Two Mantras Of Investment
July 11, 2011 | In: Investment
The two mantras I’m sharing in this post has to work in combination if you want to maximise your gains. If you focus on any one out of the two, your gains will be limited. You must focus on both of these two tips when investing if you’re serious about making your money grow at a fast pace.
#1 – The company you’re going to pick for investment must be good and have a decent growth outlook. There is always brokerages estimates on companies, so you can always check the outlook of growth for the company you wish to invest upon. As a proof of the company being good, always check how it has been performing in the past, take a look at the company P&L statements for the last couple of years. Once identified that the company has been doing good in the past and is expected to do good in the future also, you can select the company for investment.
#2 – Now it is time to check the valuations, highs and lows of the stock you’ve rated as good. Unless the valuations are fair or cheap, you cannot invest into that stock. You can only invest into a good stock that is available cheap, otherwise the growth in the stock price could be minimal, because if a company is good and it is trading high, then that high valuation is justified and the game is already over in that stock. If a company is good and valuations are cheap, you can hope for that re rating of the stock to maximise your gains.
Both these tips work in combination. You cannot just invest in a company because it is good disregarding the valuations and you cannot just invest into a company because it is low valued. A good company at a high valuation is not an investment pick because the good about the company is already factored in the stock price and returns will be low from the buying price. A cheap valued company which isn’t good is totally deserving that kind of valuation because growth outlook is bad, so who wants to buy it? Now when both of these tips works for a company, it is an investment pick, because not just you’ll get the growth rate the company delivers but also the rerating of the valuation. Good companies often enjoy high valuations during a bull run and thats when your stock is going to maximise your gains. I picked Yes Bank in the banking space and not ICICI or HDFC or Indusind because I feel this stock is trading at a lower valuation compared to the other three and is growing at a good speed, so I have a hope of re rating in the stock some day. This according to me is a value investment pick.
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