Whenever I talk about the stock market to my parents they always associate some terms with it like gambling, Lottery, and wastage of money. I think they are not wrong as they have seen the Harshad Mehta scam, The great recession, and this covid fall. They have seen people selling their houses and taking loans to invest money in the stock market. They have seen people becoming bankrupt when the market crashes. But there are always two sides to the coin. If some people are becoming bankrupt then some are becoming millionaires also. But the number of people who are constantly earning money from the market is very less about 5%. Research also suggested that more than 90% of people fail in the market and book their losses.
So is it that much difficult to be profitable in the market?
The answer is a big NO. People always think emotionally when it comes to money. People become too impatient when the market crashes so that they sell their whole portfolio and book a loss. They will not buy the stocks even with the best fundamentals when the market is all-time low due to fear of losing money. But when the bull run starts in the market, now people start buying the stocks which are at their all-time high. This is the greed that drives them to buy those stocks and again they encounter a loss here as the stocks which are at their all-time high will definitely show some consolidation or downtrend and impatient people will again sell that stock after encountering a loss. After all this, they say that whenever I buy a stock it starts going down. It is the fear and greed of the people that lead them to a loss.
So the question is: Is it really important to buy the stock at the bottom and sell it at the top?
Again the answer is a big NO. You cannot time the market. Market movement depends on a lot of intrinsic and extrinsic factors and news. There is a large number of big players in the market who can change the trend of the market within a week that’s why nobody can know when is the correct time to enter the market. If you want to become an investor then you should only check the fundamentals and management of the company. Fundamentals mean: check the balance sheet of the company to know about the assets and liability of the company, check the profit loss statement of the company, check annual reports and results, and also see the free cash flows of the company. Learn about the management of the company, see the interviews of the company’s CEO. After gathering all this information analyze: is the company’s fundamentals are good? Is the company’s management is honest and trustable? Does the company has a good futuristic vision? After analyzing all these factors if the company seems good then try to find opportunities to buy the shares of the company. If the company is not at all time high and at a fair valuation then consider buying the shares at each dip. Hold the stock for a long time and you will see how your wealth is compounding. It is as simple as that.
Now here I am giving examples of some companies which had a very good fundamental few years ago. These companies still have very good fundamentals and they have grown more than 2–3 times from that price.
Relaxo footwears limited: This company is involved in the manufacture of footwears and shoes. They have various renowned brands like Bahamas, SparX, Flite, Boston, etc.
Incorporated in 1984, Relaxo is the largest footwear manufacturer in India, serving the nation since four decades, and is today ranked among the top 500 Most Valuable Companies.
Important fundamentals of the company:
- The company has very low debt and a market cap of 21,151 crores.
- Annual net profit increasing for the last 5 years.
- The holding of the company is very strong as there are no pledged promoters and FIIs also increasing their shareholding.
- The net cash flow of the company is rising.
- Return on equity (ROE) and Return of capital employed (ROCE) of the company is greater than 15%.
The company has given 370% returns in 5 years.
Berger Paints: This company is involved in the manufacture of paints. Its other products are Wall Coatings, Exterior textures, Waterproofing Solutions, Wood and Glass finishes, and undercoats.
Berger Paints India Ltd is the second largest paint company in India. They are offering their customers a variety of innovative painting solutions decorative or industrial. The company was incorporated on December 17 1923 as Hadfield’s (India) Ltd in Kolkata.
Important fundamentals of the company:
- The company has very low debt and a market cap of 73,138 crores.
- Annual net profits are increasing for the last 5 years.
- The company is generating net positive cashflows.
- The holding of the company is very strong as there are no pledged promoters and FIIs also increasing their shareholding.
- Return on equity (ROE) and Return of capital employed (ROCE) of the company is greater than 20%.
The company has shown tremendous growth of 341% returns in the last 5 years.
Muthoot Finance: Muthoot Finance is a flagship company of Muthoot Group and its inception took place on 14th March 1997 as a private limited company i.e. Muthoot Finance Pvt. Ltd. The company provides gold loans on extremely easy terms and conditions to people of each segment of society.
Important fundamentals of the company:
- The company has a market cap of 59,988 crores.
- Annual net profits are increasing for the last 5 years.
- The company is generating net positive cashflows.
- The holding of the company is very strong as there are no pledged promoters and FIIs also increasing their shareholding.
- Return on equity (ROE) and Return of capital employed (ROCE) of the company is greater than 20%.
Hindustan Unilever: Business Model of HUL revolves around the production of fast-moving consumer goods.
Established in the year 1933 by the Lever Brothers of United Kingdom, HUL or Hindustan Unilever Limited is an Indian subsidiary of Unilever, a British-Dutch multinational company headquartered in Mumbai, India.
It governs a massive range of products, including foods, cleaning agents, beverages, personal care products, fast-moving consumer goods, and water purifiers.
Important fundamentals of the company:
- The company has a market cap of 549,310 crores and the company is debt-free.
- Annual net profits are increasing for the last 5 years.
- The company is generating net positive cashflows.
- The holding of the company is very strong as there are no pledged promoters and FIIs also increasing their shareholding.
- Return on equity (ROE) and Return of capital employed (ROCE) of the company is greater than 20%.
There are a lot of stocks having good fundamentals which have shown tremendous growth in the last five years and they will show this growth in upcoming years also. All you need to do is do some research and buy the stocks with the best fundamentals and hold those stocks for a long time then only you will be able to generate wealth.
This is the first part where I have discussed investing only. In the next part, I will shed some light on trading and technical analysis.
Thanks for reading!
