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Introduction to Stock Market 101

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Congratulations!

“Life is like a snowball. The important thing is finding wet snow and a really long hill. ” ― Warren Buffett

Congratulations!

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One page summary

  • What: Putting one rupee at work for generating two rupees in return. Reasonable expectation is to expect the same to happen in 5 years.
  • Why: Purely money motive or interested in intellectual satisfaction?
  • How: Figuring out which sector is going to benefit in next few years and which company can get the most benefit from it.
  • Result: [Link]
  • End: If not stimulating enough, invest monthly into a basket of companies (Index Funds). If India does well, Index Fund will do well. Automatic add and removal will be done.

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Back to Basics

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What Next After Saving?

  • Types of asset classes:
    • Real Estate: Requires large capital
    • Fixed Deposits: Killed by inflation over a long period of time
    • Bonds: Better than Fixed Deposits (Just beating inflation)
    • REIT (Real Estate Investment Trust)
    • Gold (ETFs or Physical) (Making charges, Hallmark) (Report link)
    • Equities: Handsomely beats inflation (12-15% CAGR historically)
    • Crypto Currency?: Dog Money
  • Any other assets?

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Time Value of Money (TVM)

  • A rupee today is worth more than a rupee tomorrow.
  • Why?
    • Inflation at 5.1%
    • Uncertainty
    • Consumption increases
  • How much would you pay for a 100-rupee bill handed to you next year? (assuming inflation at 5%)
    • Discount rate: a rate at which present and future cash flows are traded off.

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Source: Wikipedia

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Compound Interest & Rule of 72

  • Money to double in:
    • 6 years with 12% CAGR
    • 5 years with 15% CAGR
    • 4 years with 20% CAGR
    • 3 years with 25% CAGR

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Time period = 72/rate of return.

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Compound Interest - “Simple” yet powerful

  • Simple interest – fixed amount of interest accrued
  • Compound interest –
    • 1st: P + interest
    • 2nd : 1st + interest
    • 3rd : 2nd + interest
  • Hence, it takes time.

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Two sides of a coin

  • Fundamental
    • Business mindset
    • Can ignore charts
  • Technical
    • Price Movement mindset
    • Can ignore business

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Why Investing?

  • Putting in one rupee for getting back two rupees. Reasonable expectation is to expect the same to happen in 5 years.
    • Marshmallow Test: [Link]
  • To beat inflation
  • “To invest successfully, one doesn’t need a high IQ… What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” — Warren Buffett

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Source: https://www.valueresearchonline.com/stories/51036/how-inflation-is-stealing-your-wealth/

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Luck or Skill?

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Million Ways to Nirvana

  • Value Investing: Buying a rupee for 50 paisa
  • Growth Investing: Buying a rupee to sell it for 2 rupees
  • Momentum Investing: Buying 2 rupees to sell it to a greater fool.
  • Technical Investing/Trading: Buying 2 rupees and riding with the smart money.
  • TechnoFunda Investing: Fundamental as a first filter and charts for entry/exit/averaging.

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Don’t Fall For Stories

  • Lesson: Don't look at the survivors. Look at the ones who took the damage and are not here.
  • For every HDFC Bank we have 10 Yes Bank.

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Reading is the key ingredient

  • List of books to start with: [link]

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Practical Advice

  • Two options:
    • Spend time on something which you are already passion about
      • Invest in Index/Mutual Funds: UTI Nifty 50, SBI SmallCap, Nippon GOLD, and PPFAS.
        • Index Funds beat active investing over long term (mostly)
    • Explore this as your passion but not for money
      • Why is it difficult?
        • Intense reading requirement (total: 50-150 pages)
          • Annual Report (20-30 pages)
          • Conference calls (20-25 pages)
          • Reports (20 – 100 pages)
          • Articles (5- 10 pages)
        • Requires time for thinking & observation
        • It can be boring for many
        • Capital at this age is not enough (Return on Time Spent is very low)

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Don’t Get Obsessed with Money

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What next?

  • If interest persist, do the following reading:
  • If not, start with Mutual Funds. ☺

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What are Mutual Funds?

  • A fund consisting money of investors which is managed by a manger (aka Fund Manager) who takes investment decision for them.
    • Returns the profit after taking their cut.
  • Difficult for retail investor to do active investing: Time, money, access, knowledge, etc.
  • Types:
    • Passive Funds – Exchange Traded Funds (ETFs) [non-discretionary – low cost]
    • Equity Funds
    • Fixed Income Funds (Bonds, Debentures, etc – lower risk)
    • Balance Funds (Hybrid of equity & fixed income)

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Systematic Investment Plan (SIP) vs Lumpsum

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Step by Step process

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Step by Step Process (Mutual Funds - Buying)

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Step by Step Process (Mutual Funds - Selling)

  • “Investments” section -> Select the Mutual Fund -> click three dot on right bottom corner -> click redeem

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Step by Step Process (Stocks)

  • Link: https://support.zerodha.com/category/trading-and-markets/product-and-order-types/order/articles/placing-orders-on-kite (Video on website)
    • Search for the instrument in the search bar.
    • Tap on the instrument from the list.
    • Tap on Buy or Sell.
    • Select from Regular, AMO or Iceberg.
    • Enter Quantity and Price.
    • Select Product - Intraday MIS or Longterm CNC.
    • Select Type (Market, Limit, SL or SL-M).
    • Swipe to buy or sell.

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Introduction to Fundamental Analysis

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Circle Of Competence

  • “Everybody’s got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle. ”— Warren Buffett .
  • Read: ‘The Science Of Hitting’ by Ted Williams
  • Read: “Complexity in investing”

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What Not to Buy

  • High Debt: Adani Group, Vodafone Idea, etc.
  • Fraud/Questionable Management: Yes Bank, Satyam Computers, Kitex Garments
  • Company losing market share: Manappuram/Muthoot,
  • At initial stage better to avoid sector extreme commodity/cyclical business: Steel, Sugar, Textile, etc.
  • IPOs: Zomato, Paytm, Nykaa, etc.
  • Loss making businesses
  • What you don’t understand: Financials, Real Estate, etc.

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What To Look For?

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Mindset

  • Category 1: Good Process + Good Luck = Good Outcome
  • Category 2: Good Process + Bad Luck = Bad Outcome
  • Category 3: Bad Process + Good Luck = Good Outcome
  • Category 4: Bad Process + Bad Luck = Bad Outcome

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Also refer: https://twitter.com/Sanjay__Bakshi/status/1592386991349714944

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Tools

  • Screener.in (For Financial statements, fillings, concalls, investor ppts)
  • TradingView (For Charts)
  • Trendlyne.com (For following Superinvestors)

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My Failures

  • Manappuram Finance Ltd – Invested at Rs.161
  • Indiabulls Real Estate Ltd – Invested at Rs.144

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Successful Bets

  • ICICI Securities: Invested at Rs.406, exit around Rs.800 with 10% allocation.
  • Saregama India Ltd: Invested at Rs.240, exit around Rs.340 with 13-15% allocation.
  • Bharat Bijlee: Invested at Rs.1700, exit around Rs.2300 with 22-25% allocation

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Thank you!

  • Twitter: @badola_arjun
  • Blog: arjunbadola.blog

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