What are Multi-Bagger Stocks

What are Multi-Bagger Stocks? And How to Find Them?

What are Multi-Bagger Stocks? And How to Find Them?

This may be one of the most awaited posts that I’ve ever written. Since I started writing about stock market investing, I have received at least a million emails asking recommendations/ suggestions regarding multi-bagger stocks.

Most of the emails covered a content similar to this- “Tell me the name of a stock which can give 10 times returns in next few years” Or “Which stocks can give multiple time returns like that of Eicher Motors in Future”.

Instead of recommending stocks, I decided to cover an entire post of multi-bagger stocks and how to find them.

“Give a Man a Fish, and You Feed Him for a Day. Teach a Man To Fish, and You Feed Him for a Lifetime.”

Here are the topics that we are going to cover in this post:

  1. What are Multi-bagger stocks? 
  2. Recent Examples of Multi-bagger stocks.
  3. Things to know about multi-bagger stocks.
  4. Known traits to find Multi-bagger stocks.
  5. How to find multi-bagger stocks?
  6. Summary.

Further, please read this article completely as you may find a number of valuable contents in between. Now, without wasting any more time, let’s understand what are multi-baggers stocks and how to find them.

1. What are Multi-bagger stocks? 

The Multi-bagger stocks are those stocks who give several times return compared to their original purchase price.

For example, if you bought a stock at Rs 100 and after a few years, you sold it for Rs 600, then this is a multi-bagger stock. In fact, this is a 6-bagger as you earned 6 times return.

Similarly, if you get 2 times return compared to your original investment amount, then it is a 2-bagger stock. if you get 10 times return compared to your original investment, then it is a 10-bagger stock. And obviously, the higher the bagger, the better it is.

2. Recent Examples of Multi-bagger stocks.

Few of the recent examples (*June’18) of multi-bagger stocks are given below:

  • HEG Limited (+2,138.98% returns in the last 5 Years)

heg limited share price

  • Swaraj Auto (+3,865.42% returns in the last 5 Years)

swaraj auto share price

  • Dolat Investments (+1,492.72% returns in the last 5 years)

dolat investment share price

  • Balaji Amines (+1528.5% returns in the last 5 years)

balaji amines share price

  • Graphite India (+1,172.86% returns in the last 5 years)

graphite india share price

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

3. Things to know about multi-bagger stocks.

Before you start researching multi-bagger stocks, here are few things that you should know about them:

  • Multi-baggers are those companies who are financially strong and has a good business model that can be scaled within a short period of time.
  • What really makes a stock multi-bagger is “Time + Continuous growth”. If a company is delivering continuous growth for a longer sustainable period of time, then it would turn out to be a multi-bagger in the future.
  • These stocks take a long interval of time (5-15 years) to become a multi-bagger. That’s why you need to have a high degree of patience while investing in these stocks. If you are gonna book a profit of 60-70% after 10-12 months, then you might never be able to get a multi-bagger stock. Maybe, you’ll find it but you’ll not be able to get maximum profit out of it.
  • In order to hold multi-bagger stocks, you need to understand the business. Only after doing so, you can be confident and patient enough to hold the stock for several years.
  • Historically speaking, small and mid-cap companies have given the most number of multi-bagger stocks. However, this doesn’t mean that large-cap companies cannot become multi-bagger stocks.
  • Don’t feel bad if you missed a few multi-baggers in the past. Even if you are able to find and hold one multi-bagger stock in your portfolio, your overall returns will be amazing.

4. Known traits to find Multi-bagger stocks.

Here are few known traits that can help you find multi-bagger stocks:

  1. Growth at a reasonable price (GARP) stocks: Instead of investing in entirely ‘growth’ or entirely ‘value’ stock, select growth at a reasonable price (GARP) stocks, which has the mixed characteristics of both growth and value stocks. This can help you find a growing company without overpaying for it.
  2. Turn-around stocks: These are those companies who once got beaten badly by the market, however, now are getting back on the track.
  3. Mis-priced opportunities – You can find multi-baggers returns by investing in those companies who have a good potential, however, either ignored by the market or is out of flavor for the investors.
  4. Structural or management change in the organization: If there’s a major structural or management change in the organization that can drive the growth of the company, then it may be a potential multi-bagger.
  5. High Return on Equity: ROE shows how good is the company in rewarding its shareholders. A higher ROE means that the company generates a higher profit from the money that the shareholders have invested.
  6. Sustainable competitive advantage: If the company is one of the kind or have created an entry barrier for the competitors, then definitely it can give multiple times return in the future.

5. How to find multi-bagger stocks?

First of all, you need to understand that it’s not easy to find and hold multi-bagger stocks. Else, most of the stock market investors would have been a millionaire by now.

However, finding multi-bagger isn’t even ‘rare’. Ask any investor who has been investing in the stock market for few years, and he will easily name at least 5 stocks that he has come across during his investing career.

In short, it’s ‘difficult’ but ‘do-able’. You too can find multi-bagger stocks if you are willing to spend your time and energy in an ‘intelligent’ approach.

Here are the smart steps to find multi-bagger stocks:

1. Initial Screening:

If you start reading the financials of each and every listed company, then it might take years. There are over 5,500 listed public companies.

For the initial screening, you can use a few simple financial ratios to shortlist stocks on the basis of high performance, low debt, price to earnings multiples and liquidity.

  • ROE > 20%,
  • Debt/Equity < 1,
  • PE Ratio (less than industry avg),
  • Current Ratio>1.5.

Note: You can find the list of few other significant financial ratios to check here. This can help you to reduce the number of shortlisted companies (in case the list is too big).

2. Fundamental Analysis:

After initial screening, read the financials of the company find out the revenue, sales, profit, book value, cash flows etc. Few crucial points that you should check to find potential multi-bagger stocks are:

  • Is the company’s sales, revenue, and profit stable or growing over time?
  • Are earnings per share stable or growing over time?
  • Are free cash flows stable or increasing over time?
  • Is book value per share steadily growing or not?
  • Has the ROE been consistently high?

If you want to read more, I have written a detailed blog post on how to do the fundamental analysis of a stock which you can read here.

3. Qualitative analysis:

Apart from the fundamentals, it’s important to check the quality of the company which includes finding out your circle of competence, moat, management etc.

This is the most important aspect to check in order to find a multi-bagger stock. Here are a few questions that you should ask during the qualitative analysis:

  • Do you understand the company/ Is the company inside your circle of competence?
  • What is the business model of the company? Is it scalable?
  • Does the company has a ‘Moat’ (sustainable competitive advantage)?
  • Is management capable to drive the growth and allocate the capital wisely?

A significant point that you shouldn’t ignore here is that the competitive advantage should be ‘sustainable’. If it can be copied or the company has a short-term advantage, then it won’t get benefits for the long-run.

4. Valuation:

While evaluating the stock, you’ll need to find a reasonable estimate of the intrinsic value of the company. You can use relative valuation or absolute valuation approach (dividend discount model, discounted cash flow (DCF) model etc).

After a conservative estimate, check whether the stock is trading at a decent margin of safety (discount to the intrinsic value). If the company is trading at a discount, choose that stock to invest.

Further, please note that most of the growth companies generally trade at a high PE. This is because their growth is consistently higher compared to the industry average and competitors. Therefore, if you are able to find a few good stocks, do not ignore the company just because they are trading at a high PE ratio. If this ratio is decent enough and the other factors are extremely favorable, then you can select that company to invest.

Also read: Growth Stocks vs Value stocks – A logical Comparison

6. Summary:

The most important ingredient of a multi-bagger stock is “Time + Continuous growth of the company”. You need to remain invested for the long-term and the company should consistently grow its earnings.

Further, finding a multi-bagger stock might seem too much work, however, it’s definitely worth doing. In addition, if you’re able to find good stocks to invest, then later you can easily sit back and relax in future with just a few minor monitoring.

That’s all. I hope this post is useful to the readers.

If you have a doubt or need any help, then feel free to comment below. I will be glad to help you out. Happy Investing.

New to stocks? Want to learn how to invest in Indian stock market from scratch? Here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your share market journey today.

Why It’s Absolutely Okay To Not Have An Advisor

Why It’s Absolutely Okay To Not Have An Advisor?

Why you do not need an advisor?: The word ‘financial advisor’ is one of the most abused terms in the investment world. Most of the so-called advisors are in-actual a ‘salesman’ who want to earn through commissions or advisory fee. Therefore, just by reading the titles on their business card- do not get impressed.

Although, it sounds great to have someone who seems to be ‘professional’ and have more knowledge than you for advising or managing your portfolio. However, its absolutely okay if you do not have an advisor.

Now, first of all, I would like to add that ‘NOT ALL ADVISORS ARE EVIL’ and some does pretty awesome work for their clients. Many advisors give decent pieces of advice to their clients and help them to consistently get amazing returns on their investments. Nevertheless, the proportion of these good advisors to the other ‘useless’ advisors is quite small. It’s really tough to find such advisors who have a good interest for you at heart.

Anyways, if you are a value investor, you’re probably better off without any advisor. Today, most of the information, tools and resources are publicly available enabling an average investor to invest intelligently without consulting an advisor time to time. All you need is to spend some of your time and energy.

Further, there are a number of fundamental drawbacks of having an advisor while investing.

Therefore, in this post, we are going to discuss why it’s better for you to invest your own money instead of asking an advisor to do it for you.

#5 Reasons why you do not need an advisor at all:

1. Structural Conflict of Interests:

There’s a fundamental/structural conflict of interests between you and your advisor. What’s good for your advisor doesn’t necessarily be good for you.

Advisors do not always want you to make money, but instead are more interested in making money for themselves. Most of the advisors earn money as commission or fees. However, these costs are not correctly aligned. Even though if their pieces of advice are not performing well, you still have to pay these charges.

Further, the advisors are more interested in the ‘amount’ that you are investing rather than the ‘returns’ that they will provide. Higher investment amount means high commission and fees for them.

Advisors simply get paid for what they do, not how they do it.

2. Performance pressure:

The advisors have to share their performance regularly with their clients. The frequency can be yearly, quarterly and sometimes even monthly.

Here, even if the advisors are confident of some stocks for long-term, still they have to answer their angry clients if that stock is not performing well in the short run.

The constant performance pressure does not give them many flexibilities to try out new ideas and opportunities. They are compelled to suggest ‘Okaying-but-low-risky’ equities over ‘high-performing-moderate-risk’ equities to their clients.

On the other hand, if you are a retail investor and managing your own money, then you have the complete freedom to follow your research and buy whichever stock you’re optimistic about.

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

3. Mediocre returns:

To be honest, most of the advisors give only mediocre returns to their clients. Even many a times, the returns are hardly greater than the returns from debt funds.

For example, if you compare the performance of many of the mutual funds with that of the index, over the last couple of years, most of the funds are not even able to beat the index. In such cases, what’s the use of paying high fees and commissions to these advisors, for getting an average ‘mediocre-ish’ return?

4. Short-term Orientation:

Clients want to see profits. If their advisor is not able to give them a profit over few months or year, they are certainly not going to be happy with them.

That’s why these advisors focus more on the short term orientation over a long-term goal.

Short-term performance helps the advisors to retain their clients. Many a time, the advisors have to invest/advise based on the short-term trend, no matter how much it’s misjudged or over-valued.

Nevertheless, if you are a value investor who invests on his own, you do not need to care these short-term trends. If you focus on your long-term goal, then this strategy would definitely turn out to be more fruitful.

Also read: Investment vs Speculation: What you need to know?

5. Relative performance:

Most advisors compare themselves with other advisors; which in return acts counterproductive for them.

However, this cannot be avoided, as the clients themselves compare different advisors before choosing the best one for themselves. Therefore, in order to remain forward and to get the clients, the advisors need to remain updated with what other competitors/advisors are doing and how are they performing.

Nevertheless, this results in most advisors copying the portfolios of the big moves of other advisors so that they do not miss out. If all the funds are buying a specific stock, then they would also have to go for that. Otherwise, customers might be angry that why are they not buying that ‘high-performing stock’ that all other advisors are buying.

Anyways, this hurts the personal decision making power of the advisors. If the advisor wants to try something new or unique that no one else is doing and it didn’t turn out well, then he/she would have to answer his clients that why did he/she take such huge risks with the client’s money. In some cases, the advisor may even lose his/her job.

That’s why the advisors follow the relative approach and invest only where everyone else is investing. Doing so, they are not answerable to their clients even if that stock didn’t perform well. They can easily relate this to the performance of other advisors and say that it simply didn’t work for anyone. Advisors find safety in numbers and hence invests where everyone else in investing.


After discussing all the above-mentioned points, it can be considered that it’s absolutely okay to not have a financial advisor.

For all the value investors, you are better off without an advisor. The structural conflict of interests and other ‘noticeable’ reasons suggests that having an advisor isn’t always the best option for the average investor.

You can consistently earn good profits from the market by investing yourself. But for doing that, you need to put some efforts and stick to a profitable strategy.

By the way, the fact that you are reading this post already proves that you are ready to take your finances in your hand and why you do not need an advisor at all.

I hope this post is useful to the readers. Please comment below your thoughts on this topic. Do you really need an advisor or are you better off without one?

New to stocks? Want to learn how to select good stocks for long-term investment? Check out my amazing online course: HOW TO PICK WINNING PICKS? The course is currently available at a discount.

Tags: Why you do not need an advisor, should I use a financial advisor or do it myself, Why you do not need an advisor while investing, do I need a financial advisor, should I hire a financial planner
best ways to save money

#3 Best Ways To Save Money- That 90% People Are Not Using.

#3 Best Ways To Save Money:

Monetary freedom, isn’t the whole world revolving around it? Generally, you, I, and others have this notion in our minds that in order to retire rich, you need to earn millions. Earning a decent remuneration is definitely certain but is this the whole picture? I am afraid not.

Where does the trick lie? – Well, the trick lies in the power of saving.

We personally know a ton of those people who have earned below par for their entire lives but have managed to retire rich. If you are diligent enough to know how this works for people with a median wage, you need to rely on the power of religious savings.

Moreover, you also need to know how to put a full stop to reckless spending in order to save money. With the title, the picture gets a little clearer but we have barely scratched the surface yet.

The best ways to save money is by cutting back on the big stuff. However, cutting on big kinds of stuff doesn’t even remotely point to living in misery. No, it doesn’t! Then what does it mean in its true form? Let us all know in this article.

1. Maintain a Ritual:

Consistency always works out. For your monthly expenses, you need to maintain a ritual to save your income. You might perhaps save 100 bucks a month by choosing a cheaper alternative to your monthly errands but if you do it consistently, you will definitely see a positive change in your savings account.

  • Revise of Dish/Cable plans and switch to a cheaper monthly plan.
  • Cancel unnecessary monthly subscriptions.
  • Remove your saved credit card details from your most used online stores.
  • Cut down on your food expenses by cooking meals yourself instead of ordering them online.

Such rituals individually wouldn’t reflect a significant amount but collectively such rituals manage to save a heck load of money.

Also read: The Best Ever Solution to Save Money for Salaried Employees

2. Validate your needs:

Not validating your needs is one of the major causes of reckless spending. You’re smart enough to back up your own choices to shop.

You know, there aren’t going to be enough clothes, gadgets, footwear, and what not in your wardrobe no matter what the number of such stuff you purchase.

Us humans being rational thinkers have this capability to justify each of our purchases. We can start this by asking these questions whenever we pick something up from a shelf:

  • Do I really need this?
  • What was the last time when I made the same purchases?
  • What purpose am I purchasing this for?

Validating your needs make sense whenever you are going to put a significant amount of money on a commodity. If you really need it, you can purchase it by all means. However, if there is no specific need for the same, you can always use the saved money to something significant and crucial – say, your rent.

Also read: What are Assets and Liabilities? A simple explanation.

3. Optimize your “big expenditure”:

It is quite clear that 1. Housing and 2. Transportation is the two most “fund-eating” necessities we have to pay for every month.

No matter how big you are earning, you’d have to pay for rent and transportation costs unless you are of course living in your own house. If your savings are actually taking a toll on you, you need to reconsider your choices.

All you have to do is to carefully monitor better options. If you can, switch your high rented apartment and move into a cheaper one. However, saving money shouldn’t be corresponded to living out in misery. On the other hand, for transportation, switch to the means of public transport.

Walking more often to run regular errands also helps not only in saving your income but also helps in maintaining your body shape.

BONUS (For students and recent graduates): 

4. Consolidate your Student Loan:

Putting all your eggs in one basket is never considered a better option.

However, when it comes to something like education, one doesn’t think twice about doing so. We must tell you that opting for an education loan is a commitment for a longer duration. If you have a student loan on your head, we have a couple of life-saving tricks – one of which is to consolidate your student loan.

Statistics say that it takes anything from 15 to 20 years on an average for a student to repay his/her loan. 

Consolidation means to merge multiple loans into one single frame which makes sense to save interest amount. There are various consolidation options available all over the internet to explore. Private Federal Consolidation options still prevail in the market which sometimes is quite beneficial as well.

We know how it sometimes gets difficult to cut down on your regular expenses but you must realize that there is always more than one way to get through with things. This holds true for the financial sector as well.

We wish you all the good luck saving!

Also read: #11 Best Passive Ways to Make Money While You Sleep.

Tags: 3 ways to save money, save money, how to save money, ways to save, how to save money each month

Portfolio Management Hacks That Every Beginner Should Know

#6 Portfolio Management Hacks That Every Beginner Should Know

Just buying good companies at a discount price won’t make you a good investor. You need to learn the art of portfolio management.

Your stock portfolio won’t consist of just a single stock. You will have multiple stocks in your portfolio. When most of these stocks are performing well, then your portfolio will give you best returns.

In this post, I’m going to give you 6 portfolio management hacks that will help you to manage your stocks efficiently.

 #6 Portfolio Management hacks that Every Beginner Should Know

Here are 6 best hacks that will help you manage a healthy portfolio so that you can get the maximum returns on your investments.

1. Keep some ‘Cash’ in hand:

cash in hand

Cash in hand will give you flexibilities to act on new opportunities. You should not remain fully invested in stocks (with zero liquidity) at a particular interval of time.

Let me give you an example from my personal experience that why some liquidity is important for a successful portfolio management.

During demonetisation in November 2016, the share prices of a lot of good companies were down and they were trading at a discount price. Due to the sudden announcement by the PM Modi, the whole market was bearish and just within a few weeks of demonetisation, a lot of fundamentally strong company’s share price was way below than what they deserved.

However, as this announcement was unexpected, I wasn’t ready for it.

I graduated from my college only a few months before demonetization and had invested most of the money that I get as my salary (after expenses). I didn’t have much cash in hand.

That’s why, after demonetization even though I knew that many stocks were trading at a great discount and could give amazing returns soon in future, I couldn’t buy them. As a firm believer of not investing on the borrowed money, the only option left with me was to wait for my salary.

Moreover, getting money by selling those stocks which were already in my portfolio didn’t make any sense to me. I didn’t want to sell my holdings (in the loss as the whole market was down) as I was optimistic about my stocks for the long run and was confident that those stocks will eventually make me money.

At the end of the month, I got my salary and invested it in stocks. Nevertheless, I missed many cheap stocks that could have made me a huge money just because I didn’t have much cash in hand.

Lesson: Always keep some ‘cash’ in hand. Although the cash in hand or in your savings account will not give you as much return as the invested capital, however, having some liquidity will help you to act in the cases of sudden opportunities.

2. Diversify your portfolio:  

diversified portfolio

You do not want just apples in your portfolio. What if suddenly whole ‘apple’ market starts to decline and no one is ready to buy those apples from your at a higher price than what you paid for. It’s better to also have oranges, grapes, guavas, lemons, watermelons etc in your portfolio.

Also read: How to create your Stock Portfolio?

Here, what I mean is that you need to have a stock portfolio with a mixture of companies from different industries. One from automobile, another from pharmaceutical, third from consumer durables, forth from banking etc. This helps you to reduce the risk if one industry goes wrong and starts underperforming. In such case, the overall effect of just one stock underperforming won’t hurt your entire portfolio.

In general, you should have 8-10 stocks in your portfolio.

Note: You should avoid both ‘under-diversification’ and ‘over-diversification’. Even over-diversification is not good for your portfolio. It kills the profits. When you have 20+ stocks in your portfolio, then even if 2-3 stocks are performing exceptionally well, still the overall effect on your entire portfolio will be quite less.

Also read: How Many Stocks Should you own for a Diversified Portfolio?

3. Monitor continuously and Re-evaluate:

monitor your portfolio

After buying the stocks in your portfolio, you need to keep an eagle-eye on the fundamentals of your holding stocks.

Nothing is permanent and the companies with exceptionally strong fundamentals, are capable of changing their fundamentals in future. Even a blue chip company can degrade and become a mediocre stock with time.

That’s why you need to continuously monitor the stocks in your portfolio and regularly re-evaluate your holdings (at least once every quarter).

Each company announces its quarterly results and other corporate announcements time to time. All you need to do is to keep updated with these pieces of information.

Also read: How to Monitor Your Stock Portfolio?

Further, you also need to continuously evaluate whether the reason for owning the stock is still valid. For example, let’s assume that you bought a stock XYZ when it was the leader in its industry. However, after you bought the stock, the company starts to perform poorly and begin losing its position as the market leader. Some other company starts dominating that industry now. In such case, you need to re-evaluate that whether you still want to keep that company. Can that company regain its position as a leader or will it continue to give poor results in future?

Similarly, you also need to keep track of the financials of the companies and other important ratios. For example, when you bought that stock, suppose the stocks’ PE ratio was low and it was undervalued. However, after a few years of holding, the market price has increased a lot compared to the company’s earnings. That’s why the PE ratio of that company is high now and the stock is over-valued. In such case, you again need to re-evaluate that stock to find whether the stock is still financially strong.

In short, while managing your portfolio, you need to continuously monitor the health of the stocks and re-evaluate if the situation changes.

4. Have Patience


No matter how good the stock is, if you are not patient with it, then it won’t give you great returns.

Value investing works. However, it might not work immediately. Maybe the stocks won’t perform in short-term. However, in the long term, value investing always outperforms the market.

That is why you need to have patience while you are investing in stocks. You should give your stocks a chance to grow and wait for the undervalued stocks to reach its true potential.

Sticking with the stocks in your portfolio is one of the biggest portfolio management hacks that you need to learn. Selling your stocks on short-term corrections or booking small profits won’t be of much use for the value investors.

When you have patience, then time is your friend. You just have to sit back, relax and let the power of compounding do its work.

5. Average down:

average down

One of the biggest lessons that I learnt from my experience as a value investor is that it’s impossible to time the market. You will never be able to find the exact bottom. Buying at ‘exact bottom’ and selling at the ‘exact top’ is a myth.

That’s why it makes more sense to not invest all at once but rather average down. You can purchase more stock when the stock price declines.

Overall, it’s better to average down the purchase and not invest all in ‘lump-sum’ at once (and later regret when the stock price goes down).

Note: I know that you might have read at many places that people lose money in stocks just because they try to average out and reduce their purchasing price. It’s true! If you have bought a ‘poor’ stock and start to averaging out when it starts underperforming, then you’ll definitely lose money by following this strategy. However, if you have picked good stocks, and find that stock at even a bigger discount in future, then why not to seize that opportunity and buy more. Averaging down is a great strategy if you know what you are doing.

Now, different investors follow different strategies to average down their purchase price. One of the popular theory is X/3 investing strategy, where X is the total amount that you are planning to invest. This theory states that you should invest X/3 amount in a stretched period of three times to average down the buying price.

For example, if you are planning to invest Rs 60k in a stock, then buy that stock in three steps of 20k each. By doing this, you can avoid the chances of missing any big opportunity if the price declines in the near future after you invested.

Nevertheless, as already mentioned, different investors use different averaging strategies and feel free to create one for yourself.

Also read: What is the minimum money I need to start stock trading in India?

6. Increase your investment amount continuously:

long term continuous investment

This is the last hack for successful portfolio management. Increase your investment amount continuously with time, no matter what’s the amount.

Even small investments will add up when you are investing for a long interval of time.

For example, if you get a salary raise or a bonus, then after making new (obvious) purchases of whatever you were planning for a long time, spend the remaining amount in your portfolio. Continuously increasing your investment amount will help you a lot in creating a great portfolio in the future.

Further, if possible try to automate your investment. With the facilities of net banking and online brokerages, you can easily transfer a fixed amount of money for investing each month automatically. This can also bring a disciple in your investment strategy.

Note: Even though its suggested to increase your investment amount with time, however, avoid investing money that you need in near future or the money that you borrowed. Invest only what is surplus and what you won’t be needing for the next couple of years.

Also read: The Easiest Asset Allocation Method- 100 Minus Your Age Rule


Although managing your portfolio might seem a little tough, however, with the help of few simple hacks, you can manage your portfolio efficiently. Here are the top six hacks that are discussed in this post:

  1. Keep some liquidity (Cash in hand)
  2. Diversify your portfolio
  3. Monitor continuously and Re-evaluate
  4. Have Patience
  5. Average down
  6. Increase your investment amount continuously

That’s all. I hope this post is useful to you.

Please comment below if you have any doubt and want to add any other portfolio management hack. Happy Investing. Cheers!

New to stocks? Want to learn how to invest in Indian stock market from scratch? Then, here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your share market journey today.

How to Find the Shareholding Pattern of a Company?

How to find the shareholding pattern of a company?

The shareholding pattern of a company shows how the shares are distributed among its different entities (like the promoters and the public).

In one of my previous article regarding shareholding pattern, I have explained the most important things that you need to know regarding shareholding patterns of a company. I explained why it’s a good sign if the company’s promoters are increasing their share and why there might be a sign of trouble if the promoters are ‘continuously’ decreasing their stake in the company.

Read more here: Shareholding Pattern- Things that you need to know

Nevertheless, after writing that post, I received a number of emails asking how to find the shareholding pattern of a public company. Although I also covered this in that post, however, I didn’t explain it in details.

Therefore, in this post, I’ll walk you through how to find the shareholding pattern of a company ‘easily’.

Where can you find the shareholding pattern of a company?

In general, there are three sources where you can find the shareholding pattern of a public company

  1. Company’s website
  2. Stock Exchange Website- NSE/BSE Website
  3. Financial websites like Moneycontrol, ET Market etc

Today, I’ll explain the best and easiest source to find the shareholding pattern of a company- stock exchange website.

How to find the shareholding pattern of a company?

Here’s what you exactly need to do to find the shareholding pattern of a company:

1. Go to BSE India website (https://www.bseindia.com).

shareholding pattern of a company 1

2. Enter the name of the company whose shareholding pattern you want to find in the search bar.

shareholding pattern of a company 2

3. Scroll down and click on the ‘shareholding pattern’ tab.

shareholding pattern of a company 3

4. Select the ‘quarter/year’ whose shareholding pattern you are interested to find.

shareholding pattern of a company 4

5. Study the shareholding pattern.

shareholding pattern of a company 5

NOTE: For all those who are not a big fan of reading, I’ve also made a youtube video on how to find the shareholding pattern of a company [step-by-step] here:

Don’t forget to subscribe the Trade Brains’s Youtube Channel here. You do not wanna miss out our weekly videos!

In addition, there are few other sources also where you can find the shareholding pattern of a company: Moneycontrol, ET Markets, Market mojo etc. Also read: 7 Must Know Websites for Indian Stock Market Investors.

That’s all. I hope this post is useful to you. If you have any doubts, feel free to leave a comment below. I’ll be happy to help you out. #HappyInvesting.

New to stocks? Confused where to learn how to invest in Indian stock market from scratch? Then, here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enrol now and start your share market journey today.

investing myths

7 Most Common Stock Investing Myths

7 most common stock investing myths- Nowadays, everyone is interested in investing. No one wants to have a single source of income. An investment seems to be a great source to get good returns from your hard earned income. From youngsters to retirees, everyone wants to achieve financial freedom through these investments.

Stock Market, which has given the best returns and beaten all other investments available like bonds, commodities, gold etc, is definitely one of the favorite choices of the people.

Although everyone has thought of investing on their own but stopped because of some common misconceptions heard from friends, family or media. So, today let’s take control of our freedom of investing by overcoming few common barriers – the investing myths.

7 Most Common Stock Investing Myths:

1. Investing in Stock Market is like GAMBLING.

This is one of the most commonly heard myth when it comes to stock market investing. And it is so popular that this investing myth has become one of the theories is few places.

So let’s compare the stock market and gambling so that we can have some clear vision about them. First of all, both involve money and element of chance. Second, Risk is involved in both gambling and stock investing. Third, both involves uncertainty of winning or losing.  Most people after considering these three points and comes to the conclusion that both stocks investing and gambling is same.

Now, let’s see the things from another point of view and note the differences. Although blindly investing in stocks is similar to rolling a dice, but successful investing is never a game of chances. The art of investing is based on risk and reward. Gambling doesn’t allow anyone to change the probability. There is always a 50% chances of getting a ‘head’ or ‘tail’ while gambling on a coin toss.

However, through knowledge and skills, Investors can change the probability of winning. Investors can reliably predict the outcome which follows trends, patterns and fundamental studies like balance sheet, profit loss statement, cash flow statement etc. Although, no one knows the future investors have been able to put the odds in their favor by thorough analysis, proper studies & training.

investing myths 4
Considering the above points, we can say that stock investing is nothing like gambling and a much much better way of utilizing your hard earned money.

If you are new to investing and want to stay away from common myths and mistakes in stock market, I will highly recommend you to read this book: One Up On Wall Street: How To Use What You Already Know To Make Money In the Market. It is one of my favourite books on stock market.

2. You need money to make money.

This is the second most common investing myth. People easily presume that you can’t start investing until you have a whole lot of money. And this makes investing ‘rich people’s game’.

But this isn’t true. You don’t need millions to start investing. A good thorough study about the company and just a few bucks in the bank is enough for start investing. Even the greatest investor of all time, Warren Buffett, started his first investment with only a few dollars at an age of eleven. He didn’t need a million dollars to make him a billionaire. So, why should you?

Everyone can start investing with even the little amount that they have.

3. Investing on your own takes too much time.

This third investing myth states that you need to give a lot of time to invest on your own. But this is also not true in today’s world. Technology has completely changed the way information is transmitted now. This has allowed an average investor to access information quickly and easily to make smarter and faster decisions.

investing myths 2
Now, you don’t need to give too much time to financial newspapers or magazines before you invest on your own. Just giving a couple of hours in a week, you can read all the company’s fundamentals which are easily available on the financial websites on the internet. Even, you can check these financials while traveling on a train or during breaks in office routine using the friendly financial mobile apps. Life is simple now!

4. Paying a professional is better than making your own investing decisions.

Today people pay a lot to professional managers just because they believe in this investing myth that hiring a professional is better than making your own investing decisions.

But in reality, it differs. It’s a proven fact that many professionals fail to beat the benchmark over a long time. Still they, they continue to charge a huge fee. There are also a couple of disadvantages of a large money manager.

First, they can’t move money easily as you can during any market swing. Second, these managers are slow to change models with models, but a retail investor isn’t. For example, a mutual fund investing in large-cap companies has to continue investing in large caps, and it doesn’t matter what brilliant opportunities are present in mid-cap or small cap.

But a retail investor is not obliged to do so. He can easily buy a stock if he sees the great opportunity there. Lastly, market managers need to answers to a lot of board of directors and can’t take independent decisions. They care more about the shareholders and their bosses than the public.

In the end, let me ask you a general question. Who do you think cares more about your money, you or anyone else? If your answer is first, then you definitely need to get over this investing myth.

5. Investing on your own is very risky.

In general, risk comes from not knowing what you are doing. Definitely, without proper education stock market is risky. But with proper training and knowledge, anyone can increase reward and reduce risk.

6. Investing is simple. Just buy low and sell high.

This is one of the most common investing myth among the non-investors. They think investing is simple. You just have to buy low and sell high. What they don’t understand is that it takes a successful investors years to learn what’s high and what’s low. Even, if you get a good start and bought the stock at a low price, it’s not easy to find an exit point.

7. Investors who invest on their own are intellectually gifted.

This last investing myth takes investing to a next level. It states that investing is not for everyone but only those who are intellectually gifted can succeed in investing. Now, although everyone knows that there is no connection between IQ and performance, let me quote the statements of two of the investing icons on IQ:

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” – Warren Buffett

“Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” – Peter Lynch

Let me end this investing myth with a quick link which may change how you think about IQ and performance on investing: Isaac Newton was a genius, but even he lost millions in the stock market

So, these are the 7 most common stock market investing myths. I hope the readers will get over these investing myths if they have any. If you need any further help or explanation, please comment below. I will be happy to help you. #HappyInvesting.

investing myths 3

Tags: Investing myth, stock investing myths, top investing myths, common investing myths, value investing myths, myth about investing
Dolly Khanna Success Story

Invest Like a Legend: Dolly Khanna Success Story [Portfolio, Bio & More!]

Dolly Khanna Success Story: Every market produces players- those who churn one multi-baggers after another. Dolly Khanna, although the name may not be quite well known as Rakesh Jhunjhunwala, she is doing quite well off.  Her portfolio was quite a mystery for a long time! She has not been interviewed or known before until she bought 1% stake in a company and Indian law makes it compulsory to disclose it to the exchange. Her stake is more than 1% of 14 listed companies now.

Dolly Khanna, the name we hear along with Rajiv Khanna. The couple is based in Chennai. Rajiv Khanna has graduated as a chemical engineer from prestigious IIT Madras. During their initial days, they raised capital from the sale of a family business named ‘Kwality Milk foods’ to Hindustan Unilever in 1995. Since then the golden couple has not looked back. She is in the stock market since 1996 and her portfolio is managed by her husband Rajiv Khanna. Rajiv Khanna is widely known as the brain behind Dolly Khanna’s holdings in the equity market. Her holdings range from the plastic company to the pressure cooker manufacturer.

What makes it interesting is that her stock picks perpetually becomes mega multi-baggers. The couple is quite accurate and expert in picking small potential businesses. Khanna’s are named among the top individual players of the Dalal Street. In 2014, she picked up Nilkamal (India’s top manufacturer of Home and office furniture), the stock which surprisingly has gone up 900% (from Rs 197.30 on March’14 to Rs 1966 as of March’17) in the past 3 years, nearly 10 times.

Their first multi-bagger in their portfolio was Hawkins Cookers. They kept buying stocks till June’09 at the price of 130-140. Today is stock is worth Rs 3400 and also the company has given 70% of its profit as dividends.

Avanti Feeds, Nilkamal, Rain Industry, Emkay Global, NOCIL, PPAP Auto, Sterling Tools, Thirumalai Chemicals, Asian Granito are the few examples of her stocks that went to become multi-baggers once she added them to her portfolio.

Here is the partial portfolio of Dolly Khanna as of December 2017.

Stock Name CMP (Rs) % Change P/E Ratio Nos of shares Value of portfolio % of Portfolio
Rain Industries 386.3 -1.15 19.09 86,30,115 ₹ 3,33,38,13,425 38.77%
Manappuram Finance 104.85 -2.74 12.83 95,29,586 ₹ 99,91,77,092 11.62%
NOCIL 203.1 0.4 48.09 32,16,039 ₹ 65,31,77,521 7.60%
Thirumalai Chemicals 1910 2.37 13.12 1,67,221 ₹ 31,93,92,110 3.71%
Srikalahasthi Pipes 337.9 -1.72 9.33 6,36,923 ₹ 21,52,16,282 2.50%

(Source: Rakesh-Jhunjhunwala.in)

Rain Industry is the prime target of her investment followed by Manappuram Finance, NOCIL, Thirumalai Chemicals, and many more. Her other interesting investment is in Trident where she holds 1.03% of the stake as of Dec’16. Since her investment, the price has risen up to  82.25 as of March’17 form 57.55 on Dec’16, giving 42.92% return, She recently bought a lot of shares of  Butterfly Gandhimathi, which is also a favorite of Ashish Kacholia. But her main target is Rain Industries where she bought 1.27% of the equity in June’17 and increased it up to 2.57% of equity until December’17.

Nevertheless, if the couple sells some stock, then it doesn’t always mean that they have lost their confidence in the company. It’s just that they might have found something else that’s worth more investing. Avanti Feeds is such an example where she sold many of them even at a low price and prices went even high after the sell-off. Though Avanti had given her a fair amount of gain even at that stage.

The above stocks (along with some others) make up around INR 1 billion. as net worth. Also, there are few stocks that are not yet disclosed to the stock exchange as they are below the statutory limit for reporting. So, the aggregate will definitely roar above INR 1 billion!

During a seminar, Rajiv Khanna said,

“Investors have to move beyond value investing and look at growth stocks if they want to find multi-baggers for their portfolio.”

Generally, the couple is a believer in long-term investment, but sometimes they also sell off the stock if it’s giving them a pretty sum of returns at that stage. Rajiv Khanna says that he relies on public information to make his investment, unlike some market analyst who bothers themselves talking to the management of companies.

So how do they decide? Here are his words :

“Like in tennis you play different games on different courts – hard court, clay court and lawn, we also study the market situation and pick our stocks accordingly. It can be either a value stock, growth stock, momentum stock or buying based on technicals”

Also read: D-Mart Founder- RK Damani Success Story [Bio, Facts, Net worth & More]

GARP Stocks (Growth at a Reasonable Price)

What are GARP Stocks (Growth at a Reasonable Price)?

What are GARP Stocks (Growth at a Reasonable Price)?

If you have been investing intelligently in the stock market, then you definitely would have heard about ‘growth‘ and ‘value‘ stocks. These are the two extreme kinds of investment strategy in the market.

The growth investors focus on the growth of the company and are ready to pay even a higher price if the company is growing at a fast rate. On the other hand, a value investor ‘values’ his money and only believes in buying undervalued stocks. A value investor will buy the stock only if he finds its price way below its intrinsic value.

There’s also a third kind of stock called dividend/Income stocks, however, growth and value are the ones that get most of the attention.

Anyways, you do not always need to choose between growth or value investing strategy. There’s also an option for hybrid stock picking strategy which has the combined characteristics of both growth and value stocks.

These are called GARP Stocks or ‘Growth at a reasonable price’ stocks.

In this post, we are going to discuss what are GARP stocks and how we can investigate these stocks.

However, before we learn more about GARP stocks, first you need to understand what are growth and value stocks. Here’s the ‘simplest’ definition that you can find for these two kinds of stocks.

What are Growth and value stocks?

Growth Stocks:

We can define a growth stock as a company which is growing at a very fast rate compared to its industry and the market index. These stocks have a large PE ratio. Because of their high growth rate, the investors are ready to buy these stocks at a premium price. They understand that these stocks won’t be available at a cheap price as they are performing well consistently and hence if they want to enter that stock, they have to buy at a high valuation. Nevertheless, as long as the company is performing well and growing at a faster rate compared to its industry, even buying these stock at a high premium will give those investors a good return.

Value stocks:

Value investors believe in buying the super cheap company through finding its intrinsic value (using company’s fundamentals) and comparing it with the current market price. The growth rate of these stocks are way below that of the growth stocks and that’s why they have a low PE and are (generally) ignored by the market. These investors look for an opportunity to buy these stocks which are way less valued in the market (because of whatever reason) than it’s intrinsic value and buys it. A value investor is confident that this stock will rise to its true intrinsic value in future. He holds that stock until it goes back to its normal value.

Read more here: Growth Stocks vs Value stocks – A logical Comparison

What are GARP Stocks?

Investing entirely in growth stocks or value stocks might be a little risky. Both these stocks have their own limitations.

The growth stocks trade at a high valuation and you might have to overpay to buy these stocks. On the other hand, value stocks may be available at a cheaper price because there’s not much juice left in these companies and they might continue to underperform in future.

Nevertheless, you do not always need to choose one of these extremes. There’s another hybrid stock picking strategy available which is the combination of the characteristics of growth and value stocks, called GARP stocks or ‘Growth at a reasonable price’ stocks.

GARP Stocks focuses on those stocks which are giving a consistent high earning above that of the market level and are present at a reasonable valuation. Here, the consistent earning is the dominant characteristics of growth stocks and the reasonable valuation is the part characteristics of value stocks.

garp stocks

[Image source: Investopedia]

In short, GARP Stocks tends to avoid the extremes of investing in pure growth or value stocks.

NOTE: GARP Investing doesn’t mean having a portfolio with 50% growth stocks and 50% value stocks. It’s the individual stocks which should have the characteristics of both growth and value stocks, not the entire portfolio.

How to find GARP Stocks?

GARP stocks were popularised by the legendary fund manager- Peter Lynch of Fidelity Investments. He is known for his amazing track record of annualized 29.2% returns for the Magellan fund, which he managed from 1977 to 1990. GARP Stocks were his favorites which were somewhat undervalued stock with sustainable growth potential.

Here are few of the characteristics which you need to investigate in a GARP Stock:

  • Value Metric:

For the GARP Stocks, PE ratio is somewhat higher than that of value stocks but quite lower than the high PE as sought by growth stocks. Nevertheless, while comparing the PE ratio, you should follow the apple-to-apple comparison. This means that the PE of that stock should be compared with the PE of similar companies in same industry.

Also read: No-Nonsense way to use PE Ratio.

  • Growth Metric:

These stocks have a good earning prospect with growth for the next few years higher than the value stock. However, GARP investors choose conservative growth rates and avoid extremely high growth estimates like that of growth stocks.

Nevertheless, there are no rigid boundaries of how much PE ratio or growth should a GARP stock have. To solve this problem, the GARP Investors use PEG Ratio.

PEG ratio or Price/Earnings to growth ratio is used to find the value of a stock by taking in consideration company’s earnings growth. This ratio is considered to be more useful than PE ratio as PE ratio completely ignores the company’s growth rate.

PEG ratio can be calculated using this formula:

PEG ratio = (PE ratio/ Projected annual growth in earnings)

For example, for a company, if the stock PE is 22 and the earnings growth is 30%, then the PEG ratio will be 22/30= 0.73.

Also read: #19 Most Important Financial Ratios for Investors

In general, Garp investors pick stocks with PEG Ratio less than 1 (preferably somewhere near 0.5).


Although investing in GARP stocks sounds a good idea, however, it’s not easy to find these kinds of stocks. While researching, you might find a ‘mediocre’ stock mistakenly considering it as a GARP stock. In such case, that stock will neither have ‘value’ nor good ‘growth’ potential. Investing in such stocks without proper investigation will get you into a lot of troubles.


GARP stocks avoid the drawbacks of investing purely on growth or value stocks. It eliminates the risk of investing in over-valued growth stock at a high premium and avoids the circumstances of picking underperforming value stocks.

Overall, investing in GARP stocks is a good approach for moderately risk-taking investors who care for both value and growth. It might not be simple, however, it’s worth investigating.

That’s all. I hope this post is useful to the readers. If you have any questions regarding GARP stocks, feel free to comment below. I’ll be happy to answer them.

New to stock market? Confused where to start? Here is an amazing online course on- HOW TO PICK WINNING STOCKS for beginners. The course is currently available at a discount. Check it out now. #HappyInvesting

What is Share Buyback and Why You should Celebrate it?

What is Share Buyback and Why You Should Celebrate it?

What is Share Buyback and Why You should Celebrate it?

In November 2017, India’s second-largest software services firm Infosys bought back its own share worth Rs 13,000 crore from its shareholders. The share buyback, which was the first in the Infosys’s 36-year long history, resulted in Infosys buying back over 11.30 crore shares at Rs 1,150 apiece.

But what actually is share buyback and how should a retail investor react when a company announces it?

That’s what we are going discuss in this post. Today, we will cover what is share buyback and why you should treat it as a healthy sign for the company.

Quick Note: You can find the list of recent buyback on BSE here.

What is share buyback?

A share buyback is a situation when a company buys its own share back.

This means that the company will purchase the outstanding shares and hence will reduce the total number of shares available in the market.

By buying back the shares, the company re-absorbs the portion of its ownership that it has previously given to the public.

During an IPO (when a company goes public), the company releases its shares. When the public buys these shares, they become a part owner of the company. On the other hand, during a buyback, the company buy these shares back for itself and hence, fewer shares available for the free trade in the market afterward.

Why would a company buy back its own share?

This is an obvious question that will come to the mind of any common investor. Why would a company buy back its own share? If the company have some profit or reserves, why not to use to acquire a new company, or to open a new plant/center or just distribute the profit as dividends? Why buy back?

Here are the few top reasons why a company would buy back its own share:

  1. Undervalued: If the company considers its share price undervalued at that moment, then it would like to buy back the shares.
  2. Positive signal to the market: Insiders have the best knowledge about the future of the company. They understand how well it will perform in future, it’s upcoming plans, projects, future earnings etc. If the company is bullish about the future of the company, then it may re-acquire more chuck of the ownership to send a positive signal to its shareholders in the market.
  3. To get more control: By buying back the shares, the company can decrease the dilution of shares.  Therefore, it will increase their control (by owning more stocks).
  4. To make the company look attractive: As stock buyback decreases the total number of outstanding shares, hence many of the financial ratios will change. For example, EPS (Earnings per share) of the company will increase after the buyback. Further Price to earnings (PE) ratio will also change, making the company look good valued and attractive.

Also read: Stock split vs bonus share – Basics of stock market

Why should you celebrate?

Share buyback should be celebrated by the shareholders. Generally, it leads to the rise in the share price of that company.

As the company has publicly announced the share buyback, it means that there are already buyers in the market.  Stock prices increase if there are more buyers than the sellers.

Next, the value of your stock will increase after buyback as the shares become less diluted.

For example, if there were 1,00,000 shares previously and you have 10 shares, then your stake in the company will be (10/1,00,000). However, after the buyback, if there are only 80,000 shares in the market, then you share in the company will be (10/80,000). Overall, your value in the company will increase.

Further, you will also be eligible for increased dividends per share in future. If previously, it was distributed among 1,00,000 shareholders, now only 80,000 shareholders will have a right to get the dividend.

In short, as the total number of outstanding share decreases, dividend per share will increase. And hence, a bigger chunk of dividend for the shareholders.


Overall, when a company announces a buyback, then you should celebrate. It’s a good thing for the stock.

The company’s finances will look attractive leading to an increase in the share price. Further, you will be eligible for a bigger dividend per share in future.

I hope this post on “What is Share Buyback and Why You should Celebrate it?” is useful to you. #HappyInvesting.

If you are new to stocks and want to learn stock market investing, here is an amazing online course for the beginners: How to pick winning stocks? Enroll now and start your investing journey today #Happy Investing.

the inexperienced investor

The Inexperienced Investor.

Don’t you think that people these days are professionally qualified but financially illiterate? 

It is very important to invest in ‘Financial Securities’ since this is one of the best investment opportunities available in India considering the high percentage returns from such investments. Especially at this juncture in time, where the Indian Economy is developing at an incredibly fast pace, everyone should be a part of the whole process and reap the fruits of the development.

At this stage, it is vital for people to understand the importance of investing in the accelerating markets, rather than only “saving” a big portion of their income as part of their financial planning for their secured future. As Mr. Robert Kiyosaki rightly says in his renowned book ‘Rich Dad Poor Dad’:

Don’t work for money, let money work for you.

A lot of the people today understand the importance of such investment and since they have the resources (like money, time etc), they tend to participate in paper investments (shares, bonds and the like). Be it college graduates, professionals or any other person from any other arena, they might have become financially sound but however, they still lack some amount of financial literacy. Because of a lack of knowledge, they end up losing a chunk of their capital in the volatilities of the stock markets. This is mainly caused by committing some very common but crucial mistakes.

The topic of the article might sound a little harsh in the beginning, but there are some common mistakes committed by most of the investors in their initial years of investing. The small investors (often with less and limited capital), more often than not begin with investing in well-thought-of goodwill backed blue-chip companies (let’s say, Infosys or TCS or Reliance etc.) which have given good profits consistently.

These companies, more often than not, do not disappoint the investors and consistently produce good returns on investment (‘ROI’). Now, these investors are carrying heaps of confidence along with a good rate of return on their investments in the blue-chips. The next step they take, in these series of events, is to try and understand the market (covering more stocks, information-based trading etc.), its movement and the respective stocks better by reading about the same on online self-help articles. However, what people don’t understand is that a ‘risk-adjusted average return’ earned from their investments in any blue-chip company is not because of their expertise in the equity markets. Any person with moderate knowledge about the current economic environment would have most likely invested in one of the blue-chip company to safeguard their initial capital and earn a normal rate of return. With this superficial confidence booster, a common mistake that comes up next is the “change in the investor’s mindset for earning more, all at once”. Investors start thinking from a trader mindset rather than an investor’s perspective.

The aim of this write up is to identify and put forward the common mistakes done by any rational investor in their investing career and to have an opportunity to avoid them and create wealth.

1. Lack of Patience 

Investors need to understand that the entire journey of investing is a long and continuous process.

Along with money, time is an important resource that is required to be invested in the stock market. The longer you are invested, the better are the returns (provided you are sailing in the right ship).

Illustration: Let us assume that average returns from equity markets range from 20 percent to 30 percent per annum. A small investment of INR 2 lakhs today can earn you more than INR 16 crores for a period of 30 years as against a return of INR 6 lakhs in 5 years timeframe (considering an average rate of return of 25 percent).

Once a good company is selected, the company will help your money grow. You just have to ‘Buy Right and Sit Tight’.

The prime goal to invest in equity markets should be to satisfy the long-term objectives. For example, one should utilize the money earned from the equity markets to accomplish long-term goals like buying a house, children’s education, marriage, world tour or any other specific capital outflow.

The greed to earn quickly is the biggest problem of all investors who have not prospered in the Indian Stock Market.

2. Investment in penny stocks / small caps stocks 

One of the most consistent mistakes that a majority of inexperienced investors tend to make is being drawn to a type of common stock known as penny stocks / small caps. The reason for this (ultimately dangerous) attraction always comes down to the fact that penny stocks appear to fluctuate tremendously in price, which, they convince themselves, should lead to an opportunity to generate a very high return and that too, very quickly. The reason most people seem to be drawn to investing in penny stocks is that these companies fluctuate wildly in very short periods of time. In a single week, shares might go from INR 5 to INR 30.

The naive investor thinks, “Wow! If I had put INR 10,000 in that, I would have been able to turn it into INR 60,000 almost instantly!” Well, here goes to bursting their little bubble. It’s an illusion, make no mistake about it. Not all small-cap stocks give such returns. It often turns out to be precisely the opposite as penny stocks can wipe out your savings in the blink of an eye.

However, there are some penny stocks which have turned into multi-baggers, giving a return of up to 43,000% in a span of approximately 10 years, you just need to know how to pick them.

If you pick the right stock, the returns can be exceedingly huge. As against this, pick the wrong stock, and your entire capital can get eroded.

Also read: What are Penny stocks? And should you buy it?

3. Timing the Market 

Another important factor is the timing of investment i.e. entry and exit in the stock market. Wrong timing is one of the most common mistakes that the retail investors tend to make. The decision to buy and sell stocks should not be dependent on acquaintances. Do not invest in stocks because people around are also investing in it. Avoid such practices as they do not yield well in long-term and often end up incurring heavy losses. Retail investors tend to enter into the stock based on some news (often called as ‘tip’) or they tend to follow an ace investor. However, one important thing that they don’t often understand is that stock market prices discount the forthcoming news/events/results well in advance. Therefore, never follow any investment event which is already public. 

It all originates with investing in any stock at a wrong time with the intention to hold it for the long term. However, if the wrong timing of entry leads to unfavorable returns in the near term then the stock price declines, along with the investor’s confidence in the stock. However, they tend to hold it just because they cannot afford to lose money i.e. book the loss. They hold it for a medium-term (forgetting all about their long-term targets) and wait for the stock to breach their break-even buy price. After months of holding the stock, they sell the stock at break-even.

What return did these investors get from holding the stock? NEGLIGIBLE. People tend to hold the stock at the time of downside and exit on their up-move at their break-even.

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

4. Lack of discipline 

Another beginner’s mistake is the utter lack of discipline in the stock market. The prices of all the shares in the market move several times, to a large extent, because of multiple investors booking their individual profits/losses. The price fluctuations are only an outcome of two emotions – “greed and fear”. The greed to earn more and the fear to lose money.

One should follow strict disciplined risk-reward ratio based on the idea at the time of buying the stock i.e. intraday or positional or delivery-based trading. For example, before even the purchasing the stock, the investor has to decide the expected return and the maximum capacity to bear the loss.

The risk-reward ratio may differ based on the stock selection, investor’s mindset and price volatility of the stock. Ideally and preferably, trading ideas should have a strict ratio of 1:2 i.e. against an expected 10 percent return, there should be a strict 5 percent stop loss below the purchase price.

The volatility in the market has often led to losses even in a bullish trend. Therefore, it is always advised to invest systematically, in the right shares with patience for good returns. Being patient and having a disciplined approach always helps in picking the right stocks for accomplishing long-term goals.

5. Use of Margin to create leverage 

This is the last and most important mistake to be avoided, but however, done by most of the investors in the beginning of their careers. First, let us understand the meaning of Margin money. The margin is a loan extended by the broker that allows you to leverage the funds and securities in your account to enter larger trades. The loan is collateralized by the securities and cash in your margin account. The borrowed money doesn’t come free; however, it has to be paid back with interest. Leverage in any business (also, stock market) means the use of debt to finance the assets. Short term traders use Margin from their brokers to create leverage. Essentially, leverage allows you to pay less than the full price for a trade, giving you the ability to enter larger positions even with a small amount of capital.

How can use of leverage be unfavorable to the trader?

Let’s say, you get a margin of 5 times of the portfolio value from your trader i.e. the trader can purchase stocks of INR 500 against a portfolio value of INR 100. Suppose, you used the entire margin to purchase 5 shares of security A at a price of INR 100 per share (as against purchasing one share without margin funding). If the price of security A falls to INR 95 on the next trading day, then the trader suffers a loss of INR 5 per share. Since the margin is available to the trader for a pre-decided number of days, let’s say for 5 trading days in our example, the trader holds this position in anticipation of a price hike (an illustration of lack of discipline too). At the end of the 5th trading day, the trader has to either deposit the funds or sell the shares in order to clear the debit balance in the margin account. Most likely, the broker will sell the shares because the trader is in the shortage of funds (the primary reason to use margin). Suppose, the share price on the 5th trading day is INR 90 per share. Here, the trader has incurred a loss of INR 10 per share i.e. total loss of INR 50 (INR 10 multiplied by 5 shares).

A 10 percent (INR 100 to INR 90) decline in the security has resulted in a loss of 50 percent in the portfolio value (INR 100 to INR 50 i.e. total loss of INR 50). 

Here, let us understand the math behind this calculation. The percentage return of the portfolio is directly proportional to the margin funding ratio. Since the broker provided a 5 times margin on the portfolio, a normal 10 percent resulted in a total loss of 50 percent in value.

Leverage can give the same multiplying effect to the profits as well, in fact, that is the motive of most of the traders – to earn quick money using leverage/margin funding. It turns out that no one has ever earned consistently in this fashion.

Also read: 7 Types of Risk Involved in Stocks that You Should Know.

To summarize, it is important to understand that to become a successful stock investor, you must invest your own serious money based on your capacity. Sometimes, it is better to sit on cash rather invest and lose money. “Do not invest just for the sake of investing” – Warren Buffet in his recent annual letter to the shareholders of his company. Form a methodology of stock picking, believe in your ideas of investing and back them by having a longer-term mind frame.

The beauty of investing is that there would be a million investors sailing the same boat but still, their earnings from the stock can be materially different. Finding a great company is not even half the battle. Price matters. Time frame matters. Temperament matters.

Have a good day. #HappyInvesting. 

This article is written by guest-author ‘Pranav Thakkar’ and was also posted here.

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