Can stock investing be so simple ?????

Was browsing various articles here: http://www.moneycontrol.com/mc10/the10list/the10list.php

Obviously, the thing which stuck my eye is, list of "fastest growing companies in last 10 years"

Here are some interesting observations:

1. Up to no. 9, minimum gain in sale is 50000%.

2. Almost all of them are having sales less than Rs. 5 Cr

Just as thought, how about investing same amount in companies which are having sales less than Rs. 5 Cr and keep them for 10 years and sell when PE ratio of index is greater than 20 after 10 years.

Now, say there are 100 companies which are having positive cash flow and positive book value and having sales less than Rs. 5 Cr. If we hit even one (which is having very high probability, considering what is shown in this article and what I have heard/read of past performance), then most likely it will be minimum 100 bagger (considering mainly an equity dilution), this will provide me all my capital back if I have invested in 100 such companies, and my profit will be remaining value of 99 companies (I will like to bat more here in the sense more than one companies getting say 1000 baggers or so, but let's be conservative to understand point here).

As shown above, even one hit will give all my capital back and rest of them will be inflation adjusted profits. I tend to think that it will be huge profit and it's actually a no brainer.

Problems with this theory:

1. Don't know exact no. of companies which are having positive cash flow and positive book value and having sales less than Rs. 5 Cr. If they are say 1000, then obviously we need to rethink here … This actually is biggest risk for this theory. (It will be really great if someone suggests website which can facilitate this kind of number crunching?)

2. If we do not have even a single bull market in 10 years, then obviously this kind of portfolio will probably have highest losses.

3. Just to stretch the same point here, I simply cannot believe that, making money through investing can be so easy. Why?? If I take somewhat optimistic case, say we have 200 companies fitting in this criteria, and we invest Rs. 1000 in each of them (total Rs. 2 lac). Now, after 10 years, there will be at least 5 companies which will be 100 baggers (total Rs. 5 lac). Even if we forget about 1000 baggers and value left of all other companies, we are still making decent profit which is matching say PPF. This I think is conservative estimate.

Please share your thoughts here. I really want to hear some negative aspects here.

I still need to find more data and check validity of this theory.

Nice reading:

Marc Faber with investment wisdom on his website. Check here: http://www.gloomboomdoom.com/public/pSTD.cfm?pageSPS_ID=4000

Past articles:

Ø Cash Rich Companies in India

Ø Things to check before buying stock

Ø Warren Buffet's advice for 2009

Ø How to perform stock research using fundamental analysis

Note: I am looking for ideas on what topic to write. Please share if you have something interesting.

Disclaimer: These are all personal opinions. Please perform your due research before making any investment decision.

Cash Rich Companies in India

This article is based on: http://www.moneycontrol.com/news/business/datawatch-50-cash-rich-companies-_416593.html

Following is table, I have added last column. I think, if company has 35% cash according to net-worth it commands, that company definitely deserves more research:

XLS can be availed from here.

Things to check before buying stock

I thought about having one article which gives information on things which are not related to fundamentals of stock but still can have relatively huge impact on stock price.

You can use this article as check-list kind of thing after you have done your research and identified stocks in which you are going to invest, or to perform further short-list for your liking stocks.

One way to research stock is provided in article: How to perform stock research using fundamental analysis. For this post, I am repeating relevant information from this article.

This is like never ending post and I will keep updating whenever I find anything new to add on.

Readers are most welcome to share their thoughts in comment section and add things which I have missed here.

Here are some bullet points:

1. Are you with mass or against mass? (i.e. are you doing the same thing what other people are doing or opposite) Whatever it is, what’s the reason for it and do you have conviction to stick to it?
2. Shareholding pattern is fairly important thing to look at. Mainly three things: promoter, institutions (DII and FII) and retail holdings. Broadly speaking, it’s good to have high promoter holdings and if retails holdings are high then stock will not perform well. Also, there are many instances when FII holding is high; stocks are more volatile in nature (or have high Beta); this statement is not always true.
3. Are MFs dumping stock? If yes then why?
4. Is it amongst last stocks on any benchmark (like NSE, BSE 200) in terms of market cap? i.e. say according to market cap if this stock is somewhere at no. 195 in BSE-200 list, then you are taking significant risk for buying this company. If this stock gets out of index then there will be significant selling by index funds.
5. Order book and Earning Estimates.
6. Industry outlook and Peer competition.
7. Is it hard to create business model or hard for new players to enter? If anyone can come in and implement similar things easily then that’s not worth investing in.
8. Secured loans and unsecured loans in balance sheet. If unsecured loans are high, then be extra careful as it will require to pay more interest (and other question comes as, is the company desperate for funds?)
9. Be cautious when you see high "other income" in profit/loss statement.
10. Technical analysis: Is it technically correct level to invest? (Personally, I check only market conditions and don't do technical analysis.)
11. Quality of Management: I don’t know how we can find this out (except looking at some parameters like ROE, ROCE, ROA etc. and Goggling name of directors). I would request readers to share their thoughts here. Currently, I have time consuming ways to check this and even then they are not reliable.
12. Anything bad in management record?

Warren Buffet's advice for 2009

We begin this New Year with dampened enthusiasm and dented optimism. Our happiness is diluted and our peace is threatened by the financial illness that has infected our families, organizations and nations. Everyone is desperate to find a remedy that will cure their financial illness and help them recover their financial health. They expect the financial experts to provide them with remedies, forgetting the fact that it is these experts who created this financial mess.

Every new year, I adopt a couple of old maxims as my beacons to guide my future. This self-prescribed therapy has ensured that with each passing year, I grow wiser and not older. This year, I invite you to tap into the financial wisdom of our elders along with me, and become financially wiser.

* Hard work: All hard work bring a profit, but mere talk leads only to poverty.

* Laziness: A sleeping lobster is carried away by the water current.

* Earnings: Never depend on a single source of income. [At least make your Investments get you second earning]

* Spending: If you buy things you don't need, you'll soon sell things you need.

* Savings: Don't save what is left after spending; Spend what is left after saving.

* Borrowings: The borrower becomes the lender's slave.

* Accounting: It's no use carrying an umbrella, if your shoes are leaking.

* Auditing: Beware of little expenses; A small leak can sink a large ship.

* Risk-taking: Never test the depth of the river with both feet. [ Have an alternate plan ready ]

* Investment: Don't put all your eggs in one basket.

I'm certain that those who have already been practicing these principles remain financially healthy. I'm equally confident that those who resolve to start practicing these principles will quickly regain their financial health.

Let us become wiser and lead a happy, healthy, prosperous and peaceful life.