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POSTED BY ON December 2, 2011 1:51 pm COMMENTS (18)
Hi,
I have about 1 lakh rupees spare cash which I wish to invest in stocks for a very long term. Could anyone please help me what are the parameters I need to look for while choosing a stock? How do I know whether the price of the stock is a good price to buy or overpriced? How do I diversify and allocate in the various stock sectors?
Lastly, anyone with any pointers on good large-cap stocks to hold on to long term? A few that come into my mind are Reliance, ONGC, Infosys, BHEL, Hero Motors, Hindalco, etc.
Please tell me how to decide on whether a stock is good to hold for long term or not? I wish to hold not more than 20 stocks in my portfolio, so that I can keep an eye on them and manage things better.
Thanks.
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Dear Sunnydoc, My own learning period is still on. So much to learn & life is too short to complete all the things, yet trying my best. My best wishes to you too for a good learning.
Thanks
Ashal
Sure Ashal, Thank you so much for your patient guidance.. I am sure I still have a long way to go and learn..
Dear Sunnydoc, On a lighter note – dear Manish & dear Nandish are already out there with their shopping list to purchase ‘MERA WALA CREAM (read stock)’.
On a serious note, start reading at least monday’s investor guide in the economic times & the smart investor in Business Standard on same day.
Thanks
Ashal
Thanks Milind,
Yes, choosing a right stock which has long term prospects is what I was asking for. I wish somebody could elaborate more on this. As in how does one do research on a company, how to allocate a few good stocks for really long term, how to know whether the price is right or not, etc.
I agree that I am no fund manager to decide on the good stocks or bad stocks, but a little extra knowledge would definitely help.
I hope Manish and Nandish are listening.
Dear Sunnydoc,
If you are along term investor, you should choose a sector which has long term prospects. For example, banking sector is not going to vanish. But you never know about Entertainment sector, what form is it going to take in future. Secondly, you should have a reasonable knowledge about the company in which you are going to invest ( business style, management, companies reputation in the market etc ).
For a long term investor I feel that following stocks would be good.
Axis Bank, L & T, ITC, NTPC, TCS or Infosys
Thanks..
Dear Sunnydoc, Buying & holding for long term is meant for avoiding short term volatility. Such ST Volt. affects all be it largecap, midcap or small cap. So a person should not make in or exit decision in a haste.
Thanks
Ashal
@Justgrowmymoney, sure thanks! Will try to get that copy.
@Ashal, Yes, what you say makes a lot of sense now, I never thought of that angle of the midcap of today being the bluechip of tomorrow. Nicely put. 🙂
So basically, if I invest today in a select few bluechip stocks, then the returns will be equivalent to that of the index returns over time. If I stay invested in mutual funds, chances are that I will get better returns than plain bluechip equity. But I just wanted to know, why do people talk of buy and hold long term then? Is there more to it? What about blue-chip companies which are still growing year on year, or those which have market potential? Like Natural gas, or motorbikes, paints, etc for example?
@sunnydoc You main questions are already well explained. For the question regarding Buying and Holding for Long term..here is my view
Value investors do not buy stock but the underlying business and its future growth is what they are looking at.
People who bought HDFC,L&T,Pantloom,Infosys did not buy just the company but the business they do. Business does not grow in a quarter,it takes time. The progress is slow and but rewarding in long term.
So when someone say buy and hold .You dont buy and hold any stock for longterm and get great returns.But you should buy the right business at right time and hold it through long term to see that money grows.
Also todays bluechip stocks may or may not give you great returns. What is your expectation in stock market with your money?
Are you here to find the next bluechip and beat the index with great margin. Or are you here to select few already bluechip which will still beat index by small margin(Thats what Large Cap MFs do)
Finding a future bluechip company is not easy job. You might land lucky like my friends father who bought 500 Titan Industries around Rs 25 and totally forgot about it for like 10 years. But that is one in a million case.
Other way is to study the business and management and various other factors real hard and make a decision
I can assure you one thing ,you might find future bluechip but holding on to it for long term is a real tough job .
Dear Sunnydoc, Just to add what already told by dear justgrowmymoney & dear Bharat shah, When you are saying you want to invest in bluechips & the same stocks are already there in your MF portfolio, are you not repeating the investments. As rightly pointed out – With 1L Rs. you may diversify in 5 or 6 stocks only if investing directly but in case you are investing in MFs, the same 1L Rs. ‘ll be invested in at least 40-50 stocks if not more than that.
there is more to it, The bluechips are already gone past the high growth phase to become bluechip so the chances of getting higher than market return (in simple words beating the index be it Sensex or Nifty) are rare. Next Infosys ‘ll not come from Infosys itself. It ‘ll come from the current lots of mid or smallcaps. Now as we enter in the world of mid & small cap, the very comfort of bluechip is gone & we are sailing in a rough weather. The chances of reaching the shore (read super duper returns) are lower than the chances of losing our money itself.
Thanks
Ashal
And I must really thank you for the solid advice! Really, it’s good advice.
Glad I was of help.
If you can grab ET Wealth, first edition that came out in Mar 2011 – there are some very interesting stories there! Good luck!
@Bharat Shah, thanks for the info.
@Justgrowmymoney, of course I do not plan to day trade at all! All I wish to do is select a few bluechip stocks and hold them for a long time. I will go through the books you suggested. I am already investing in mutual funds through SIP route since the last 6 months. But I felt that I should own a few stocks in my portfolio as well. Not too much, but just a bit. I had about a lakh to spare, so I felt now would be a good time to invest.
But I did not know how to make the call on choosing solid stocks for very long term, hence this question. 🙂
Sunnydoc – Direct stock investment is not something easy but with a lot of focus one can start to do well, but it takes time and focus. No one is really ‘THE EXPERT’ in choosing stocks because no one person is larger than the market and everyone makes some mistake or the other at some point!
Firstly – DONT BUY A STOCK because some newspaper or news channel or some stock report publishes it (including the recommendations from my own website!). Take them as a starting point only.
Next – Read first to understand how markets work. Start with “One up on the wall street”. Proceed next with “The Intelligent Investor”. Just as it took you 12 years of education to enrol for a degree course you have to spend at least few weeks reading stuff and watching the market passively. When you get some comfort level open a portfolio in sites like moneycontrol.com and do virtual trading [You can even do that right now and track the ‘experts’ opinion, if they are right or wrong in making short term calls]. There will be no emotional loss/gain is such a trading but you can at least test the waters.
It is frustrating to sit outside the market when everyone is screaming that markets are falling and this is a good time to invest! But if you need to make some serious money you have to spend some effort learning.Otherwise if you enter the market and face losses it may discourage you altogether which is an even greater loss.
My recommendation: Start with MF SIPs for the time being, so you get a satisfaction you are investing in the market. Invest some time and effort and start slowly investing in stocks after 4-6 months.
Again, even with a portfolio of 30-50 Lacs one need not have more than 6 – 8 stocks really. If you want to diversify so risk is mitigated – ahem – then MF is the best route to go.
You may grimace that this long post contained nothing you wanted but before I close 2 main things:
– Never day trade. You may make a few hundred or thousand rupees here and there but you will never BUILD WEALTH doing so and more likely lose in the longer run.
– Never step into Futures and Options (applicable for 99% of the population). You will know whether it is for you or not in 1-2 trades but dont even experiment. Suitability can be gauged by paper trading itself!!
as a retail investor , it is better to choose a paid service of reputed advisory firm for selection of stocks, rather than ‘do it self ‘. one firm comes in my mind is ‘www.personalfn.com ‘ , a sister concern of quantum amc. though i am not investing direct to equity, i feel, they are honest. and investing in 20 company’s shares for rs.1 l seems very high , max. 5 would be enough.
Hi,
Thanks for the answers. Yes I am interested in long term stock investment, that is direct shares of about 20 good companies.
Can somebody please throw more light on the issues raised in my questions? Can someone suggest a good place to read and research these stocks?
sunny, you need to always review and take decision. you should know how to evaluate the performance of stock. BTW, when u say stock , i guess u meant mutual fund. Please search for post which explains steps to evaluate funds..
Dear Sunnydoc, I assume you are referring 20 cos. & not merely the no. of stocks of a co. Regarding selection of few stocks here are my 3 options.
1. Read a lot
2. Read a lot & then research a lot
3. Read a lot, research a lot & then invest with conviction for not making any panic decision if things are not going the way you want to.
Sorry to say, but I do not have any personal call on any stock as I’m more comfortable with avg. return generated by MFs for me.
Thanks
Ashal