What is the Right Time to Exit a Stock cover

What is the Right Time to Exit a Stock?

What is the Right Time to Exit a Stock? When should you sell the stocks and book profit? This is one of the most important questions which come to every beginner who enters the stock market.

Do you remember the story of the brave Abhimanyu from Mahabharata. He went through a fatal end just because he knew how to enter a ‘chakravyuh’ but didn’t know how to exit.

Similarly, the selling time of a stock is as important as the entry time. Therefore, in this post, I am going to explain the exit strategy for an intelligent investor. Be with me for the next 5-6 minutes to learn the right time to exit a stock for maximum returns.

What is not the Right Time to Exit a Stock?

Imagine a scenario.

You bought 20 stocks of a company at price Rs 500 today. Further, let’s also assume that you have done a good research and the stock is fundamentally very strong.

Next morning, the stock price zooms to Rs 550 (+10%). What will you do? Will you sell the stock and exit?

Now, let’s move to two days hence. The stock price now rose to Rs 590 (+8%). What will be your next move?

When prices of the stock rise like this, the ‘greed and fear’ becomes in-charge of your actions. Here, you might think that let’s book the profit. You have already gained Rs 90 per share (+18%). What if the stock prices fell tomorrow? It’s better to book some profits right now and you will enter again in the stock when the price is low.

But, while doing so you are missing out few points. Let me highlight them:

  1. You have researched the stock carefully and the stock has a potential to give huge returns. It might become a multi-bagger in the future. Why do you want to book a profit of +18%, when you can get +1000% profits?
  2. You might also be thinking that you will enter the stock again when the price is low. What if the stock price never comes down? I mean, the company is fundamentally strong and might give brilliant results in future. There are a number of stocks whose price has never fallen much and hence has never given the buyers a better opportunity to buy again. Why do you want to jump from the running train and want to catch it again?
  3. Let’s imagine the scenario that you re-entered the stock. Do you know in such scenario you have to give the extra brokerage charge and other charges (almost 4 times)? I mean, you have to pay all the charges 2 times when you first bought and sold the stock. And next 2 times, when you re-enter and will sell in future. Total 4 times brokerage. Do you really think it’s worth paying 4 times the brokerage just to book a profit of +18%?
  4. Lastly, do you know that you have to pay a capital gain tax of +15% for short-term gains? For long-term investment (over 1 year), the capital gain tax is nil 10% (Since April 1, 2018).

Overall, it’s not logical to sell the stocks if fundamentals are strong just to book some short-term profit. Look at the bigger picture. Haven’t you ever wondered why the great investor’s like Warren Buffet, Rakesh Jhunjhunwala, RK Damani etc always invest for a long term? How will you get a multi-bagger stock if you never gave your stock the opportunity to grow?

Also read: 6 Reasons Why Most People Lose Money in Stock Market

Let me explain further with an example.

I bought the stocks of TITAN Company at a price of Rs 314 per share in November’16. The company is fundamentally very strong and the stock was selling at a discount during that time because of demonetization.

titan company- right time to exit a stock

On June 5, the price of the stock rose +18% in a day. A positive news regarding GST was out which said that the taxes in jewelry sectors was going to be reduced. The news was taken enthusiastically by the people and that’s why the stock price rose too high of Rs 561 that day.

But I didn’t sell my stocks. You might argue that I should have booked a profit (+70% from the time of my entry). However, if you see from my perspective, it wasn’t the right time to sell.

There were a couple of reasons why I didn’t sell my stocks at that time. First, the rise in sudden price was due to good news. However, the fundamental of the company didn’t change. The company will continue to give good results in future.

Second, I might never get the stock at such bargain price again like the price during the demonetization period.

Third, I didn’t really need the money that time. If I had to sell my stocks, then I had to search again for a better stock to invest, which would have taken a lot of my time & energy.

And it seems my decision was right. The stock did correct its price. However, after a month, the stock price is back again at the same high price and is continuing the positive trend. No damage is done!!

Want to learn more about stock market? Here is a best selling book on stocks- Beating the street by Peter Lynch which I highly recommend you to read.

Next, you might say that the above case is a typical situation. I didn’t explain what is the right time to exit a stock?

Here are the three cases when you should actually sell the stock.

What is the right time to exit a stock?

  1. When the fundamental of the stock changes: Exit the stock when the fundamentals of the company are not the same anymore like when you bought the stock. For example, the company starts underperforming quarter-by-quarter; the non-performing assets (NPA) of banking companies start increasing at a high rate; the management of the company is changed and is inefficient etc.
  2. When you find a better stock: If you find a company whose fundamentals are better than your current stock and is giving better performance consistently, then it can be the right time to exit a stock. Moreover, this case is applicable when you do not have extra money to invest from your budget. In such scenario, you should sell the previous stock and grab the better opportunity.
  3. When you need the money: Do not sell the stocks just to keep the money in your saving account. Sell the stocks when you need the money like paying for a new house, new car, and your kid’s tuition fee etc. There cannot be a better time to exit a stock than when you need the money most.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

In all the other scenarios, the holding period of a good stock should be forever. Do not mind the minor fluctuations. Invest in good stocks for long term and enjoy the ride.

charlie munger quote- what is the right time to exit a stock

I hope this post is helpful to the readers. Do comment below what you think about this exit strategy.

July 23, 2017 Investment Basics 12 comments
How To Invest Rs 10,000 In India for High Returns

How To Invest Rs 10,000 In India for High Returns?

How To Invest Rs 10,000 In India for High Returns? Investing is the best way to grow your money. Gone are the days when people kept their fortune (gold) buried below their land. Everyone is now interested to make more money through their investments.

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

However, when I look around, a very few people know how to invest their money intelligently. Most are even not aware of the investment options available to them in India. Today, I am going to suggest the best answer on how to invest Rs 10,000 in India for maximum returns. Therefore, be with me for the next 8-10 minutes to start your journey of financial investment as a successful investor.

There are a number of investment options available in India to invest Rs 10,000 or more. Here are the few options and the expected average returns in a year duration:

  1. Savings: 4–6% per year
  2. Fixed Deposit: 6–8% per year
  3. Mutual funds: 10–18% per year
  4. Stock Market: 15–25% per year

Besides, other investment options available in India are Real estates, gold, silver, forex, cryptocurrencies, commodities like petroleum etc. However, for an investment of Rs 10,000- these are little out of scope.

So, how to Invest Rs 10,000 In India for High Returns? Among all the options mentioned above, Investment in the Stock market and Real Estate are the ones that have consistently out-performed all the other investment options in long duration. However, investing in real estate won’t be possible with an amount of Rs 10,000 until you take a lot of credits.

Hence, Stock market is the best option available for investment of Rs 10,000 to get maximum returns.

Also read: Sensex has given 9x returns in last 20 years; it is time to be a buyer now

Here is a graphical comparison of returns on Stocks, bonds, gold etc for a period of over 200 years.

stock vs bond vs gold

(Source: http://www.aaii.com/files/images/articles/9298-figure-1.jpg)

Note: Although the above graph doesn’t show returns from Indian stock market, however, stocks (in general) follow the same trend compared to other investment options all over the world. Please ignore the figures in the chart.

Now. let us analyze the past of Indian stock market and find out -how much return you might have got, if you had invested Rs 10.000 in a few famous companies, a few years ago.

  • Eicher Motors (over 80 times returns in the last 10 years)

Products: Royal Enfield, Eicher Trucks etc- 

If you had invested Rs 10,000 in Eicher motors 10 years back, then currently your return would have been over Rs 8,00,000 i.e. 8 lakhs. I wish my dad had bought the stocks of Eicher motors instead of Royal Enfield ‘bullet’ bike 10 years ago 🙁

Eicher motors multibagger stocks How To Invest Rs 10,000 In India for High ReturnsEicher motors share multibagger stocks How To Invest Rs 10,000 In India for High Returns

  • Page Industries (over 50 times return in last 10 years)

Products: Innerwear & Leisurewear (JOCKEY) etc- 

If you had invested Rs 10,000 in Page Industries 10 years back, currently you would have been sitting of a huge pile of over Rs 5,00,000 i.e 5 lakhs. Wish people had paid more attention to their underwears :p

Page industries stock multibagger stocks How To Invest Rs 10,000 In India for High Returns

Also Read: How to follow Stock Market!

  • MRF (Over 17 times return in last 10 years)

Product: Tyres-

If you had invested Rs 10,000 in MRF 10 years ago, you would have got a handsome return of Rs 1,70,000 i.e. Rs 1.7 lakhs now. Just if any bike servicing guy had noticed how many people are using MRF tyres and had bought few stocks of MRF Tyres a few years back, he would have been a rich happy man by now.

If you want to get in-depth knowledge about Indian Stock Market, I will highly recommend you to read this book: How to avoid loss and earn consistently in the stock market by Prasenjit Paul

MRF multibagger stocks How To Invest Rs 10,000 In India for High Returns

MRF stock price multibagger stocks How To Invest Rs 10,000 In India for High Returns

  • Symphony (Over 12 times return in last 5 Years)

Products: Domestic air coolers, industrial air coolers, and water heaters –

If you had bought the stocks of SYMPHONY worth Rs 10,000 just 5 years ago, you would have got a return of over 1,20,000 i.e. 1.2 lakhs now. Huh, we enjoyed the air cooler but ignored the company 5 years back. Our bad 🙁

Symphony multibagger stocks How To Invest Rs 10,000 In India for High Returns

Symphony share price multibagger stocks How To Invest Rs 10,000 In India for High Returns

Eicher Motors, Page Industries, MRF, Symphony– all are common companies in the Indian market, which every Indian might already know. Most of the people have directly or indirectly used their products. Further, we can also notice that all these multi-bagger companies (companies which have given multiple time returns) have provided a great product/service to their customers, which resulted in constant growth in sales and profits.

Also Read:

How To Invest Rs 10,000 In India in Stock Market?

Here are few tips on how to invest Rs 10,000 in India in stocks to get maximum returns:

  • Do the research carefully:

Invest in the company, not the stock. If the company is doing great, the stock will also perform well. Research the company carefully before buying a stock.  Understand the company first. Learn about its product and services. Study the company’s fundamentals. If you want to read more about how to select a stock, you can find an excellent post here: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

  • Invest in just one or two stock:

Everywhere there is a hullabaloo about diversification while investing- ‘Do not put all your eggs in the same basket’. However, in reality, the concept is different if we expect maximum returns from small investments. Do not diversify your portfolio when you are investing just Rs 10,000. Instead, invest in just one or two great stock.

Diversification is used when you are investing a huge amount of money like Rs 50k or above. It’s the big bets which can help you to get great returns. Diversification kills the profit when the investment in small.

Let’s understand this with an example. Suppose, you invested Rs 10,000 in a good stock. The stock gave a return of +50% percent in a year. Then, the total return amount will be Rs 15,000. Now, let us assume another scenario in which you invested Rs 10,000 in 3 stocks. The return on the stocks after a year are +10%, +50%, and +15%. The overall return amount will be Rs 12,500 (+25%). All the three stocks cannot give similar returns and one of them might be fundamentally strongest. If only you had invested in the fundamentally strongest among the three, you would have been able to get a double return (from 25% to 50%) on your investment.

In addition, there is not much to lose for small investment like Rs 10,000. People diversify their portfolio so that they won’t lose lakhs of rupees (and go bankrupt) if their investment strategies failed. However, if you are planning to invest just Rs 10,000; then the reason for investment must be that you have extra savings and you want to get a good return on the investment. In such cases, go for a big sure shot.

Quick Note: If you do not have a big risk appetite, then ignore this tip and diversify your investments. 

warren buffet- How To Invest Rs 10,000 In India for High Return

  • Invest in what you know: 

You don’t need to find an unknown hidden stock to get multi-bagger returns. There are a number of common well-known stocks (Eicher motors, Symphony, Page Industries, MRF etc) which have given multiple times returns in the past and will give in the future. Look for a growing company around you. Study if they are listed on the stock exchange. Learn the fundamentals of those stocks. And if they are fundamentally healthy, invest in the stocks. This is an effective way to find multi-bagger stocks, even for regular investors.

This concept was introduced by the legendary fund manager Peter Lynch in his best selling book ‘ONE UP ON  WALL STREET’.

  • Invest in Mid-caps:

These companies have the potential to become a large-cap company in the long term frame. They have a high growth rate compared to the large caps which have already reached saturation and the chances of large caps giving multiple time returns are highly unlikely. In addition, Mid-cap companies have good capital to stay out of debt and live a long life. A good growing mid-cap stock can easily become a multi-bagger.

Few people advice to buy penny stock or the small-cap stocks for getting high returns. However, for the small caps, the chances of the company growing broke is also high. Most small-cap companies are not able to sustain in harsh economic conditions which is sure to occur once or twice in the long-term period. Therefore, investing in small-cap companies has more risk than reward.

That’s all. I hope this post ‘How to invest Rs 10,000 in India for maximum returns’ is useful to the readers. In addition, do comment below if you have any doubts or suggestions on how to invest Rs 10,000 in India in the stock market. I will be happy to read your feedback. #HappyInvesting

Quick Note: If you are new to stocks and confused where to start, here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

July 21, 2017 Investment Basics, Stocks 55 comments
Best Stocks for Long term Investment in India

Best Stocks for Long term Investment in India.

Best Stocks for Long term Investment in India. In this post, I am going to describe three great stocks which anyone can keep in your portfolio for the long term. I have selected these stocks from different sectors in order to diversify the portfolio.

The stock selection is based on the fundamental analysis. If you want to read more about how I select stock for long term investment, you can read it here: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Best Stocks for Long term Investment in India:

1. ITC:

itc best stock for long term investment in India 2017

Indian Tobacco Company (ITC) is one of the biggest conglomerate company in India. It has a diversified business which includes five segments: Fast-Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, Agri-Business & Information Technology.

ITC was formed in August 1910 under the name of Imperial Tobacco Company of India Limited. Currently, it has over 25,000 employees. Now, let us discuss few of the leading products of ITC:

ITC Ltd sells 81 percent of the cigarettes in India. ITC’s major cigarette brands include Wills Navy Cut, Gold Flake Kings, Gold Flake Premium lights, Gold Flake Super Star, Insignia, India Kings, Classic (Verve, Menthol, Menthol Rush, Regular, Citric Twist, Ice Burst, Mild & Ultra Mild), 555, Silk Cut, Scissors, Capstan, Berkeley, Bristol, Lucky Strike, Players, Flake and Duke & Royal.

Many of the FMCG sector companies are facing competition with Baba Ramdeo’s Patanjali. But, I am damn sure that Patanjali will never enter the cigarette’s sector as by doing so they will lose their core values. Hence, ITC will continue to have a monopoly in this sector of the market.

Other businesses

  • Foods: Aashirvaad, Mint-o, gum-o, B natural, Sunfeast, Candyman, Bingo! and Yippee!. ITC is present across 6 categories in the Foods business namely Staples, Snack Foods, Ready-To-Eat Foods, Juices, Dairy Product and Confectionery.
  • Lifestyle apparel: ITC sells its products under the Wills Lifestyle and John Players brands.
  • Personal care products include perfumes, haircare and skincare categories. Major brands are Fiama Di Wills, Vivel, Essenza Di Wills, Superia and Engage.
  • Stationery: Brands include Classmate, PaperKraft and Colour Crew.
  • Safety Matches and Agarbattis: Ship i Kno and Aim brands of safety matches and the Mangaldeep brand of agarbattis (Incense Sticks).
  • Hotels: ITC’s Hotels division (under brands including WelcomHotel) is India’s second largest hotel chain with over 90 hotels throughout India.
  • Paperboard: Products such as specialty paper, graphics, and other paper are sold under the ITC brand by the ITC Paperboards and Specialty Papers Division like Classmate product of ITC well known for there quality.
  • Packaging and Printing: ITC’s Packaging and Printing division operates manufacturing facilities at Haridwar and Chennai and services domestic and export markets.
  • Information Technology: ITC operates through its fully owned subsidiary ITC Infotech India Limited, which is a SEI CMM Level 5 company.

itc best stock for long term investment in India 2017

Source: ITC- Wikipedia

ITC Revenue source

Fig: ITC Gross Revenue  (Source: ITC Annual Report 2017)

Now that we have studied about the product and services of ITC, let’s move forward to find out the company’s financials to understand how healthy the company it.

Financial Study of ITC:

ITC is a large-cap company with market capitalization of over 410,000 crores.  It is currently trading at a PE of 39 against the industry PE of 40.5. The return on equity (ROE) for the last 3 is above 25%.

Let’s first look at the annual results of ITC.

Source: https://www.screener.in/company/ITC/

The annual results are showing a good yearly growth of ITC.

From the report, we can notice that the sales, operating profit, and the net profit of ITC are consistently increasing for the last 10 years. Moreover, the net profit has almost doubled in the last 5 years. ITC has been maintaining a healthy average dividend payout of 57.86% for last 3 years. Although dividends are not criteria to choose best stocks for long-term investment in India, however, a good consistent dividend is a sign of a healthy company.

Further, in the latest press release, the management of ITC has told that ITC will continue to give similar results in the future. The sales of ITC are expected to double from the current by the year 2020.

Now, let’s study the balance sheet of ITC to find out further.

Here, we can notice that the debt of ITC is very small compared to its total assets. Therefore, ITC can be considered as a virtually debt-free company.

Overall, studying the company minutely, it can be concluded that ITC is fundamentally very strong and one of the best Stocks for Long-term Investment in India. You should keep ITC in your portfolio for at least the next 3-4 years to get a good consistent return.

Quick Note: If you are new to stock analysis, here’s a video that can help you understand how to perform fundamental analysis of stocks. I hope this video is useful to you.

2. HDFC BANK:

Stocks for Long term Investment in India 2017

HDFC Bank is India’s leading banking and financial service company. It is India’s largest private sector lender by assets. It has 84,325 employees and has a presence in Bahrain, Hong Kong, and Dubai.

HDFC Bank is the largest bank in India by market capitalization and was ranked 69th in 2016 BrandZ Top 100 Most Valuable Global Brands. HDFC Bank provides a number of products and services which includes Wholesale banking, Retail banking, Treasury, Auto (car) Loans, Two Wheeler Loans, Personal Loans, Loan Against Property and Credit Cards.

The total revenue collected by HDFC bank in 2016 was around Rs 74,373 crores. The net profit in the same financial year was Rs 12,817 crores.

Source: HDFC Bank – Wikipedia

Now, let’s look at the financials of the company to check its fundamentals.

A financial study of HDFC Bank:

HDFC bank is a large-cap company with a market capitalization of Rs 430,900 Crores. It is currently trading at a PE of 29 against the Industry PE of 26. The return on equity (ROE) for the last three years is averaged 19.5%.

From the annual results of HDFC Bank, we can notice that the sales and profit are consistently increasing over the last decade.

The net profit has more than doubled in the last five years.

Note: when you study the Earnings per share (EPS) of HDFC bank, you will notice that EPS fell in 2012 (compared to 2011). However, in actual, this is because of the stock split. HDFC Bank split its share in the ratio 10:2 in July 2011. While doing the fundamental analysis of a stock, you should give extra care to stock splits and bonus issues.

Now, let’s check the balance sheet of HDFC Bank.

Source: https://www.screener.in/company/HDFCBANK/

Here we observe that the compounded sales growth of HDFC bank is around 24% for the 10-year average and around 19% for the last 3 years. In addition, the average compounded profit growth for the last three years is 19.73%.

Further, while investing Stocks for Long-term Investment in India in the banking sector, you should always check the gross non-performing asset (NPA) percentage. As a thumb rule, companies with gross NPA less than 2% is considered worth investigating. For HDFC Bank, the gross NPA is around 1.05%, which is good.

Overall, HDFC has shown amazing results in the past and the company’s future also looks very healthy. This makes HDFC a good stock for long term investment in India in the banking sector.

If you are new to stock market and want to learn stocks from scratch, I will highly recommend you to read this book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

3. ASIAN PAINTS:

Stocks for Long term Investment in India

The paint industry is an evergreen industry and you should always keep a good stock from this sector in your portfolio.

Whatever may be the economy of the country, new houses will be consistently made, and new companies will regularly open. And in all these, a paint company will be required.

Asian Paints is one of the largest Indian paint company and manufacturer. Since its foundation in 1942, Asian paint has come a long way to become India’s leading and Asia’s fourth-largest paint company, with a turnover of Rs 170.85 billion. It operates in 19 countries and has 26 paint manufacturing facilities in the world, servicing consumers in over 65 countries.

As of 2015, it has the largest market share with 54.1% in the Indian paint industry. Asian Paints is the holding company of Berger International.

Asian Paints is engaged in the business of manufacturing, selling and distribution of paints, coatings, products related to home decor, bath fittings and providing of related services.

Source: Asian Paints Ltd – Wikipedia

Now, let us look at the financials of the Asian Paints.

The financial study of Asian Paints:

Asian paints is a large-cap company with a market capitalization of Rs 107,175 crores. It is currently trading at a PE of 59 compared to the industry PE of 55. The return on equity (ROE) for the last three years is averaged to be 29%.

Here are the annual results of Asian Paints.

Source: https://www.screener.in/company/ASIANPAINT/consolidated/

Here, we can notice a positive trend in the financial growth of Asian Paints. The sales and profits are consistently increasing year-by-year. The net profit of Asian paints has doubled itself in the last 5 years and has become more than 6 times in the last 10 years.

Here, we can also notice that Asian paint is a virtually debt-free company. The total debt of Asian paints is around Rs 37.21 crores against the net worth of Rs 6,950 crores.

Overall, Asian paints is a fundamentally strong company with a healthy growth rate and should be considered worth investing as one of the great stocks for long-term investment in India.

Conclusion:

All the three stocks explained in this post- ITC, HDFC Bank, and Asian paints are large-cap companies. They have almost a monopoly in the market with a huge moat. The management of these companies is transparent and effective. In short, these three stocks are few among the best stocks for long term investment in India.

I hope this post “Best Stocks for Long term Investment in India” is useful to the readers. Do comment below what are your opinions about these stocks. Happy Investing.

Quick Note: The stocks discussed in this post are for educational purpose only and focuses to teach the steps and strategies to evaluate stocks. It should not be treated as an advisory or recommendation. 

Want to learn how to select good stocks for long term investment? Check out our amazing online course for the stock market beginners: HOW TO PICK WINNING PICKS? The course is currently available at a discount.

Disclaimer: This post is a personal research and opinion of the author and should not be taken as an advisory. Please study the stock carefully before investing or take the help of your financial advisor.
July 18, 2017 Stocks 51 comments
getting-smart with investment in gold

Getting Smart With Investment in Gold.

Gold Investment Quotes by Famous Investors:

“If ever there was an area in which to do the exact opposite of that which government and the media urge you to do, that area is the purchasing of gold.”— Robert Ringer

“People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they are going to say ‘We really should own some of that’. The question will then change to ‘Where do we get the gold’?” – Thomas Kaplan (Over $2 Billion Invested in Gold)

Do you know that India Ranks 1 in the highest gold jewellery consumption in the world? India and China account for 44% gold jewelry consumption globally.

This alone proves that the Indian men and women are highly interested in buying gold jewelry. Further, gold is also treated as a sign of royalty in India. However, when it comes to investing in gold, now a day, people do not consider it as a good option. With the increase in the paper assets, the gold investment is slightly fading away.

Moreover, most of the investors think that investment in gold is not as rewarding compared to stocks, bonds, and real estates.

Here is what Warren Buffet used to say about gold:

“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money, and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.

“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what it’s worth at current gold prices, you could buy — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils (XOM), plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”

Also Read: Why Buffett thinks investing in gold is stupid

However, being born in a middle-class family, and listening to my mother continuously talking about the jewellery & rising prices of gold, I differ a little with Warren Buffet’s idea of investing in gold.

Gold has been used as a currency for over centuries in this world. Gold is assumed to be first found in Egypt in 3000 BC. However, gold started acting as a currency only since 560 BC. Nevertheless, gold is one of such rare items which has consistently been in the market and used to buy/exchange items.

I believe that everyone should have a small portion of his portfolio invested in gold. There are various reasons why I believe this, however there are few main points:

Why should you Invest in Gold?

1. Gold has high liquidity:

No matter which part of the country you live in, gold can easily be converted in cash and readily be bought and sold. However, such option is not available with other paper assets like stocks and bonds or physical assets like real estates. Further, there is no or minimal paperwork required in gold investment.

2. Gold preserves wealth:

Here is a chart showing the upwards trend of gold over the last few centuries.

gold investment trade brains

Source: http://goldprice.org/gold-price-india.html

From the year 2006 to 2011, gold has given a return of 29% per annum. Further, if we consider long term, it has given a return of 10% per annum. Overall, gold will preserve your wealth if you hold it for a long-term duration.

3. Hedge against inflation:
Gold acts a great investment to protect your money from inflation. Over the past couple of years, as the purchasing power of Rupee is declining; on the contrary, the price of gold is consistently increasing.

4. Portfolio Diversification:
Gold acts as a great asset for diversification. As gold has a negative correlation with other asset types like stocks bonds etc, gold moves in the opposite direction than these assets. Let me explain this with an example:

Here is a chart of SENSEX over the past few years.

In the above chart, please notice that when the SENSEX was sharply falling in 2008-09, the prices of the gold kept skyrocketing during this duration. Hence, if you had diversified your portfolio with gold investment, you wouldn’t have faced so much loss compared to concentrated investment in stocks.

In short, gold investment can help investors to avoid financial disasters.

Also read: 6 Reasons Why Most People Lose Money in Stock Market

Apart from the above four reasons, there are few other reasons also which favors gold investment.

For example, in the 21st century, every country has a different currency. Nevertheless, gold can act a commonly acceptable asset anywhere in the world. Further, it’s much beneficial to keep a gold in your pocket than a currency which is not acceptable.

In addition, gold is also a great investment to pass on to your next generation who might not have such luxuries to find gold in abundance.

How to invest in Gold in India?

Now that you have understood the importance of gold investment, I would like to highlight the simple ways by which you can invest in gold in India.

Typically, there are two ways to invest in gold:

1. Physical Gold Investment:

  • Jewellery Buying:

gold investment in jewellery

This is the old and conventional way of gold investment. You might have seen the jewellery of your mother, sister or other members of the family, which is the best example of gold investment through jewelry. Although these pieces of jewellery act more like ornaments, still they are worth considering as an investment.

The pros of buying gold jewelry are its easy feasibility along with zero paperwork.

However, there are also few cons while investing in gold jewelry.  For example, first of all, you need to pay the making charges (10-20% of total cost) along with the price of the original gold. Second, when you will sell the jewelry, the buyer will not consider the making charge. In addition, he will also demand a purchase discount (5-10%). Lastly, there is a high risk of theft and burglary in storing gold jewelry.

  • Gold Coins and Bars:

gold investment in bars and coins

These are a better option for gold investment compared to buying jewelry. There are no making charges involved here. You can buy or sell the gold coins and bars from any Jewellery shops. Further, some banks also sell them.

One of the biggest benefits of investing in physical gold assets is that you won’t need to open an account to start investing. No demat or trading account is required for this type of gold investment, unlike paper assets like stocks or bonds.

2. Paper Gold Investment Options:

  • Gold ETF:

gold investment by gold etf

ETF stands for Exchange traded funds. Gold ETF is a type of mutual fund which invests in gold and units of this mutual funds scheme is listed on the stock exchange.

You can invest in Gold ETF through a demat account. However, this type of investment of gold involves assets management and brokerage charges. Brokerage fee for gold ETF is around 0.25-0.5% and the fund management charges are approximately 0.5-1%.

Because of these charges, the returns on Gold ETF are less than the actual increased value of gold. Gold ETF is directly proportional to the price movement of gold and is not affected by market fluctuations.

  • Equity-based Gold funds:

This type of gold investment involves investing in companies related to mining, extracting and marketing of gold. Market fluctuations affect equity-based gold funds. Further, equity-based gold funds are susceptible to different risks like gold price risk and equity-based risks.

The biggest benefit of paper gold investment options is that there is no risk of theft or burglary here; as compared to physical gold.

How much to invest in Gold?

The portfolio allocation for gold investment varies for different investors according to their investment strategies. In general, small investors should keep 5-10% of their portfolio invested in gold. Gold doesn’t give an as high return as stocks or real estate. Nevertheless, gold investment will help to mitigate the risks in your portfolio.

How to start investing in Gold online?

You can buy gold ETF or gold fund online just like a mutual fund. However, you need to research carefully about the different ETF’s available. Here is the list of few gold ETF schemes available in India:

  1. Birla Sun Life Gold ETF
  2. Goldman Sachs Gold ETF
  3. SBI Gold ETF
  4. IDBI Gold ETF
  5. R*Shares Gold ETF
  6. Axis Gold ETF
  7. Kotak Gold ETF
  8. ICICI Prudential Gold ETF

Also read: Top 10 Gold ETFs in India

That’s all. I hope this post on ‘Getting smart with Investment in Gold’ is useful to the readers. Further, please comment below your opinion about investment in gold.

Is Gold Investment good for a small investor?

July 16, 2017 Personal Finance 5 comments
most common scams in indian stock market

3 Most Common Scams in Indian Stock Market That You Should be Aware of.

3 Most Common Scams in Indian Stock Market That You Should be Aware of. There are a number of common scams in Indian stock market which has resulted in many investors/traders to lose their hard earned money. These financial scams, although not known to many, still so common that thousands of people become victims of these swindles.

So, today I am presenting you with three most common scams in Indian stock market so that you can stay away from these rackets and protect yourself from the financial fraud and stress.

3 Most Common Scams in Indian Stock Market

1. Tips and Recommendation Fraud

This is one of the widely used and most common scams in Indian stock market. Here, the fraudsters try to attract the traders/investors by convincing them that they can provide a profit as much as 3-10% per day and 30-40% per month. Please note that Warren Buffet, the legendary investor, has got a yearly return of around 22% to become one of the richest people in the world. And these people are promising such high returns monthly. They further assure the people to give over 90% accuracy on their tips and recommendations.

These fraudsters argue that they have given minimum 40% return to their old clients. When people ask for trial tips before subscribing to their tips and recommendation program, they easily agree. {Although, most of the good companies clearly deny recommendations without complete registration}.

Many people who try these trials become victims of these fraudsters. All the tips provided by them during the trial period are 100% accurate. Seeing the results of the trial period, the traders/investors subscribe to the monthly/yearly recommendation plan of these fraudsters. They pay a high fee to subscribe to these tips. However, after the registration, none of their tips works well.

Now, let us see how these fraudsters are able to provide 100% accurate recommendations during the trial period.

Suppose, these fraudsters agree to give a trial period for 3 trading day. That is, they agree to give 1 recommendation to buy or sell a stock for three trading day. But there is a hidden side to this scheme that the investors do not know. During these three days, they don’t send the tips to just 1 person. They generally send the tips to thousands of people.

Let us say, they started with 1000 people initially to send the tips.

Day1: On day 1, these fraudsters send messages to sell a stock to 500 people and to buy to other 500 people for the same stock. Obviously, either the stock will go up or go down (they generally choose a volatile stock so that the probability of stock not changing price is zero). Therefore, on day 1, they have send a successful tip to 500 people. They, discard the other 500 people for whom the tip didn’t worked.

Day2: On day two, they again send message to sell another stock to 250 people and buy the stock to other 250 people. Obviously, again one group will receive correct recommendation. They again discard the other group whom they sent wrong tip.

Day3: On last day of tip, they send buy suggestion to 125 people and sell suggestion to other group of 125 people. Hence, 125 people will receive a correct tip for three consecutive days.

Now, these 125 people will now think that all the recommendations provided by these fraudsters for three continuous days are correct. Therefore, many of the people from this group will subscribe to the tips and recommendation plan and become a victim of one of the most common scams in Indian stock market. Let us assume that the charge for sending tips is Rs 15,000 for a year. If even 100 people are trapped in this swindle, these fraudsters easily make around 15,000*100 = Rs 15 lakhs.

Soon after subscribing to the tips from these fraudsters, the investors/traders start losing money. The tips aren’t working anymore. Overall, these people lose they money apart from paying a heavy registration fee for taking tips and recommendations.

Also read: 6 Reasons Why Most People Lose Money in Stock Market

2. Pump and Dump:

Pump and Dump is a micro-cap stock (penny stocks) fraud, where the fraudsters try to inflate the price of these micro-cap stocks by providing misleading information to investors/traders. They try to increase the price of these penny stocks by giving the fake news.

For example, If the fraudsters want to increase the price of XYZ microcap stock, then they will send messages like a big company is taking over a that stock; or that micro-cap stock is giving a bonus of 1:1; or A large-cap is buying 50% stake of that micro-cap stock etc

The fraudsters want the retailers to buy the shares of these stocks as much as possible. Let us see what the main aim of these fraudsters is.

  • First, these fraudsters buy a cheap penny stock at a large volume.
  • Then they send fake messages or emails to millions of investors/traders recommending them to buy that stock.
  • Those who take this news as true, start buying stocks of these companies.
  • Because of this increased demand, the price of that stock starts increasing.
  • When the share price reaches a good price, then these fraudsters sell their stocks and get good returns.

After selling their stocks at high prices, these fraudsters then stop sending email/messages to the people. Moreover, the price of these stocks becomes very volatile, as they are not worth that high price. Hence, soon the price of these stocks falls heavily and the retail investors lose their money.

If you want to get in-depth knowledge about Indian Stock Market, I will highly recommend you to buy this book: How to avoid loss and earn consistently in the stock market by Prasenjit Paul

3. Fake messages in the name of brokers.

Many people invest in the stock market on the recommendation of their stockbrokers or advisers. As these people trust blindly on their brokers, they don’t research much about the stock after receiving the recommendation/tips. Instead, they just buy these stocks trusting their advisers.

In this scam, a lot of fraudsters, trap the retail investors/traders by using their trust in their brokerage firm. They send messages in the names of their brokers recommending them to buy certain stocks. As these people, misunderstood the message and think that it is sent by their brokers, they buy the recommended stocks.

However, as the recommendation did not truly send by their brokers. Hence, the stock prices fall soon and these investors/traders lose a huge amount of money.

Let’s see why these fraudsters send these messages to retail investors/traders.

Initially, these fraudsters send the recommendations to buy the same stock to their paid subscribers. Then, they try to inflate the price of these stocks by sending fake messages in the name of registered brokers to general people. When the stock price starts increasing, they suggest their paid subscribers sell the stock and get a good return. Therefore, their paid customers are satisfied with the recommendation and continue to their monthly/yearly paid recommendation plan.

In the end, it’s the retail investors only who end up losing their money by blindly following the fake recommendations. This is the third most common scams in Indian stock market that every investors/trader should be aware of if they want to safeguard their money.

Although, not all advisory company try to loot their customers and some give good guidance and recommendations. Still, it is advisable to stay away from free stocks tips and recommendations of any type. After all, no one cares about your money more than you.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Tags: Most Common Scams in Indian Stock Market, Stock market scams in India, 3 most common scams in Indian stock market, pump and dump scam in stocks, scams in stock market India, stock market scams India, common scams in stock market
July 14, 2017 Investment Basics 13 comments
Most Successful Stock Market Investors in India cover

3 Insanely Successful Stock Market Investors in India that you need to Know.

3 Insanely Successful Stock Market Investors in India that you need to Know– My blog ‘Trade brains’ recently got listed in the top 100 stock blogs and websites for stock traders at feed spot. Hurray!! And in this cheerful occasion, I decided to write something different. Something that every stock investors in India need to know.

And then this idea came to my mind. All those who enter the stock market in India has same dreams. They all want to become absurdly wealthy like few of the known richest investors in the world.

However, I strongly believe that if you want to learn something new; then it’s best to learn from one who has already done it.

If you want to become successful in the stock market, then you should learn from the lives of these iconic stock market investor. How was their journey, what principles they follow, how long they have been investing? etc. So, today I decided to write a post about the ones who are insanely successful in Indian stock market.

How many of them do you know?

Everyone who enters the stock market world knows about Warren Buffet. The greatest investor of all time and one of the richest person in this world who made his fortune by investing in stocks. You might also have heard about Benjamin Graham, Charlie Munger, Peter Lynch etc

But do you know about the preposterously successful investors who made tons of money by investing in Indian stock market?

Yes, I can hear the name in your mind. Rakesh Jhunjhunwala. The name which comes instantly on the mouth of every Indian when we hear the term ‘Rich-Indian-stock-market-investor’. But how much do you know about him? And what about the other successful stock market investors in India?

In this post, I am going to tell you about 3 insanely wealthy stock market investors in India. Further, I will recommend you to read this post till the end as I have kept a surprise bonus there. So, be with me for the next 8-10 minutes to learn all about the most successful stock market investors in India.

3 Insanely Successful Stock Market Investors in India

Rakesh Jhunjhunwala

Successful Stock Market Investors in India

Net worth: 2.4 Billion USD
Born: 5 July 1960 (Age 57), Mumbai India
Education: Chartered Accountant
College: The University of Mumbai, The Institute of Chartered Accountants of India (ICAI)
Occupation: Owner of rare enterprises, investor, Film Producer & trader

Rakesh Jhunjhunwala, also known as, “India’s Warren Buffet” and “The Big Bull’, is one of the most renowned and successful stock market investors in India.

The son of an income tax officer, Rakesh joined the stock market after completing his degree as a chartered accountant. Starting with the initial investment of only Rs 5,000, currently, he is sitting on a huge net worth of around Rs 15,000 crores.

Jhunjhunwala today manages the privately owned asset management firm “RARE Enterprises”. The name RARE is derived from the initials of his name and his wife’s name. That is- ‘Ra’ from his name (Rakesh) and ‘Re’ from his wife’s name (Rekha). He is also the chairman of Aptech Limited and Hungama Digital Media Entertainment Pvt. Ltd.

From the very start, Rakesh Junjhunwala’s ‘risk and reward’ taking ability along with impressive imagination & wisdom earned him great profits.

His first ever large income was from selling 5000 shares of Tata Tea which he had previously bought for Rs. 43 per share and selling them at Rs. 143. His later career was marked by his buying of six crore shares of Titan in 2003 at an average price of around Rs 3. The stock is still in his portfolio and currently trading at Rs 530.

Rakesh Jhunjhunwala follows the ideology of Warren buffet and believes in long-term investment. He strongly advocates the growth of India and it’s rising economy. Mr. Jhunjhunwala is also confident in learning from mistakes. He often says- ‘Mistakes are your learning friends. The idea is to keep these mistakes small.’

According to Forbes 2016, Rakesh Jhunjhunwala is India’s 53rd richest person. 

Also read: Forbes- Rakesh Jhunjhunwala
Rakesh Jhunjhunwala Story
Rakesh Jhunjhunwala Success Story from 5k to 1.8$ Billion
5 Secretes that make Rakesh Jhunjhunwala Successful Investor
Rakesh Jhunjhunwala- The Inspiring story & philosophy of India’s most successful InvesTrader

Source: FinnovationZ.com

Radhakishan Damani

Successful Stock Market Investors in India

Net worth: 11.7 Billion USD (-as of May’2018)
Age: 61
Occupation: Investor, Stockbroker, Trader and the Founder & Promoter of Dmart

Radhakishan Damani, also known as ‘Mr white and white’, because of his simple dressing- white shirt and white trousers, is an investor and owner of D-mart. He is also the mentor of billionaire investor Rakesh Jhunjhunwala. RK Damani is known for his low profile and he rarely makes an appearance in public events or press conferences.

On 21st March 2017 i.e. the listing day of Avenue supermart (parent company of D-mart), the stock price rose more than double, from the offer price of Rs 299 and ended up 116% upwards to Rs 648. In the IPO of Avenue Supermart, RK Damani made around Rs 6100 crores in just two days.

RK  Damani owns 52% stake in Avenue Supermarts, and Bright Star Investments – his investment company, holds another 16% stake.

RK’s journey in Indian stock market is truly inspiring. He was not always involved in the stock market. He started his career as a trader in ball bearing, with no intentions to enter the stock market. However, his future has something else reserved for him.

“RK Damani entered the market at an age of 32.”

At an age of 32, post his father’s death, RK was forced to close down his ball bearing business and had to join his brother in the stockbroking business, which was inherited from their father.

RK Damani had no idea of what to do in the stock market then. His knowledge of the stock market was very limited and can be considered next to zero when he entered. He made few mistakes initially by speculating the stock prices. However, he soon understood that the market is a heaven for those who want to make a great fortune in life.

As he was involved in stock broking, he also understood that he can’t make lots of money just by watching other people invest. Finally, he started investing for the long term. Gradually, his judgment began getting right, and within the next couple of years, he was standing as one of the most successful investors in the market.

RK Damani’s strategy is quite simple- Invest for the long term, like 5 to 10 years. RK always sees the future prospects of the company before investing and invests only if the product has a potential far ahead in the future.

Also Read: Forbes- Radhakishan Damani
DMart’s founder Radhakishan Damani: The unlikely retail billionaire
Radhakishan Damani: Man with the Midas touch in the stock markets

Source: LKKN Learning Lessons of Life

Ramesh Damani

Successful Stock Market Investors in India

Net worth: 8000 Crores (1.24 Billion USD)
Age – 61
Education: HR College, Mumbai (Bachelor’s degree in Commerce)
California State University (Master’s Degree in Business Administration)
Occupation – Founder of Ramesh s Damani Finance Pvt Ltd

Ramesh Damani, the investment guru and one of the most successful stock market investors in India, started his journey to riches in 1990’s when Sensex was 600 points. He holds a bachelor’s degree in commerce from HR College, Mumbai and a master’s degree in Business Administration from California State University.

Ramesh Damani works at privately owned Ramesh s Damani Finance Pvt Ltd.

The son of a successful stock investor, Ramesh Damani became a member of the Bombay Stock Exchange(BSE) in 1989. Initially, Ramesh planned his career as a stockbroker. However, later he started enjoying picking winning stocks and switched to become a long-term investor.

Ramesh Damani’s first famous investment was ‘Infosys’. Coming from a techie background in the US, he knew that Infosys has great future potentials. So, when Infosys became public in 1993, he invested Rs 10 lakhs in it. By 1999, this investment has given him more than 100 times return.

“I learned that just because a stock doubles, it is not a reason to sell it.”- Ramesh Damani

The investment philosophy of Ramesh Damani is easy and simple to understand. He is a long-term investor and suggests not to invest for short-term gain. Further, he advises everyone to make an exit strategy clear before making an investment in any stock. He further adds that the economy of a market is hard to predict; however if you have researched the stock carefully, and had made a good strategy, then you can easily make fortunes in the stock market.

If you want to learn stocks from scratch, I will highly recommend you to read this book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

Also Read- Ramesh Damani: The Stock Picker Who Could’ve Become A Billionaire

Source: The TrakInvest Show

Bonus:

Raamdeo Agrawal

Successful Stock Market Investors in India

Networth – 1,200 Cr
Age -60
Occupation: Co-Founder- Motilal Oswal Financial Services Ltd

Raamdeo Aggrawal, the co-founder of Motilal Oswal Group, is another most respectable stock market investor in India.

He is famous for investing in the legendary stock of HERO HONDA in 1995 when HERO was a small cap with a market capitalization of only 1000 crores. Raamdeo Aggrawal invested around Rs 10 lakh in the shares of the two-wheeler manufacturer at Rs 30 apiece, and held on to them for the next 20 years, till the share price rose to Rs 2,600 apiece. Today the market cap of HERO is above 73,000 crores.

During the last 30 year career, Raamdeo Aggrawal investing strategy is based on QGLB: Quality, growth, longevity and bargain value of a company.

Like most great investors, Raamdeo Aggarwal too follows the principles of long-term investment. Among his favorite books to read are- ‘One Up on Wall Street‘ by Peter Lynch and ‘The Intelligent Investor‘ by Benjamin Graham. Further, he is also excited by Michael Porter’s ideas on the competitive structure.

“After 30 years, I understood economic moat is the mantra of investing” -Raamdeo Agrawal

Raamdeo Agrawal suggests the investors not to be driven solely by market trends and advice to research the stock intelligently before investing.

Also read: Raamdeo Agrawal’s crorepati formula: Invest Rs 10,000 a month for 25 years
Raamdeo Agrawal Success Story Journey from Zero to 1000 Cr

Source: Motilal Oswal Securities

As promised, here is the bonus section. List of few other best stock market investors whom you should know. Further, I have added a link to each of the investors so that you can read further.

Porinju Veliyath, 55
Investor, Founder- Equity Intelligence India Pvt Ltd
Nemish Shah, 62
Co-founder of ENAM
Chandresh Nigam, 48
Managing Director-CEO, Axis Mutual Fund
Chaitanya Dalmia, 42
CIO, Renaissance Group
Chandrakant Sampat, 89
Individual investor
Parag Parikh, 63
Chairman & CEO, PPFAS
Dolly Khanna,
Investor, Homemaker
Sanjay Bakshi, 51
Managing Partner, ValueQuest Capital LLP
Samir Arora, 55
Founder, Helios Capital
Saurabh Mukherjea, 41
CEO (Institutional Equities),  Ambit Capital
Anoop Bhaskar, 50
Head – Equity, UTI Mutual Fund
R Srinivasan, 48
Head (EquitIES), SBI Mutual Fund

Also Read: Forbes India: Wealth Wizards: Top 20 Investors Share Their Philosophy

That’s all. I hope this post- “3 Insanely Successful Stock Market Investors in India that you need to Know” is helpful to the readers. Please share the post if you liked it. Happy Investing.

Further, do comment below who is your favorite Indian stock market Investor?

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Tags: Most successful stock market investors in India, big investors in indian stock market, top individual investors of india, india best three investors, biggest investors in india, top 3 Successful Stock Market Investors in India, who is the Successful Stock Market Investors in India, successful stock market investors in India

July 7, 2017 INDIAN BULLS, Investment Basics, News 30 comments
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