Part 5: Process or How the heck do I Invest in Equity Successfully?

5.4 Know when a stock deserves your hard-earned money and forget the rest?

What are necessary and largely sufficient data points to look at to make an informed assessment about a potential opportunity? Can you identify the reasons to eliminate mediocre opportunities and study the good one without wasting time? What will make you better at doing this? How can you know when a stock becomes an opportunity worth looking at in the future?

Ask anybody why they bought something, anything and the most common answer is quality, “Achhi Quality Ka Hai”. I don’t think you are any wiser after such an answer. So, if you are smart you will ask “What did you see in it that convinced you that this is good quality?”. You need to ask the same question when talking about the quality of a stock.

How to assess stock and conclude about its quality? Let us understand this with the help of cricket. There is no doubt about the talents that Sehwag and Dravid had. If you had to select only one, who would you select? There can be much debate around the answer – depends on the other team members, current form, who are we playing against, and is it a T-20 match or a Test match. But what if you had to select between them for a Test match? The answer overwhelmingly would be Dravid. Why? Many reasons, but essentially because Dravid is a more consistent performer, better at shot selection, and temperamentally better suited for a test match.

Now investing in stocks is like playing a test match. And you back a team (portfolio) that has many players (stocks) with Dravid-like qualities. Investing, like a test match, is less entertaining, and thrilling than watching T20, but remember you are not investing for entertainment, thrill, or adventure but for growing your money and reaching financial...........Read More

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