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Matthew 7:7,8 Ask, and it shall be given you; seek, and ye shall find; knock, and it shall be opened unto you: For every one that asketh receiveth; and he that seeketh findeth; and to him that knocketh it shall be opened.

28 Oct 2015


Hi Friends,   Noted below are the mantras for good investment in shares.

Good Management:    Management is the driver of a company.  The direction, speed and safety of the company remains in the hands of the management.  A good management should have qualities like professionalism, managerial qualities, always aim for the growth of his company and share the profits with share holders.

Evaluate the Market Position:    The search of good share starts with your home and neighborhood.  Look for the products you use, your friends use and their friends also use.  Go to the market and scan the products which are available everywhere.  You will find plenty of such products which are market leaders.  Colgate,  Gillette,  Fevicol, Castrol, Relaxo, Havells, Exide, Wills etc.  There are many such market leaders.  You have to zero in on these companies.  You should purchase the shares of such market leaders.  Because these companies can keep their price higher, still, customers love them.  There is a very little chance of busting such big names.  You will always earn money by purchasing the shares of these market leaders.

Dig Out Past Performance Records:   You must select the share of a company which is growing well.  But this growth should not be a flash in the pan.  The business of the company should grow consistently.  The profit and sales should grow year by year.  You must examine the performance of a company for last 10 years,  Only in such long period you will get to know the performance of a company in good and bad times both.

Track the Margin:   You invest your money to earn profit.  The management runs company for the profit.  Therefore, any growth of the company should result in the profit.  The company, you want to invest, should emphasize on the margin.  It is good that the company is growing swiftly.  But it would be better if profit also grows in the same manner.  A healthy company should earn at least Rs.15  as profit on the sales of  Rs.100.  In other words, the margin of a company should be more than 15%.  To get the data of margin you visit the above mentioned websites.

Assess The Debt:   This is the most valuable mantra to choose the  best stock.  The heavy debt has dragged down many companies.  The sales and profit growth all go in vain if interest on debt goes above the profit.  The companies take heavy loan in the upswing of the economy, but in the downturn the loan becomes a burden.
Sometimes companies fall into the debt trap which result in default.  Once a company falls into a debt trap the share price of the company goes down swiftly.  Recent example – Amtech Auto.  Hence you should never choose a company for investment which has a heavy debt burden.  Lesser the loan, better the company.  So go for debt free companies for investment like Infosys, HCL Tech etc.

See The Dividend History:   The companies with a stable flow of income, part their profit with its shareholders.  It is called dividend.  Sound companies always give the dividend.  This is only money given by the companies to its shareholders.  The regular dividend payment shows that company is in good health and in the position of sharing some income to its shareholders.  if you  are planning to keep the share for the long this dividend  payment can be a source of regular income as well.  Good dividend yield of a share can give you some assurance of fixed return.  However, companies should keep on giving dividend as in the past.

Check The Cash Balance:   To judge the financial condition of a company you should check the cash  balance of a company.  The cash balance of a company benefits in many ways, can acquire a valuable business if there is any distress sale, can able to give special dividend.  If cash rich means high  net profit.

Find Out The Expansion Plan:   You would like to invest in a growing company.  Share investment is the investment in growth.  The company should expand continuously to justify the high price of the share.  Before owning a share you should know the future plans of the company.  Examine the future plans carefully, also see if the future expansion plans fit with current business.  If any company is planning to enter into totally new business, you should get cautious.  The totally new business can become a drag on existing business.

Observe Media Presence:   This is a dilemma.  You get to know about many companies through the media, particularly business news channels.  Some companies do call the press conferences to inform about new projects or acquisition.  Companies also want to broadcast the news about the sanction of the new loan.  You will also learn some good news about the companies from the sources.

Value The Price of Best Share:   The unreasonable price can decrease your return considerably, what if share is one of the best.  The father of value investment,  Benjamin Graham recommends margin of safety for stock purchases.  It means you should purchase a share at a price which is far less than the worth.  To get a share in the discounted price is not very easy.  Only recession gives you such opportunity.  At this time everyone wants to come out of the market, hence sometimes the share price of very good companies also goes down.  Use this opportunity and lap the under-priced share at a bargain.  Make a watch-list of your desired share and wait for the prices to come down.  It happens, only you have to keep patience.

If you follow the above mantras you will become a perfect share owner.

Good Luck.                                                      See You Later.

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