Do you remember what you did with the first 1,000 you got as a birthday gift or pocket money?
You probably spent it on toys, food or a new cricket bat. But there was a young boy, approximately 13,200 kms away in Omaha, USA who built a US$ 88.2 Billion empire with his 1,000.
This boy, now one of the richest men on the planet was Mr. Warren Buffett and he understood the importance of starting early. Luckily, the very fact that you searched for best stocks to buy for beginners, proves that you too, understand the power of strong beginnings.
As an appreciation for your realisation, today we will reveal the best stocks to buy for beginners. But before that, here’s an interesting fact.
Did you know that 95% of stock market beginners lose money in the first 90 days?
Heartbreaking, but we have discovered the reason behind this failure. But more on that later.
Let’s first see the list of best stocks to buy for beginners.
List of Best Stocks To Buy for Beginners in India
| Stock | Returns* | Market Capitalisation (in Cr.) |
|---|---|---|
| INFOSYS Ltd. | 77.50% | 5,83,776 |
| JUBL FOOD Ltd. | 75.05% | 36,734 |
| COFORGE Ltd. | 71.26% | 16,564 |
| BAJFINANCE Ltd. | 47.88% | 2,93,902 |
| TCS Ltd. | 42.18% | 12,19,787 |
| HDFC BANK Ltd. | 33.08% | 8,08,937 |
| GODREJ CONS Ltd. | 10.56% | 80,101 |
| ITC Ltd. | 8.72% | 2,63,514 |
| CRISIL Ltd. | 7.98% | 14,077 |
| HIND UNI Ltd. | 6.70% | 5,63,552 |
* Returns after our recommendation on 10th July 2020 to 13th Jan 2021
Want to invest in the best stocks for beginners? Explore our Beginners Basket, which generated 20.09% in the year 2020!
We hope the above list of beginner stocks works wonderfully for you and brings in loads of wealth.
But the reason why 95% investors fail to make money in the stock market is because of poor stock selection.
It’s almost impossible to expect that stock market beginners will be able to pick top quality stocks from more than 4,500+ stocks listed in the market. Especially when the stock market is filled with wealth destructors.
Wealth Destructors – The Money Depletors
Wealth Destructors are stocks which seem lucrative on the outside but are stale and worthless from the inside. They attract beginners with big shiny future projections. But on closer inspection, they are laden with debt and poor quality management. These stocks may seem to be the best stocks to buy for beginners, but in reality, they are wealth destructors. Let’s look at some of the stocks which have destroyed 100% of its investor’s wealth.
| Wealth Destructors |
Year | Beginning Value |
Current Price |
Absolute Return |
CAGR | Years |
|---|---|---|---|---|---|---|
| Reliance Communications | 2006 | 300.55 | 2.00 | -99.33% | -28.40% | 15 |
| Jaiprakash Associates Limited | 2008 | 323.75 | 7.85 | -97.58% | -24.88% | 13 |
| Jet Airways | 2005 | 1229.4 | 139 | -88.69% | -12.73% | 16 |
| Dewan Housing Finance Limited | 2018 | 670.35 | 25.6 | -96.18% | -66.32% | 3 |
*share price as on 10th July 2020
But don’t lose hope. For every ‘DHFL’, we have ‘Bajaj Finance’, and for every ‘Manpasand Beverages’, we have ‘Avanti Feeds’. Here’s the wealth compounders.
Wealth Compounders – The Money-Makers
Wealth Compounders are stocks with phenomenal balance sheets, zero to marginal debt, excellent management and reasonable future growth projections. These stocks might not have flashy public presence, but they have strong fundamentals and come with the ability to create infinite wealth for its investors.
| Wealth Compounders |
Year | Beginning Value |
Current Price |
Absolute Return |
CAGR | Years |
|---|---|---|---|---|---|---|
| Avanti Feeds Ltd | 2010 | 1.63 | 517 | 31617.79% | 68.80% | 11 |
| Bajaj Finance | 2002 | 5.75 | 4903 | 85169.57% | 42.64% | 19 |
| Page Industries | 2007 | 271.8 | 28982 | 10562.99% | 39.58% | 14 |
| Eicher Motors | 1999 | 1.22 | 2869 | 235063.93% | 42.31% | 22 |
| Ajanta Pharma | 2000 | 23.65 | 1777 | 7413.74% | 22.83% | 21 |
*share price as on 10th July 2020
We have simplified your hard work by revealing the best stocks to buy for beginners. But, we want you to be able to identify the best stocks for beginners yourself. Here’s what you should look for and avoid as a stock market beginner.
What to look for while investing in the stock market?
You have often heard that mutual funds or stock market investments are subject to market risks. Investors are advised to be cautious. 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, understand 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 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. 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 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, it is always a good idea to diversify your investments. If you are a stock market beginner, 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 gurus recommend it, or your neighbour has invested in it. Investing in stocks should be a non-emotional decision. It should be based on hard fundamental facts, not TV gibberish.
Companies to Avoid - The ‘Wealth destructors’ in the making
Let’s look at what kind of companies to avoid in your pursuit to find the best stocks for beginners.
[Read More: 10 Golden rules to pick quality stocks for long term ]
- 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 dethrone such companies.
- Debt on the balance sheet: It is important to study the historical performance of a company during both good and bad times. This helps in setting realistic growth expectations before investing. Invest in a company only if you understand their product or service.
- Future Growth prospects: It is important to study the historical performance of a company during both good and bad times. This helps in setting realistic growth expectations before investing. Invest in a company only if you understand their product or service.
- 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. It might be a good idea to let it come back to a stable P/E level before investing for the long term.
Sometimes, you can have all the ingredients for a successful recipe and still end up making a mess! Similarly, while armed with the list of best stocks to buy for beginners, there’s a high probability that you’ll end up in the 95% failed investor category.
