Investment Shastra

How to Spot Great Companies?

Many of us wonder where to find good investment worthy companies? Where do I begin is a big question and looms large in the minds of investors. Most of us get stock tips and recommendations. All that is fine, but how can I search for a good company on my own?

I’ll tell you what I do. I have a simple method of spotting great companies. I look around myself. What is it that I like the most? Where do I shop most often? Are there any brands towards which I have a special liking? Or is there some brand I definitely support, defend, love, etc.

You must be wondering how this will help you with stock investing. Well let me tell you one thing. Fundamentally strong companies always have a moat. Now you must be wondering what the heck is a moat? Don worry it only sounds complicated, but is a very simple yet powerful term.

Moat tells us if a company has some competitive advantage, basically some quality, product, management, something which makes it stand out from the rest. It is important to find a sustainable one. Let’s take a few real life examples:

Example1: Maggi is one such product. Now I’m sure most of you must be getting that craving to have it right now!!! It’s an addiction for many, last minute savior of so many hostelites, students, 5 people fight for one maggi, exam wali maggi, so on n so forth. People have memories attached to it. I’m sure all of you who love it, know it very well that nothing can replace it. There are so many brands which have come up in competition, but nothing beats maggi

Example 2: Whenever you have to search something on the net, what name comes to your mind first? Yes you are right; it’s GOOGLE and only GOOGLE. Let me tell you, it’s just a search engine!!! There are many others…but the name has become synonymous with ‘search it on the net’. It’s cool, if you say – just Google it up…that’s the today’s generation’s lingo.

There are many such examples. I suggest you think of some and share them with me. Next what you need to do is to find out the company which produces that product, so it’s simple Google it up J

It is not necessary that if you have identified a great product, then the company will be for sure investment worthy. It may not be listed in the first place, or that product may just be one of the many products it sells and thus the company does not turn out to be a great investment! Don’t worry. Keep looking around yourself, observe closely the next time you go out for shopping and you will definitely be able to spot some great investment worthy company.

This is exactly how I look for them, and till now except for 1 or 2, most of them have turned out to be investment worthy. Havells India was my first pick when I had just learnt this great way of spotting companies, preached by none other than the guru of stocks – Warren Buffett.

I have written an article on this company – ‘Wires That Don’t Catch Fire‘. Read it and you’ll know how I identified this gem, which is now approx. 600% up from the time I selected it.

Jockey turned out to be another great investment. I realized that the company was opening up exclusive stores even during the downturn. They came out with a special T-shirt collection and repositioned the brand with their latest ads – Just Jockeying! Their stores were swamped with people when everyone else had put up a sale. This realization came when I myself was shopping there. I was surprised to see so many customers. Went home, Googled, and found it!

I follow a few simple principles of value investing and I have been quite successful till now and am very confident that I will continue to make profits in future also.

I’m not a millionaire to gamble with my money. I earn it with a lot of hard work and want to see it growing not burnt by blindly following some stock tip or recommendation – that’s gambling. I do stocks myself and my stock investing begins with a simple step.

Just try it and let me know if you come across some great investment worthy company. I’m looking forward to hear from all of you. Waiting for your favorite stars.

I’ll share my views on how to decide if your favorite companies are really investment worthy or not. Till then you begin your search and be ready with your list and I’ll prepare my next post. Good luck 😉

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