Hmm! You are hurt after reading the headline. It sounded too egregious!! I’m sorry, this was not my intention at all.
However, it’s my duty to hit you hard when you commit mistake and always propel you to do right things in investing. And nobody can teach you better than the “The Thoughtful Investor”
Basant Maheshwari, the ace stock picker, who has many successes to his crown—Hawkins and Housing Finance Companies are just a few examples. He discovered these gems much before people realized their potential.
He has offered his wisdom openly that you can’t even learn in IIMs. He has not only made money for himself, but also compounded the portfolio at the CAGR of 50% since inception.
He has shared his mind openly and if people still don’t pay heed to his gems, they deserve to be poor.
Sorry for hurting your ego, but I don’t fear calling a spade a spade.
1.Try to Ride the Profit
First misconception is that big investors became big from small. They did not come with 20 crore money and turned it into 1000 crores. They started small, bough good quality stocks, hold it for a long time and reaped the reward. And most importantly, they rode the profit.
If the company is doing well, remain invested–Basant Maheshwari
2. Invest in Good Management in Good Business
You should look management in a different way. There are only three types of managements:
- Good management in good business: Tata running TCS
- Good management in bad business: Tats running Tata Steel
- Bad management in good business: Vijay Mallya running United Breweries
- Bad management in bad business: Vijay Mallya running Kingfisher
You should not just buy a stock having a good management, it’s equally important to pay heed to whether they are in the good business or not. A good management in a good business is a deadly combination as they create the biggest wealth. Infosys is a great example and so Asian Paints
You should not just sleep after buying Tata Steel as it’s owned by Tata’s. Of course they will make money but only cyclically. When commodity cycle turns against, they will struggle. As a novice investor you should always avoid cyclical stocks.
3.Choose Great Management
This is easier said than done. After all how one can identify good management.
You just need to focus on two metrics: Return on equity and dividend payout ratio. Often crook managements don’t generate 30-40% ROE since they have tendency to take the money off the business and fudge the balance sheet—Basant Maheshwari
4.Pay Attention to Dividends and Taxes
That’s very important as it helps you know whether the profits are real or fake. Dividend declaration is discretionary, a company will declare dividends only if its profits are real. You’ll hardly see crooks management paying dividend tax.
Also see whether company is paying taxes or not. If profits are not real, they will find ways to avert taxes. If a company is showing a lot of profit and paying too little taxes—that’s a possible red flag and better avoid such stocks.
Nobody Pays Real Money on Fake Profits—Basant Maheshwari
5. Paisa Jaldi Banana Hai Ya Jyada
This is the classical question he often asks from investors. Novice investors jump in the stock market to double or treble their income, and in the process they burn their fingers. Huge wealth is created when you grow your money consistently for a long time that increases the size of your base.
6. Be Interested in What You Understand
If you are a person who work in a software company and understand how it works, go with them. There is no point to invest in the power generation utilities and pharma companies that make complex formulations.
You Should Buy Things That You Understand. This is the basic you must remember.
7. Buy With the Sector Leader
Now when you’re analyzing stocks in a particular sector, be with the sector leader. For example, if you are betting on paint space as you are expecting huge gains to be made because of the smart city space, go with the Asian paints as half of the office and home buildings will be painted by Asian paints and not from Berger paints. Betting with the sector leaders provides some sort insurance cover.
8.Avoid Regulated and Cyclical Stocks
Always be with the secular companies, which means buy companies that are not regulated and always make money whatever the market situation is. That’s why Titan, HDFC Bank, Marico and Infosys will make money. But can you think that ONGC would be allowed by government to raise the prices of gas or can NTPC be allowed to increase the prices of electricity by 2 units? The very next day Kejriwal would be on the street.
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