‘Khush hai zamana aaj pehli tareek hai’, the melodic jingle of a chocolate company perfectly captures the excitement that you feel when you receive your paycheck. But the jubilation is short-lived as the majority of us end up spending our paychecks on shopping, partying or splurging on a new bike, mobile phone or vacations. Investing is at the bottom of the list of things to do when you receive your paycheck. After all, we consider ourselves too young to start investing.
But, how young is too young to invest in the stock market? Warren Buffett started investing when he was just 11 years old, with an investment of only Rs 1,500, and is the third richest man in the world today!
The key to creating infinite wealth is to start as early as possible, preferably with your first paycheck. But stock market for beginners can be a scary place especially when the choice is infinite and historically, 95% of rookie traders have lost their money in the first 90 days in the stock market. With such circumstances, It is almost impossible for a naïve investor to select the best stocks to invest in for beginners amongst 5000+ stocks listed in the stock market. This is a major deterrent for stock market beginners.
To solve this problem and ensure that stock market beginners can actively invest in the market for long term wealth creation, we at StockBasket have shortlisted the ‘best stocks to buy for beginners’ with the potential to create infinite wealth. In this article, we will help you discover the best stocks to invest in for beginners and also discuss the various hurdles you might face and the strategy to resolve them in your journey towards infinite long term wealth creation.
Wealth Destructors – The Money Depletors
With over 5000+stocks in the market, a vast majority of them are duds. They might seem lucrative on the outside but are stale and worthless from the inside. They tend to entice novice investors with big shiny future projections, but if we look closely, they are laden with debt and on the verge of bankruptcy. These stocks will seem to be “once-in-a-life-time” best stocks to buy for beginners, but in reality, they are wealth destroyers. They will backstab you the way Katappa backstabbed Bahubali (literally!).
Let’s look at some of the stocks which have destroyed 100% of its investor’s wealth.
|Wealth Destructors||Listing Price||Current Price||Absolute Return||CAGR||Years|
|Reliance Communications||300.55||1.20||-99.60%||-32.59%||14 years|
|Jaiprakash Associates Limited||323.75||1.95||-99.39%||-34.68%||12 years|
|Jet Airways||1229.40||27.20||-97.78%||-22.43%||15 years|
|Manpasand Beverages||488.20||5.55||-98.86%||-77.51%||3 years|
|Dewan Housing Finance Limited||658.00||15.65||-97.62%||-84.57%||2 years|
Wealth Compounders – The Money-Makers
Hidden amongst the duds in the stock market, are stocks with phenomenal balance sheets, zero to marginal debt, excellent management and realistic future growth projections. For every ‘DHFL’, we have ‘Bajaj Finance’, and for every ‘Manpasand Beverages’, we have ‘Avanti Feeds’. These stocks might not have a flashy public presence, but they have strong fundamentals and come with the ability to create infinite wealth for its investors. Your investment of Rs 10,000 in Avanti Feeds in 2010 would have grown to a whopping Rs 28.52 lakhs! Similarly, your investment of Rs 10,000 in Eicher Motors 1999 would today be worth a staggering Rs 1.41 Crores, a CAGR return of 41.26%!
|Wealth Compounders||Listing Price||Current Price||Absolute Return||CAGR||Years|
|Avanti Feeds Ltd||1.63||464.90||28421.27%||76.00%||10 Years|
|Bajaj Finance||5.75||2685.00||46595.65%||40.69%||18 Years|
|Page Industries||271.80||18309.80||6636.49%||38.24%||13 Years|
|Eicher Motors||12.20||17264.40||141411.47%||41.26%||21 Years|
|Ajanta Pharma||23.65||1450.40||6032.76%||22.85%||20 Years|
Low risk blue chip stocks
Like a café that serves all kinds of foods, the stock market also has custom made options for all types of investors. Stock market beginners can be primarily classified as – ‘Enterprising investors and ‘Defensive investors’. Enterprising investors are aggressive high-risk takers, whereas defensive investors are low-risk takers. While the stocks listed in the wealth creator category are more suited to enterprising investors, the ‘low-risk high market capitalisation’ stocks are the best option for defensive investors. These high market capitalisation stocks have high liquidity and stability. They are the most actively traded stocks in the market and provide an easy exit route to investors.
The best stocks for beginners to invest in for long term wealth creation as per market capitalisation are:
|Blue Chip Stocks||Listing Price||Current Price||Absolute Return||CAGR||Years||Market Capitalisation|
|Reliance Industries||53.01||1706.60||3119.39%||21.27%||18 Years||11.13 Trillion|
|HDFC Bank||5.52||1037.85||18701.63%||28.32%||21 Years||5.69 Trillion|
|Infosys||11.59||703.65||5971.18%||21.59%||21 Years||2.99 Trillion|
|Nestle India||2494.65||16064.00||543.93%||20.47%||10 Years||1.55 Trillion|
|Asian Paints||11.88||1617.90||13518.68%||26.36%||21 Years||1.55 Trillion|
What to look for while investing in the stock market
You have often heard that mutual fund or stock market investments are subject to market risks, and investors are advised to manoeuvre their way with utmost care. But how can you navigate the stock market, if you remain unaware of its dangers! The below checklist can help stock market beginners navigate the complex world of stock market investing.
- Who are you? : Before you even think about investing in the best stocks for beginners, ascertain if you are an investor or a speculator. An investor is a long term participant in the market whereas a speculator is a short term player. Define yourself clearly. This step will help you manage your expectations and risk.
- How long can I stay invested? : This crucial step helps you in selecting the kind of stocks to invest in as a beginner. If your time horizon is less than 5 years, stick to large-cap funds, whereas if your time horizon is 10+years, midcap and small-cap stocks are the best stocks for long term wealth creation.
- Risk profile: Unlike a bank FD, stock market investments do not guarantee the safety of principal. Hence if it is of utmost importance to accept your risk appetite and invest accordingly. If you have a low risk preference, even if your time horizon is more than 5 years, stick to large cap stocks only. However lucrative a mid or small cap stock might seem, if it does not suit your risk profile, let it go.
- Diversify: While criticized by Warren Buffett and other millionaires, it is always a good idea to diversify your investments across asset classes, especially if you are a stock market beginner so as to minimize the overall portfolio risk. Proper asset allocation between equity, debt and gold can help you manage your portfolio risk.
- Herd Mentality: There is no greater sin than to indulge in herd mentality. Herd mentality is when you invest in a particular stock because all the investment pundits are going gaga over it, or your neighbour has invested in it. Investing in stocks is a non-emotional endeavour and should be based on hard fundamental facts, not TV gibberish.
What Kinds of companies to Avoid
Now that you understand the critical questions to ask yourself before investing in the stock market. Let’s look at what kind of companies to avoid in your pursuit to find the best stocks for beginners.
[Read More: The Art of saying No to Stocks]
- MOAT: Warren Buffett always looks for companies with MOAT. Companies with MOAT are market leaders, have enormous set-up costs, carry higher margins, and have high entry-level barriers. It is challenging for competitors to de-throne such companies.
- Debt on the balance sheet: While in an ideal world, we would love for a company to come with zero debt, in reality, most of the companies have debt in their balance sheet. Debt on a balance sheet can be entertained, only if it is in line with the industry average and utilized to fund future growth projects.
- Future Growth prospects: It is critical to study the historical data and performance of the company during both good and bad times to ascertain realistic future growth prospects before investing. Invest in a company only if you understand their product or service and if the product or service is customer-centric.
- Competent and Ethical Management: Satyam could have been prevented had the management been ethical. Similarly, Blackberry would still be ruling the mobile phones segment had the management not become complacent. Hence it is vital to invest in companies with ethical and competent management.
- Financial Ratios: One of the best indicators to ascertain when to buy a stock is the P/E ratio. A high P/E ratio reflects an overpriced stock, and it might be a good idea to let it come back to a stable P/E level before investing for long term wealth creation. Similarly, a high working capital ratio indicates that the company has ample current assets to fulfill its current liabilities and is not stressed for cash.
While we have extensively covered the basics of stock market investing, the age-old dilemma remains unsolved. How can naïve stock market investors’ shortlist the best funds to invest in for beginners? How can they build a full-proof strategy to shortlist the absolute best funds for beginners? Do they have ample resources and knowledge to find the gems hidden amidst 5000+stocks? Can they look at a company’s balance sheet and figure out which companies are worthwhile?
The task is difficult, no doubt. While some naïve investors might strike gold on their first try, the majority of stock market beginners will struggle to discover the best funds to invest in for beginners.
List of the best stocks to invest in for beginners
|Sr. No.||Company Name||Share Price||Market Cap. (in Cr)||Returns after 10 years (in %)|
|1||Hindustan Unilever LTD.||2308.50||5,36,407||862.68|
|2||Tata Consultancy Services LTD.||1869.50||6,82,389||388.50|
|4||Bajaj Finance LTD.||2051.00||1,18,549||4683.12|
|5||HDFC Bank LTD.||942.55||5,14,359||382.91|
|7||Godrej Consumer Products LTD.||539.00||54,632||457.51|
|8||Jubilant Foodworks LTD.||1484.75||6,486||773.38|
|10||NIIT Technologies LTD.||1118.20||6,975||497.64|
* Share Price as on 27th April 2020