- Getting Into Market with “Art of Stock Investing — by Manikandan Ramalingam”
I have been into the Stock Market for a very long time. And few of my investment has been in my portfolio for a very long time but I have never been a Cautious Investor. Things hit me when stocks in the Banking Sector and the Automobile sector hit rock bottom and my Captial took a real hard hit. And trust me when I say hard its like 98% Capital depreciation. This is the pattern you do when you are not educated on investment and risk management.
This made me realize that we do things we shouldn’t, all of us did, and we should look at the present and try to set the future right.
It’s easier to advise your younger self but very tough to guide your present towards the future you.
I decided to devote my time reading quality books and stop destroying my hard-earned money. As a result, this blog is dedicated to the learnings I came across the book — “Art of Stock Investing — Indian Stock Market” (Affiliated Link)
The reason for choosing this book is because Mr. Ramalingam has explained the basic concepts of the Stock Market and company so well that it is a must-read book for all beginners.
Things that the book helped me understand in a very shorter version, for details I would suggest you go ahead and give this book a thorough read:
Reason for Companies to come forward with stocks:
If a company has started and performed well. Now for further growth, it needs capital so they have 3 options for it.
1. Take Loan and the company has to pay Debt with interest.
2. Go to a venture capitalist and take Captial in return they need to give them a part of the company.
3. Go Public — In easier terms, go to the stock exchange, get there company name listed as IPO, and raise funds from the Public.
The author has taken the example of Infosys. How it started, how it went public, and even said that if a person had 1 share of that IPO worth Rs 95 in 1993 it could have become 3 Lakhs excluding dividends (During book publish).
Rise and Fall (How and Why) of Share Price:
The company share price is the outcome of the fight between the buyer and seller from 9.15 AM till 3.30 PM (Stock market open and closing time). If there are more number of buyers that will result in the share price to go up and vice versa.
The author has explained a few key points of worthy share:
* Grow in value over time
* Expand their business
* Profit grows year on year
* Debt reduces to 0 or has no debt
* Cash and cash equivalents grow
* Asset value keeps on Increasing
Basic Stock Market Terms:
- Market Capitalisation -
(Total No. of Shares * Current Share Price) - Earning Per Share (EPS) -
(Profit or Loss made in the year) / (Total No. of Shares) - P/E also known as Price per Earning -
(Current Share Price) / (Earning Per Share)
Check all the above terms for any share on Moneycontrol
Cherry Picking:
We earlier mentioned the criteria for a worthy stock and if you check those point you will find that being low or 0 debt is one of the criteria.
Loans are okay if year on year the amount keeps diminishing. If it starts accumulating then it isn’t going on the right path. The loan comes with interest and bad loans of a company can damage your investment.
- Cash to capital ratio = When you want to calculate for debt-free companies then you need to calculate like this.
(Cash Present *100)/(Market Cap) = (Cash to Market Cap )%
Why do we need this? Because the company with no debt are likely to balance themselves when there is a Market crisis.
Brand Value:
Book has given insights on how companies with Brand value have a deeper emotion with those companies which do not have that Brand Name. You can take the example of Refine oil you are using, why do you choose a branded rather than a local one -might be because trust, quality, even when the price is on the higher side.
The books have continued how many sectors such as Cement, Healthcare, Paints, IT has few debt-free companies. Every sector has at least 1 debt-free company but its competitors are not debt-free and that leaves them behind in the selection list. Most of the Sector, you will find 1 good performing share will be dominating the entire Sector.
All the above-mentioned learning will help in ignoring all the companies and focusing only on the companies which will lighten up your portfolio. The portfolio should comprise 5–10 company’s shares, not less, not more, and should be diversified across sectors.
Things to check on the company
1. Total Debt
2. Cash Flow
3. Yearly Net Profit
4. Shareholding %
Few Stocks recommended in the book and the prices when written (i.e. Dec 2011) — P.S. these are no my recommendation:
1. Titan — (Rs. 170)
2. TTK Prestige — (Rs. 2500)
3. Jubilant — (Rs. 750)
4. Godrej Consumer — (Rs. 390)
5. GSK healthcare -(Rs. 2500)
6. Asian Paints — (Rs. 2600)
7. Nestle — (Rs. 4200)
8. Apollo- (Rs 500) … The list goes on and these were the Price way back in 2011. Wish I would have read this book earlier. :)
The misconception of PE:
The book shows graphically how we should not get biased with high and low PE and should only give through on the above 4 rules (Things to Check on Company).
Now that you have picked, when to BUY?:
Indicators used are :
1. EMA — Exponential Moving Average — For 50 day or 200 day
2. SMA — Simple Moving Average — For 200day
The average stock price in the last 200 days is SMA. SMA and EMA are quite similar. If the stock price is below the 200 EMA, then it is an ideal pick. Prefer to buy on dips.
Sell Time:
The book states “ P/E of an Index (Nifty) is a good indicator of greed. Exit Equity Markets when Nifty P/E crosses 24. Such opportunities come once in 5 years. Don’t miss it.”
There is no much with an Exit strategy.
Advice from Author:
- DO NOT trust so-called “expert advice”
- Invest only with your saving, no debt.
- DO NOT Rush In
With this, we come to an end with the review of the book.
My journey of being an Integellent Investor has been with this small step. I would request you to read as many books as possible and only then get into the Markets.
Peace Out!!