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POSTED BY ON February 7, 2011 11:42 am COMMENTS (18)
Hi
Can anybody suggests some(2-5 stocks) large cap stocks for a beginner to start in share market for term more than 3-5 years.
Wanted to invest regularly with small investments to start with?
Also mid cap suggestions are welcome?
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I couldn’t help but comment about the above stock selection – they are the real DOGS of the stock market (at least currently).
May be it is a good idea to create a DOGS of the index portfolio (contrarian) and see what happens. I will try that when I become a rich person.
No pun intended.
Hi all,
Thanks for your inputs.
I am considering start my journey with Bharti Airtel,Rel Comm, (telecom), Suzlon (green Energy) ,JP associates(infra) at dips..
Any views on these stocks..and support prices
suggestions are welcome with specific stocks..
I felt the Telecom and Green enegry sector for the future..
Raju,
In my opinion, stocks you seleted are not good. Just because you feel some sectors are good for future, it is not the reason for investing your money. You need to study the sector, competitive scenario, strengths and weaknesses of company, current valuation and then arrive at decision. You should be able to explain your rationale for buying particular stock in few lines.
If you do not want to spend time on studying and analysing company, it will be better for you if you stick to mutual funds as advised by Ramesh.
Regards,
Ankur
@Raju,
@Ankur is right. One needs to have strong reasons to buy a stock – quantitative & qualitative. W/o being biased to specific stocks, you need to really find opportunities that are worth investing for long-term.
—
moneysights.com
@Ramesh,
We agree with you on “I just do not want people to get into the markets thinking it as a simple game of buying a “large cap” and holding it for a long term. Things do not work that way”. It can’t be truer than this.
One the problems that people have today & guess there isn’t an easy answer to that – “how & when to decide when to book profits?”. Most people who buy large cap stocks that appreciate by significant amount are always “confused” about the timing to get out. Because the thinking is this company is good, hence one should stick to it & take profits or sell the holdings only when one needs money. Howsoever, simplistic it may sound, its not. You can’t “continue” to hold companies forever. Not always.
Thats where Mutual Funds/ Index funds come into play. Because of some professional expertise, they help retail investors gain from power of compounding & also make reasonably right exit calls.
We are of the opinion that its best for retail investors to take MF route to stock investing. But there is nothing wrong in taking informed route of stock investing for some part of investing surplus one has.
“One will only LEARN from the process & experience”. If one learns that its not his/her cup of tea , there are always Mutual Funds to help you for.
—
moneysights.com
Would just add a small point, it would have been good if the question asked would have been which are good stocks and why and there was a discussion regarding that? But, to want to have “tips” without working out yourself and without deeper knowledge, it is just speculating. I am afraid, I have not seen any effort to learn the basics. Thats all.
Such speculation should not be encouraged at all. Thats my thought process. Mind you, I have not asked him to refrain from investing in equities. 🙂 I just do not want people to get into the markets thinking it as a simple game of buying a “large cap” and holding it for a long term. Things do not work that way.
But if down 20 years, you think you have better managed your money than a good fund / index has, the effort has paid you. How many people you think have done that over so long periods? And how many people get crushed / lose heavily because of the perceived attractiveness and apparently simple job of buying and selling in the markets?
Ramesh
One more good post.
http://www.subramoney.com/2011/02/ten-easy-steps-to-create-wealth-what-works/
Ramesh,
In my opinion, it is not correct to discourage anyone interested in investing directly in equities. I feel that marketing machine of mutual fund industry has made direct equity investing look like some sort of dangerous stunt. It is not if done sensibly and it is not too difficult for ordinary people like me to do. I have seen quite a few retired people holding bluechips for a long period of time and done very well. For them, growth in the dividends from their portfolio has handily beaten inflation, year on year, for a long period of time. This is the essence of compounding money for long term and becoming wealthy. Also, steadiness of increasing dividends from a well diversified portfolio is emotionally comforting compared to volatility of index / mutual fund schemes.
There are many companies with track records dating back to decades, through ups and downs of business cycles. It is not that difficult to build a portfolio to achieve objective of sustainably beating inflation for a long period of time.
Also, it is better to learn this art during young age when time is on one’s side and there is window open for learning and taking corrective actions. Blind reliance on mutual funds could become a problem down the line in 60s when it will be too late to attempt learning.
Ramesh,
I just calculated one data point. I took a company which is considered slow grower and behind the curve – Hindustan Unilever.
Closing price of this company was Rs. 147/- on 8th Feb ’91. Today, after considering one bonus of 1:1 and stock split of 10 to 1, closing price of Rs. 273.15/- is equivalent of Rs. 5473/-.
This is 37 times in 20 years. During same period, sensex has grown 17 times. So much for index investing!! All the data are publicly available on BSE website.
Please also note that I have made just simple one to one comparison WITHOUT taking into account dividends in all these years. In case of HUL, dividends are substantial and if we consider re-investment of these dividends then I am sure it will go much beyond 37 times appreciation.
Just now, I am thinking about doing some sort of study to demonstrate how buy & hold of some bluechips in various sectors for 20 years could do to a portfolio, including dividend re-investment. It is very time consuming, I guess, but still possible.
Has anyone come across such study before?
In any case, I think before discarding direct equity investing as some risky thing, one should look at historical performance of a good portfolio.
HI Ramesh & Ankur,
Thanks for your valuable opinions.
As I told you I have been investing in MFs for more than 2 years.
I understand the value of the saving and investing.
I think it is process of loosing and learning ,then gaining..Am I correct?
I dont want to get the 100% returns on next day..but looking to find out the strong sectors and companies to look for long term returns…
I have done some analysis with balance sheet of many companies(I feel,which has strong fundamentals like Telecom,Energy,Technology etc..) ,still i am not able to understand the right companies and their buying/selling prices for long term when i see their trend lines…
since I am the kind of small investor may be 5-10K per month,looks to be so confusing,
I feel only with large sums,do u need to enter in stock market,
I have been investing in Mutual funds for 2 years..
just wanted to start invest directly in few lard caps regularly…for long term
Raju,
Since you are just starting your journey, I believe you need to take care of few things to grow as investor:
1. Initial amount invested should be small such that any mistakes made does not result in very big loss.
2. I think you should focus only on large cap from Nifty to begin with.
3. While asking names of stocks from forum, you better ask their reasons why they consider particular stock good for investing. The reasons provided by person will give you good idea about thinking behind investment decision.
4. Homework is must. You need to do your own research about selected stocks. There is plenty of material available on net.
5. Most important point of all – Direct equity investing is not one off activity. It requires passion, great deal of reading & study through out life time. You need to decide if you are really committed to equity investing in same sense as you are committed to your family. If not, you better stick to doing SIP in well diversified equity funds. If yes, I would suggest you buy few good books first & start reading. My suggestion is – Intelligent investor By Ben Graham and one up on wall street by Peter Lynch, to begin with.
Coming to your question about good stocks to buy, I would suggest two of them currently, one is HDFC bank (Rs. 2058/-) and other is Titan Industry (Rs. 3486/-).
Hope this helps.
Regards,
Ankur
What makes you feel that you have knowledge about investing directly? 🙂
Beware of “greed” and “fear” always.
And what makes you feel that large caps are better than others?
unless you know how to evaluate the balance sheet of a company and read the notes, you are speculating. Treating speculation as investing is one of the biggest mistake one can make.
Ramesh,
I do not claim that I have great knowledge about investing directly. However, one has to begin somewhere. It has been 20 years since I have been investing directly. I have made my share of mistakes and learnt from it. Over a period of time, I believe it makes sense to learn investing directly as it is my plan to allocate a good portion of my eventual retirement money in direct equity and increasing dividend yield from my portfolio will be one of sources for my income in retirement.
I would also like to ask a counter question. Why should I assume that I am not good at investing directly? I see nothing wrong in trying & learning about it on small scale first and getting more & more confident over a period of time to handle equity investing directl myself.
About preference for large cap in begining – For anyone starting out on direct investing, I believe probability of getting carried away on small cap or midcpap stock and losing big time is more than the same happening in large cap stocks.
About trading & speculating – No one knows the future. Even company management can not predict future. Even “Discounted Cash Flow” model, the professionals use to predict future earnings etc, is based on some assumptions to be made about future. Even simple financial planning makes assumption about furture inflation and returns etc. So, if taking a call on future returns of a stock based on some underlying thinking is speculation then why entire financial planning based on some underlying assumptions about inflation and returns can not be treated as speculation?
Bottomline is – There is nothing right or wrong about investing directly in equity or via mutual fund route. It depends on every person. I wrote above some of the traits needed to invest directly in equiteis. There can be some more as well. But that does not mean that we can not invest directly in equities.
By the way, if reading balance sheet and notes is what it takes to be succesful investor then all accountants would be the richest people on earth. Obviosuly, it is something more than just reading balance sheet.
I would also like to calrify that there is nothing personal against anyone or any views. This is open forum & I welcome healthy debate.
@Ankur
You are absolutely correct in all your statements. I would just like to clarify a few things from my side along with the principles.
1. In equity portfolio, you should have well-diversification. In my opinion, a min. of 10 stocks and a max of 25 stocks for an individual. This is just to decrease blowing up your portfolio, in case something like satyam / enron happen – which can happen anytime. if you are looking at 3-4 stocks for long term, forget it – it is too much of a risk.
2. I prefer a top-down approach rather than the bottom-up approach. but well it is one’s own thinking which is at work. I think instead of focusing on large-cap stock, one should be more focused on getting a good representative of the particular sector.
3. Always do your own calculations and estimates. Think out of the box. So, if a person asks me about “tips” on good stocks, my first impression of that person will be that person is a novice in “direct investing” – as simple as that.
I never intended to say that “only” reading a balance sheet is required to be a successful investor. But, give me one successful “investor” who cannot read the balance sheet. Yup, it is much more than that, but i think that is the basic requirement.
Before venturing in the field of direct investing (or for that matter, any complicated field), one should prepare oneself. In this case, by reading a lot of books, and trying “virtual stock-picking for 1-2 years. In a bull market, like the one which has happened since Mar 2009, almost anybody is an expert in stock-picking. But, the real test starts now! 🙂
Last but not the least, what is the particular aim of “direct-investing”. Is it getting 2-3 % above index returns, or is it to get 50% return per year for a long term? The particular answer will give you the real answer. If it is former, then its ok. If it is latter, then be prepared to be in the crowd who lose heavily.
Bottomline, if you have ample amount of money (such that investing in MF will cause a large amount of management fee @ 2%) and you know a lot about capital markets / stock evaluation, etc then surely direct investing is much much better than MF. Otherwise, keep MF as the mainstay.
Even, benjamin graham has asked to differentiate between active and defensive investing, and he has asked to choose one between the two – not both of them simultaneously.
I hope to continue the healthy debate.
Ramesh,
You are saying that if someone has lot of knowledge about capital market, stock evaluation etc, directly investing in equity is rewarding. This is basically chicken & egg situation. How a person is supposed to get confidence about his skills? This requires actual practising of direct equity investing. Reading is essential but reading is not sufficient. Ditto for virtual stock picking. Obviously, portfolio diversification, risk management etc has its own place. That is why I recommend to start with small amounts and improve in slow and steady manner and mean time improve one’s knowledge by reading and spending time in understanding businesses.
Also, considering that lot of financial calculations throw up figures running in Crores for middle class life style in future, having good handle on direct equity investing helps saving considerable fees of mutual funds. For me, I feel more comfortable in having control of how my money is getting invested.
For the question raised by Raju, I do not see any reason for discouraging anyone intersted in directly investing in equity.
Stocks buying is not recommended for beginner’s, especially those who rely on Tips or screeners. Bad, bad thing to do.
If you must invest in small amounts regularly, get into equity MF. There is nothing wrong in it.
@raju,
Its a great time to start investing in large caps. There are many good stocks available at reasonable valuations. Without being stock specific here, we would like to point out that stocks like Reliance Industries, NTPC, Bharti Airtel, ONGC, Maruti Suzuki, ICICI Bank, State Bank of India & Tata Steel are a good buy for 3-5 years horizon.
You can check out more from here – http://moneysights.com/stocks/stocks-simplified-view
Hope this helps.
—
moneysights.com