How to choose scrips for Investments and how to invest
I hate people, who are looking for ‘Tips’ to make a fast buck. It is idiotic. It is like buying a lottery ticket and expecting to hit the jackpot. That never happens. It is only wishful thinking.
Better idea would be to do some work of your own, think a little and make your own decisions. Given below are few points one could consider, with a relevant example to understand the real time solutions.
Disclaimer : The scrips mentioned in this message are only for the example. It does not mean that I have holding in those scrips. Also, I use this method partially, and I am not recommending it to everyone, but it is posted here as a guideline for everyone to think and take appropriate decision for oneself.
If you do some research of your own, use it and make money, it is to your credit because it is your work. If you lose then also it is to your dis-credit. I do NOT want any credit or dis-credit for your gains or losses, because it is your money and it shall be you, who shall be making the decisions for buying a particular scrip at a time you think is appropriate. I am NOT advocating for any scrip and/or any method specifically. If one finds this message not helpful, one is free to ignore it.
Here it goes :
Most of the time, choosing a proper scrip using Fundamental Analysis is difficult for everyone, and mostly, the documents received from brokers are referred to by everyone. There are simple ways to keep the confusion away, and find a proper way of comparison between two or more scrips.
Let us compare two popular scrips, which are easy to compare. They are Dabur and Coal India. I have chosen them because both are currently trading around Rs 310 per share. This is how I compare :
Open NSE home page and in the search bar, type Dabur, and then select Dabur.
The webpage shall display details for Dabur India Limited, which shows that the Face Value of this scrip is Rs 1 only and also gives you the current price along with O-H-L-C prices.
Below these prices, you will find “Company Information”….. click on it.
There shall be “Corporate Announcements” “Financial Result” “Board Meetings” and “Corporate Actions”
Under “Corporate Actions” shall be 3-4 listings, but below that, it shall be written “View All”.
Click on “View All” and a new tab opens.
On the right side, you will read “Last 12 Months” … click on it, and a dropped down window gets displayed, wherein, you select “More than 24 months”
Then look for “Search” button, and click on it.
Now, there are three rows one below the other. Company, Record Date and Purpose….
Click the arrow for ‘Purpose’ and from the dropped down window, choose “Dividend”
Again press the “Search” button .
You will observe, all the dividends (interim &final) for various years. For last two years, this company has given an interim dividend of Rs 1.25 per share and a Final dividend of Rs 0.75 per share.
That means that if one invests about Rs 310 in one share of Dabur India Limited, then for one year, a total amount of Rs 2.00 shall be received as a dividend per share.
Now again start from the home page of NSE and type “Coal India” and get similar information from Coal India, whose Face Value is Rs 10 (as against Rs 1 for Dabur)
But when you check the dividend information, you find that the annual dividend per share is more than Rs 20.
Why should one bother about the Face Value of the stock?
If you invest about Rs 310 each of the two companies, Dabur & Coal India, in one year, the likely dividend to be earned by you for Dabur is Rs 2 but for Coal India, it could be more than Rs 20.
Shocking?... and no one told you so?
That is why, one should do one’s own research. But the above is only a part of it. In one year, their prices are also going to get higher.
One should also study the annual reports of the company, and look for the “Capital Employed” and “Reserves & Surplus” , both being the Share Holder’s Funds. You may Google search for it.
For the year ending on 31st March 2015, for Dabur India, the share capital was Rs 175.65 Crores with the Reserves & Surplus at Rs 2160.54 Crores, which are about 12.30 times the share capital.
Whereas for Coal India, the Share Capital was 6313.36 Crores and the Reserves & Surplus at 10417.83 Crores at only 1.65 times the capital employed.
Dabur has given a 1:2 bonus in 2007 and again 1:1 bonus in 2010. With such high reserves, it can again come out with Bonus shares. Whereas the level of Reserves and Surplus of Coal India do not indicate any likely Bonus shares in the near future.
Based on this decision, one needs to decide, whether to opt for higher dividends, or speculate for likely Bonus someday, and then invest accordingly.
If you consider Reliance Industries, which is trading around Rs 975 per share, it has been giving a dividend of about Rs 10 each year. This price is little over three times the price of Coal India or Dabur, which means that instead of buying one share of Reliance and receiving about Rs 10 as the dividend, you can buy three shares of Coal India OR Dabur and get dividend for THREE shares at the rate given above. What decision should you be taking, is your botheration.
Fundamental analysis does not only cover these two points alone, but a lot more. However, these two points are sufficient for a judgment to decide about the scrips in which one should invest, along with the third point, that is the dependability and reputation of the management towards the shareholders.
Once a scrip is decided upon, then use Technical Analysis for looking for the opportunities to buy on dips. Do NOT buy on dips if someone tells you to (including myself) but ensure that you are investing correctly. Do NOT panic if the market falls after you invest some amount. Check and Re-Check for the correct level of bottom, and decide whether to hold or to sell off.
Two more points to be noted :
First…. Never put all your eggs into one basket, thereby meaning that do not invest only in one sector. Some people like banks and invest only in Banks while some other invest only in IT sector. But then, when a sector crashes, it reduces all your holdings. If you have diversified the investment, then while one sector falls, another may be rising. One never knows.
Second… If you are NOT a full time trader and have a job for your daily/monthly needs, then invest the extra money systematically. First decide only on one scrip and start buying in bits and pieces (that means one share here and two-three there), but of the same scrip. If you accumulate say 25 or 50 or 100 shares of that scrip (which is going to take time), search for and keep another scrip ready, wherein you can start accumulating thereafter. Even the dividends received could be pumped back into the scrip you are currently buying.
Unless it is a must for you to sell the stocks (because of some major and unforeseen needs), do not sell any. Brokers give you margin for daily trading, based on your holdings in Demat. So, you won’t need extra margin money for daily trading. But at the end of the day, if you do NOT square off, then margin money shall become applicable. And believe me, the stock holding shall increase in value must faster than you anticipate.
Cheers and Good Luck.
SS
