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Choices of Being a Rat or a Stallone in Market



If one develops a sincere serious habit of investing in the stock markets, it can in fact prove to be a great way to build up your medium as well as the long term wealth. But the prime matter of fact is the basic understanding of the basic principles of the stock markets and a gut feeling to invest in successful businesses.

Of late the usual practice of spreading anxiety like live wire current amongst those investors who do not understand investing whenever the market takes up either direction by few hundred points. The neo investors are actually inundated with the relevant or irrelevant overload of informations which actually seeps on to them through daily reports, alerts, email alerts and in certain cases the calls on their mobiles suggesting them the buy or sell calls, enter profit limits, cmp, enter limit, target, to exit or to carry the position forward, valuations, intrinsic value, fundamentals and the tail winds bla bla bla and all this happens in a flick of a second the moment they open their demat account with a broker.

 All this for a neo investor is just like sifting through all the jugglery of the abbreviations, numbers, and a jargon to pick the right stock, and this is the reason for which we suggest that you opt and go with a stock and invest in it for a longer term. The investment analysts, brokers, sub brokers and advisors are well acquainted with these jargons of tongue twisting market tech slangs but same does not holds true with a common or a seasoned active investor, but still there is a tendency to pretend that they are well versed with the words and this proves to be financially fatal.

 There are numerous examples of certain stocks which have done extremely well despite an unlikely checquerred indifferent start. Usually it is imperative to understand that a stock only represents the shares of businesses, which further implies that deciphering how the business work to create the values it is only then you can make money and this a simple art to master for any advisory firm and the easy way out is the avoiding the idea to invest in the stocks directly but to take the mutual fund route. Here the benefit in doing so is that the cost involved and the time consumed is much less when investing through the mutual funds, comparatively when investing in the stocks wherein you have to take all the efforts and decisions whereas while investing in the mutual funds is handled by the fund managers.

 Another way out is to stick to the basics and invest in those companies which constitute the sensex and the nifty while others take the route of the portfolios of the select mutual fund managers and invest in stocks which appear in the well performing stocks from that cluster of stars. The prime thing is that all the investors follow the basic rules even if some rules differ in patterns while certain rules are common and rule the market’s roost. So one important lesson to note is that becoming rich is not an overnight stuff but a disciplined process in which you develop certain rules and techniques to beat the market’s unfavorable circumstances over a period of time to become rich without undergoing any monetary catastrophe.

You as an investor should always follow the basics and hunt for those companies and so also the particular selected company has made money on its own and not from the other known or unknown sources of undefined heads, and also that company which have quality management, or a turnover of Rs2000/- Crores only reflects that the management must be strong, never get enticed by price and earnings to find the values, also shortlist the companies who have net profit growth  more than the sales growth, also go for the stocks which have a higher return on the net worth and go for those companies which have a long streak of winning history in various economic as well as the market cycles take for example certain companies  like ITC, L&T, SBI, Maruti,  Bosch, Shriram Transport Finance and Asian Paints, and take a good second glance to these fallen down stocks like -- Nestle, ITC, Cairn India- the oil producer, Sun Pharma, Unitech and the Sun TV Network. Just take for an example if the prices of crude go up than the sales of the refining companies will also step up but this does not mean that the profits will also register and keep pace and be same as the growth rate. 

So in order to become a successful investor it is not imperative that you become well versed with the jargon of the investment world’s terminology which are generally use by the technical analysts in print and electronic media to overwhelm the investors and the neo investors have a tendency to easily fall prey or sway by the direction of the winds projected by the print and the electronic media like the impact of the tax laws, Greek crisis, weak monsoon. However such types of data may be useful for the certain traders but not for the long term investors who do not operate with a intraday trader’s mindset, and as an investor it is very important that you understand the basics of the market business and the finances of the company in the broad sense in which you wish to invest. Let the barrage of the technical words be the forte of the technical advisors and let them help in guiding your investments as the technical jargons may be too smartly designed in a complex manner for the neo investors to understand and analyze on there own.  

On one hand if any company has some value then it is bound to grow and if that company grows it is surely headed to deliver, and go for the companies which have grown consistently over a long period of time. The other factors which must be taken into the account are that how that company utilizes its funds, also compare the profit and its net worth which is nothing but the sum of equity capital and the retained profits. Next step would be to analyze the profit after tax (PAT) to the net worth is termed as return on the net worth (RNW) or the return on the equity (ROE), next is the price to earnings (PE) which would through more light on that fund and ensure the exact valuations, PE divided by the EPS growth rate should not exceed or be more than one, which is just the PEG ratio and if this ratio is lower than one only goes on to reflect that the valuation is sustainable obviously and by using these parameters will ensure that  a sure shot way in chalking out the strong performing stock which will make you a winner all the way eventually.

In a jungle all the rats were running here and there for their lives and no one was willing to explain the reason behind it, until a guy held one of the rat and scolded him very badly, only than the rat explained that one lion has died and the rumor in the jungle is that one of the rats amongst us has killed the lion. This story also holds true for the stock market too – so just keep your emotions aside and always maintain the right perspective of thinking in the long terms and please just do not get carried away and get caught up in the gossip net of the market like the ‘one poor quarterly performance report’, Greece turmoil, Fed rates, Repo rates and the poor monsoon forecast and cow jumping over the moon and making the market dip by 100s of points in a day.


So it is suggested to hang on the reins tightly to wade through the troubled waters and end up in gaining healthy returns over a period rather than reacting impulsively at whims and fancy of speculations.