share my investing strategy with you.
So first of all, if you are thinking of investing today, then my first questions that you are invested or you are thinking of investing, then why do you want to investing the equity market? You have a lot of opportunities.
You can invest in gold, you can invest in silver, you can invest in commodities, you can invest in real estate, you can keep money in you. So why share market? Because what you have studied today, you must have seen that equity market has given the most returns.
So are you just looking at the returns and wanting to invest in the equity market? See, I will tell you one thing, you have to keep your research very good before investing. Now if you have done little research, itis a very good thing.
If you have not done it, then I will give you a basic example. When we talk about Nifty 50, Nifty 50 means this is our index’s National Stock Exchange and BSE Commerce Stock Exchange are India’s leading exchanges. So above NSE, the top 50companies are there.
An index is made by meeting them, which is called Nifty 50. If you buy the index directly, how can you buy the index? You can buy the index either through ETF or through mutual funds. So you either want to invest in the index, then you take the index mutual fund. This is also called passive investing.
Why passive investing? Because you have invested in a passive mutual fund. Because mutual funds are of two types. One is active managed mutual funds and the other is passively managed mutual funds. So what does actively management mean? A fund manager sees where your money should be invested.
So there is a fund manager requirement. A manager is educated, smart, who has experience in the industry and invests your money indifferent companies. So most of the mutual funds you see are actively managed mutual funds and what are passively managed mutual funds? In which there is no need for fund managers specifically to see when to buy and when to sell the stock. Simply, your money will be invested in the proportionate of Nifty 50.
Now, in this, the fees are definitely less, so you get benefit in the long term. I tell every beginner investor that if you want to start investing, then you directly invest in Nifty 50. If you have chosen equity, then you directly invest in Nifty 50 because your investment will be diversified and at once if you invest in 1000 rupees, then it will be invested in the top 50 companies of India.
So your diversification is also happening. You are getting the benefit of it and money is being invested in the top companies of India. But when you talk about investment in stocks, then I have a question, why do you have to invest in stocks? You have simply invested in Nifty 50, money has been invested in the top 50 companies of India, diversification has also happened and if you look over the years, then the returns of Nifty 50, you see that the returns of Nifty 50 are coming from 15% to above.
Means the returns of the index are around 15%, so why do you have to invest money in stocks? You should invest money in stocks when you can pick such companies that beat the index. Means the index, if you beat the benchmark, then you will say that you have invested in stocks and your investment has beaten the index.
Means the annual return of 15% that Nifty is giving, more than that you are going to invest and bring it. Then you should know something that the top 50companies of India are not able to give returns together. You are getting more returns than that, so you should have a little edge. Now if you want that little edge, then you should read this blog further, otherwise you do not need to read further. Simply said if you are a beginner investor, go and buy index funds. End of the conversation.
Money is invested in the top 50 companies of India. So if you want to come in the second category from here, then the category is that we have to bring more returns. You want more returns, you want to beat the index, then you come in stock investing. See, before I proceed, I tell you what is the biggest mistake people make in stock investing. When people think about investment in stocks, the biggest mistake they make that they over diversify. Means they invest money in a lot of companies. Now you have limited money.
Suppose someone has 10,000, someone has 1 lakh, someone has 10 lakhs, someone has 1 crore, someone has10 crores, someone has 100 crores, but everyone has limited money. No one has unlimited money. Money also does not have unlimited.
So what I mean to say is that if you are investing money in stocks, I am telling you one thing, your index cannot be zero. I am saying this maybe, what is the reason for this? If the market crashes, if it crashes someday, then you will see that 30%, 40%, 50% of the market has broken.
But have you ever heard that the market has become zero? Today you see Nifty, you see 18000. So from 18000, I can believe once that 15000 comes, 12000 comes, 10,000 comes, 9000 comes, but is it possible that18000 becomes zero?
Maybe you think that it may not happen, but if you do stock investing, now see higher the returns, higher the risk. The more you want to bring returns, the more the risk will be. So stocks can be zero. They can go zero. Zeroing the sense that someone bought a stock of 100 rupees and if it is of 2 rupees, then your money is almost zero. Now you must be thinking that it is not like this.
100 rupees is not for 2 rupees. What should I tell you, you have unlimited examples? There are many examples. Now if you look at the example of ES bank, then you take the example of ES banker take the example of Vodafone. So if your stock picking goes wrong, then the money can be zero and you remember your goal in the stock market. You came after seeing Warren Buffet. You came after seeing Rakesh Jhunjhunwala.
You came after seeing Radhakrishnan Damani.So you came to become value investor, but most people come to become an investor and start playing gambling. They start penny stock investing. They start picking such stocks that are fundamentally not strong. So now our journey starts from here that which stocks are these.
So if you want to pick stocks, then there is a question here. I have given you the answer of why. You have to pick stocks because you want to beat the index and if you want to beat the index, then you should have a little bit edge.
You should have an edge. Now the first question that will happen is that it will be of some industry. So we have to invest money in such an industry that the industry will grow over the years. We know that. Now I will go straightaway here. You can choose the industry in FMCG. You can choose from banking. You can choose from real estate. You can choose from IT.
I tell you genuinely that I don’t smoke but I am invested in cigarette companies because I see the data and I believe in what the data says. I don’t smoke. It doesn’t mean that the world doesn’t smoke.40% This is a study. You can read it on the internet. Almost 40% of adults in India consume some kind of alcohol and tobacco.
So 40% Indians adults on an average consume tobacco and alcohol. So 40% market you understand of India. 40% adults are tobacco consumers, smoke am not in that category, but it does not mean that I cannot be a part of that business.
One such thing that will grow, the Indian population will grow. People will be shocked cigarettes. Today or tomorrow when I was in school, then some kid brought me a cigarette and showed me that this is a cigarette, drink it. I said why should I drink it because everyone is drinking it. So there you see a craze to become cool because if we drink a cigarette, we will become cool.
After that, whatever benefits they get, I have never consumed it. I do not know, but definitely if you are a viewer, you may be consuming lot of people among you. So if you are a tobacco consumer, then there must be some company that is making tobacco, making cigarettes and the company that is manufacturing cigarettes, you are giving it money. Simple thing, very simple.
This means whatever products you use from morning to evening, means you have given money to those companies and what money is in your pocket and no one works without profit. So if he is selling you anything, whether heist selling cigarettes or Colgate, you have washed your face, put on body wash. It was not like this before.
When I was very small, I used to get asap. Okay, shampoo came, but as you grew up, shampoo came, conditioner came, after that separate soap came forth face, a separate soap came for the body. You do shampoo separately. So there are multiple products. Now which companies are making products, is it making Hindustan liver, is it makingITC, so you need to understand what is the business of the company and who are you giving money to.
So one such industry that I have picked, which industry think that in India, whatever taxation comes on it, no matter how much people are forbidden, people will never be in my opinion in the next 10 years, that people stop smoking or reduce it. In fact, if you say that such a situation comes, let’s take an example, suppose the market crashes, then will people stop smoking?
You will not do it. People will go into depression, they will still smoke, they will be happy, they will still smoke, so they will not quit smoking. It is an addiction for them. Now the thing is companies will make money out of it. You need to understand what are the players in this industry. So I have taken the name of an industry.
You choose your own industry. So there is a step number one, you choose right industry, such an industry that you think will grow, such an industry that will grow or you think in the future it can be very profitable. You choose the industry first.
So after the industry, what you are going to do, see we are going to filter our process. When I choose the industry, then this is my funnel, we have chosen the industry, the filter will come. Now I want a right company.
What I want to see in a right company and that company is that it should be fundamentally strong. How do you do fundamental analysis? So see definitely you can do it online. I will show you very simply. So here we have come to ticker tape, stock screener A and here you can see that the value of ITC is high. So do you want to invest in high valuation? I said that you have to choose when you are getting the right valuation.
Now you may not be getting the rightists valuation, but if you go to its peers, then you can see if you like the industry, then if you choose another company and here you see that maybe I get a good valuation. Now here also you see that the valuation is high.
So you need to definitely check the peers. You will doper comparison and you will find a company that you get on the right valuation. If you are not getting the right valuation, then if you have interesting any company, for example, you have interest in ITC, then you keep it in your watch list. Now we will discuss the concept of watch list. So what did you do? You went to the stock screener to find a fundamentally strong company of that industry and you did peer comparison. Now what do you have to doing fundamental analysis?
We have talked a lot about fundamental analysis. You can go and see the playlist of fundamental analysis. In fact, if you want to do analysis on Ticker Tape by yourself, then you will get the link of Ticker Tape here. Here you see the ITC’s P ratios 27. Now what we basically need is a basic thing that if we see any company when you see the leading company of that industry and its P is below 20, then we say that its valuation is fair and if it is found at even less than that, then it is very good.
I will tell you that when its price was around 200, then it was looking at the right valuation and at that time I chose it at the right valuation and I am not saying that I put money at that time. I will tell you when I put money, but we kept it in our watch list. After that, you see the P ratio, Pub ratio. P means price to earnings ratio. Pub means price to book value. You definitely have to do peer comparison. You see the leading companies of this industry. You see the financials. You see the year on year revenue.
You see that the liabilities are decreasing, the assets are increasing, the revenue is increasing.
So this is all the way to do fundamental analysis, but you have not come to this blog for fundamental analysis. What have you come for? That you know that we have done fundamental analysis and chose the right companies, but how will we get more returns after that? Your reason is to beat the index. So now we understand it.
So definitely I am not taking much time on fundamental analysis because you must have learned it very well as of now. If you have not learned, then we can discuss more on this in the coming blogss. If you will demand, if you will write in the comments and tell that you have to learn fundamental analysis step by step. Alright, let’s move forward.
So we are talking about that you have chosen a fundamentally strong company. You have seen that there is a company which is fundamentally strong. The revenues very good. Year on year basis is increasing. You have seen that the liabilities are decreasing, the assets are increasing, the company’s cash flow is increasing. You have seen all the things.
You are feeling very good and the company is in the leading industry, which is growing in the industry and the company is also performing very well. So this is all that we see mainly in fundamental analysis. What after this? Should we go and buy its share now? Now I will tell you what you should do.
First thing is, let’s come from the starting. This blog starts from here, for which you came to this blog. We talked about value investing. Value investing is when you are buying the company at a lower value than the intrinsic value or you are buying at a fair valuation. After this, we talked that if you are a beginner, then you can directly invest in the index.
If you want to beat the returns of the index, then you should choose the stock. Now it is time to choose the stock. To beat its return, what I am going to tell you is the most important. So to choose the stock, we talked that in our funnel, first is the industry and then the right company, which is fundamentally strong. Now what you have to do is, do not invest money as soon as you go. Now you have to make a watch list. Whatever Demit account you have, you will see a watch list in i.e. am going to show you now.
You have to add that stock to the watch list. I did not say that you have to invest money in it. And what you have to does, wait a little bit. We will discuss that thing now. Now what will happen after this, you do not have to invest money on the basis of fundamentals. You have to become a smart investor.
You have to do a lot of technical analysis. Very little. I am going to give you very little technical analysis. I would like to tell you one thing. If you are invested in more than 10 stocks at today’s rate, then you are over diversified. You have to beat the index. If you want to invest in more than 10 stocks, then you do it in Sensex.
30 stocks will come there on top of BSE. If you are invested in 30, 40, 50 stocks, then itis better than that. You check if Nifty’s return is coming more or your portfolio’s return is coming more. You just check it and you will be shocked because Nifty will be beating your own stock picking too. If you want to beat Nifty, then you focus on 10 stocks. And what did I say, do not invest too much money.
So you do not have to go above 10 stocks. Definitely you can keep some of your money invested in mutual funds every month because it will regularly produce returns. But now let’s talk about stock picking. We are going to use little technical analysis here. Let’s see what we are going to do. So here we have comet upshot.
Now on upshot, whatever Demit account you have, you can see the charts. Nowhere I have opened the ITCmonthly chart. Here you also have the option to make a watchlist. So you can definitely create your own watch list.
So you can make your own watch list. So here when we are talking about ITC, you can also make your own. You can add any stock you want to add. So if we choose ITC, see I chose ITC, then after choosing ITC, what did see technically, I tell you that you should also see. It is added to my watch list. Willi go and invest money in it? Now when will I invest money?
It depends on how much time you want to be invested. If it is lifelong, you think that the investor is also a trader, as I say, a long-term trader. Today or after 10 years, after 5 years, we need profits. We all need profits. So nowhere you have to become a little smart investor. What you need to do if you have chosen the right company. So as long as I was seeing this in the downtrend, I was not invested in it.
You understand what I am saying. I chose the right company. What see on the monthly chartist that the company is continuously in the downtrend? So as long as it is in the downtrend, I will not be invested in it. Here we have used a simple indicator that is super trend. I keep the super trend setting of 20 and 2. trend is basically anta based indicator, an average true range based indicator and you will see that the super trend is like if it is red, then it moves with the price. You will get 10 and 3 on default.
So what is super trend? Super Indicators are of two types, dynamic and static. This is a dynamic indicator. If the price moves, then the super trend will go up and this trailing also gives you stop loss. Now see you are an investor, what is the need of stop loss? Well, understand my point.
Along as the stock is giving you good returns, you stay in it. When it changes its trend, it means you be careful, you can get out of it if you want. You can also get a good opportunity in the market, but now you will say that value investor is the one who is always invested, holds it. It is not necessary.
Even in a good fundamental strong company, due to management change, it may be due to any reason, its price can start falling and we say that price is God. Price tells you everything. If the price of the stock is running, then everything is going well in the company and if its price starts falling, then thesis the first indication that if you want, you can get out.
But how do we catch the price, how do we catch the price action? So the most money is made with the trend. This trend may start now and it may not stop for the next 5 years. This can happen and you see that the price starts falling from here and you have made a fundamentally strong company whose revenue was increasing year on year basis.
Everything was going well, but even after being fundamentally strong, its stock price falls. So now you have put money, you have put1 lakh rupees, but if you assume that there is a 30% correction in the stock. I told you that the index cannot be high, the price of the stock can be low and in fact it can be finished.
You will say that ITC is a very big company, but you have also made such companies that are mid cap and small cap, then you will see that you can see a significant correction and in the same way you can see a profit. So higher the risk, higher the reward. Now what is the point here, when did we invest? We had put it in the watch list. Wesaw that consolidation has been going on for a long time. The price is not moving.
Itis stuck in the range of100 to 120, but one day you will see here that there is an uptrend on the monthly chart. Now when there is an uptrend, you consider this stock for investing and how long do you not go out until this uptrend does not break. So you chose fundamentally strong company and invested money in it when it went into its uptrend and after that you saw that the price did not stop and I am telling you one thing, until you see that the trend is not changing, you will see it running because it is an ATR based indicator.
If the price starts to fall, it will give a downtrend from here. It is possible that after the down, you will give a trend again, then you can enter again in a good company when it is in the uptrend. So we will only stay in the company till the time they are following an uptrend. You are making money with the uptrend. When it is coming in the downtrend, you can take out the index and park it in another company.
You will see the return of the index that the index is breaking, but you will see that some stocks are like this, they are still running. Means there is a correction in the whole market, but then in the industry and in a specific stock, you are seeing an uptrend continue. It means that the stock is still in the fast. So in the fast, feed the running horses with chickpeas. See this is my dialogue. I say that if you feed the running horses with chickpeas, you will make more money.
You chose a horse, it looked very strong to you, but when it went to the race, it started running. So what was your first reason? How will you get more returns? Why did you have to invest in stocks? You had to invest in stocks that I should beat the index. What was your reason? The reason was to beat the index. If you don’t have reason, I just want Tobe invested for a long time. Invest in the index fund, go to sleep.
You don’t have to do anything. You really don’t have to do anything, but if you want to invest in stocks, then you will have to pay attention. It will take a little study and there are two studies that told you. One is that you can choose a basic fundamental strong company and the second thing is that your technical analysis should be basic. So I gave you a simple basic indicator. Now here if we want, we can make it complex.
We can add more things and if you with price action, I am telling you that with price action, you will invest after doing fundamental analysis, you will make more money and you will be able to get more returns. So I am giving you another indicator here that is pivot points. What are pivot points? You must have heard support resistance. So if you see that the stock breaks its pivot, breaksR1, then the next target will go to R2. After R2, it will go to R3.
You don’t need to calculate it. As you use it, support resistance automatically floats and it shows you when you need to be afraid. The trend will change later. If it is breaking R3 and going down, then you can see that the price may go down further. So with basic technical analysis, you can pick good stocks by doing fundamental analysis and produce good returns. .