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Anil Poonia

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What do you think of when you hear the term ‘CANSLIM’, no, it is not a type of fitness instrument, it is a system which helps you to select stocks by a combination of fundamental & technical analysis techniques.

The story behind CANSLIM

William J. O’Neil is a famous American entrepreneur, stockbroker and writer. In his early career (in 1958) where he was working at Hayden, Stone & Company as a stockbroker made an investment strategy, this system made the use of computers. Two years later he was accepted to  Harvard Business School’s first Program for Management Development (PMD). From his research, O’Neil invented the CANSLIM strategy and became the top-performing broker in his firm.

What is the CANSLIM investing strategy?

CANSLIM is an acronym for 

  1. C – Current Earnings
  2. A – Annual Earnings
  3. N – New
  4. S – Supply and Demand
  5. L – Leader or Laggard
  6. I – Institutional Sponsorship
  7. M – Market Direction

Let’s discuss each criterion in detail:

  1. Current Earnings: It refers a quarter to quarter increase in the current earnings per-share, generally, investors want the EPS to over 20%, but the higher the better. 
  2. Annual Earnings: An year on year increase in annual earnings, generally inventors want the EPS to grow 20% over the last 3-5 years.
  3. New: Look for a company that constantly innovates, making new models, prototype, research, patents plays a major role in the company’s progress. Few good examples of this could be Tesla, Apple, Google.
  4. Supply and Demand: A product which has low supply coupled with high demand can create a huge demand for the stock.
  5. Leader or Laggard: Buying an industry leader stocks will always be a good option, these stocks would be the first ones to bounce back from the market correction or price declines. Ex.  Asian Paint or  HDFC Bank.
  6. Institutional Sponsorship: High institutional holdings are good picks, as the more the investments that an institution does in the company, more is the confidence and faith of the institution in the company.
  7. Market Direction: Time and again we have seen that out of every four stocks, three stocks follow the current market trends (studies have shown that 85% of the stock follows the ongoing market trend) and one should not ignore these trends.

Summary 

CANSLIM can be said as one of the simplest methods to identify stocks that have a good possibility to see a price appreciation. Investors should make sure that all the seven criteria’s work for the stock that they are looking to invest in. 

For all those who are beginners in investing and find it difficult to research can invest in StockBasket. StockBasket is India’s first long buy and hold investment platform, it has expert curated ready-made basket of stocks, these baskets are designed as per the financial need of investors 

Financial Ratios can be the biggest tool of an Investor, this can help investors to determine the quality of a business, its efficiency and its profitability. Today we will discuss some important Finacial Ratios that every Investor must know before investing in any company, but before this, we would like to give you the 5 categories of Financial Ratios:

  1. Leverage 
  2. Liquidity
  3. Profitability
  4. Operating 
  5. Solvency

All the Financial ratios come under these 5 categories, so now let us discuss the most important financial ratios:

  1. Profit-Earnings (P/E) Ratio: It is the ratio of the Market Value per share and Company’s earnings per share. Earnings per share (EPS) is the amount of a company’s profit allocated to each outstanding share of a company’s common stock, serving as an indicator of the company’s financial health.
  2. Earnings per Share (EPS): It is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. If a company has zero or negative earnings (i.e. a loss) then earnings per share will also be zero or negative.
  3. Return on Equity (ROE): The return on equity (ROE) ratio tells you how much profit the company can earn from your money. This ratio tells us how much money the company earns on an investor’s rupees. The higher the ROE ratio, the higher the profitability.
  4. Working Capital Ratio: Working capital represents a company’s ability to pay its current liabilities with its current assets. Working capital is an important measure of financial health since creditors can measure a company’s ability to pay off its debts within a year.
  5. Quick test ratio: The Quick Test Ratio (also called the Acid Test or Liquidity Ratio) It is the ratio of Current assets minus inventory by current liabilities. It provides a stricter definition of the company’s ability to make payments on current obligations. Ideally, this ratio should be 1:1. If it is higher, the company may keep too much cash on hand or have a poor collection program for accounts receivable. If it is lower, it may indicate that the company relies too heavily on inventory to meet its obligations.
  6. Debt ratio: It is the ratio of Debt and Total Assets. It measures the portion of a company’s capital that is provided by borrowing. A debt ratio greater than 1.0 means the company has a negative net worth and is technically bankrupt. 
  7. Dividend Ratio: The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. It is the percentage of earnings paid to shareholders in dividends. 
  8. Dividend Yield: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend payments divided by its market capitalization, assuming the number of shares is constant. 

We are sure that the above ratios would definitely help you to take one step further to your wealth creation journey.

Are you looking for investing in the stock market but at the same time afraid of the risk that comes into play before thinking of investing your hard-earned?

Don’t worry then this blog is for you, there are many stocks that you can invest that have low risk but can give high returns. Before deep diving in them let us first understand what is a risk?

Investopedia defines risk as “The chance that an outcome or investment’s actual gains will differ from an expected outcome or return.” this also includes the possibility of losing some/ all of the original investment.

Risk can be further divided into two types High-Risk Investment and Low-risk Investment: 

  1. High-Risk Investment: A high-risk investment is one which can either have a large percentage chance of loss of capital/under-performance or it can give you high returns. 
  2. Low-Risk Investments: A low-risk investment involves less risk, these stocks are also called defensive stock, they are less volatile. 

Stock Market always posses some risk with it, but we can prefer to have the lower one. Let’s have a look at some of the low-risk stocks:

  1. Godrej consumer product ltd
  2. ICICI Prudential Life Insurance
  3. Colgate Palmolive (India) ltd.
  4. Tech Mahindra Ltd.
  5. Marico Ltd.

Investors can also prefer to invest in StockBasket – India’s first long term buy and hold investment platform, it has ready-made expert-curated baskets of stocks.

The baskets are broadly classified into the categories mentioned below:

  • Thematic: long-term themes like growing consumption and rising rural demand. 
  • Goal-Based: Accumulate corpus, child’s education, basket for retirement planning.
  • Risk-Based: High-risk and Low-risk basket.
  • Time-Horizon based: 5-years and 10-years baskets.

To invest as per your risk appetite one can invest in 5 Year – Low Risk – Lite and 5 Year – Low Risk – Regular basket, these basket are expert-curated ready-made baskets of stocks and are designed for investors who are willing to take the low risk for a 5 year period. The stocks in these baskets are considered to be the safer heavens during the time of bloodbath in the markets. 

These stocks come from the sectors that are called the pillars of the stock market and are usually considered the “defensive” stocks. Companies in these baskets have lower volatility, low to nil debt, stable growth and efficient management which can help you gain stable returns.

Summary
Investors should try to invest in quality stocks and stay invested in them for the long term to create huge wealth.

The title looks too obvious to us, and we too believe that this should be done every time before we invest not only in stocks but everywhere your money is involved, research is important.

Financial research of stocks before investing can help you avoid huge losses.

But is Financial research everyman’s cup of tea? This is a fact, most of us are not financially literate and do not understand some of the financial ratios or the balance sheets. So what should a common investor do?

Below are some of the important attributes that every investor should consider, before investing their hard money in any particular stock:

  1. Price Volatility: One should look at how volatile is the stock, some stocks show the topsy-turvy pattern in their charts and it can be too risky to invest in them, one should always avoid investing in these stocks due to their high price volatility.
  2. Types of Asset class: One should look at the type of the asset class it can be a speculative stock or a Blue-chip stock, Speculative stocks are basically those stocks which have to potential to generate great returns in a short period, while Blue chips stocks are those which have a large market cap and grow at a constant pace, they are comparatively less volatile than speculative. If you are looking for low risk and constant growth then one should prefer the Blue-chip stocks. Refer to this article to know more about Blue-chip stocks.
  3. P/E ratio: The Price Earnings Ratio (P/E Ratio) is the relationship between a company’s stock price and earnings per share (EPS). It is a popular ratio that gives investors a better sense of the value of the company. 
  4. Dividends: A dividend is the distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors. Shareholders are eligible for dividends as long as they own the stock before the ex-dividend, Refer to this article to know more about Dividends.

Apart from these, one should also be updated about the sector of the stocks, whether the sector is performing or not, all the news related to the stocks in the past 1-3 years.

The above attributes of financial research cannot guarantee that the stock will perform well in the coming time, but this will give a fair understanding of the business which you are about to invest.

For all those who cannot research these attributes by themselves and want to invest in best stocks for the long term can prefer StockBasket – a long term buy and hold investment platform that can help you create wealth in the long term.

StockBasket is an expert-curated ready-made basket of stocks, which are categorised as per an individual’s financial goals, long term themes, risk appetite and time horizon. 

These baskets are also continuously monitored by the StockBasket team of experts, and stocks are rebalanced timely.

So for all those who interested to invest in stocks but find the research too difficult, they can invest n these  baskets and can start to build huge wealth in the long term

StockBasket helps retail investors to invest in great quality mini-portfolio of stocks, thus helping them to create wealth in the long term.

We are sure that everyone would have heard about the Aesop’s fable about the Tortoise and the Hare story. A tortoise challenges the hare to have a race and how the hare gives him a big lead, thinking the tortoise would take to much time to reach, he takes a nap and how the tortoise, in the end, covers the distance and ends up being a winner.

What does this story teach us?

It may sound so untrue that the slow tortoise wins in the end but this does make sense when we think about long term investment. Considering the case of and investor where you can take short term investors or traders or speculators to be the hare and the long term investors (or just investor) to be the tortoise. Traders show the same characteristics of a hare, they take short term positions to make money in the quickest form. They usually take a high risk which shall be avoided unless you don’t have proper knowledge of technical analysis. On the other hand, long term investors do fundamental research and invest with a view of getting superior returns in the long term.

Hare are impulsive, impatient and look for instant profit booking, whereas Tortoise is patient, persistent and are mentally prepared to wait for a while.

Let us compare some characteristics a Trader and Investor

CharacteristicsTraderInvestor
Personality Hare (Impatient)Tortoise (Patient)
RiskMedium to HighLow to Medium
Time HorizonDay, Week, Month, YearYears, Decades
StressVery HighLow
Charges paidVery highLow

They both follow a different style of investing, but when it comes to generating superior wealth, the tortoise will be the ultimate winner, to prove this let us discuss the benefits of investing with the style of a tortoise (i.e long term investing)

Benefits of Long term investing:

  1. Power of Compounding“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”  -Albert Einstein. Compounding gives the benefit of interest on interest thereby generating a good amount, many of the famous investors live Warren Buffett have earned huge amount by staying invested for the long term and enjoying the benefit of Compounding.
  2. Low Risk: Staying invested in the market reduces the risk by removing the lost opportunities that happen in the market. Continuous buying and selling could result in missing the big up days in the market
  3. Emotions are out of equations: The best aspect of long term investing completely removes the emotion equation which is the major cause of bad investment decision which can lead to huge losses
  4. Your Money works for you and you can sleep well: The stress level of an Investors is very low as he adopts the buy and hold strategy, where he does not have to worry on, everyday trades like that of a trader and can sleep peacefully.
  5. Low Commissions or Trading charges: The lesser the transaction the lesser is the commission or trading charges and the larger is the profit booked over time.
  6. It’s Easy: Buy and hold strategy requires a little fundamental research and all that you need to do is to be patient and hold your stocks for the long term, allowing compounding to do its magic, this is comparatively very easy w.r.t to trading where we have to time the market to book profits and which also requires sound technical knowledge.
  7. Tax Savings: Long term investments are taxed less in comparison to the short term which will automatically save some good amount of money for you

In the end, we can summarise that retail investors should follow the tortoise strategy(i.e. Long term investment) to grow their wealth and should invest in good quality stocks for the long term. The same philosophy is followed by StockBasket – which is India’s first long term buy and hold investing platform which has expert-curated baskets of stocks.
Investors can invest in StockBasket by opening an account with Samco Securities. StockBasket core principle says that an investor should invest in superior quality stocks and hold them for at least 5 years period to get superior returns.

We have seen some massive market crashes in the last two decades, the Stock Market Crash 2008 and now the market crash due to the Pandemic of 2020. Investors who endured in these difficult times and stayed invested were the ones who got the best returns. 

We should accept the fact that the market crash and economic slowdown would never go away, but we must always stay consistent in our investment and do not allow our emotions to come into play while investing.

The reason being after every dark night, there’s a brighter day waiting for you. We have seen this after every decline in history (no matter how severe they may be) investors have recovered their losses and market have seen positive growth over the long term.

At these times you must not forget the quote of the famous investor Mr Warren Buffett which says “Be fearful when others are greedy and greedy when others are fearful.”, these times can be great opportunities to buy more at low prices rather selling your stocks at loss.

Let us look at some of the reasons why long-term investors should never sell stocks in a panic:

  1. Why not sell in a panic: Investors plan their investments for their retirement or their financial goals, this wealth generation starts by investing regularly and with the effect Power of compounding coming into play. The most common reason for panic selling is mistrust, at this time one should always remember that market is cyclical in nature (Read more on Market Cycles here), nobody can prevent the movement of stocks, but a downturn is always temporary. In this situation, one should think like a long term investor who knows that the market and the economy will recover. Even during this Pandemic, BSE Sensex went down up to 25,981.24 on 23rd March 2020 its all-time low and now in the month of September 2020, it have recovered back to the same position where it was in the month of September 2019.
  2. The effect of Power of Compounding: Compounding is nothing but the interest earned when interest payments are reinvested, particularly in the context of stocks. The idea is to stay invested as much as possible, frequent selling or buying or selling the stocks in panic would not help to grow your wealth.  Refer our article on Power of Compounding to know more.
  3. The Margin of Safety: Margin of Safety is a principle of investing in which an investor only purchases securities when their market price is significantly below their intrinsic value. In simple terms, when the market price of a security is significantly below your estimation of its intrinsic value, this difference is called the margin of safety. Long term investors should buy the stocks as per the margin of safety, this gives them the safety in accordance with their own risk preference. Refer our article on Margin of Safety to know more. 

Summary

By picking the right strategy of following the margin of safety, good research and discipline in investing one can easily beat these market fluctuations and can create a huge wealth in long term. And if you have a long-term investment strategy, you’ll be far less likely to follow the panicking herd over the cliff and will keep your emotions at bay during these situations.
Instead of fear-based selling, one should use a bear market as an opportunity to buy more – accumulate shares at deep discounts in and allow yourself to diversify, building a more stable base for when thing’s eventually do turn around.

With access to a lot of information, today the complex process of investing has become an easy process, yet the industry services players portray it as a complex process enough to turn over control of your money to an “expert”.

Today a common retail investor has so much access to the data, advanced tools and platforms that he can manage his portfolio effortlessly without spending a single penny on the costly expert’s fee.

By following the below strategies one can manage his own investment portfolio:

  1. Investment Strategy: Before planning your investment you should understand the business of the company this can be either starting to understand the sector and then the company or vice versa, understanding the economy and the sector first and then the company is called Top down approach, and understanding the company first and then the sector and the economy is called a Bottom Up Approach, you can also refer our article on Portfolio Approach v/s Stock Specific Approach to know more. 
  • The Margin of safety: The best approach to build your portfolio s to avoid risk and the best way to avoid risk is following the Margin of Safety. So what is a margin of safety? The margin of safety can be defined as the principle of investing in which an investor only purchases securities when their market price is significantly below their intrinsic value. This technique helps us to reduce the risk and give us an opportunity to buy quality businesses at a lower price in comparison to its intrinsic value.
  • Invest in Businesses that you Understand: Never ever invest in a business that your friend assumes might go up or following that one good news, don’t invest in a business unless you understand the economics of the industry and can forecast it for at least a  span of 5 years.

2. Risk Appetite: Stock Markets are subjected to risks and one needs to accept this fact and move ahead, you need to figure out your risk appetite on the basis your financial capacity, an investor with a good sum of money can take more risk than an investor who has less money to invest.

3. Diversification: You must have heard about the famous idiom “Don’t put all your eggs in one basket”, the keyword here is to diversify your investment, if you put all your money in just one stock, there are chances that you become super rich or you can lose all your money, there is too much risk involved in investing your money in just one stock, so to avoid this one should balance their investment and invest in multiple good quality stocks.

4. Rebalance: Rebalancing can be said as the process of realigning the weightings of your portfolio, the central idea here is to buy and sell the stocks on the basis of their performance, It is always recommended to rebalance your portfolio once in a year, but you need to constantly monitor your portfolio and rebalance timely.

Summary 

 Today’s investors can easily manage their portfolio, provided they pick great quality stocks. The key to creating wealth is to start early, invest in quality stocks and stay invested in them for the long term, with the magic of compounding coming in to play.

“Ninety-nine percent of the failures come from people who have the habit of making excuses.”                    

                                                                          -George Washington Carver

When it comes to investing people always find an excuse to avoid it, some common excuses that they say are lack of money, lack of knowledge, too risky, it’s too early to start or it is very costly to afford portfolio management services. 

Today we will try to discuss the reasons or excuses that are keeping you from investing in the stock market and how we can overcome them:

  1. It’s too early to invest: You may feel that you are too young to invest because you have just graduated or started your new job but are you aware of the fact that Mr Warren Buffett bought his first stock when he was just 11 years old. This may look astonishing to you but as the famous saying goes “The best time to plant a tree was 20 years ago. The second best time is now” so don’t hold it, start your investments as early as possible. Also early investing will help you to invest less in the long term. To know more on early investing read our article on Early investing.
  2. Don’t have money to invest: This is one of the most common reasons to avoid investing, people do not plan their budgets and end up with no money at the end of the month. To avoid this should one should plan his monthly expenses, we can use the 50/20/30 budget rule which says that we should spend 50% of our income on your daily needs and obligation, and you should split the other 50%, in 20% and 30%, you should save/invest the 20% and use the 30% for everything else that you want. Also, you can start with small amounts and then increase it gradually.
  3. Equity investments are too risky: Well, yes, there is a certain amount of risk involved in equity investments but in general, they are the best investment instrument that has the potential to beat the inflation rate and give your superior returns, unlike your savings account.
  4. Too old to start now: Many of us because of their debt burden or some other responsibilities did not that the time to plan their investment, for them its never too late to start investing and starting their wealth creation journey.
  5. Have no knowledge about investing:  Many of us feel that investing is just the gameplay of seasoned investors or we need to know the market in and out to start our investing journey, this is not true, for investing you just need to have a fair idea about the framework, start with small investments and take help from experts, one can also learn the basics from online videos.

Summary 

However, in the end, can say that out of all these excuses none should hold you back from investing your hard-earned money in the stock market and starting your wealth creation journey.

For beginners who don’t have the time and expertise to identify the right stocks can start with StockBasket – a long term buy and hold investment, it has expert-curated mini portfolios or basket of stocks. One can invest in these baskets of stocks as they are less volatile, great quality and their initial investment start from Rs. 3000.

So stop making excuses and start your investment journey today!

Investopedia defines market volatility as a statistical measure of the tendency of a market to rise or fall sharply within a short period time or in simple words we can say the ups and the downs of a stock market in a given period time.

Most of the Retail investors have burned their hands while investing in Covid-19 period, and this is especially true for a novice investor, who can be tempted to even pull out of the market altogether.

Market Volatility can be best described as a wide price fluctuation and heavy trading. There can be many factors that cause the market to fluctuate, these can be a good/bad news about a company or a sector, Heavy day trading or short selling, new policy, economic reforms, IPO, budgets, or some quarterly results of a company, these can also be due to foreign institutional investors (FII) or domestic institutional investors (DII) investments.

Let us look a the best strategies that can help you surf the volatile market:

  1. Create a well-diversified portfolio: Concentrated portfolio can be very risky at the time of volatility, avoid building a concentrated portfolio of just a few stocks rather try to have a well-diversified portfolio, try to have the right mix of stocks which can withstand the market fluctuations and help you mitigate the impact of volatile markets.
  2. Keep the long term approach: Investors should not react to short term market conditions and think of staying invested for a longer period, they should avoid emotional investing.
  3. Understanding Risk Appetite: Risk appetite can be defined as the willingness of investors to bear the financial risk with the expectation of generating a potential profit. Every investor should first understand their risk-taking capacity and then plan to invest in stock markets. Without proper analysis of his risk appetite, an investor can easily end up getting into huge losses.
  4. Investors who are approaching retirement: The investors who are about to retire or who have already retired should and are planning to withdraw your portfolio in 3-5 years should focus on investing in less volatile stocks. This can help them to easily withdraw their portfolio 

In a nutshell, one can say that investing in a volatile market implies a great deal of risk. One must be fairly informed about their risk appetite before investing 

A common saying which we all must have read during our school days is “no pain, no gain”. This simply implies that one needs to get out of one’s comfort zone to gain big. Investment is no different. A fairly popular investment technique which ages back to the medieval times of the European explorers is “higher risk, higher reward”. European explorers would take huge risks by sailing off to unknown land for months with no guarantee of success. But such risks were rewarded handsomely. Be it the gold of the Aztecs or the vast, mineral rich American land.

One of the key mantras of investment is diversification. This brings us to the juncture of the risk-taking ability. A key tenet of a good portfolio is investing in multiple avenues. The phrase higher risk, higher reward is generally how we split our investment between the riskiest assets such as equity and low-risk assets such as bonds and cash or gold. 

The risk-taking ability also depends on the stage of life the investor is in. A senior citizen who lives on his pension wouldn’t want to risk his hard-earned savings in volatile stocks. A blue-chip, regular dividend paying stock would be the maximum risk that he could take. 

Even before we consider investment, we must look at basic human needs. Maslow’s Pyramid places physiological and safety needs at the bottom of the pyramid. Money-wise it means that one must have enough saved to survive for a few months and have enough safety net such as term insurance or a health insurance. Human beings then move towards esteem needs and self-actualization needs. These needs in terms of investments are the higher risks that we take to get higher rewards.

Diving deeper into the topic, we realize that risk is a factor of volatility. The probability of an outcome to take values from the farther ends of the continuum makes it volatile. Volatility is rewarded if you are on the right side of the things. The famous Black and Scholes model which is used to price options rewards volatility with higher option premium. It simply means that if the underlying assets have the ability to acquire a value which is far away from its current value, the option to acquire it must also be expensive.

But again, things are not so straight forward. A recent study from the Investment Management firm GMO has revealed the plain old higher risk, higher reward strategy can have flaws. This is also due to the misclassification of the asset under a certain risk category. A particular asset might have a lower upside potential and higher downside risk and still be called risky. Taking the stock returns of over 30 years of investments in higher and lower risk stocks in the US market, the firm found that first quartile of the riskier stocks produced only 7% returns on an average, while the fourth quartile, i.e. the least risky stocks gave around 10% returns to the investors. This is a result of the shift of the trading philosophy of the institutional investors to stay as close as possible to the index returns. As a result, the volatile stocks which are a part of the index will result in fairly low returns. 

Since risk is completely dependent on the individual, one must calibrate before taking a blanket approach towards a risk-taking strategy. While the majority of the investors try to reduce risk by diversifying in equities, they must also consider other avenues such as bonds or gold. But then, those risky bets are what give you exceptional returns. No one became a millionaire by diversifying. 

Happy Investing.

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