Stock Shastra #1: Stock Investing is not Rocket Science!

Rating: 5.0/5 (1 vote cast)

We said that to make your money work for you, you have to take charge of your own investments. You cannot leave it any more to your Relationship Manager, your Insurance Advisor, your Broker. Sounds threatening? Of course, it does. Let’s see why.

What is the common mindset?

Complete the following sentence using one word. ‘Stock Investing is _________.’

What word came to your mind?

Most likely it will be one of these: Gamble, Risky, Unpredictable, Complex, etc. What do these words make you feel? Do they make you take up stock investing or make you avoid it? Most of us will feel like avoiding it. We are afraid of venturing in it on our own; hence hand it over to “experts”. However, it is these experts who have constantly blasted us with the myth: ‘You are better off leaving Stock Investing for the experts to handle.’ Just have a look at ads of any of the financial products and services; they all say the same thing. Now, if they were all such wonderful experts, how well did such expertise protect your wealth during the crash of 2008?

What should our mindset be?

The test of real expertise is wealth protection in bad times and solid growth in good times. So that, over a longer horizon covering boom and bust, you get attractive growth, say 20% CAGR. Of course there are a few rare, real experts (but you won’t see them on TV every day, predicting the market) who have consistently been doing this. Each Stock Shastra is the distilled wisdom of such rare, real experts. The real Gurus! And from them, here is Stock Shastra #1: Stock Investing is not Rocket Science! Now, how do you feel when you say this Shastra?

Sounds too far-fetched? Consider this:

Benjamin Graham, one of the Gurus of stock investing, did not have a background of finance when he started investing. However, he learnt stock investing, eventually pioneering the concept of value investing; his philosophy was simple: Buy great businesses at extremely cheap prices.
Warren Buffett, one of the greatest stock investors of all time, started investing when he was 12, without any formal finance education. He regarded Benjamin Graham as his Guru and today is amongst the richest people in the world.
The common thread binding these great investors is the same. They weren’t experts when they started. But they learnt to do it on their own by following a simple and sound framework of investing and sticking to it with discipline.
It involved buying into a great business with the mindset of an owner. Finding such a business might require some search and analysis, but is something you can certainly manage.
Most importantly, sooner or later, the market gives you many opportunities to buy such wonderful businesses at throw-away prices; or sell your holdings at unbelievably high prices. The proof: Look at the 52-week Highs and lows of any of the Sensex stocks.

Once we change our mindset and decide to invest in stocks on our own, the next step is to find a wonderful business worth owning. The next Stock Shastra will tell you how to start doing this.

Rating: 5.0/5 (1 vote cast)

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http://twitter.com/vineetvineet vineet pagnis

the stock shastra is nicely introduced. I will be more confident when i will start earning in it!
vincent mathew

value investing is different from speculation.which one you are advocating?
anuj19

Though no doubt stock shastra has started on a good note. I would surely appreciate the presentation and style. But it seems to fall short of content. As in it seems you want to keep it precise and simple but still you leave some things unexplained like what to do with the 52 week high low ratio.

Sincere comments.
yogi

It is very useful to learners
Mukesh Tolani

Hii.,
What does the 52 week High to 52 week Low ration indicate ?
Regards,
Mukesh Tolani
scnayyar

it is nice toreceive your mail as the name suggest it seems it will be full of knowledge to the point and not like reports which I have no patient to read
samcyn3

Your Intro is too wonderful, i will wait to see how you can make us to select the stocks , how the low the high will help.
Team-MoneyWorks4me

We are advocating Value Investing and definitely not speculation.
Team-MoneyWorks4me

We are advocating Value Investing and definitely not speculation.
Team_MoneyWorks4me

Thank you for the adulation. We are happy that you liked the blog.
Team_MoneyWorks4me

Thank you Vineet. We are confident that once you start following the Stock Shastra way of investing you will create wealth for yourself.
Team_MoneyWorks4me

Many times this ratio will come out to be 2 or more than that. The intention behind asking you to find out the ratio is to make you aware that in the short term the market is irrational and prices even the best companies erratically. You always have opportunities to buy a stock at a very low price and sell it at a high price.
Team_MoneyWorks4me

Thank You.
Team_MoneyWorks4me

Thanks for your feedback Anuj. We have made a conscious attempt to stick to the point and be simple so that we can engage larger number of people. The intention behind asking you to find out the ratio is to make you aware that in the short term the market is irrational and prices even the best companies erratically. You always have opportunities to buy a stock at a very low price and sell it at a high price.
Team_MoneyWorks4me

We are advocating Value Investing and definitely not speculation.
http://stockshastra.moneyworks4me.com/learn/stock-shastra/stock-shastra-2-buy-a-wonderful-business-and-not-just-a-stock/ Stock Shastra #2 – Buy a wonderful business and not just a stock! | Stock Shastra

[...] said in Stock Shastra #1 that Investing in stocks is not rocket science, not as difficult as it has been made out to be. You [...]
Team_MoneyWorks4me

Thanks a lot. It is our endeavour to give you no non-sense, clutter free, distilled wisdom, which will help you create wealth and we will continue with this in the future.
Mukesh Tolani

Thanks for the reply.
I have got one suggestion.
With moneyworks4me, I am able to spot companies that are consistent in their EPS, Sales & ROIC growth., but undervalued by the market for some reason. These are sureshot gems.
But, turn-around scrips, or companies having short term negative EPS growth, are negatively valued by the Price Calculator. Can we not make a system that will identify turn-around scrips too. ?
Regards
Linax

I observe that this topic talks about how to shortlist the candidates…. will you be touching base on how to make sure that the stock is bought at right price….i.e at discounted price to reduce the loss risk.
Team_MoneyWorks4me

Yes. We definitely will be talking about how it is important to buy a wonderful business at a discount to its actual worth, in the future. Initially, we are focussing on the first important step – Finding a wonderful business. Once we have covered this, we will be moving on to the valuation aspects.
Team_MoneyWorks4me

Yes. We definitely will be talking about how it is important to buy a wonderful business at a discount to its actual worth, in the future. Initially, we are focussing on the first important step – Finding a wonderful business. Once we have covered this, we will be moving on to the valuation aspects.
Team_MoneyWorks4me

Thank you Mukesh for your suggestion. You are right in noticing that there are some turn around scrips or companies with short term negative EPS growth which can be sure shot gems. However, we cannot use the same model to value these companies. We are already working on a model specifically for such companies. We hope to make it available to our users soon.
http://stockshastra.moneyworks4me.com/learn/timeless-principles-of-stock-investing-2/ Timeless Principles of Stock Investing | Stock Shastra

[...] Stock Shastra #1: Stock Investing is not Rocket Science. [...]
Aalokkumarshah

Today How Can I know which sector will boom after 2 or 3 years ? Exactly one needs to know the cycle of the business and growth. Suppose energy sector.. there are a number of companies in energy sector… Which two or three companies should I select ? How ?
Bhim

How can I print only the above text.
Balasubrahmanyan

Introduction was very nice and give a motivation for investing in stocks
Hkmehta

It is a perfect way to understand …
RAJESH PAL

i want to know how select good company stock
Ajit1076

good.The value of a stock can be viewed at the high and low price of the year. But some companies giving manipulated news can give a false figure that is to be keep in mind which wont be done by companies with good management
http://stockshastra.moneyworks4me.com/learn/stock-shastra/industry-insights-%e2%80%93-know-what-drives-the-growth-of-your-favourite-industries/ ‘Industry Insights’ – Know what drives the growth of your favourite industries | Stock Shastra

[...] A complete methodology which helped you learn how to invest in stocks the right way [...]
satish

it will generate confidance while reading
Anki

Sounds interesting and it is really well summarized hope to enhance the stock investing knowledge more with u guys
Drgopinathm

WONDERFUL INFORMATION FOR VALUE – BASED INVESTORS . M GOPINATHAN
Virat Rana

completely unbelievable that you are. sharing this freely. I truly respect this site and urge investors to follow these teachings very closely. .
Rabikant Tiwary

A wonderful confidence building article.Keep it up.

RK Tiwary
M M CHHABRIA

GOOD TO LEARN AND GET KNOWLEDGE FOR BEGINNERS
http://stockshastra.moneyworks4me.com/learn/rajiv-gandhi-equity-scheme-what-does-this-saving-scheme-mean-to-investors/ Rajiv Gandhi Equity Scheme: What does this saving scheme mean to investors? | Stock Shastra

[...] have always maintained that one does not require an expert to profitably invest in the markets. Stock investing is not rocket Science. What is required is a systematic and disciplined approach to [...]
nayeem

Very well, we will invest at low prices in wondersful Businesses and not stocks and wait for them to flourish before we sell them at high.
Dee Tee

Thank you for introducing the nuances of “so called Stock Market”,my first lesson.The perceived Rocket Science sure sounds simple.But then the taste of the pudding is in eating it sob I’ll wait and see as to how much I learn and that where does the High -Low ratio takes me.