|Should I Invest In Stocks?|
|Before we discuss about "Can I Invest" , let's take a look to see if we should invest in stocks.
What options do we have for investments? Fixed Deposits , Government Bonds , Corporate Bonds , Stocks , Gold , Real estate. Before making any decision , we must take inflation in consideration.
In early 2000s , a middle class man could easily purchase a decent house in 10 -15 lakhs.Average family was spending 4000-5000 monthly for household expenses.Here we have assumed 4 members in the family.Today , the amount for house would be 30-35 lakhs and for household expense it would be 10000-12000.So needs have increased around 2 to 2.5 times in span of around 10 years.
Now below are the returns if we have invested 1 lakh in 2012.
Above table shows that FDs and bonds have not been able to give good amount of returns if we take inflation into account.In fact , the purchasing power of money has reduced in these 10 years if we were mainly invested in FDs, Bonds. We should still some amount in FDs and Bonds but not rely on them to beat inflation or to create wealth. So we need to rely on Gold , Land and Stocks to create wealth for us.
Gold depends on lot of parameters so it is not easy to predict the returns but it past 10 years it has shown consistent return.
Land is a good mode of investment and it is likely to be less risky than other forms of investment.Stocks can give maximum returns if the proper analysis is done and investment process is followed. In these 10 years , Sun pharma stock price has gone 20 times,Titan - 100 times , ITC - 10 times, Asian Paints - 15 times. In long term , returns on investing in great companies have surpassed all forms of investments and it is very likely that trend will continue.
|Can I Invest?|
|So as mentioned above , Great Companies have given on an average around 10-15 times return in last 10 years.|
What are the characteristics of Great Companies ? Can an individual investors identify these great companies.
Let's first talk about characteristics of Great Companies.All Great Companies , be it Titan , Sun Pharma , TCS, Asian Paints.All these comapnies have common features as mentioned below :
1. Their earnings have been increasing at around 15-20 % for the last 10 years
2. They have shown consistent Profit Margins.
3. They have very less debt compared to equity on their balance sheet
4. Good Return on Equity
5. and most important that they have build a tremendous brand image in these years.
6. Stable and Simple model and huge entry barrier
Now let's talk about "Can i Invest?" , here "i" refers to individual investor.One can invest in Stocks , once he can understand the business of the company.There is always a company behind each stock so the job of the investor is to understand the business of the company and analyze the fundamental parameters.One should look for consistency in each of the fundamental parameters like Sales , earnings , Margin etc.
One should follow proper investment process before taking a final decision on investing in a company.
Click the below image to know about the investment process.