StockBasket Blog
Author

Anil Poonia

Browsing
Educating Investors

Value Investing – Meaning | How it works?

By
Value Investing

Before deep-diving into the concept of value investing let us first discuss the types of investments

“Price is what you pay. Value is what you get.” 

 – Warren Buffett

Investing is a very dicey process especially in today’s world where lots of information keeps flowing around; be it online, on television, newspapers, or any other media source. The primary objective of investing is capital creation by increasing income-generating assets. 

Stock market comes to our mind when we think about investing in risky assets. The stock market has fascinated everyone, but not everyone has been able to make money out of it.

Investors in the Stock Market can be done two types: Trading or Investing

Time and again it has always proved that it is the investors who make money and not the traders in the long-term. The logic is simple, to be successful in trading your decisions are bound to be a correct day in and day out or more frequently which is highly unlikely as the market is not structured in such a manner. The odds are stacked in favour of the market and not in favour of the trader. Investing on other hand has a greater chance of giving good returns as the number of decisions to be taken are less, and investor has to identify superior quality stocks and stay invested in them for a long term to generate great returns, with the magic of compounding coming into play.

What is Value Investing?

Investopedia defines value investing as “The strategy of selecting stocks that trade for less than their intrinsic values”. 

Value investing can be explained in simple terms as paying less than the fair value of a stock to earn good returns when the stocks get back to its normal or fair value. This concept was introduced by The Father of Value Investing – Benjamin Graham. It involves finding those stocks or companies that are believed to be undervalued or are available at a discounted rate, on the basis of the various financial parameter.

This style of investing is closely related to the concept of margin of safety. It can be defined as the difference between the intrinsic value of a stock and its market price. or in simple words the difference between the discounted rate and the actual market value or fair value. It protects the investor from errors involved in the judgment of fair value, it also provides good-return opportunity and minimises the risk Value investing can provide good profits once the market inevitably re-evaluates the stock and raises its price to fair value over the long term. 

Watch our video to learn about value investing

There are various financial ratios and factors by which and investors can decide the value of the stocks they are:

  1. Return on Equity (ROE)
  2. Return on Assets (ROA0
  3. Operating Profit Margin (OPM)
  4. Debt to Equity Ratio (D/E) 
  5. Promotors holdings etc.

Some other characteristics that the investors should also look out for are the history of the company, promoters history, its market share, business model etc.

Why Value Investing?

There have been numerous examples of investors like Warren Buffett, who have made immense wealth by adopting this style of investing, one can create a huge wealth in the long term by adopting this technique. 

Keep Reading
By
StockBasket decoded

How to Invest through StockBasket App

By
Invest in StockBasket

StockBasket is India’s first long-term buy and hold investment platform. It can be considered as one of the easiest ways of investing in the stock markets and creating wealth. It is an expert-selected basket of stocks which you can invest in just one click. So let’s see how can one invest through StockBasket app

  1. Login to the StockBasket app

2. Click on Explore

3. Select the basket as per your investment needs, you can select basket as per trending, recent, recommended, featured or you can apply the filter as per strength, value for money, popularity, investment amount.

4. Click on the Buy Now or you can also start a StockBasketSIP,

Read more on :

1. What is StockBasketSIP

2. How to Start a StockBasketSIP

5. Click on Invest button

5. You can see all the stocks that the basket comprises of, click on Invest to place your order, and start your wealth creation journey today!

Happy Investing!

Keep Reading
By
StockBasket decoded

Everthing about StockBasket SIP

By
StockBasket SIP

Before talking about what is StockBasket SIP, let us first discuss about Equity SIP

Equity SIP is the process of investing periodically in equities via SIP, this is similar to the Mutual Fund SIP.

Now let us have a look at StockBasket SIP:

What is StockBaset SIP?

StockBasket, as you all know, is an expert-curated ready-made basket of stocks, with our latest feature of StockBasket SIP, this feature will allow investors to buy a particular StockBasket periodically and in a disciplined manner.

StockBasket SIP will allow investors to invest in baskets or mini portfolios of stocks in monthly, quarterly, six-monthly and yearly frequencies. This is similar to your SIPs in mutual funds, however, with StockBasket you will directly own shares of these companies in your Demat account.

StockBasket SIP would help you to invest regularly in quality stocks via baskets thereby helping you to tackle market volatility and creating a sizable corpus with small regular investments. 

Why StockBasket SIP?

A historical study has shown us that to create true wealth, we have to do three things right – 

  1. Save a sizeable portion of your income, meaning do not under-invest
  2. Regularly invest your savings in shares great quality companies via stock market &
  3. Hold shares of these great quality businesses for as long as possible.

In our effort to inculcate wealthy habits and to provide superior investment solutions to retail investors, we are happy to introduce SIP feature in StockBasket.

How it can help retail investors  to huge a Corpus:

Let’s take an example of  Retirement in 2040 lite basket – it has 9 stocks, but this is not enough for your retirement, what we are trying to say here is you need to buy the basket regularly to increase your share in these superior stocks in the form of baskets, thus helping you to create a huge corpus

Benefits of StockBasket SIP:

The key benefits of StockBasket SIP are:

  • Disciplined investing approach: SIP will help you to invest your money in a disciplined manner thereby helping you create wealth in the long-term.
  • Wealth creation with small periodic investments with SIP: SIP will help you grow your wealth by investing small amounts from your income regularly in quality stocks via baskets. 
  • Risk aversion with StockBasket SIP: It helps you as an investor to invest timely in diversified baskets or mini portfolios of Stocks thereby reducing the risk in the stock market. 
  • Power of Compounding: Investing in the right stocks for a long time gives you an edge with the power of compounding which ultimately helps in long term wealth creation.
Keep Reading
By
Educating Investors

Safe & Low-Risk investment

By
Low-Risk investment

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.

Keep Reading
By
Educating Investors

Why is it important to research a stock before buying it

By
Why is it important to research a stock before buying it

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.

Keep Reading
By
Educating Investors

Long Term Investment – Be the tortoise, not the hare

By
Long Term Investment

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)

Invest in 5years low risk regular

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.

Keep Reading
By
Educating Investors

Why long-term investors should never sell stocks in a panic

By
Why long term investors should never sell stocks in a panic

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.

Keep Reading
By
Educating Investors

With High Risk comes High Reward

By
High Risk High Reward

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.

Invest in 5years low risk regular

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.

Keep Reading
By
Educating Investors

Active v/s Passive Investing – What’s The Difference?

By
Active v/s Passive Investing

There has always been a big debate between active investing and passive investing, a debate of being the hare or the tortoise, let’s understand them in detail.

Active Investments: Active investments as the name suggests is an active way of investing, it focusses on beating the stocks market’s average returns and taking the full advantage of the market fluctuations. Active investment can be considered to be more about timing the market backed by strong research so as to generate maximum returns. For example, if you’re an active investor, your goal can be to achieve better returns than the Nifty 50.

Passive Investments: Passive investments can also be called as a buy and hold strategy, basically this type of investments limits the amount of buying and selling in their portfolio thereby making it a cost-effective way of investing.

Pros and cons of Active investing: Active Investments are managed by Portfolio managers, in most of the cases they can produce good returns, there is flexibility in investments and managers can hedge their bets and exit when required. The disadvantage is they are risky and too expensive.

Pros and cons of Passive investing:

Passive funds, also known as passive index funds, are structured to replicate a given index in the composition of securities and are meant to match the performance of the index that they track, no more and no less. That means they get all the upside when a particular index is rising. But — take note — it also means they get all the downside when that index falls.

As the name implies, passive funds don’t have human managers making decisions about buying and selling. With no managers to pay, passive funds generally have very low fees. 

Conclusion

Discussing both the topic in detail we cannot say that one should only go for passive investments or only active investments approach. As a self instructed investor, it totally depends on you to have your ideal investment philosophy based on your risk appetite and capital.  

One can also think of using both, mixing both the style of investment approach for your portfolio. 

Keep Reading
By
Educating Investors

Saving habits and how to inculcate them

By
Saving Habits

The Oxford dictionary defines a habit as “a settled or regular tendency or practise, especially one that is hard to give up.”. Here we should be focusing on the last part of the meaning which is ‘Hard to give up’. Habits can be said as things that define an individual.

Habits can be anything, from chewing a pen to going on a walk every morning to reading news. Today we will focus on one of the best habits that an individual should have to grow his wealth and become financially independent and it the “Habit of Saving.” 

“Do not save what is left after spending; instead spend what is left after saving.” – Warren Buffett

Before deep-diving into this topic, we would first discuss the amount that one should save. In an ideal case, one should follow the 50-30-20 budget rule, wherein allocate 50% of your budget for basic essentials like rent and food, 30% as your discretionary spending and at least 20% for savings.

The spending habits of individuals change every day and with them changes the financial situation. Practising the below habits regularly can help you becomes can help you save a good amount of money and help you become financially independent.

  1. Plan your financial goals: Financial goals in simple words can be said as the monetary targets that you wish to achieve in your life. It can be anything from anything buying a home or saving for your retirement or saving for an international vacation The first step to inculcate a saving habit is to plan a financial goal for your savings. A financial goal helps you to set a target for your savings, and the progress of achieving the target keeps you motivated to follow the habit of saving.
  2. Cut the extra expenses: While you are planning to for your inflows you should also keep an eye on the outflows, the outflows here means the expenses. As rightly said by Mr Warren Buffett “Do not save what is left after spending; instead, spend what is left after saving.”. One should work on keeping a track on his expenses and try to limit the unnecessary expenses.
  3. Set a limit for your fun activities: Though it is very important to use your earnings for your personal enjoyment it is also essential to have a limit to it. It is always recommended to have a balance in spending and savings. keeping a separate budget can help you limit your spends 
  4. Keep your emotions at bay: Oh the Big Billion day is coming or The Great Independence day sale is here! or a 20% discount on your favourite product can definitely excite you or create a FOMO(fear of missing out), these deals can change your mind but you need to always take control of your emotions, the only motivation at this point should be your ultimate Financial goal. 

All in all, we can say that following these little but important habits would eventually help you to build a huge corpus and help you to achieve all your financial goals.

Keep Reading
By
Open an account