How to Invest in Stocks and Create Wealth?

1. Choose Quality-at-Reasonable-Price way of investing

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 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.

2. Identify Opportunities

Use intelligent filters in a Screener to identify Opportunities
From the large universe of listed stocks you need a way to identify opportunities currently and as they arise. Regular Screeners are not designed to provide easy decision making for retail investors. MoneyWorks4Me DeciZen rates stocks on Quality, Relative Valuation and Price Trend and colour-coded them to make it easy to understand. With the MoneyWorks4Me Screener you will be able to identify the best quality stocks that are available at attractive prices today in any Index, ...Sector, Industry or Theme. On saving the Screeners of your choice you get Smart Alerts when new opportunities arise.

3. Get conviction on Quality

Quality-companies are those that have delivered profitable results even during tough market and economic conditions.
These companies are rated Green. The Top 200 companies are selected for detailed research at Moneyworks4Me. You can build your conviction on these by looking at the 10-Year X-Ray.

10 years is a good period to do this as it usually has at least one tough period.
Only companies with a moat-competitive edge can deliver this consistent good performance.

Look at the key ratios over 10 years and if most of them are good you have found a Quality Company.

4. Change in Assess Reasonable Price

Reasonable price is very subjective and hard to prove not just for stocks but for many products which do not have a MRP and certainly for all services. 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 Price:

Relative Valuation Anchors: Compares valuation ratios like P/E, EV/EBITDA, P/BV, P/Sales; Current versus historical for the same stock or with similar peers.
Absolute Valuation Anchors: Valuation done by Research Analyst to estimate intrinsic or fair value based on the current and future performance of the company. They have their basis in sound theory but influenced by assumptions.

Both types of anchors have their merits and shortcomings. Absolute anchors come at a higher cost and hence used when investments are relatively larger.

5. Build a Portfolio of about 20 stocks

You should not risk your money on only a few stocks but build a portfolio of about 20 stocks. It will take some time to build this portfolio as you are very unlikely to find 20 such stocks at one go. Be patient and you will be rewarded handsomely.

You can check the risk in your portfolio by uploading it on the MoneyWorks4me Portfolio Manager.

6. You need unbiased and transparent advice

It should be a forgone conclusion by now that you need data, analysis, tools and advice to make sound stock investing decisions. More importantly you need these to be unbiased and transparently presented so that you can act on it confidently. No researcher or advisor can be right all the time, but their willingness to be transparent is crucial for you to trust them. Select one carefully.