Investment Shastra

Stock Shastra #1: Stock Investing is not Rocket Science!

We said that to make your money work for you, you have to take charge of your own investments. You cannot leave it any more to your Relationship Manager, your Insurance Advisor, your Broker. Sounds threatening? Of course, it does. Let’s see why.

What is the common mindset?

Complete the following sentence using one word. ‘Stock Investing is _________.’

What word came to your mind?

Most likely it will be one of these: Gamble, Risky, Unpredictable, Complex, etc. What do these words make you feel? Do they make you take up stock investing or make you avoid it? Most of us will feel like avoiding it. We are afraid of venturing in it on our own; hence hand it over to “experts”. However, it is these experts who have constantly blasted us with the myth: ‘You are better off leaving Stock Investing for the experts to handle.’ Just have a look at ads of any of the financial products and services; they all say the same thing. Now, if they were all such wonderful experts, how well did such expertise protect your wealth during the crash of 2008?

What should our mindset be?

The test of real expertise is wealth protection in bad times and solid growth in good times. So that, over a longer horizon covering boom and bust, you get attractive growth, say 20% CAGR. Of course there are a few rare, real experts (but you won’t see them on TV every day, predicting the market) who have consistently been doing this. Each Stock Shastra is the distilled wisdom of such rare, real experts. The real Gurus! And from them, here is Stock Shastra #1: Stock Investing is not Rocket Science! Now, how do you feel when you say this Shastra?

Sounds too far-fetched? Consider this:

  • Benjamin Graham, one of the Gurus of stock investing, did not have a background of finance when he started investing. However, he learnt stock investing, eventually pioneering the concept of value investing; his philosophy was simple: Buy great businesses at extremely cheap prices.
  • Warren Buffett, one of the greatest stock investors of all time, started investing when he was 12, without any formal finance education. He regarded Benjamin Graham as his Guru and today is amongst the richest people in the world.
  • The common thread binding these great investors is the same. They weren’t experts when they started. But they learnt to do it on their own by following a simple and sound framework of investing and sticking to it with discipline.
  • It involved buying into a great business with the mindset of an owner. Finding such a business might require some search and analysis, but is something you can certainly manage.
  • Most importantly, sooner or later, the market gives you many opportunities to buy such wonderful businesses at throw-away prices; or sell your holdings at unbelievably high prices. The proof: Look at the 52-week Highs and lows of any of the Sensex stocks.

Once we change our mindset and decide to invest in stocks on our own, the next step is to find a wonderful business worth owning. The next Stock Shastra will tell you how to start doing this.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.


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55 comments

  • Though no doubt stock shastra has started on a good note. I would surely appreciate the presentation and style. But it seems to fall short of content. As in it seems you want to keep it precise and simple but still you leave some things unexplained like what to do with the 52 week high low ratio.

    Sincere comments.

  • Hii.,
    What does the 52 week High to 52 week Low ration indicate ?
    Regards,
    Mukesh Tolani

  • it is nice toreceive your mail as the name suggest it seems it will be full of knowledge to the point and not like reports which I have no patient to read

  • Your Intro is too wonderful, i will wait to see how you can make us to select the stocks , how the low the high will help.

  • Thank you Vineet. We are confident that once you start following the Stock Shastra way of investing you will create wealth for yourself.

  • Many times this ratio will come out to be 2 or more than that. The intention behind asking you to find out the ratio is to make you aware that in the short term the market is irrational and prices even the best companies erratically. You always have opportunities to buy a stock at a very low price and sell it at a high price.

  • Thanks for your feedback Anuj. We have made a conscious attempt to stick to the point and be simple so that we can engage larger number of people. The intention behind asking you to find out the ratio is to make you aware that in the short term the market is irrational and prices even the best companies erratically. You always have opportunities to buy a stock at a very low price and sell it at a high price.

  • Thanks a lot. It is our endeavour to give you no non-sense, clutter free, distilled wisdom, which will help you create wealth and we will continue with this in the future.

  • Thanks for the reply.
    I have got one suggestion.
    With moneyworks4me, I am able to spot companies that are consistent in their EPS, Sales & ROIC growth., but undervalued by the market for some reason. These are sureshot gems.
    But, turn-around scrips, or companies having short term negative EPS growth, are negatively valued by the Price Calculator. Can we not make a system that will identify turn-around scrips too. ?
    Regards

  • I observe that this topic talks about how to shortlist the candidates…. will you be touching base on how to make sure that the stock is bought at right price….i.e at discounted price to reduce the loss risk.

  • Yes. We definitely will be talking about how it is important to buy a wonderful business at a discount to its actual worth, in the future. Initially, we are focussing on the first important step – Finding a wonderful business. Once we have covered this, we will be moving on to the valuation aspects.

  • Yes. We definitely will be talking about how it is important to buy a wonderful business at a discount to its actual worth, in the future. Initially, we are focussing on the first important step – Finding a wonderful business. Once we have covered this, we will be moving on to the valuation aspects.

  • Thank you Mukesh for your suggestion. You are right in noticing that there are some turn around scrips or companies with short term negative EPS growth which can be sure shot gems. However, we cannot use the same model to value these companies. We are already working on a model specifically for such companies. We hope to make it available to our users soon.

  • Today How Can I know which sector will boom after 2 or 3 years ? Exactly one needs to know the cycle of the business and growth. Suppose energy sector.. there are a number of companies in energy sector… Which two or three companies should I select ? How ?

  • good.The value of a stock can be viewed at the high and low price of the year. But some companies giving manipulated news can give a false figure that is to be keep in mind which wont be done by companies with good management

  • Sounds interesting and it is really well summarized hope to enhance the stock investing knowledge more with u guys 

  • completely unbelievable that you are. sharing this freely. I truly respect this site and urge investors to follow these teachings very closely. .

  • Very well, we will invest at low prices in  wondersful Businesses and not stocks and wait for them to flourish before we sell them at high. 

  • Thank you for introducing the nuances of “so called Stock Market”,my first lesson.The perceived Rocket Science sure sounds simple.But then the taste of the pudding is in eating it sob I’ll wait and see as to how much I learn and that where does the High -Low ratio takes me.

  • From all this, it is clear that Stock business is a long path meaningful only for the patient birds. Makes sense. But it keeps you very much occupied on day to day basis and leaves much less time for other, may be, more important chores…. May be I am drawing wrong hasty conclusions.

  • I have not understood one thing about the advisers. If they have the knowledge to do what they preach, why don’t they do it for themselves instead of wasting time on others. They should be making money for themselves instead of taking the trouble to rig up such wonderful sites (sic) and spending their good money to lure other people to make money on such pitiful commission. Are you real, please stand up..

  • The introduction gives lots of confidence, and the immediate example of high and low during 52 weeks , boost up the morale, and at the same time, make us anxious to know which time we are in, in high , low range. Great!

  • It’s true that stock investment is not a rocket science but surely is bit tricky unless you are aware about its outcome. Or haven’t kept track for the same. So please if you could guide me with regards to Gala global Inc would be of gr8 help.

  • Today How Can I know which sector will boom after 2 or 3 years ? Exactly one needs to know the cycle of the business and growth. Suppose energy sector.. there are a number of companies in energy sector… Which two or three companies should I select ? How ?

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