I am a newbie to investing. Before investing in equities, I made sure that I had enough knowledge not to burn my hands in the Stock Market. I was impressed by Warren Buffet's lectures [youtube] and his simplicity. Some of the books that gave me a better idea of equity (secutities) are:
Investment Fables by Damodaran [amazon]
- This book deals gives different strategies to select stocks (PE , Book Value, etc) and gives the pros and cons of each strategy by correlating the strategy with the historical prices.
One up on the wall street by Peter Lynch [amazon]
- In this book, Peter Lynch categorises securities into six different categories (stalwarts, turnarounds, growth, etc) and illustrates each of these with his experience as the fund manager at Fidelity.
The Intelligent Investor by Ben Graham (I havent read this fully, but I intend to do so in the future)
The Tao of Warren Buffet [amazon]
This book puts together interesting quips by Warren Buffet
The purpose behind reading all these books is to understand the investing principles, and come up with a disciplined investing strategy. I am still in the process of getting my fundamentals strong. I have a clear strategy to buy stocks, but I am not sure when to sell them. Looks like I need to read up some more.
So far, my portfolio is doing pretty okay.
Some key points in my investment strategy are:
1. buy cheap, sell high.
PE ratio is the first filter that the stock needs to pass through. I typically look at PE ratios below 7 when I buy (lower the better). Some cases may stand an exception in the case of growth plays. In this case, I see that the PE/growth i.e. the PEG ratio is less than 0.5. As I understand, PE can be thought as the number of years the company will take to earn the amount of money you invest in the company assuming that the profits remain same over these years.
But a low PE does not essentially mean that the stock is a buy. I look at other factors after I find a low PE stock
2. Low Debt
I dont want the interest payments eating away into the company's profits. I prefer the Debt / Equity ratio to be less than 0.5
3. Growth
I see the trend in the growth of the bottom lines. I prefer companies with 50% and above YoY growth in Net Profits.
4. The Business
The business should be easy to run, not capital intensive, the market should be large enough so that the entry of other players should not the company adversely and the Company should have an edge in the market. If there are too many players, I'd prefer the one that is the market leader and keeps coming up with innovative products.
5. Promoter Holding
The more the better. I feel that higher promoter holding is a good sign, as this indicates that the promoters are confident about the growth of their business. I also feel that buybacks is a good sign as it increases share holder value. [eg . Sasken]
6. Less Institutional Holding
I have observed that once Institutional Investors (FII / MF) enter a particulat stock, it's price automatically shoots up (High PE).
The points mentioned above just act as initial screens ( it take around 2-3 minutes to scan by).
Once if get interested in a particular company, I see the products / services that they offer, their clients, the news about the company, etc. The I go through the Annual Report and Analyst Reports (freely available) if any. The investor call transcripts of the company give a better idea of the direction the company is headed to.
I tried to do a DCF (Discounted Cash Flow) valuation for a few companies, but I am no expert in this area. Nor do I have the resources and the contacts to get a deep insight of the company's business model. Aswath Damodaran has good material which covers this topic comprehensively.
Coming to the tools that I use, I use
moneycontrol: and to track my portfolio and to get financials
kotak securities, business week : getting the key ratios and financial information
Sharekhan and Reliance Money for online trading
Sharekhan has a good service, but is a bit costly.
Reliance Money is cheap, but is not very user friendly. Make sure that you understand from someone how to use reliance money before you start using the account.
btw, here are my holding as of today :
Note : These are my ideas as of this moment and are subject to change anytime in the future ("without notice"). I do not make any recommendations.
Investment Fables by Damodaran [amazon]
- This book deals gives different strategies to select stocks (PE , Book Value, etc) and gives the pros and cons of each strategy by correlating the strategy with the historical prices.
One up on the wall street by Peter Lynch [amazon]
- In this book, Peter Lynch categorises securities into six different categories (stalwarts, turnarounds, growth, etc) and illustrates each of these with his experience as the fund manager at Fidelity.
The Intelligent Investor by Ben Graham (I havent read this fully, but I intend to do so in the future)
The Tao of Warren Buffet [amazon]
This book puts together interesting quips by Warren Buffet
The purpose behind reading all these books is to understand the investing principles, and come up with a disciplined investing strategy. I am still in the process of getting my fundamentals strong. I have a clear strategy to buy stocks, but I am not sure when to sell them. Looks like I need to read up some more.
So far, my portfolio is doing pretty okay.
Some key points in my investment strategy are:
1. buy cheap, sell high.
PE ratio is the first filter that the stock needs to pass through. I typically look at PE ratios below 7 when I buy (lower the better). Some cases may stand an exception in the case of growth plays. In this case, I see that the PE/growth i.e. the PEG ratio is less than 0.5. As I understand, PE can be thought as the number of years the company will take to earn the amount of money you invest in the company assuming that the profits remain same over these years.
But a low PE does not essentially mean that the stock is a buy. I look at other factors after I find a low PE stock
2. Low Debt
I dont want the interest payments eating away into the company's profits. I prefer the Debt / Equity ratio to be less than 0.5
3. Growth
I see the trend in the growth of the bottom lines. I prefer companies with 50% and above YoY growth in Net Profits.
4. The Business
The business should be easy to run, not capital intensive, the market should be large enough so that the entry of other players should not the company adversely and the Company should have an edge in the market. If there are too many players, I'd prefer the one that is the market leader and keeps coming up with innovative products.
5. Promoter Holding
The more the better. I feel that higher promoter holding is a good sign, as this indicates that the promoters are confident about the growth of their business. I also feel that buybacks is a good sign as it increases share holder value. [eg . Sasken]
6. Less Institutional Holding
I have observed that once Institutional Investors (FII / MF) enter a particulat stock, it's price automatically shoots up (High PE).
The points mentioned above just act as initial screens ( it take around 2-3 minutes to scan by).
Once if get interested in a particular company, I see the products / services that they offer, their clients, the news about the company, etc. The I go through the Annual Report and Analyst Reports (freely available) if any. The investor call transcripts of the company give a better idea of the direction the company is headed to.
I tried to do a DCF (Discounted Cash Flow) valuation for a few companies, but I am no expert in this area. Nor do I have the resources and the contacts to get a deep insight of the company's business model. Aswath Damodaran has good material which covers this topic comprehensively.
Coming to the tools that I use, I use
moneycontrol: and to track my portfolio and to get financials
kotak securities, business week : getting the key ratios and financial information
Sharekhan and Reliance Money for online trading
Sharekhan has a good service, but is a bit costly.
Reliance Money is cheap, but is not very user friendly. Make sure that you understand from someone how to use reliance money before you start using the account.
btw, here are my holding as of today :
Note : These are my ideas as of this moment and are subject to change anytime in the future ("without notice"). I do not make any recommendations.
Posts
2 comments:
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