Many of us are busy in day today life and very few of them have real understanding of investing. We know investing could be of different types and could be done through different instruments / mode. However, the one we are going to talk about here is investing in shares or companies also popularly known as investing in stock or share market.
Investing
in share market is considered to be confusing and risky for most of the people
because of the complexity and fluctuation noted in returns. This I believe is
because we don't really follow the right education of stock investing or
stock/share selection before investing. This less knowledge creates doubt and
anxiety which further leads to moving towards low return or highly safe return
giving investment.
Through this
blog I will try to cover few of the key points that may help you get educated
on how to choose a good company for investment, however having a professional
advice from your investment advisor will add further more value thereon.
Following points are some of the Warren Buffet (World's most successful and one of the richest Investor) advices which one can follow, which we will discuss in detail too:
- Invest in businesses having leaders with High Integrity and vision
- Invest by facts not emotions
- Buy wonderful business - not cigar butts
- Buy only those business / stock of business you understand/believe- also been told as Circle of Competence
- Most IMPORTANTLY – “Be GREEDY when others are FEARFUL and FEARFUL when others are GREEDY” When you see great opportunity take it immediately.
- Don’t sell unless the business fundamentally changes
- Buy at price below intrinsic value- (Knowing about future by adding the discounted cash flows value)
- Always choose company having competitive advantage- for example- companies which have high brand recognition- Jockey, Nike, fast food chain - McDonalds, KFC, these companies can still increase their sales or survive even in inflating economies or price increase.
However most of the time, you don’t know the
leaders or promoters every time – in such a scenario – you may check about them
through different mediums like – Magazine, print/video interviews about their
vision, internet, history of claims and achievements, director(s), management
report published with auditor / financial reports etc.
2. Invest based on facts and not using your emotions- When I say fact -do check the fundamentals of company, numbers of company like profit and loss, promoter holding, past growth and future of company etc., important financial ratios to be analysed before investing and avoid flowing with emotions when it comes to investing or money.
Let me know in comment box if you like to know more about this will write another blog in detail covering this precious knowledge on investing.
3. Buy wonderful business - not cigar butts- following on above points – do not look for companies that are like cigar butts which doesn’t have any value or poor business or poor future, go and select only those companies which have wonderful past, present and future. Read more about the current and future trends of industry in which company operates to know possibility of increasing value of your investment.
4. Very Important - Be GREEDY when others are FEARFUL and FEARFUL when others are GREEDY-simply means become greedy when everyone is fearful and selling their stocks/shares, because this is the time when stock market is giving you the opportunity to buy stocks at very low or reasonable price.
Alternatively become fearful when everyone is greedy, this is the best time to book profit or do less purchase if you plan to hold for long time because now at this time market becomes -pricy.
5. Warren says- don’t buy stock/shares of companies which you don’t understand. You should buy where you can relate and understand how it works and start with one that are directly related to your life. Like he himself in his initial days worked for Coca Cola and later on became the biggest investor and wealth maker through investment in Coca Cola only. This is also known as circle of competence – which relates with your circle of competence.
6. Don’t sell unless the business fundamentally changes, Here Warren Buffet says if you are sure of your investment – just don’t start selling your stocks due to some bad news in the market about the company. He further says- don’t sell your investment unless the logic at which you invested significantly changes, because otherwise you may end up making loss on your investment.
7. In case your selected company shares is getting traded at a price which is below the intrinsic value, then it’s a good time to enter for investment or purchase this stock. Intrinsic value of shares is nothing but per value of shares calculated in present time based on future income of company. There are multiple ways to calculate Intrinsic value, but the most popular one is discounted cash flow approach.
8. Future is highly dynamic and it keeps changing, thus for investment check you choose company who can have competitive advantage in future or high brand value or companies with big distribution channel or entry business barrier for other companies. For example- companies which have high brand recognition- Jockey, Nike, fast food chain - McDonalds, KFC, these companies can still increase their sales or survive even in inflating economies or price increase.
Hope this article gives you basic understanding of investing and ideas on your investment thoughts. If you like the article – do like and comment to help me understand on your feedback and what else you would like to know on investing and money matters.
