Well its time to understand Value investing, which goes beyond all other forms of investing in the long run. Its the approach of not paying a very high price for a stock and remaining invested for a long period of time to gain optimum benefits. But our investors lack patience in this age...all they want is quick returns, short cut to gaining wealth!!!
As per Prashant Jain, CIO of one of India's Largest MUTUAL FUND HOUSE HDFC - the secret is that he buys only into business he understands well and while he likes growth and quality, he will never overpay for growth. He further added that he believes in doing simple things well. Many people don't want to concentrate on cash-flows and numbers like return on equity and this is where they lose out. These are simple things but a very important part of our process...Yes friends its time to learn the basics of Value Investing and how to analyze stocks to avoid choosing a wrong one just based on tips and stock recommendations!!!
I have put below some of the things that need to be checked in simple words before investing in a stock. Remember these are just the basics and we need to have a thorough research which Value investing will teach us
RETURN ON EQUITY(ROE):- NetIncome divided by the shareholder's equity(book-value). Its average should be between 15-17% over a long term
P/E RATIO:- Low ratio is always a good sign and can be worth buying
P/BV RATIO:- Stock is costly if this ratio is higher
DEBT:- Should be as low as possible and checked for stability
EARNINGS PER SHARE(EPS):- States a firm's profits on a per share basis. Gradual increase in EPS overtime is a good sign
This blog is an initiative to help the middle class community to ignite the Financial genius within them and motivate them to achieve Financial Freedom
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