Savitribai Phule Pune University

CS 2

Table of Contents 1) Getting the Right Perspective towards Investing ................................................................. 4 2) Choosing the Stock Picking Approach suitable to you......................................................... 7 3) Why I Left Technical Analysis And Never Returned To It! ..................................................13 4) Shortlisting Companies for Detailed Analysis .....................................................................18 5) How to conduct Detailed Analysis of a Company ...............................................................25 6) Understanding the Annual Report of a Company ...............................................................31 7) How to do Financial Analysis of a Company ......................................................................43 8) 7 Signs to tell whether a Company is cooking its Books: “Financial Shenanigans”.............52 9) Self-Sustainable Growth Rate: a measure of Inherent Growth Potential of a Company......60 10) How to do Valuation Analysis of a Company ..................................................................68 11) Hidden Risk of Investing in High P/E Stocks...................................................................73 12) How to earn High Returns at Low Risk - Invest in Low P/E Stocks .................................81 13) 3 Principles to Decide the Investable P/E Ratio of a Stock for Value Investors...............88 14) How to do Business & Industry Analysis of a Company................................................103 15) Is Industry P/E Ratio Relevant to Investors?.................................................................112 16) Why Management Assessment is the Most Critical Factor in Stock Investing?.............121 17) Steps to Assess Management Quality before Buying Stocks (Part 1)...........................133 18) Steps to Assess Management Quality before Buying Stocks (Part 2)...........................144 19) Steps to Assess Management Quality before Buying Stocks (Part 3)...........................156 20) 3 Simple Ways to Assess "Margin of Safety": The Cornerstone of Stock Investing.......161 21) 7 Important Reasons Why Every Stock Investor should read Credit Rating Reports.....171 22) Final Checklist for Buying Stocks..................................................................................181 23) 5 Simple Steps to Analyse Operating Performance of Companies ...............................185 24) How to Monitor Stocks in Your Portfolio........................................................................192 25) Understanding & Interpreting Quarterly Results Filings of Companies..........................197 26) How Many Stocks Should You Own In Your Portfolio?.................................................210 27) Trading Diary of a Value Investor .................................................................................215 28) When to Sell a Stock? ..................................................................................................222 29) 3 Guidelines for Selecting Stocks Ideal for Retail Equity Investors ...............................227 30) How to Use Screener.in "Export to Excel" Tool.............................................................235 31) Premium Services ........................................................................................................256 www.drvijaymalik.com 3 | P a g e Copyright © Dr Vijay Malik. All Rights Reserved. www.drvijaymalik.com 4 | P a g e Copyright © Dr Vijay Malik. All Rights Reserved. 1) Getting the Right Perspective towards Investing Every investor has a dream that she should create a portfolio of stocks, which should generate wealth for her. The portfolio should become an alternative source of income for her. The portfolio should support her in the hard work to sustain and improve the financial position of her family, her lifestyle and if possible give her an opportunity to retire early and fulfil all her dreams: travel, adventure and doing things she is passionate about. I have the same dreams and desire that my stock portfolio should generate sufficient income; so that I might not need to work at a job as a necessary means to earn my livelihood. Monitoring my portfolio would be the only thing needed and I do not think of portfolio management as a job. It is my passion, which makes me feel lively and rejuvenated. Many acclaimed people have already achieved that dream through stock investments, both in India and abroad. The accomplishments of Warren Buffett and Rakesh Jhunjhunwala can be cited as good examples. Warren Buffett buys the stakes and stocks in the companies, in which he would like to, invests through his parent holding company Berkshire Hathaway. Those companies, in which he has invested earn profits and send the majority of the cash back to the parent company (Berkshire), which Warren further invests. Warren, currently 84 years of age, enjoys his job so much that he often says that if loving one’s job ensured long life, then he would never die. His personal wealth is about $ 67 billion. I do not know whether my portfolio would ever be able to reach those levels. It is in the time to come when we will see how far I will be able to go. I believe that anyone who is able to put in the required hard work can do the same. What is needed to be a Good Stock Picker? Reading: It is the single most important quality required in a person who wants to be a successful stock market investor. Many successful investors like Benjamin Graham, Peter Lynch etc. have written books sharing their knowledge about stock investments. They have explained the stock picking process in a very simplified manner. Reading these books is the first step in this journey of stock investments. Patience & Emotional Control: This is another very important quality needed for a good stock market investor. The role of emotions in investments has assumed such significance that a separate field called “Behavioral Finance” has been created for it. Stock market investing requires a long-term approach and you have to stay invested in the market for a long time to reap the benefits. Investors face many emotions during their stay in the stock market. Emotions like fear, greed and frustration make investors take impulsive decisions of entry and exits during short phases of market u