“limited words, unlimited thoughts”

Advise is free, that’s why there is no free lunch : A famous book by David Smith talks about the concept that there exist no free lunch. In the scenario that everyone is giving free tips almost no one has a clue as to why are they saying what they are saying, so don’t buy all whatever you hear.  

If trend is your friend then you don’t need an enemy : Investing in a trend is like playing with a double edged sword. The euphoria created around it doesn’t seem to last long. And you soon realize that the circuit breakers are now breaking your andhrooni circuit. Playing with trend is riding a bus running on two tyres. You are walking a rope with is a thin dividing line between Diwali & Diwala.   

Don’t be a cattle, don’t follow the herd : One of the most important lessons taught while you are learning driving is “If you ever get lost then just follow the cars.” doesn’t quite seem to work in the market scenario. So it is better to make you own judgments about picking stocks. Do your own independent research and have concrete ideas about your expectations from the company and the business. Its just like in Formula1 if everyone is betting on Alonso would you also seeing others bet on him? 

Key to the company is the management : Once again human capital ranks above all. In the age of homogenous technologies the differentiating factor is people. What kind of values and ethics does the management show? Transparency levels with the shareholders. Competence and business acumen of the people running the business.  

Don’t chase the bygones : On countless occasion we see the phrase being used “past performance is not a guarantee of future performance” holds true always. A company’s ability to generate revenue in the past may or may not continue in the future. With changing times & scenarios companies and industries also go through a cycle and may fade out. But a company with greater adaptability and flexibility to embrace changes will come out as a winner.  

Understand the business : How many of us actually understand the business that we are investing into. For example how many of us really know the Indian industry share of kela silk(polyster) and the future outlook of it. Or the refining and petroleum market and its fundamentals. Do we really care to get insights into this before picking stocks like Reliance or ONGC or any other. Treat a company as if its your own business that you are investing into. More importantly know and understand the revenue and business models of the company and its implications.  

Too much diversification is not the solution : The greatest investor of all times Warren Buffet has said that there are just six companies that have made all the difference for him(for more details refer to Berkshire Hathaway’s 1971 annual report)  So the point is that piling up stocks with the view of diversification doesn’t work. Its not a quantity game its quality that matters. Pick companies with a view of holding onto them for life.   

Of course there are several other reason, such as the ability of the company to generate cash flows, getting a bargain compared to the companies intrinsic value, decent returns on capital employed, companies ability to allocate capital (choosing whether to distribute dividends or retain earnings).  What finally I would like to say is that stock picking is a very scientific approach. It is more about being right than being lucky. So put on you analytical hats and get your fundamentals right and you will realize how pleasant is the sound of dollars ticking in you bank account.  

(Few of the strategies mentioned has been inspired by investment related articles and books of Warren Buffet & Benjamin Graham)