Saving vs. Investing --- What you will choose?

There are lots of reasons to invest. Whether it's for a down payment on a house, your child's education, or your retirement, your goal is to accumulate enough assets to meet your financial objectives.

Although saving and investing are often used to mean the same thing, they are not the same. If you simply deposit your money in a savings account, you would earn a small amount of interest. This can be an effective way to meet short-term goals or to provide for emergencies, but you may not keep up with inflation over the long term. Investing means that you put your money to work to achieve your long-term goals.

Investing is buying things of value that have the potential to provide income or increase in value over the long run. Of course, the potential for growth comes with the risk that your investments may lose value. Here are some key differences between saving and investing.

Saving                                                                                                                                              Investing

Safe                                                                                                 Involves risk
Low return                                                                Offers potential to appreciate in value                                    

Easily accessible                                                     Volatile over short-   term periods                                                                                                                                        

Used for short-term goals                                      Used for mid- and  long-term goals                                                                                                                                    

There's always an element of risk with investing. Generally, the greater the potential for long-term returns, the greater the risk of short-term losses. That's why understanding investment risks and as well as your ability to tolerate risk is one of the first steps toward a successful investing strategy.

Happy Investing!!!

Art of Stock Investing - Indian Stock Market

Leverage on great companies,  and  earn more profits every year

BY

Calaiselvi Ramanathan.T

Table Of Contents
Main Topics Discussed
Introduction ......................................................................................................4
Why & How Stock Markets Came Into Existence? ..........................................5
How & Why Does A Share Price Rise & Fall? .................................................6
Some Basic Terms of Stock Markets.................................................................7
Art Of Picking Worthy Stocks ..........................................................................11
Debt & Cash Equivalents of a Company   ........................................................ 11
Brand Value of a Company   ........................................................................... 13
Competition & Future Growth Prospects  ........................................................ 14
Growth Consistency of a Company   ............................................................... 15
Promoter Share Holding...................................................................................19
Power Of Compounding ..................................................................................20
Stock Recommendations - Evergreen Stocks ...................................................22
Common Mistakes To Stay Away from............................................................33
Better Times To Buy & Best Times To Sell ......................................................35
Gold ETF’s .....................................................................................................39
What About Mutual Funds? .............................................................................40
Summary or Re-cap .........................................................................................41

 Introduction

A lot of people call or believe investing in stocks is gambling. A true investor would appreciate it being
called risky.
It’s like the belief, that getting into sea waters or a pool is risky. But someone with the right swimming
skills would know, when and where to swim to enjoy it.
My DAD is a strong believer that, investing in land or house is the safest thing to do. Yes, it truly is,
with the growing population and increasing purchasing capacity in India bidding to own a piece of
limited space of land that’s available. But it becomes a locked asset, which you would never plan or be
able to sell or liquidate or leverage on. No need to mention that, you would commit 20 years of your
life to a job you don’t like (To pay EMI), with no option to escape. It also has problems like
maintenance, litigation issues, encroachment and so on.

The true value of a land is never transparent and brokers make sure you buy higher and sell lesser
when you have to. That’s why my DAD hates  the selling part. Since the true value  is not transparent,
no selling price is satisfying enough. The main problem for me is, i cannot buy a piece of land for
Rupees 3000, Can I now? Which would be a common man’s monthly savings, which he would prefer to
invest. And i cannot sell a piece of land on the day i want to. My friend took 2 years to sell a piece of land
in Trichy Town, and the buyer took a year to pay back in installments. And the whole process is  so
damn frustrating to say the least. My simple piece of advice:  If you buy a land or house, don’t get into
a situation with a need to sell it any time in the future. You can buy a house to live in it. There’s nothing
wrong with that. Buying a house or land purely as investment is a pain, though it gains in value over 20
years (Half your life is over by then). And you are left to contemplate if you bought and sold at the right
going price

You can invest in any corner of Indian Soil and expect it to grow in value over 20 years. The  same is not
true about investing in stocks listed in Indian Stock Exchange. 99% of stocks listed in Indian Stock
Exchange, would not be worthy of being invested in at all times (Economy / Financial Markets, has
good and bad moods too like human beings). This is why investing is considered an art, for those with
the knowledge of Financial Markets. The critical aspect of this art is to cherry pick the worthy stocks,
which would fall the least during bad times and appreciate well in value over a period of time. There
are other add-on aspects of course, like better times to buy and best times to sell.
An investor needs to be empowered with the basic fundamental knowledge of Financial Markets. It’s
unfortunate, that people in India who invest in stocks & mutual funds (to save on Tax) lack this
knowledge. This book will un-cover the basic fundamentals of Indian Stock Markets & generally any
stock market really. I intend to make this book as short as possible and to the point with no intention
to confuse you.

Why & How Stock Markets Came Into Existence?

To understand the very basics of stock markets, you should know why they came into existence. Why
did anyone need a Stock Market? The answer is simple: Stock Markets came into existence because
Companies or Businesses needed them.
Let’s try to understand this better. Why would companies or businesses like TCS or Infosys need Indian
Stock Markets? Infosys was founded on 2nd July, 1981 by N. R. Narayana Murthy and 6 others with an
initial investment of Rupees 10,000 officially becoming the first employees of the company. The 10,000
Rupees would have been sufficient only to start Infosys, but they cannot run and expand their business
with that forever. As you can obviously figure out now, they would need more funds to  run and expand
their business.
Where will the fund they need come from?
The little profits, if any they make, in early stages of a company wouldn’t be enough to fuel the
ambitious expansion plans they must have had.
Taking debt or loans from Banks is one option. But, it sadly needs to be paid back with interest.
And if the company runs into losses while they expand, it will be even more painful for the
company to pay back the debt. So, a company cannot take too much debt.
They can approach a Venture capitalist, for funds in exchange for stake in the company.
Raise funds from public.
This is done through Initial Public Offer (IPO) where-in the company
decides to sell, say 10% stake to the public. The 10% stake is divided into numerous shares, so
that common public can afford to buy few shares. The funds raised in an IPO goes to the
company, which will be used for daily operations and for their expansions. This is where the
existence of Stock Markets has evolved over time.
This Initial Public Offer is known as Primary Markets. Few weeks after the IPO closes, the company is
said to be listed in Indian Stock Exchange (Also known as Secondary Markets) and gets traded. The
shares exchange hands from one person to the other, virtually every second nowadays, when the
Indian Stock Exchange is open. Public can now buy and sell shares online, via brokers like ICICIDIRECT,
ShareKhan & so on. It is very similar to holding an online bank account.

Back to Infosys:

Infosys made an initial public offer on February, 1993 and was listed on stock
exchanges in India on June, 1993. The offer was priced at Rupees 95 per share. The company offered
about 40% of its post-offer equity capital, through that IPO, aiming to raise Rupees 13 Crores. Trading
opened at Rupees 145 per share, in secondary market, compared to the IPO price of Rupees 95 per
share.

Assuming, one holds 1 share of Rupees 95 from 1993 IPO, it would be worth over 3 Lakhs today
(Including dividends of around Rupees 25,000). 3 Lakhs doesn’t sound too great today. Does it?
Normally the minimum amount to apply in an IPO is Rupees 5000. Assuming, one invested Rupee s
5000, in 1993 Infosys IPO and has been holding till date, it would be worth over 2 Crores today
(Including dividends around 25 lakhs). Sounds exciting? Remember, like i said be fore, 99% of stocks
listed in Indian Stock Markets, are not worthy of staying invested at all times. People without the basic
knowledge of Stock Market, would fall into the 99% of non-worthy stocks, which will erode their
investments, ending up in losses. Infosys share price rose so much, as its profits rose so much, in the
last 2 decades. The art of investing is to identify e vergreen companies, with profits growing
consistently.

How & Why Does A Share Price Rise & Fall?

Basically, the rise and fall of share price, is due to the tug of war between buyers and sellers. Last
Traded Price (LTP), is technically defined as the price at which, someone owning a share (Seller),
decides to sell his shares, at an agreed price to a buyer. The Last Traded Price, fluctuates every second,
when Markets are open, as millions of users across the world sit in front of their computers, placing
buy or sell orde rs online. Indian Stock Markets are currently open between 9:15 AM and 3:30 PM IST.
If on a particular day, there are more bids to buy shares, than shares that are in offer to be sold, then
the share price rises. The share price falls, when there are more sellers than buyers in a day.
Traditionally, when internet was not popular, Stock Exchanges were carried out on a trading  floor, by a
method known as open outcry, where traders may enter “verbal” bids to buy and offers to sell
simultaneously. It’s very similar to how auctions are conducted.
The universal truth is that, if a company grows in value, so will the share price, over a period of time. A
sprouting company grows in value : when they expand their business presence, when their profit grows
year on year, when the ir debt reduces & becomes zero, when their cash & cash equivalents grow,
when their asset value grows and so on. Such companies are worthy companies to be invested in.
Buying demand of such companies, will always rise in the longer run, although, short term stock price
fluctuations will be there , even for the best companies.
We’ll talk more on how to pick such rare worthy stocks more in detail later.


Some Basic Terms of Stock Markets

Before we get to the art of picking worthy stocks to invest in, let’s get to know some of the basic
fundamental terms. Below terms are not parts of the criteria to filter and pick good companies to stay
invested in. I am only explaining them, as i would be referring these terms in the later sections. Also,
you don’t need to be calculating or know mathematics, to find these values for each company. All
values are available in websites like www.moneycontrol.com . You just need to know what they
mean. So, don’t worry about the mathematics involved at all to be a good investor. If you find this
section confusing, just run through it fast. I am serious. It will all make sense when you finish reading
this book. You can come  back and read this chapter later, for more clarity.

Market Capitalization
A Company is divided into numerous shares and this number varies from company to company.
For example, Infosys is divided into over 57 Crore shares and each share price is worth over Rupees
2500 today. TCS has over 195 Crore shares and each share price  is worth over Rupees 1000 today.
Market capitalization is nothing but the total value of a company (Total number of shares multiplie d by
current share price). As the share price varies from time to time, so does the market  capitalization.
Market capitalization of Infosys = (57 Crore x 2500) = 1,42,500 Crores
Market capitalization of TCS       =  (195 Crore x 1000) = 1,95,000 Crores
One way to look at market capitalization is: Let’s say, if you have Rupees 1,42,500 Crores in hand, you
can technically buy all shares of Infosys and be the sole owner of Infosys.
Thing to note here is, share price of Infosys (Rupees 2500) is more than the share price of TCS (Rupees
1000). But, TCS is the bigger company in terms of valuations or market capitalization.
In a good company, majority of the shares are held by promoters & the ir families (Founders of the
company), FII’s (Foreign Institutional Investors), Mutual Funds and HNI’s (High Net worth
Individuals).
The common public holds only a very little portion.
Note:
Market Capitalization is also commonly referred to as market cap in short.
Earnings Per Share (EPS) & (P/E)
Now, you understand that, each company’s total number of shares is not the same. Each company
either makes profits or losses every year. Company’s profits or loss financial statements, are
announced every quarter (every 3 months). Financial statements include revenues or sales, expenses &
profits, which the company made in the 3 month period. The financial results are also consolidated on
a yearly basis. Most companies follow April to March as their financial year (Just like January to
December is the calendar year). Below would be the 4 quarters between April & March:

April to June  Quarter 1 (Q1) ... For example, April 2010 to June 2010 is Quarter 1 for Financial
Year 2011 (Q1 FY 2011).
July to Sep  Quarter 2 (Q2) ... For example, July 2010 to September 2010 is Quarter 2 for Financial
Year 2011 (Q2 FY 2011).
Oct to Dec  Quarter 3 (Q3) ... For example, October 2010 to December 2010 is Quarter 3 for
Financial Year 2011 (Q3 FY 2011).
Jan to Mar  Quarter 4 (Q4) ... For example, January 2010 to March 2010 is Quarter 4 for Financial
Year 2011 (Q4 FY 2011).

Earnings per share
 (EPS) are nothing but, profits or losses made in the last 12 months divided by the
total number of shares. Mathematically, it’s defined as below:
Earnings per share (EPS) = (Profits or Losses per year) / (Total number of shares)
So, EPS changes every 3 months, based on the financial results announced by the company each
quarter. If a company makes losses, its EPS turns negative. Now, let’s take the example of TCS. TCS
made profits of Rupees 7570 Crores in 2011 (FY 2011). We know that TCS is divided into 195 Crore
shares.
EPS of TCS in 2011 = (TCS profits in 2011) / (Total number of share in TCS)
= (7570 Crores) / (195 Crores)  = 38 Rupees per share.
So, what does EPS of TCS in 2011 mean? It means that, each share of TCS worth Rupees 1000, earned
or made profits of Rupees 38, in 2011.
Now,
P/E is a derived term from EPS. P/E is mathematically defined as below:
P/E = (Share Price of a stock) / (Earnings per Share)
P/E of TCS in 2011 = (Share price of TCS) / (EPS of TCS in 2011) = (1000) / (38) = 26
Since, share price changes every day, so does its P/E. IT companies normally have a P/E of around 25.
Steel companies normally have a lower P/E of 6. P/E varies from sector to sector and from company to
company, based on various factors which cannot be analyzed or reasone d with. So don’t worry about
it.
P/E is similar to price of a land per square feet [ (Price of Land) / (Total Area of Land) ]. Land price in a
City will always be higher than that of price of land in a Village.
The common mis-understanding among amateur investors is that, lower P/E is cheap valuations and
higher P/E is expensive valuations. This is so wrong. P/E is an immaterial factor, to find good worthy
stocks for investing.


Art Of Picking Worthy Stocks

Like i said in the introduction, 99% of stocks or companies are not worth investing in. So, in simple
words, art of picking worthy stocks, is avoiding 99% of the stocks or companies. That’s all you have to
do, to be the best & smartest investor.

Debt & Cash Equivalents of a Company

You can ignore over 90% of stocks, by just looking at debt levels of the company.
Debt or loans or liabilities is a killer. Either we or our parents would definitely have loans in some form
or the other (House loan or personal loan or car loan or two wheeler loan or educational loans  & so
on). Just like us, companies also take loans, in earlier stages to expand and run their company. Very
few companies execute their expansion plans and go on to pay off their debts. After that, they expand
their business more & more, from the profits they make every year. Such companies will start
accumulating cash from profits they make every year, just like savings we build in our bank accounts.
On the contrary, debt will also pull profits downwards, as the company will need to pay interest on the
loans or debt every quarter.
If you think of a company as a ship, debt is like holes in a ship. The more the debt exposure , larger is
the size of the hole in the ship. A company loaded with debt or loans is a sinking ship. When you invest
in a sinking ship, you will sink with it. While profits made by a company every year, tries to push the
ship forward, debt tries to sink the ship.
So, what is the right balance of debt and profits? (Debt to Profits Ratio)
A Zero debt company is Green signal for me any day. It’s always easy for a ship with no holes in it to
move forward and win the race, than a ship with holes in it (Irrespective of size of the hole).
Any company with debt lesser than 2 years of profits, is Yellow signal for me. They have a few holes in
it. But, they can always pay it back in 2 years, if they choose to use their profits, to pay off the loan
rather than use it to expand their business. Their business expansion will have to wait for 2 years. But
that’s not a big deal.
Any company with debt more than 2 years of profits, is Red signal for me. The more the debt to profit
ratio is, the larger is the size of the hole in the ship. If you drive with red signal on, you are going to be
dead soon. It’s the same with stock investing.

Share price of a Zero debt company, will fall lesser, than a company with debt. Let me give you some
facts between 2008 and 2011 on 2 stocks (One loaded with debt and the other with zero debt).
Colgate Palmolive (India) is a zero debt company and made profits of Rupees 231 Crores, in 2008.
Share price of Colgate, has risen from Rupees 450 a share in 2008, to over Rupees 1000 a share in
2011. And, it will more likely grow as their profits grow every year.
DLF had debt of more than Rupees 8,000 Crores and made profits of Rupees 2,575 Crores in 2008
(Debt to Profit ratio of over 3). Share price of DLF, has fallen from Rupees 1000 a share in 2008, to
Rupees 200 a share in 2011. And I can say, it’s looking good to fall more (Debt to Profit ratio, is now
dangerously over 10).

Cash & Cash Equivalents

Most companies with debt will have no cash & cash equivalents (There are exceptions of course).
Companies with debt would choose to use their profits, to either expand business or pay off debt. They
cannot afford to accumulate cash balance. A zero debt company, with strong cash & cash equivalents,
can always use them to expand the ir business, which will in turn push their profits higher in future. A
company rich in cash, will acquire other smaller companies in their sector, which will add more value
and help increase their sales & profits. Companies with debt can’t afford to acquire.
When you want to compare two Zero debt companies, with cash equivalents, use the
cash to marketcap ratio.

For example: Colgate Palmolive (India) market cap is Rupees 14,000 Crores, with cash of nearly Rupees
400 Crores. Cash to Market cap ratio of Colgate is nearly 3% (400 ÷ 14000).
Infosys market cap is around Rupees 1,50,000 Crores now and has cash of Rupees 15,165 Crores. Cash
to Market cap ratio of Infosys is over 10% (15,165 ÷ 1,50,000).
In a Zero debt company, being cash rich will more likely, tend to prevent the share price from falling
down. It’s the future growth potentials, which will push the share prices higher. Infosys is more cash
rich than Colgate. But, Infosys profit growth was slower than Colgate, between 2008 and 2011. As a
result of that, Colgate share prices have risen more than Infosys, between 2008 and 2011.
Note:
If a company does not pass the debt test, it’s  no good for investing. Let’s now move on, as to
how to avoid left over 9% of the companies.


Brand Value of a Company

After Debt, the next big aspect to the art of investing is, to analyze the brand value of a company.
Brand value of a company is the next big factor. You will need to build some knowledge of companies
and its brand products, to master the art of investing. It gives you the vision of whether the company
will do well or not in future, which ensures share price rise. Only companies making good quality
products & services, can build good brand name & brand value. And, good products with good brand
value, will always churn more profits.
You may not have heard about the company “Godrej Consumer Products”, but you would have heard
about their popular products like, “Good Knight”, “Hit” to kill cockroaches, “Cinthol” soaps, “Godrej
Hair dye” and many more. You may not recognize the company by name Pidilite, but you would
recognize Fevicol, Fevistick and so on. When you buy shares of such brand valued companies, you gain
as their profits grow every year. And, such few brand valued, Ze ro Debt companies, consistently rise in
profits every year. And their share price , will always rise back from lows and keep going up in the long
term.
Now, there  are companies with Zero debt and good consistent profit growth, with lesser or NO brand
value or recognition. A lot of people, jump into buying stocks, without understanding the brand value
in it. What happens is, when some bad news or rumors or bad economy comes in, fear haunts
investors and its funny how lesser brand value d stocks, fall 20 to 30% or more in just a few days, for
funny reasons. You all will agree that, India is not a country short of rumors. Strong brand value will
always kick away fear. As an investor, you yourself will feel much better about investing in shares, of
strong brand valued companies.

Let me give you some factual examples: “Glodyne Technoserve” is an IT company and had Debt to
Profits ratio of 1 (Which is pretty decent for a small company, although I always prefer a zero debt).
The company’s revenues and profits have risen consistently, in the last 5 years. If you cut out the brand
value factor, it’s a great company to buy for long term. Glodyne’s share price was trading above Rupees
700 levels, till late 2010. There were rumors or news one day, that Income Tax department raided the
company and the share price fell 50%, in just few days. The share price has not risen back since  then
and has stayed down below Rupees 300, on bad economy. Investor confidence took a beating.
LIC Housing Finance, had a much bigger bad news at the same time as Glodyne, in late 2010. The CEO
of LIC was arrested by CBI, on bribery scam, in fake housing scandal. Stock price fell from Rupees 250
to Rupees 200 in few days and to lows of 150 within a month. LIC soon reinstated a new CEO and said
it would be business as usual. Due to strong brand value, investor confidence came back soon and
stock price recovered back to Rupees 240 levels, within a couple of months.
Filter out and avoid companies without brand value. You can avoid a lot more in the left over 9% with brand value.

Competition & Future Growth Prospects

As an investor of today, you don’t benefit from a company’s past growth (Share price would have
already risen in the past for that). It’s the company’s future growth, which unfolds, that’s going to take
the share price higher and higher. Scope for Growth in Future, is dependent largely (not entirely) on
the competition a company faces. Lesser the competition, easier is the growth.
During school days, it’s tough to rank in top 5, if you have 50 classmates. It’s easier with just maybe 20
classmates. It’s more so easier, if your classmates are not so studious. It’s the same for the company’s
as well. So, it’s critical to understand the competition a company faces. You can even drill down to
individual products, within the company and the competition for each of its products.
Let me share few interesting facts.
There are 22 companies in Cement Sector, listed in Indian Stock Exchange. They all make Cement. Let’s
assume that, demand for cement rises 4 times by 2015, in India. This growth in demand for cement
gets split among the 22 companies (The re would be other unlisted smaller players too). Of course, a
company with Zero debt and better management, would grab the opportunity, more than anyone else.
Let’s go over to the IT sector: There are over 30 listed companies in the IT sector. TCS and Infosys are
strong competitors to each other. Wipro, HCL, Satyam and Patni come in next.
Let’s move on to Hospitals & Medical Services sector: There are only 7 listed companies here, led by
Apollo Hospitals Enterprises. It’s nearly a monopoly by Apollo, except for maybe Fortis Healthcare. All
others, are either loaded with debt or too small to pose a thread. I would simply prefer to invest in
Apollo, rather than TCS or Infosys for this reason.
Let’s checkout Paint Industry: The re are only 6 listed players, dominated by Asian Paints. All others are
too small or loaded with debt to pose a threat.
Let’s go to fast food: specifically Pizza. You may not have heard of Jubilant Foodworks, but might have
tasted Domino’s Pizza. Their only real competitor is Pizza Hut, which is not listed in Indian Stock
Exchange. With least competition and good future scope, I would definitely prefer to invest in Jubilant
Foodworks.

Future Growth Prospects

While competition is a major factor, scope for future growth comes in as a secondary factor. To
understand this better, let’s talk about Telecom sector. Bharti Aitel has Debt to Profits ratio of less than
2 and is a strong brand valued company. Let’s checkout its listed competitors: Idea, Reliance
Communications and Tata Communications, are loaded with Debt to Profit ratio of more than 10.
Bharti Airtel dominates the telecom industry. But their profit growth has saturated in India. Why? By
now, every Indian above the age of 20 from Kashmir to Kanyakumari has a cell phone. The only scope
for growth left is increase in Indian population. This is the reason why, Bharti Airtel is increasing its
presence outside India. Airtel is still a better stock, than many debt loaded ones. But it is not the next
big thing.

Let’s now think about J ubilant Foodworks (Domino’s Pizza). Their presence is currently seen in a few
places, only in major cities of India today. There’s a lot more scope  for growth, left in Cities, smaller
cities and villages. It may take 10 more years for it to thrive in smaller cities, but when it  does:
investors of today will have gained big, over the next 10 years. And i have a strong belief that, smaller
cities are the next big thing in India.

Growth Consistency of a Company

By growth, I am talking about rise in Revenues and more specifically Profits. Revenue or Profit growth
of the past will not push share prices higher. But, consistency of past profit growth, reflects how good a
company performe d in the past. They should continue the good work in the future too, which an
investor will benefit from. If a company has been erratic in the  past, its likely to be erratic in the future
too.
Let’s check out few examples:

Colgate Palmolive (India) made profits of Rupees 138 Crores, 160 Crores , 232 Crores, 290 Crores and
403 Crores, in the last 5 years. It means that, Colgate’s profits grew by 16%, 31%, 25% & 39% in the last
5 years. Looking at the past track record, I can bet that they will do 20% growth consistently, in the
next 5 years.
Let’s check Bharti Airtel now: Airtel made  profits of Rupees 4033 Crores, 6244 Crores, 7743 Crores,
9426 Crores and 7717 Crores in the last 5 years. It means that, Airtel’s profits grew by 55%, 24%, 21%
and -18% in the last 5 years. The profit dip in 2011 breaks the consistency trend and doesn’t make it
the best investment choice (Considering it also has debt even if it is at safe levels).
Let’s see Asian Paints now: Asian Paints made profits of Rupees 188 Crores, 270 Crores, 378 Crores,
362 Crores & 775 Crores in the last 5 years. It means that, Asian Paint’s profits grew by 44%, 40%, - 2%
and 114% in the last 5 years. Revenues must have dipped a little in 2009 during recession, when people
must have painted less. Apart from that, it’s grown solidly.

That’s it. It’s just 4 simple rules to avoid 99% of companies. More the companies you avoid, better the
investor you become. I now avoid 99.75%, after 6 years of researching Indian stock market. There are
over 6,000 companies listed on the Indian Stock Exchanges. If you avoid 99% of them properly using
the 4 rules, you will be left with like close to 60 companies. If you filter the right 60 Stocks, you are well
on your way to become a great investor. Pick the top 10 stocks according to your view and diversify
your investments equally on 5 to 10 stocks. Less than 5 would mean more risk and more than 10 will
not be manageable, in terms of tracking them.
Watchout:
When you step into stock market world, you will hear people crying out loud about ROE,
ROI, low P/E attractive stocks and so on. These days, people who do management studies come up
with too many terms and jargons just to confuse and convince people. Don’t fall for them. Stick to the
basic rules.

Promoter Share Holding

The 4 basic thumb rules to Art of Stock Picking will help you find the best stocks to invest from a Retail
Investor perspective.
Before you proceed to inve st, just make sure that the promoter stake in the company is clean. When I
say clean, I mean that the promoter stake must not be pledged. If the promoter stake is pledged, it
means that the promoter has pledged his stake in the company to a Bank as security and taken loans. It
is a major negative for the  company and its investors.
In most fraudulent promoter cases, the promoter stake will be pledged. Satyam, KFA, Suzlon, Unitech
are popular examples of promoter pledged, where retail investors wealth and hope has been
demolished.
Stay Away from such companies.

Power Of Compounding
The maximum fixed (guaranteed) return available is 10% in fixed deposits. You can do 20 - 30% returns
a year, if you follow art of investing properly. Now, that doesn’t sound like a great deal of difference ,
between stock markets and fixed deposit returns. Power of compounded returns, will be more and
more as you give more time to it.

Stock Recommendations - Evergreen Stocks

You now know the  4 basic thumb rules, in the art of stock picking. It’s time to discuss stocks, which I
consider as worthy investments. If you are still scared about stock investing or don’t have the time to
handpick stocks, just checkout the stocks I mention 2 years later. I am sure all of them would rise in
valuations (Stock price). Check them 20 years later and you will know the power of compounding.
Titan Industries Ltd
Summary (Data as on Dec 2011):
170 Rupees Stock Price per Share:
15,300 Crores Market Cap:
67 Crores Debt:
1094 Crores Cash & Cash Equivalents:
94 Crores, 158 Crores, 159 Crores, 250 Crore , 430 Crores
Profits in FY 2007, 2008, 2009, 2010, 2011:
68%, 1%, 57% and 72% Profit growth in FY 2008, 2009, 2010, 2011:
357% Profit growth in last 5 years:
325% Share Price Rise in last 5 years:
Let’s analyze Titan Industries with our 4 thumb rule.
Debt & Cash Equivalents of “Titan Industries”
Titan has debt of Rupees 67 Crores. They have cash in hand of Rupees 1094 Crores. They probably took
debt to do favor to bankers or to leverage on tax exemptions. Cash to Market cap ratio is 7% (Highly
cash rich compared to other companies). More cash in hand is always better. More so for investors.
Brand Value of “Titan Industries”
Titan is a TATA Enterprise (That in itself is enough said). Titan has been building customer base, for
over two decades now. Let’s  drill down more into their specific products.
Fastrack Watches
I got nearly 4 watches during my marriage period. All of them were Titan Fastrack watches. Why? He’s
the only branded watch available all over India, in the budget range of Rupees 1000 to 5000. There is
no other competitor. Not to mention that they have outlets all over the world.
Titan Eye+
Titan Eye+ has Sunglasses, Lenses, Frames, Contact Lenses & so on. India is becoming fashionable at a
fast pace. Everyone at-least in cities wants to buy Titan glasses, for eye sight problems.
Tanishq:
Tanishq is India’s largest jewelry brand (Gold, Silve r Jewelry & so on).
There are other brand products in Titan like Sonata, Xylys & Goldplus.



Competition & Future Growth Prospects for “Titan Industries”
Titan has very little competition at this point. There’s no watchmaker or jewelry maker with outlets
setup all over India. It’s virtually a Monopoly.
Titan is setting up outlets all over the world. They recently acquired a watch maker brand in Europe.
They may go on to acquire more, expanding their outlet chain. With other parts of the world facing
crisis, Titan will thrive. Titan currently sells hot in major cities of India. They still have lots of space to
grow in smaller cities of India, in the next 10 years. They advertise in radios & televisions, to increase
their customer base. They offer discounts like 25% to capture fresh customers. I am sure they will
continue to grow.
Growth Consistency of “Titan Industries”
Read summary section, for Profits in the last 5 years. They have consistently made more profits than
previous years. Their Revenues/Sales and Profits just go one way and it’s  always on the  way up.


TTK Prestige Ltd

Summary (Data as on Dec 2011)
2500 Rupees                    Stock Price per Share:
2,800 Crores Market Cap:
2 Crores Debt:
54 Crores Cash & Cash Equivalents:
12 Crores, 21 Crores, 22 Crores, 52 Crores, 84 Crores
Profits in FY 2007, 2008, 2009, 2010, 2011:
75%, 5%, 136% and 61%            Profit growth in FY 2008, 2009, 2010, 2011:
600% Profit growth in last 5 years:
1900% Share Price Rise in last 5 years:
Let’s analyze TTK Prestige with our 4 thumb rule.
Debt & Cash Equivalents of “TTK Prestige”
TTK Prestige is a Zero debt company for me. Good cash in hand for a smaller company like TTK
Prestige. Cash to Market cap ratio is nearly 2%.
Brand Value of “TTK Prestige”
Well, what cooker are you using in your house? Prestige? Then you know its brand.
TTK Prestige product base is huge with over 250 products in Cooke rs, Non-Stick Cookware, Mixer
Grinders and Sandwich Toasters and in many more categories.


Competition & Future Growth Prospects for “TTK Prestige”
Hawkins Cooker is one competitor that i see. They too are nearly zero debt, but their growth in the
past has not been as great as TTK. Hawkins doesn’t have the extensive reach as TTK Prestige. Even with
Hawkins, it’s not much competition.
Coming to future growth prospects, India’s consumption growth is going up and up. Specifically, Gas
Cooker usage is on the rise. A lot of people still cook with firewood.
Growth Consistency of “TTK Prestige”
Look at the summary section and come back here. The growth has been consistent and high. The share
price has risen a lot as the brand value is on the rise. There’s a lot more steam left in the next 10 years.

Jubilant Foodworks Ltd
Summary (Data as on Dec 2011)
750 Rupees Stock Price per Share:
4,900 Crores Market Cap:
0 Debt:
9 Crores Cash & Cash Equivalents:
33 Crores, 72 Crores Profits in FY 2010, 2011:
118%      Profit growth in FY 2011:
118% Profit growth in last 1 year:
240% Share Price Rise in last 2 years:
Let’s analyze Jubilant Foodworks with our 4 thumb rule.
Debt & Cash Equivalents of “Jubilant Foodworks”
Jubilant Foodworks is a Zero Debt company with Rupees 9 Crores cash in hand. It listed in secondary
markets in 2010. So it’s only early days for the company. Their first priority will be to expand with more
outlets. So, they will have minimal cash in hand as a result of that.
Brand Value of “Jubilant Foodworks”
Well, you may not have heard of the name “Jubilant Foodworks”. But, you definitely would have heard
about Dominos Pizza. It’s not just Pizza’s that they serve. You also get chicken popcorn, othe r side
dishes & beverages (Pepsi or coke). They also operate in Nepal, Sri Lanka and Bangladesh.



Competition & Future Growth Prospects for “Jubilant Foodworks”
Their main competitor is Pizza Hut. But Domino’s and Pizza operate in two different price ranges, with
Domino’s being the cheape r one. That will definitely suit well for expansion and growth in India. Pizza
Hut is not a listed competitor and as far as i see, there are more Domino’s outlets than Pizza hut.
Coming to future growth prospects, Dominos are mainly found only in Cities as of now. I don’t think
they have penetrated into smaller cities yet. That leaves tons of space to expand within India and other
countries. All this could happen in the next 10 years.
Growth Consistency of “Jubilant Foodworks”
As said before, Jubilant gave IPO only recently and listed in stock exchange in early 2010. So, we don’t
have financial data for the last 5 years. From the limited data we have, they have grown at awesome
pace so far.

Godrej Consumer Products
Summary (Data as on Dec 2011)
390 Rupees Stock Price per Share:
12,600 Crores Market Cap:
272 Crores Debt:
81 Crores Cash & Cash Equivalents:
132 Crores, 148 Crores, 162 Crores, 248 Crores, 435 Crores
Profits in FY 2007, 2008, 2009, 2010, 2011:
12%, 14%, 53%, 75% Profit growth in FY 2008, 2009, 2010, 2011:
229% Profit growth in last 5 years:
200% Share Price Rise in last 5 years:
Let’s analyze Godrej Consumer Products with our 4 thumb rule.
Debt & Cash Equivalents of “Godrej Consumer Products”
Godrej Consumer Products has debt of Rupees 272 Crores and Rupees 81 Crores of cash in hand. You
can consider net debt as Rupees 191 Crores (272 - 81). Debt to Profit ratio is less than 0.50 (191 % 435).
They can pay off their debt with just profits made in 6 months. Debt is at very safe levels.
Brand Value of “Godrej Consumer Products”
Some of their well-known products are “Good Night” to kill mosquitos, “Hit” to kill cockroaches and
“Cinthol” soap and Godrej Shaving Cream. They have many more products which you may not
recognize. You can logon to http://www.godrej.com and check them all out. The word “Godrej” itself
has a great brand value. I am sure you will agree with that.



Competition & Future Growth Prospects for “Godrej Consumer Products”

“Good Night” has competition in “All Out” which belongs to J & J (Johnson & Johnson), which is not
listed in Indian Stock Exchange. “Hit” has very little competition. They have a wide variety of products
in “Home Care”, “Personal Wash” and “Hair Care”.
Coming to future growth prospects, am sure India will be more haunted by mosquitos and cockroaches
as time goes on. People get white hairs at a younger age now and there will be more need for dyes.
Personal care and things like beauty parlor products are on the rise and there’s more room for growth.
Growth Consistency of “Godrej Consumer Products”
Growth consistency has been very good and is picking up more and more in recent years.

GlaxoSmithKline Consumer HealthCare
Summary (Data as on Dec 2011)
2500 Rupees Stock Price per Share:
10,600 Crores Market Cap:
0 Debt:
976 Crores Cash & Cash Equivalents:
127 Crores, 163 Crores, 188 Crores, 233 Crores, 300 Crores
Profits in FY 2006, 2007, 2008, 2009, 2010:
28%, 15%, 24%, 29% Profit growth in FY 2007, 2008, 2009, 2010:
136% Profit growth in last 5 years:
367% Share Price Rise in last 5 years:

Let’s analyze GlaxoSmithKline Consumer HealthCare with our 4 thumb rule.
Debt & Cash Equivalents of “GlaxoSmithKline Consumer HealthCare”
GlaxoSmithKline is a Zero debt company. Its rich in cash with Rupees 1000 Crores. That’s Cash to
Market cap ratio of 10%, which is amazing. As the company has accumulated cash, it has pushed share
prices more than the  profit growth in the last 5 years.
Brand Value of “GlaxoSmithKline Consumer HealthCare”
You may not have heard about GlaxoSmithKline. But they have minimal product line with all of them
being popular, which epitomizes their quality. Horlicks, Boost is the secret of my energy, Maltova &
Viva are their products unde r nutritional category. Crocin, Eno and Iodex are their products under
healthcare category.
Competition & Future Growth Prospects for “GlaxoSmithKline Consumer HealthCare”
I always believe that quality products can never be eroded by competition. If they erode, then they are
not quality products anymore.

Boost, Horlicks, Crocin & Iodex have been products that have thrived for decades. I don’t think one
needs to be worried about competition here.
Future growth prospects:  Well, their product line is little with each one outperforming. Even if they
introduce one more new quality product, am sure that will also do great and push their profit line
higher. And with India’s growing population and increasing purchasing capacity, their quality products
will be more in demand.

Growth Consistency of “GlaxoSmithKline Consumer HealthCare”
It has been most consistent. They have accumulated cash which adds more value to investors. Their
track record is immaculate in the last 5 years.

Asian Paints Ltd
Summary (Data as on Dec 2011)
2,600 Rupees Stock Price per Share:
24,900 Crores Market Cap:
64 Crores Debt:
Cash & Cash Equivalents:
507 Crores Profits in FY 2006, 2007, 2008, 2009, 2011:
188 Crores, 270 Crores, 378 Crores, 362 Crores, 775 Crores
44%, 40%, - 4%, 114%     (FY2010 & 2011)
Profit growth in FY 2007, 2008, 2009, 2011:
312%     Profit growth in last 5 years:
258% Share Price Rise in last 5 years:
Let’s analyze sian Paints with our 4 thumb rule.
Debt & Cash Equivalents of “Asian Paints”
Asian Paints is a zero debt company for me with cash equivalents of Rupees 500 Crores. Cash to
Market cap ratio of 2%.
Brand Value of “Asian Paints”
Well, my dad chose Asian Paints when it came to painting the house. It’s the prefe rred paint although
it’s expensive than its peers. nd all corporate buildings will prefer their buildings painted with the best
paint. If you notice closely, most hardware shops are solely Asian Paints outlets. Their distribution
channel is amazing. So are the varieties of colors they offer in their product line.


Competition & Future Growth Prospects for “Asian Paints”

Asian Paints dominates the paint industry. Nerolac Paints & Berger Paints are its competitors. They
mainly cater to those who can’t afford Asian Paints.  Nerolac & Berger Paints are competition to each
other, but not to Asian Paints.
Future growth prospects: I worked in HP till mid-2011. In 2009, during economic recession, they didn’t
have the budget to hike employee’s salary. But they still painted their buildings so that it looks clean
for business reasons. Corporate buildings re -paint every 2 years if not more frequently. And with
infrastructure growing, there will be more demand for paints.
Growth Consistency of “Asian Paints”
It slowed in 2009, but the growth trend continued after that. It’s been very consistent otherwise.

Nestle India
Summary (Data as on Dec 2011)
4,200 Rupees Stock Price per Share:
40,500 Crores Market Cap:
0 Debt:
Cash & Cash Equivalents:
406 Cror       315 Crores, 414 Crores, 534 Crores, 655 Crores, 819 Crores
Profits in FY 2006, 2007, 2008, 2009, 2010:
31%, 29%, 23%, 25%      Profit growth in FY 2007, 2008, 2009, 2010:
160% Profit growth in last 5 years:
320% Share Price Rise in last 5 years:
Let’s analyze Nestle India with our 4 thumb rule.
Debt & Cash Equivalents of “Nestle India”
Nestle is a Zero debt company with Rupees 406 Crores of cash in hand. Cash to market cap ratio is 1%.
Brand Value of “Nestle India”
Nestle’s brand products are very popular and impressive. Maggi Noodles & Sauces, Nescafe Coffee  &
Tea, Nestle Milk & Curd. Many products in chocolates like Kitkat, Barone, Dark Chocolate, Munch,
Milkybar, Eclairs & Polo. It’s way too impressive.
Competition & Future Growth Prospects for “Nestle India”
Like i said for Glaxosmithkline, you don’t need to worry about competition for companies focused on
quality products. Nestle is headquartered in Switzerland and you don’t need to worry about their
product quality or competition.


Future growth prospects: Quality products will always grow. I need not say more here.
Growth Consistency of “Nestle India”
It’s been the consistent among my picks. They churn profits like clockwork.

Apollo Hospitals Enterprise
Summary (Data as on Dec 2011)
550 Rupees Stock Price per Share:
7,600 Crores Market Cap:
740 Crores Debt:
140 Crores Cash & Cash Equivalents:
60 Crores, 100 Crores, 103 Crores, 118 Crores, 182 Crores
Profits in FY 2006, 2007, 2008, 2009, 2011:
67%, 3%, 15% and 54%
Profit growth in FY 2007, 2008, 2009, 2011:
203%
Profit growth in last 5 years:
160%
Share Price Rise in last 5 years:
Let’s analyze Apollo Hospitals with our 4 thumb rule.
Debt & Cash Equivalents of “Apollo Hospitals Enterprise”
Apollo Hospitals has debt of Rupees 740 Crores and cash in hand of Rupees 140 Crores. The net debt
would be 600 Crores. Debt to Profit ratio is now at little over 3 (600 % 182). This actually breaks the
very first of our 4 thumb rule. But, Apollo is my only exception to the 4 thumb rule due to strong brand
value and near Zero competition.
Brand Value of “Apollo Hospitals Enterprise”
I don’t think i need to say anything here. You definitely must have heard about “Apollo Hospitals”.
Years back, local hospitals always give reference to Apollo for complex health issues. Even now, it’s  the
same. Now, that is brand value  that you can’t beat.
Competition & Future Growth Prospects for “Apollo Hospitals Enterprise”
Well, since Apollo is an exception to the debt levels, I had sufficient reasons to still pick it.
The first big competitor is Fortis Healthcare. Fortis Healthcare also has Debt to Profit ratio of over 3. So
it’s no better than Apollo that way. It made losses in FY2007, some  part of 2008 and 2009. FY2011 has
however turned around with profits of 142 Crores.
Next on line is Indraprastha Medical Corporation which is Apollo itself in Delhi. It’s their own. So no
competition there.

Next is Kovai Medical Center and Hospital a very small player. It has debt to profit ratio of 16. It will
have to spend the next 20 years fighting debt.
That’s  it. No real competition except for Fortis Healthcare.
Coming to Future growth prospects, am sure healthcare is on the rise whether we like it or not. As the
economy moves up, so will healthcare charges.
Growth Consistency of “Apollo Hospitals Enterprise”
Apollo has consistently grown and has picked up a lot in recent years. They took debt to expand more
outlets in more cities. They will continue to grow.

CRISIL
Summary (Data as on Dec 2011)
860 Rupees      Stock Price per Share:
6,100 Crores   Market Cap:
0  Debt:
35 Crores  Cash & Cash Equivalents:
37 Crores, 71 Crores, 137 Crores, 150 Crores, 196 Crores
Profits in FY 2006, 2007, 2008, 2009, 2010:
92%, 93%, 10%, and 31% Profit growth in FY 2007, 2008, 2009, 2010:
430% Profit growth in last 5 years:
258% Share Price Rise in last 5 years:
Let’s analyze CRISIL with our 4 thumb rule.
Debt & Cash Equivalents of “CRISIL”
As mentioned in the summary above CRISIL is a Zero debt company. It has decent amount of cash in
hand. They can accumulate more cash as they become bigger and bigger. So that’s not a big deal. Cash
to Market cap ratio is close to 0.60%
Brand Value of “CRISIL”
CRISIL is a Standard & Poor’s company (A lso known as S&P). You may not have heard about S&P. But in
investing community, it’s known all over the world more so in United States. CRISIL is India’s first credit
rating agency started way back in 1987. They rate Stocks, Sectors, IPO’s, Mutual Funds & many more.
They rate everything that needs to be rated. What i like about CRISIL is that, their business model is
very low on risk. Why? Are they going to make losses if they rate a little wrongly? No not at all. That’s
why I say it’s a low risk business model.

     
Competition & Future Growth Prospects for “CRISIL”

The only real competitor is ICRA although there might be few othe r very small players. ICRA lacks the
brand value that CRISIL possesses and cannot pose any real threat to CRISIL. To say in simple words,
there’s not much competition which makes CRISIL a very attractive buy for investors.
Coming to Future Growth prospects, SEBI is making it mandatory that all IPO’s & Mutual Funds should
be rated by minimum 3 agencies and so on. It just means that CRISIL will have more work to do as time
passes on. CRISIL Global Research & Analytics (GR&A) does a lot of things globally also. So, there’s lot
of scope for more  globally.
Growth Consistency of “CRISIL”
Just look above at the summary section and you will see the consistency at which CRISIL has delivered
in terms of growth. It has slowed down in the last couple of years on weak global economy. It will soon
start accelerating.

Colgate Palmolive India Ltd
Summary (Data as on Dec 2011)
1,000 Rupees   Stock Price per Share:
13,800 Crores Market Cap:
0  Debt:
395 Crores Cash & Cash Equivalents:
138 Crores, 160 Crores, 232 Crores, 290 Crores, 403 Crores
Profits in FY 2006, 2007, 2008, 2009, 2011:
16%, 45%, 20%, 28%        (FY10 & FY11)
Profit growth in FY 2007, 2008, 2009, 2011:
192%   Profit growth in last 5 years:
194%      Share Price Rise in last 5 years:
Let’s analyze Colgate Palmolive India with our 4 thumb rule.
Debt & Cash Equivalents of “Colgate”
Colgate is a zero debt company with nearly Rupees 400 Crores of cash in hand. Cash to market cap
ratio is at nearly 3%.
Brand Value of “Colgate”
I am sure everyone must have used Colgate or must have heard of it. Their product line is extensive.
Tooth paste, Tooth Powder, Tooth Brush, Tooth Whitening & mouth wash come under oral care.
Palmolive Body wash, liquid hand wash, shaving cream comes under personal care.

Competition & Future Growth Prospects for “Colgate”

Pepsodent competes in tooth paste & brush which is marketed by HUL. HUL mainly only concentrates
on marketing products at retail outlets and they don’t make products. So their business model is kind
of different. Also Colgate products go deep in to Oral care like tooth whitener and the reason why you
will find Colgate showcased in Dental Clinics & not Pepsodent. There’s not much to worry with the
focused approach of Colgate. And Colgate has delivered more and consistent profit growth in the last 5
years than HUL.
Even Today, people in smaller cities & villages use lower brand tooth paste or neem stick. As
purchasing capacity grows, so will Colgate’s penetration into smaller cities.
Growth Consistency of “Colgate”
It has been very consistent with profit growth over the last 5 years

Common Mistakes To Stay Away From

Low P/E is Attractive & Hi gh P/E is Risky
If you see all through this book, i have never given any importance to P/E of a stock. If you start judging
stocks based on P/E of a stock, you will invest in wrong unworthy stocks.
You should know that 80% or more of Indian Investing community lacks the basic knowledge of
financial markets. The common mis-conception is that, low P/E is attractive and high P/E is risky. In
most cases, its infact the opposite. You cannot conclude anything for sure based on P/E and it’s better
to stay away from analyzing it. Stick to the 4 basic thumb rules (Debt, Brand, Competition & Growth)
which will definitely put you in the right path.
Nestle has a P/E of around 40. Titan has a P/E of around 35. All stocks listed in this book have a P/E of
over 25. Would you avoid it? NO way. All these stocks have commanded and stayed at these P/E levels
consistently over 5 years, through good and bad times. They command such P/E levels, because they
are strong in each aspect of the 4 thumb rule i mentioned. P/E be ing high in such brand valued stocks,
DO NOT have greed in it.
One needs to be only alarmed if P/E of a stock or sector rises heavily and suddenly to alarmingly le vels
(More so if de bt is associated with it). It’s an indication of greed and will soon fall even more terribly.
Let’s see some examples of heavy & sudden rise in P/E of sectors, which has happened in the past, in
Indian Stock Markets.
Below is the P/E chart of IT Index (Mix of IT Stocks like Infosys & TCS) in the last 10 years.
Unfortunately, we don’t have data before 2000. Investors pumped in money madly in early 2000 and
pushed P/E of IT sector to mad levels of 100. Like greed always does, it created a huge fall. Luckily, all IT
companies were debt free and the fall in P/E was superseded by growth of companies like Infosys and
TCS. Share price of Infosys still grew 10 times between 2000 & 2010. Debt free is the crucial word here.


Let’s now look at Realty Index (Mix of realty companies like DLF & Unitech). Now, all realty companies
including Unitech & DLF had debt from the start and they never paid them back in good times, when
they made huge profits. Their profits grew a lot between 2004 & 2007. But, the y also built more debt,
to buy more lands. When purchasing power went down in 2009, they sank. Debt killed P/E and the
stock investors in it.
Below is the P/E chart of CNX Realty Index from 2007. Unfortunately, Realty index was formed by our
Stock exchanges only in 2007 and we don’t have data before it. s you can see, investors madly rushed
in between 2004 and 2007 into Realty stocks pushing P/E to made levels to 140. Unitech rose over 150
times in just 3 years between 2004 and 2007.
After 2007, such mad levels came down and investors burnt their hands. Unitech fe ll from peaks of
over Rupees 500 a share in 2008 to Rupees 20 today wiping out its investors.
This is why I repeatedly mention debt as a killer, not just to the economy, but also to investors.
Companies which grow without debt, building strong brand name & value alone are investor
friendly.


Better Times To Buy & Best Times To Sell
Now that you have learned the art of stock picking, the next level of fine tuning to your investments, is
to know when to buy the worthy stocks and sell when greed is inflated in the economic system.
Better Times To Buy
Even good stocks fluctuate and come down from time to time due to investor sentiments. But, they
eventually go up as the company makes more and more profits. Use the fall in stock prices as
opportunities to buy them. A good indicator of buy levels are 50 day EMA (Exponential Moving
Average) and 200 day EMA.
Let’s now first understand what a SM (Simple Moving verage) is. Let’s take the example of Tit an
Industries. 200 day SMA of Titan Industries is nothing but, the average stock price  of Titan Industries in
the last 200 days. In SMA, equal weightage is given to stock price in the  last 200 days. EMA is very
similar to SMA, wherein more weightage is given to recent stock price in the last 200 days.
50 day EMA and 200 day EMA are  good levels to buy good stocks.

 Do Not use the red line peaks as times to sell your stock investments. That’s a real
bad idea. Do not try to buy at the arrow points and sell at the red peaks. You cannot time it. No one
can.  You will one day end up selling at 500 and the stock will go to 700 and never come back to 500
and you will curse yourself. You have done a great job at picking the rarest of great stocks. Pick the
courage to buy on dips.
EMA levels are good fair levels to buy.  P/E of an Index (NOT P/E of a stock) is the best indicator of
greed. Use P/E levels of “Nifty” index to identify best times to sell. That’s the next topic.
Best Times To Sell
Indian Stock Market has 2 popular Indexes which go by the name “Sensex” and “Nifty”. You can think
of Sensex as a mix of top 30 stocks in Indian Stock Exchange and Nifty as a mix of top 50 stocks in India
Stock Exchange (Although this statement is not precisely true). Let’s get to the more  critical thing here.
The purpose of these indexes are to measure Indian Stock Performance over a period of time. Just like
Stocks, these Indexes also have P/E. Now, these indexes are a mix of top stocks (in terms of market cap
i believe) from various sectors (Cement, Sugar & so on). So, not all of them are worthy stocks to be
invested in (Many are debt loaded). So when P/E of these indexes peak, its danger signal for investors.
Why? When stock price of bad companies loaded with debt rise, it means there’s tons and tons of
greed in the Financial Markets. And this greed will definitely end, followed by a huge fall in economy
and a huge fall in Stock Markets. This cycle in undeniable and will happen again and again. It’s
advisable to exit Stock Markets on such peaks. What exactly do i mean by a peak here? Checkout the
P/E chart of “Nifty” Index in the last 10 years and you will understand what I mean.


I would basically look at the peaks. You can see that Nifty P/E has peaked above 25 levels , three times
in the last 10 years. It hit around 28 levels in early 2000, 28 levels again at 2008 and 25 levels 2011.
These are golden opportunities to exit even the good stocks I have listed in this book.
So, let’s create the 5
thumb rule here. Exit your equity holdings (Stock positions) when Nifty P/E starts
going over 24. These are opportunities that you get only like once in 4 to 10 years. Do NOT miss that
opportunity to sell off.
You can switch over to Gold and wait in side lines for the next 12 –  18 months during which greed in the
Equity Markets will be killed and even the best Zero debt branded stocks will fall below 200 day EMA
presenting you the opportunity to buy back.
If you can do this, you will be the best investor. I consider this as the final killer blow to investing.


Gold ETF’s

Diversify your investments in Gold also. Just like you can buy shares a company, you can now buy Gold
ETF’s in your DEMAT account online. Apart from Gold being a safe investment, Gold prices normally
tend to rise when investors lose faith in Stock Market. Hence, it adds the right balance to your stock
investments.
Some Personal Advice
Do not trust so called Expert’s dvice
That includes me too and this book also. While you have added a lot of knowledge reading this book,
test it out. Reading this book is just a start. Your confidence levels about stock investing will only
increase when you invest yourself and see things for yourself in reality. Build courage to hold good
stocks even if they go down from price levels you buy. This is a very crucial aspect to investing. This is
one reason why you should always start investing with very minimal amount that you can afford.
Start investing in stocks with as little amount, say 3000 Rupees. I started investing in my 4th year of
college with 3,000 Rupees way back in 2005. In the first year, gaining confidence on stock marke ts is
the primary thing.

Invest With Your Savings
Always, invest with your savings. Like i said before
in this book, debt is a bad thing, both for us and for the company we invest in.
Do Not Rush In
Stocks markets are a very exciting place. More so, when you see shares doubling in no-time. Staying
sane and patient is important too. It’s very easy to be pulled in to the greed system.
Stock markets will always provide you with buying opportunities. So, don’t get rushed in seeing share
price rise. Let me repeat that. You will get frequent buying opportunities and few
golden opportunities to sell, when greed inflates the system bursting the bubble.


What About Mutual Funds?
Mutual funds are definitely a better choice for those who lack the basic knowledge about Stock
Investing. If you are reading this, you definitely would have been enriched by now. Mutual funds only
do well when economy is in good mood and stock markets as a whole is on the rise. Mutual Funds
don’t do so well whe n the economy is bad. For example, in 2011, nearly all mutual funds have given
negative returns.
Nowadays, there are too many mutual funds. Mutual Funds are as risky as the stocks they are invested
in. And generally mutual fund managers avoid high P/E stocks or at-least keep exposure to high P/E
stocks to a minimum. All of the stocks listed in this book are stocks with P/E on the higher side. Mutual
Fund managers are highly educated with MBA degrees and so on. They all come through an education
system, which complicate things, not focusing on what they really should. To a certain extent, they are
also greedy with targets to achieve for their own variable pay.
There must be over 100 Mutual Fund options nowadays, with only 5 worthy of investing in. nd it’s
more difficult to find the good one. Because, you have to look at what stock ea ch mutual fund holds
and they might keep changing it from time to time.
But for tax exemption, Avoid Mutual Funds if you have the courage to pick stocks and invest on your
own.
For those who are comfortable only with Mutual Funds, invest in SIP when Nifty PE is below 20 and exit
systematically within 3 months when Nifty PE hits 24.


Summary or Re-cap 
Let’s summarize here. Like I said bef ore, I wanted to be short, precise and to the point.
Debt is a killer. Avoid companies with debt. Don’t even think about it.
Brand recognition is invaluable.  Quality products are even more invaluable.
Lesser the competition, better it is. It ensures future growth prospects.
Growth Consistency in the past, is a reflection of how good a company has done, through good
and bad times.
Diversify your investments in 5-10 stocks.
Do not rush in to buy.
50 day & 200 day EMA levels good and fair levels to buy Good companies.
P/E of an Index (Nifty) is a good indicator of greed. Exit Equity Markets when Nifty P/E crosses
24. Such opportunities come once in 5 years. Don’t miss it.
Gold is a great alternative when greed inflates Equity Markets.



Your Feedback
I would love to hear back from you. If your views towards stock investing have changed reading this
article, kindly let me know. Good or bad doesn’t matter.
If any part of the article is confusing from a beginner’s perspective, Kindly let me know. I would greatly
appreciate such feedbacks.
My goal is to extend this to reach to all . It needs to be in a way that everyone can understand. That is possible only when I get feedback from various people reading this.
India is not actually leveraging from its own strengths and right now it’s only the FII’s (Foreign
Institutional Investors) who have the knowledge of Financial Markets leveraging from Indian Stock
Markets.

Disclaimer
I have every intention of buying stocks mentioned in this book myself or already holding them.
The views expressed in this article are completely my own personal thoughts.
I am not responsible for losses that may arise in any way financially and will not claim profits
you may make from my recommendations
This is purely intended to break the myth that stock investing is gambling.