Home | Login OR
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.

Type Returns Remarks
Fixed Deposits 2.15 lakhs , assuming 8% interest per annum We have to give tax on this based on income slab.
Corporate Bonds 2.8 lakhs , assuming 11% interest per annum Tax needs to be paid and there is risk involved in bonds , if company do not perform - we dont get any interest.
Gold 2002 price 5000 , price in 2012 - 30000 ; Return of 6 times Long term tax for holding period of more than 3 years otherwise short term tax
Land mostly in between 3-6 times , it is largely depend on the development of the area Less Risk
Stocks Sensex was around 3600 in 2002 , in 2012 it is 18000. Return of 5 times no tax for holding period of more than 1 year

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

Company Name Increase in Stock price Sales Earnings Margins Debt to Equity Return on Equity Equity
Titan Industries 100 times in last 10 years Avg. sales growth 29% Avg Earnings growth 50% Net Profit Margins 5-6% Debt to Equity have been continously improving , now it is zero above 30% on average
Sun Pharma 20 times in last 10 years Avg. sales growth 27% Avg Earnings growth 37% Margins above 30% 2003 - 0 , 2004 - .36 , 2005 - 1.6, 2006 - 1.16 , 2007 - .4 , 2008-2012 - nearly Zero above 20% on average
Asian Paints 15 times in last 10 years Avg. sales growth 21% Avg Earnings growth 30% Margins 8-12% less than .3 above 35% on average
Colgate 7 times in last 10 years Avg. sales growth 9% Avg Earnings growth 23% Margins have been improving for last 10 years from 5% to 17% now Zero above 100%

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.

Steps of Investment

© 2012 pupone.com. All Rights Reserved.