How to Invest in Stocks and Create Wealth?

Choose Quality-at-Reasonable-Price Way of Investing
Choose Quality-at-Reasonable-Price
Quality-at-Reasonable-Price, QaRP is a way of investing most suited for retail stock investors.This method ensures you invest exclusively in quality companies. Buying quality stocks at reasonable prices reduces the chances and extent of a fall in your net worth, recovers fast after corrections and thereby dramatically increases your chances of staying invested. Wealth is the natural outcome of staying invested and compounding growth of your investment. There are other ways of investing in stocks that can create wealth. However, they demand higher risk taking ability, higher tolerance to volatility and loss, higher willingness to book paper/real losses, higher patience than what most of us have.
Identify Quality Companies
Choose Quality-at-Reasonable-Price
Quality-companies are those that have delivered profitable results consistently and withstand tough market and economic conditions. Hers’s what we look for:

  1. A proven track record across key ratios over 10 years.
  2. Companies with a moat-competitive edge.
  3. Trustworthy Management and Promoters.
Assess Reasonable Price
Choose Quality-at-Reasonable-Price
Reasonable price is very subjective and hard to prove. Consumers solve this problem by using an ‘anchor’, a price they use for comparing. We do it all the time- when we buy vegetable and fruits or judge the prices charged by a restaurant or a hotel.
Anchors used when assessing a stock price:
  • Using 52 week high or low, P/E or P/BV are examples of one type of anchor. These are all dependent on market prices and do not always have a correlation to the performance of the company.
  • Fair value, Intrinsic value etc. are anchors based on the current and future performance of the company. They have their basis in sound theory but influenced by assumptions. These are more effort intensive.
We use Fair value based anchor for the top 200-225 stocks and market price based anchors for beyond 225 stocks.


Read more about anchors
Reasonable versus Cheap:
  • Reasonable is not Cheap. Some quality companies almost always trade at very high P/E and P/BV. However, sometimes they are pretty close to fair value and hence reasonably priced.
  • Cheap is not always reasonable. Sometimes stocks are cheap for a reason and remain low for long thus giving very poor returns to the investor.
Point to remember
Build a Portfolio of about 20 stocks
Choose Quality-at-Reasonable-Price
Retail investors should build a diversified portfolio of about 20-25 stocks. This ensures good returns; which one expects from investing in stocks directly without high volatility that happens in a concentrated portfolio.

How to Invest in Stocks and Create Wealth?

You need data, analysis, tools and advice to make sound stock investing decisions. You need these to be unbiased and transparently presented so that you can trust it and act on it confidently. Here's how we enable you to build a wealth-creating portfolio.

Choose Quality-at-Reasonable-Price Way of
Investing

    Choose Quality-at-Reasonable-Price
    Quality-at-Reasonable-Price, QaRP is a way of investing most suited for retail stock investors.This method ensures you invest exclusively in quality companies. Buying quality stocks at reasonable prices reduces the chances and extent of a fall in your net worth, recovers fast after corrections and thereby dramatically increases your chances of staying invested. Wealth is the natural outcome of staying invested and compounding growth of your investment. There are other ways of investing in stocks that can create wealth. However, they demand higher risk taking ability, higher tolerance to volatility and loss, higher willingness to book paper/real losses, higher patience than what most of us have.

Identify Quality Companies

    Choose Quality-at-Reasonable-Price
    Quality-companies are those that have delivered profitable results consistently and withstand tough market and economic conditions. Hers’s what we look for.
    1. A proven track record across key ratios over 10 years.
    2. Companies with a moat-competitive edge.
    3. Trustworthy Management and Promoters.

Assess Reasonable Price

    Choose Quality-at-Reasonable-Price
    Reasonable price is very subjective and hard to prove. Consumers solve this problem by using an ‘anchor’, a price they use for comparing. We do it all the time- when we buy vegetable and fruits or judge the prices charged by a restaurant or a hotel.
    Anchors used when assessing a stock price:
    • Using 52 week high or low, P/E or P/BV are examples of one type of anchor. These are all dependent on market prices and do not always have a correlation to the performance of the company.
    • Fair value, Intrinsic value etc. are anchors based on the current and future performance of the company. They have their basis in sound theory but influenced by assumptions. These are more effort intensive.
    We use Fair value based anchor for the top 200-225 stocks and market price based anchors for beyond 225 stocks.


    Read more about anchors
    Reasonable versus Cheap:
    • Reasonable is not Cheap. Some quality companies almost always trade at very high P/E and P/BV. However, sometimes they are pretty close to fair value and hence reasonably priced.
    • Cheap is not always reasonable. Sometimes stocks are cheap for a reason and remain low for long thus giving very poor returns to the investor.
    Point to remember

Build a Portfolio of about 20 stocks

    Choose Quality-at-Reasonable-Price
    Retail investors should build a diversified portfolio of about 20-25 stocks. This ensures good returns; which one expects from investing in stocks directly without high volatility that happens in a concentrated portfolio.