Search

10 Tips on How to select a stock for long term !

Updated: Feb 2

Money Making Hacks by Jasmeet S Anand Vol 5

News related to Stocks are mostly manipulated ones. One can not trust on any News on stock or a company as all magazines and journals come with disclaimer.

So when No one is committal, Why to believe them? Why not to select the stock on your own. After all, The only sense needed for any business is Common Sense. I am quite sure the readers have ‘that’.

Lets use common sense to arrive on which stock to buy for long term:

1. What if you were to start a business?

What business you would get into or chose if you have to start a fresh today? A grocery store or Chemist shop or fin-Tech or Apparel.

Which is the business that attracts you the most?

Like, I get attracted to liquor business. May be I want to own a wine shop some day. Not because I like drinking, But, I have never seen a wine shop out of customer.

Be clear with the question, I am not asking what do you like the most, Clothes or cosmetics or food, I am asking What business you will get into if you have to start a fresh?

The Business which you think, will give you high profits, sustainable, produce something worth while, ethical & viable.

Now make a list of such businesses and chose a sector to invest. Imagine you are investing in a startup which matches your expectation of a perfect business and invest.

Why are you doubting your business acumen and looking for validations from business magazines and journals, which are generally biased, cause of obvious reasons.

2. Be your own Analyst

Use your brain and do some Math for the business you want to get into. Look at the numbers, Look at the sales orders of the company, Analyse the book value vs face value of the share. Look at the past returns, Look at the business report of the company you want to invest in.

Use all possible algorithm and charts. Basis the past performance, Highs & Lows, take a call to invest.

Look at how the profit and sales of the company have moved in past. What does analyst tell you? They crunch the numbers and give your ratios. Most of the time they are of no use to you. Do your own analysis and arrive on the decision.

3. Chose your partner


When you are getting in partnership, What are the qualities of the partner which will firm your decision of entering in partnership? Identify those qualities in the company you are planning to invest.

Does your basic expectation from a partner matches with the organisation you are planning to invest. If yes? Let’s talk further.

In any partnership, One looks for qualities in partner, Check the management if they have those qualities.


4. Decide a Value = Price


We always have a price in mind for any thing we wish to buy. We wait for Christmas sale to happen to buy that favourite Shirt or Jacket. Similarly, Decide a price for a stock to buy and wait for the sale to happen.

Reach on a pice which is Value, as per you, for a particular stock and wait for the stock to come to that price.

Other option is start accumulating the stock at all prices when you have reached on conclusion that the stock has a value and will surely go up.

Pay the price which equals the value of the share as per your research.

5. Future of Business


Look at the future of the business you are investing in. Calculate the risk of shutting down of the business in future with disruption.

Presently, with the fuel prices going up, every ones guess is EV is going to be the future of Auto. Little known fact is that there is a lot of work happening on how to replace diesel or petrol with residual of food products etc. Not at all I am saying that EV is not the future or THE Future.

All I am saying is that there are multiple lenses we have to see the future of the business. If the future of business is dependant on one unforeseen event and that event happens or does not happens determines the future. There is a RISK.

6. Continuity of Business

Since when the business is running? Has it seen all seasons or not?

The continuity of business means, the business will overcome seasonal challenges and has capability of running long term.

Rubber tyres demand increases in summer and reduces in winters as more tyres burst in summer due to hot concrete roads. But, the business has capability of riding over the seasonal challenge and this change in season won’t impact the business.

The demand of the product or service should be of recurring nature for the business to continue. Or the audience should be vast enough for the business to continue for ever.

No one would like to invest in a business with an expiry or end date. Thats project and not business.


7. Scalability of Business

We start small to become big and not, to stay small. For any business, the most important factor is how big it can become. No one ever imagined that Amazon can become biggest market place. The sheer replicability of the model made it scale so big.

Any business which is transportable or replicable in various markets with ease and low cost have capability to grow.

Business can make money only with scalability, With passage of time revenue per unit shrinks and volumes comes into the play.

Pick a business which has room for scale.

8. Transparency of Business


Would you like to give your money to some one to run the business who does not shares his plans with you ?

Transparency of the business and where the money gathered is getting deployed becomes very important factor for investor to decide on where to invest.

Management of the business which shares every minute detail with the investors often ends up attracting more capital than some one who likes to keep the business in shade.

9. Who are the other investors


As an investor you should read about the other investors in the company. Read about the private equity companies who have invested in the company. Know the other investors track record of making money from their venture. It can give a lot of confidence to you to invest.

It firms your decision of investing and makes you feel comfortable of not being alone.

Also, If some FII or DII are investing in the company’s stock means that the company has a potential of getting higher valuation.

Read which all mutual funds have their interest in the stock, Look at their performance.

10. Revenue Model of Business

Basic purpose of business is generate revenue. Is the business you investing, has a revenue generation model in place.

A lot of companies get valuation basis customer data or market share. These are important sources to generate revenue, Does the company generates revenue?

The business model should have revenue generation. The profit is difference between revenue and expenses, The business should have a clear revenue road map with break even expectation and profits thereafter.

Any plan which lacks road map to profits is not worth investing. Its simply valuation game and more than business it becomes a gamble.

I sincerely hope that this will make you think of the stocks you wish to buy and hold for life. We do not enter in a business to exit, We enter to make it big. Similarly, When we buy a stock we are entering the business, Ensure that the business becomes big enough to take care of your retirement.

Simple things we can do to make the stock go northwards;

Start talking about the company to your friends, You will get feedback and confidence.

Start using the product manufactured by that brand, You will contribute to profits.

Keep reading news about the company, You will be updated on “what’s happening?”

Promote the brand to your friends and relatives, your contribution to sales.

You are the owner of the company, Act like ONE.

jsanand75@yahoo.com


121 views5 comments

Recent Posts

See All