Top investors in the stock market have beaten the Nifty by generating returns of around 35% to 60%
You must have generated low returns or may have lost money in stocks.
In my initial days of investing,.
I didn’t make any money because I was listening to the stock tips given by experienced investors and brokerage houses.
It’s the investors’ business to make money in the stock market. If they know how to select stocks on their own, then they would make money.
Disclaimer: The information in this article is not intended to be a recommendation or a suggestion to buy or sell any particular stock.
In this article, I will introduce you to a step-by-step process to select great stocks and invest in India’s stock market in 2022 .
Through this process, you will be able to identify stocks with great potential and low debt levels. Financials Select will help you filter the stocks that are most likely to perform well.
If you don’t have demat account, then I would highly recommend opening a Zerodha account. It’s a great service provider for investors.
Learn the strategy and apply it with 10,000 investment. You can increase your profits up to 5,00,000 in the future.
The stocks mentioned in this article are not recommended to buy or sell and should only be considered as an example.
Before I go into more detail about the process of picking stocks, let’s first understand the difference between the two methods.
Value investing and trading are different types of investing. While investing in stocks is focused on making frequent profits, traders tend to avoid taking huge risks.
Trading in rising markets involves buying stocks at a lower price and selling them at a higher price within a short time frame.
Since, in most cases, trading in the stock market is very short and doesn’t last for more than a few minutes.
People who are skilled in technical analysis make use of various tools to predict the future price movement of a stock.
Technical analysis charts help in predicting the price movements of a stock. Having a clear strategy and being able to execute it fast can help minimize risk and make you successful.
The stock market is full of people who lost a huge sum of money in a single day. One of them was me. I tried trading a few years ago and ended up losing over 100,000.
The stock market is full of people who lost a huge amount of money in a single day. Like many others, I was not comfortable with trading.
Warren Buffett said that people should never think about owning a stock for 10 years. Instead, he advises people to invest in companies that can perform well for the long term.
The biggest advantage of holding stocks for a long time is that they provide the potential for higher returns over the years.
The other advantage of value investing is that it allows one to ride out the volatility caused by unforeseen events or business downtrends.
Warren Buffett, the world’s most valuable investor, said that investing in stocks for a long time can create wealth for one’s own account.
The power of compounding is what makes stocks so special. When investors hold stocks for a long time, they can generate exponential growth and wealth.
fundamental analysis is a type of investing that focuses on the company’s fundamentals instead of the price movements. It allows investors to study the company’s financials, management, and quality of operations.
Instead of making quick profits, people who are good at trading aim to make a quick but not creating wealth.
Short-term capital gains tax is a tax that investors pay on every profit transaction they make.
With value investing, capital gains tax is 10% regardless of how long you hold the shares.
George Baker, a philanthropist and an American investor, once said that it takes a certain amount of courage and vision to make money in stocks.
The number of companies in the stock market is overwhelming. Unless you are an experienced investor, you would most likely get lost in the sea of stocks.
One of the most important steps in becoming a value investor is to thoroughly analyze a company’s financial statements and annual reports. This process can take a long time and involves going through multiple documents and reports.
Despite having no deep knowledge about the stock market, I have come up with some simple and practical steps that will help you start making money in it.
It is almost impossible to go through all the financial information of thousands of companies listed on the exchanges.
To begin, here are some screening criteria that will help you filter out the stocks that have the potential to generate higher returns.
One of the most important factors to consider is the company’s sales and profit growth rate over the past five years. This is also one of the most critical factors to look for when investing in stocks.
Online tools such as Moneycontrol and EquityMaster can help you filter out the stocks that can provide higher returns.
For my initial analysis, I used the Equitymaster free stock screener tool to filter out the stocks that most likely have the potential to generate higher returns.
After filtering out the stocks with good fundamentals, you can now focus on the companies that have the potential to grow and provide higher returns.
You can do this by visiting the company’s website, reading its updates on media platforms, and getting in touch with other investors.
Before investing in stocks, make sure that you understand the company’s fundamentals. This will help you avoid getting lost in the market.
For instance, if you are looking for technology stocks, then look at companies such as Mindtree Ltd, Tech Mahindra, and Vakrangee.
Because I have a passion for technology and have worked in the sector for many years, I can easily identify good stocks to invest in.
Even though I do not have a background in finance, there are many industries that I do not understand.
For instance, if I am looking for stocks in the two-wheeler industry, I do not need to have a background in this sector to know that it has always performed well in India.
For instance, during the real estate boom in India, companies that manufactured various products such as sanitary pads and tiles were able to expand their operations.
It is also important to look for companies that have a sustainable competitive advantage.
A company’s Moat is the competitive advantage it has over its competitors in the same industry. This allows it to grow and provide a more sustainable competitive advantage.
A company’s competitive advantage can be measured by various factors such as intellectual property rights, brand power, and government regulations.
For example, if a company has a strong brand name, huge market demand, and patent rights, it can create a wide moat that effectively barriers other companies.
For instance, Apple is on the verge of becoming a trillion-dollar company. This impeccable growth has helped it generate great returns for its investors.
Another example is the success of companies with strong moats. For instance, if a company has a huge distribution network, it can prevent a new competitor from entering the market.
In 2010, the stock price of Eicher Motors was just Rs 16. It has since risen to over Rs 500.
One of the most critical factors to consider is the company’s debt levels. Usually, companies with high debt levels have a significant risk to the company.
The debt-to-equity and debt-to-EBITDA measures are measures of a company’s dependence on borrowed capital to fund its growth.
When it comes to analyzing stocks, it is also important to check the company’s debt levels over the past couple of years. It will help the company increase its profits.
One way to check a company’s balance sheet is by looking at its long-term debt and current liabilities. These are the debts that must be paid within a year.
Too much long-term debt can make it hard for a company to pay off. This will also affect its ability to generate higher returns.
The high level of long-term debt can also pose a risk of financial mismanagement. It is also important to check if the company’s debt levels are healthy.
If the ratio exceeds 1, it means that the company has more long-term debt than its assets. This can be very risky and cause a company to miss its financial obligations.
Ideally, the ratio should be less than 0.5, which is a low risk for the company. It should also be avoided for companies that have large debts.
Warren Buffett uses the Return on Equity and Return on Capital employed ratios to help him identify the right stocks.
Return on Equity is a measure of a company’s profitability, as it shows how much of its earnings are returned to shareholders as a result of their investment.
Return on Equity and Return on Capital are also measures of a company’s efficiency. A high RoE signals that the company is taking advantage of its resources.
For instance, let’s take a look at the RoE and RoCE of Avanti Feeds. These two measures have increased significantly over the past five years.
Companies that have high RoE and increasing returns are more valued than those with low RoE and declining returns. For Avanti Feeds, its stock has gained 7000% in the past five years.
Fraud management is a common reason why people avoid investing in the stock market. In the past, companies that committed frauds had caused a lot of monetary loss to their investors.
It is also important that a company has competent and honest management. This can be very beneficial for investors as it can help them avoid making a bad investment.
One example of a company that has avoided fraud is Avanti Feeds. It has been able to create wealth for its shareholders through its honest management.
To avoid making a bad investment, it is also important to check the management’s track record and professional qualifications.
Annual reports are very useful tools to get a full picture of a company and its management. They can help you analyze a company’s strategy, financial performance, and future plans.
Even though the CEO of a public company wants to keep the investors’ interests in his or her company’s stock, it’s important to know who is really bluffing.
You can get the annual report of a company for free by visiting the company’s website or by emailing the investor relations.
The higher the promoters’ shareholding, the more positive a signal it sends out to the market.
Promoters are usually the biggest investors in a company. This can help make it a good investment if they have faith in the management and its future.
Before investing in stocks, it is important to analyze the company’s fundamentals and the price at which it is trading.
A good stock can be bought at a bargain price if its future expectations are met. However, if the price does not reflect its true value, then it would be a mistake to invest.
The right price is the one that provides the most margin of safety and protection from potential downside risks.
One way to get cheap stocks is by buying them at a low price and increasing the chances of earning great returns in the future. For instance, when I was buying Indian Bank, it was trading at a price of around Rs 70.
The intrinsic value of a stock is the value that the investor can determine after taking into account all its intrinsic features.
This formula is a good starting point for new investors. It will give them a fair idea about the intrinsic value of stocks.
For the sake of this calculation, I have taken 4 years of data as shown in the above picture.
You can also get a better idea of the company’s future growth rate by assuming that it is 75% of its last five years growth rate.
This method works by estimating the Intrinsic Value of a company based on its last five years’ growth rate.
Follow this formula until the stock is available at a cheap price. It will help you get started immediately.
Note: This formula should not be used for investing in stocks as it can lead to errors and losses. Instead, use it with other fundamental analysis tools.
A diversified portfolio of stocks can be created for different types of investors. For instance, a concentrated portfolio of 5 to 12 stocks can be used.
A concentrated portfolio is the best way to invest. It can be started with five stocks and gradually move up to 10 stocks.
The main advantage of a concentrated portfolio is that it eliminates the need to keep track of a huge number of stocks. It also allows the investor to manage risk and keep an eye on the company’s business.
The goal is to create a balanced portfolio that can provide consistent and maximum portfolio value. Both the concentrated and diversified approach are suitable for wealth creation.
If your investable amount is less than Rs 10,000, then you should not invest more than Rs 2000 in stocks.
Once the stock market has started to appreciate, it’s time to reassess and adjust the size of your portfolio.
For instance, if your original portfolio was Rs 10,000, then allocate 20% to stocks and Rs 8000 in cash.
For instance, after some time, your stock has risen 25% and provided a return of 25%. Your present value is Rs 10,500.
You do not need a master’s degree or a finance degree to become an excellent investor. Most of the world’s best investors come from ordinary academic backgrounds.
This article is for people who are new to investing. It will help them get started and make their first stock purchase.