Rule 1- Never Lose Money in Stock Market and Rule 2 -Don't forget Rule #1..Do you know how to select shares for investment ?

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: 

1. Invest in businesses having leaders with High Integrity and vision
2. Invest by facts not emotions 
3. Buy wonderful business - not cigar butts
4. Buy only those business / stock of business you understand/believe- also been told as Circle of Competence
5. Most IMPORTANTLY – “Be GREEDY when others are FEARFUL and FEARFUL when others are GREEDY” When you see great opportunity take it immediately.
6. Don’t sell unless the business fundamentally changes
7. Buy at price below intrinsic value- (Knowing about future by adding the discounted cash flows value)
8. 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.

 Now, let me try to cover each of these Warren Buffet advices in detail :-

 1.     Before you invest in any company and setting your expectation on returns and numbers or goals, do check at the integrity, background, history of promoter or leaders leading the company. This you can check by knowing them better. If you are fortunate enough to know them personally then you may just know about their character, history and commitment directly.

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.

 You should always choose to invest with the companies that is handled by leaders of high integrity, great track record, vision and achievements in past.

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.

Mutual Fund hai to Sahi hai... Start as low as INR 500

I started investing very late may be after 10+ years of working after college but my friend started investing immediately after his college and now his investment value has grown up by 21% to 29% in last 10 years. I wish the investment I started now, could have been started few years back if not 10 years.

Mutual Fund Return Bag

We heard lot of people saying saving and investment are same but that is not correct. Investment may require savings but investment gives you long term benefits in future, saving remains static same like money do nothing lying in your wallet or purse- it is saved there but doesn't grow. If you think your money and resources should do same hard work as much as I do then give an opportunity to grow your funds by investing.

This is true that Mutual Fund (MF) are subject to market risk but lot of people also have this myth that MF are only good for those who are interested in risky investments or share market or equity investment. But the good news is that- mutual funds are made to meet different investors requirement. So, you will find there are different types of funds available for investment in market and you can choose from amount of investment to type of return to type of risk you want to bear.

Through this article we will try to understand more about Mutual Funds.

What is Mutual Fund ?

Mutual fund is a fund collected from different investors who have invested with a motive to earn some gain or return from their investment.

Where the funds collected by Mutual Fund company gets invested ?

Mutual Fund company invest according to the scheme opted by investor and guidelines regulated by SEBI in equity, debt, government bonds, money market instruments, financial instruments available in market or combination of any of these. This could be open share market if it is equity scheme, debt market if it is debt investing fund and so on. If the fund selected by investor is to invest in equity share market as well as debt, then it will invest according to the defined protocols suggested for that particular fund.

Why I should be investing through Mutual Fund and why not directly Share Market or other market ?

It's a diversified pool of investment where fund manager is an expert and knowledgeable investing professional. The diversification in investment value reduces the risk of volatility present in share market. So he and his team managing the fund try to ensure investor investment value always give higher or better returns in the investment market. Here, investor investment value is measured as NAV.

To understand diversification better, please read through this example- To manage the risk in industry and seasonal business, MF manager would invest in two different kinds of seasonal business segments- Coffee/ Tea and Ice Cream, so in this scenario Coffee/Tea will be more profitable in Winter and Ice Cream sale/ profit will go up during summer season. Due to this seasonal effect the returns earned on investment made on these companies would become consistent throughout the year, because loss of one is set off by profit of other company.

So, to reduce the risk of volatility and inconsistencies in returns mutual funds are better than direct investment in shares, plus investment is made in diversified portfolio which reduces your risk of loss of money in long run.

Can I start an investment with small amount ?

Yes, you can start and I would suggest as early as possible and stay invested unless it is really required to pull back the money.You can start as low as Rs.500 and in few MF scheme you can start accumulating or investing in mutual fund units with Rs. 100 also. You can start Systematic Investment Plan popularly known as SIP. You can change the SIP amount as and when required based on the scheme opted, discuss with your investment adviser or broker with whom you like to associate.

Can I take out the money when required ?

Yes, you can take out the money, however few mutual fund schemes have exit load of 1% of investment value so check before you invest or take out the money. One can refer the scheme document or investment adviser.

What returns I can expect through MF investment ?

First you should focus on continuation of return, however general ROI % varies from fund to fund and type of fund and risk selected by investor. Debt fund usually gives lower % return due to less risk involved thereon i.e. 6%-8%. Equity MF schemes offers 10% to 25% depending upon scheme, market, and period of investment.

How to select good Mutual fund for investment ?

You can review the past trend for selected mutual fund for returns, investment portfolio etc. For this you may take help of money control.com (refer the suggested links) or www.valueresearchonline.com to review the details of Mutual fund and making sound decision.

Connect back via comment if you have any query on this subject or if you like to know anything else that I can help you get answers.