Tag Archives: investing

How to pick a stock in under 3 minutes ?

Line of defence – This is also known as moat. You should always pick a stock that has a strong line of defence. In simple words, competitors should find it hard to overtake this company. Few examples are Maggie vs Yippee, Colgate vs Regular Toothpaste. The strength of line of defence can be found out by market cap and sales figures. Another example is Byju’s, this company has bought most of its competitors.

Dividend – The second thing to check before picking a stock is whether the dividend is increasing or decreasing over the years, also you should check whether the dividend justifies the stock price.

The third thing to note is whether the company is making consistent profits.

The fourth thing to check is whether the company has debt. Some industries depend on debt, for example construction of roads. However, the rest of the figures in the balance sheet should justify debt if you are picking such companies. If you don’t like risk then just choose zero debt companies.

The fifth thing to check is good return on equity. I don’t want to make this post lengthy so I’m not explaining ROE, if you don’t know what that is then search for it in the search engine of this website.

The sixth thing to check for is Promoter Holding. In one of my posts I mentioned if you want to get a stylish haircut then you should go to a salon where the owner does the haircut. The same applies to stocks, you should check how much of stake do the board members and promoters own in the company. There are cases where the people who run the company themselves don’t own the stocks of that particular company. Also if the company is new there’s something known as lock-in period, meaning the promoters cannot sell their stake during the lock-in period. Post lock-in period the promoters may sell a part of their stake, so do keep a check on these and price behaviour at such points.

The next thing to check for is legal issues. You can Google regarding the aforementioned by typing ‘court case’ after the company’s name.

Strange growth – this can be related to stock bubble (if you don’t know what that means then do check it out on this website). Bubble stocks are fun for trading and not good for investing.

Valuation – you can find all the valuation related terms like ROE, ROCE, P/E Ratio etc. on this website. Check them after this post. Valuation basically tells whether the stock is worth your money.

Technical Analysis – The three indicators I use are MACD, RSI and Bollinger Bands. You can check more about them on my post called ‘Day Trading for Beginners’. There’s also something known as reverse engineering, meaning you can look at the past charts and see the conditions of technical indicators and come to a conclusion whether technical indicators work or not. Note technical indicators should be considered along with fundamental analysis.

Volatility – There are stocks that tick most of the above boxes but yet the stock price remains stagnant. Stock volatility is denoted by Beta. So do check it out before jumping to buy a stock. You can know more about Beta in my post called ‘Day Trading for Beginners’.

Well that was it for this post. Do checkout other posts on this website 🙂

Disclaimer : Investing is subjected to market risks. Please read all the terms and conditions before investing. The motive of this post was to teach little things about stocks for those who do not understand much about stocks. Candidcanblog.com will not hold any responsibility for any losses incurred to the readers of this post.

Index Funds – Explained

Let us first understand what an index is. You might have heard names like Nifty, Sensex etc. These are nothing but indices. Nifty 50 contains the top 50 companies in India, constituents of Sensex are top 30 companies in India. Similarly there are indexes based on the category of business. For example, Bank Nifty constitutes top banks in India. Some other indexes are Nifty Metal, Nifty Pharma etc.

An index fund is a type of passive mutual fund that copy pastes the index. Basically the fund house collects money from investors and invests in the companies that make up the index. The reason why index funds are called passive mutual fund is because the fund manager doesn’t need to make excessive research and find out the good stock. All she / he does is copy paste the companies in the index. Whereas in an active mutual fund the fund manager and others under him do excess research to find out good stocks that give splendid returns. As index funds are passive, it also means that the expense ratio is low. Expense ratio is the charge that fund house charges. Expense ratio of active funds are higher than expense ratio of passive funds.

Some of you might be thinking of investing in active funds, right ? Well the problem with active funds is that the fund manager has to pick stocks that outperform the index. As the index already contains the top companies, outperforming the index is not that easy. Also if fund managers make wrong decisions then you tend to lose money. So many people prefer passive funds as they are direct reflection of the economy. Also there’s something known as defensive index which means that the index performs decently even during recession. Fast Moving Consumer Goods (FMCG) is one such sector. Fast moving consumer goods includes items like toothpaste, soap, shampoo, biscuits, noodles etc. people tend to spend money on these even during bad times, so they are considered defensive sector.

One can invest in index funds via mutual fund route or via Exchange Traded Fund (ETF). I personally prefer ETF route. Let’s understand what ETF is, it is nothing but the same mutual funds that are listed on the stock exchange. ETF can be traded just like stocks during market hours. The problem with ETF is liquidity. If the volume of ETF that gets traded is low then entry and exit is difficult. I own small quantity of ETFs so it isn’t a hurdle to exit and besides that I own ETFs that are traded in decent volume. It is necessary to own a demat account if you want to invest via ETF route.

Also there is something known as Tracking Error when it comes to index funds. Sometimes the companies in the index gets replaced by different companies, during that time even the fund manager has to replace the stocks with new companies in order to mirror the index. As we know there’s something known as volatility, the price at which the fund manager buys these new companies may be slightly higher. Therefore, the return on index fund tends to be slightly lower than the actual index. For example, Nifty may go up by 12% in a year but the index fund goes up by 11.8 percent. Also there can be other reasons for tracking error, I’ve mentioned only one in this post.

If you plan to invest in index fund, then look for funds with less expense ratio and lower tracking error.

Well, that was it for this post. If you like stock market related info then do check out other posts on this website. Also don’t forget to share this post with your near and dear ones 🙂

Disclaimer : Investing is subjected to market risks. Please read all the terms and conditions before investing. The motive of this post was to teach little things about stocks for those who do not understand much about stocks. Candidcanblog.com will not hold any responsibility for any losses incurred to the readers of this post.