Points remember before Investing in stocks

[00:00:00] CA Rachana Ranade here and I welcome you all to another episode of Finance Simplified, the podcast wherein we want to talk about coins which are generally less talked about. So let's get started.

[00:00:30] So let's get started.

[00:01:01] Now first and foremost we have to understand what is the meaning of multi-bagger and then we will understand whether nifty stocks also become multi-bagger or not.

[00:01:09] So for that I'll take you to Wikipedia okay, what does it say? A multi-bagger stock is an equity stock which gives a return of more than 100% simple.

[00:01:18] So the moment the stock has doubled it means that it's a multi-bagger stock. Now if you were to ask me that are there any nifty stocks which have doubled in a matter of let's say three years, see why did I say three years we're at the beginning of 28-24, if I were to go like four or five years then we have that corona fall and if I measure the upside from the lower most point of corona then it will not be fair enough right.

[00:01:39] So this is a homework for you. What you can do is check the returns of these three four stocks just to give you an example, Tata Motors, State Bank of India, Barthi Artelle, ITC, favorite of many people, Memor's favorite basically.

[00:01:52] So these three four stocks check the return from 1st January 2021 so 21, 22, 23, 3 years return check and they have more than doubled.

[00:02:01] Now who says that nifty stocks or large caps never become multi-bagger they do become multi-bagger and in fact these are proven, these stocks have proven themselves.

[00:02:11] They are fundamentally strong, they do have certain mode so obviously the risk involved would be definitely lower.

[00:02:19] Now also one more point is that whenever it is about investing in penny stocks many people get some kind of tips from their friends, tippin dros.

[00:02:27] What we'll say is that for a house, if you have a store, you will be on the store and you know what happens?

[00:02:33] Fimo, Fimo, I did speak bye bye bye and then again Fimo let's buy, let's buy and that is what happens when you keep on investing in stocks which are hitting back to back upper circuits.

[00:02:47] There are a lot of penny stocks where it does happen exactly like this and typically retail individual investors tend to invest at the highest possible point.

[00:02:57] So please ensure that you don't fall a trap for this Fimo kind of a situation and you better stay away from penny stocks which are hitting back to back up, back to back upper circuits and back to back lower circuits.

[00:03:10] So always remember safety first.

[00:03:12] The next point that you should consider before buying stocks is that never catch a falling knife. Now what do I mean by that?

[00:03:19] I'm sure you might have seen certain stocks in last few weeks only which have crashed like anything if you have been following my channel, you will understand which stock am I talking about right now many people feel that it has already crashed by 70%

[00:03:30] has already crashed by 80% or how much will it be?

[00:03:34] This might be the lowest point and from your idea, it will see some reversal and I'm going to take a contra bet is what people feel.

[00:03:40] But always remember that if nothing has changed in the company even if the stock has corrected like 7080% there are great chances that the stock might fall further.

[00:03:49] So before you think about averaging in that stock or before you think about taking a contra bet on that stock try to see if something has changed in the stock or not.

[00:03:58] Try to see whether the problem because of which the stock started to see the downfall whether some sort of solution is in picture for that stock or not.

[00:04:06] If it was about some problem in the product whether there is some solution that has been found for that product or not.

[00:04:12] If there was a problematic management whether these people are now being replaced or not so all in all what you have to see whether there are certain parameters that have changed because of which a reversal can happen in a stock.

[00:04:23] So just remember this I'm repeating this again just because the stock is falling don't catch that falling knife your hands are going to bleed.

[00:04:31] Now let's go on to the next point wherein we should stay away from stocks which have a questionable management now what do I mean by that?

[00:04:39] The moment you feel that this management is such where governance is at stake where governance can be questioned when their integrity can be questioned where there are certain litigations on the management.

[00:04:50] Ideally you should stay away from such stocks in fact a lot of fund houses also give a lot of importance for ESG parameters and ESG may G is nothing but governance right.

[00:05:00] So as good investors you ideally should stay away from companies where the management itself is questionable.

[00:05:07] Now we like if we are talking about investing in IPOs as an example how will we understand whether there are any cases against the management or not against the company against the directors or not well there is a separate chunk in the IPOs.

[00:05:19] In the RHP basically wherein it is very clearly given what are the litigations against the company what are the litigations against the directors if there aren't any litigations by the company also that is separately given.

[00:05:31] So we should not be bothered about litigations by the company because they're against someone else but if there are litigations against the company against the management try to see what are the sort of these litigations and if they are about questioning governance ideally stay away from such companies.

[00:05:46] Moving on to the next point which is about buying stocks immediately post listing now what do I mean by this what will be like Rachnara you kidding there are so many cases that if we invest on day one of listing they actually give mind blowing returns see I'm not against the philosophy of investing in stocks on day one of listing in fact I myself have invested in certain companies on day one of listing I'll tell you what happens.

[00:06:08] The stock on day one already has doubled let us say okay after that also it is growing let's say on an average 3% 4% sometimes it's let's say hitting back to back up for a second so 5% 10% what not and then again the bus gets created in that stock retail individual investors majority of them will be late in entering the party.

[00:06:28] And then what happens is that at that point in time the valuations of that particular stock are so crazy they're way above the industry average and that is where retail individual investors enter if this be so the moment the market mood changes if market starts turning bearish these are the stocks which ones which are absolutely high in PES compared to the industry P stocks which are high in valuations they are the ones which take the beating first okay.

[00:06:56] So whenever you're buying post listing just be aware just check whether the valuations are not sky high and then only missed.