phne no


Jesus answered, “I am the way and the truth and the life. No one comes to the Father except through me.

16 Apr 2019

STOCK MARKET--Two Golden Rules of Safe Stock Investing

2.1 First Golden Rule: 'Buy
2.1 First Golden Rule: 'Buy what's worth owning forever'
This rule tells you that when you are selecting which stock to buy, you should think as if you will co-own the company forever. So before you decide to co-own a company, you need to study the company very carefully and find out whether it is really a wonderful business. 

This is beautifully said by Warren Buffett; " Our favourite holding period is forever " and to avoid temptation about buying stocks which don't meet this criteria, he said " If you don't feel comfortable owning a business for 10 years, then don't own it even for 10 minutes".

The Benefits of this approach of co-owning a company are:

1.     Stock of such a company is most likely to see a consistent increase in price over the years, giving you the benefit of compounding increase
2.     Such a company is able to withstand tough times better than others and hence you will not lose money on it in the long run
3.     You will have to buy and track stocks of only a few companies. This will give you an opportunity to understand them even better & gain the confidence to make larger investments in each one.
How to determine if a company stock is worth owning forever ? 

A company stock is worth owning forever, if the answer to the following questions is an unambiguous "Yes". 

(a) Is the company capable of growing its profits even during tough times? and,
(b) Does the company have a great financial track record?

 order to have a better understanding of whether a company is worth owning forever, we came up with the 10-YEAR X-RAY and the FUTURE PROSPECTS for companies which help you understand the financial track record of the company and what we can expect from it in the near future. At MoneyWorks4me, we give a colour coding for each stock as GreenOrange and Red which helps you better understand whether the company is GreatGood or Risky. For the best returns, you must invest in Green companies and avoid Red companies.

 2.2 Second Golden rule- 'Buy at huge discounts, and Sell above MRP, for the best returns
Let us first understand what each of these terms means. MRP refers to the intrinsic value of the stock. Just as each product comes with an MRP, a stock also has an intrinsic value which is its true worth, derived from the financial performance of the company. At MoneyWorks4me, every stock comes with an MRP. The MRP is the logical sell-pricefor a stock because if the stock is above MRP, it means it is overvalued and the price is likely to fall.

Similar to normal discounts, a stock is said to be at discount when it is priced below the MRP. Hence you would ideally want to BUY a stock when it is below MRP. The more the stock is below MRP, the higher is the return you can get. Hence we say that the heftier the discount, the better are the profits you will make in the long term.

Of course, it is essential to define the minimum level of discount which is expected to get good returns. Hence we derive a ‘Discount Price’ by deducting the Margin of Safety from the MRP. Margin of Safety is the safety net you have to keep to ensure that you don’t suffer losses. The Margin of Safety is directly proportional to the inherent risk of investing in a company. Hence we keep the Margin of Safety higher for a risky company and lower for a risk-free company. The best situation would be if you could BUY a company which is well below Discount Price and SELL it well above MRP.

This price spectrum explains the relation between Current Market Price (CMP), Discount Price (DP) and MRP.

Thus to get the best returns in stock investing, we have to make sure we follow this Golden Rule – BUY the stock when it is below Discount Price and SELL when it goes above MRP.

No comments:

Post a Comment