Tuesday, 5 June 2012

Spot The Gems

There are good companies and bad companies. Learning to invest in stocks is all about spotting the good companies amongst the bad ones. Invest in stocks of good companies and you will gain good returns and create wealth.

For beginner's to stock investments to understand the advantage of investing in stocks we have included an example in this post.

Let’s take Infosys as an example.  Everybody knows Infosys. It is the industry leader in IT solutions at present. It started out as a small enterprise. Many other companies may also have started out at the same time as Infosys. Infosys has made it big and it is not just by-chance.

It issued its first IPO in 1993 with a price of Rs.95. Many people might have invested in the company at that time.Over the years Infosys proved to be a very good company with consistent performance. Supposing an investor had purchased 100 shares in the first IPO and decided to stay invested with the company till present times, then his shareholding  would have increased to 4160 shares (approx.) as the company had issued bonuses and split its share several times during the past 2 decades. The approximate value would now be about 1cr. Which means a return of 104900%.

Now, just think about the investor who must be holding the share for so long. It must have taken a lot of research on the part of the investor to stay with the company. That research and study in-turn must have given the confidence to our investor about the strong foundations on which the company exists and the potential that can be realised by staying invested for the long-term. No other asset class can match this sort of return. So, we must agree that staying invested with Infosys for such a long duration must have been a wise and educated decision. Also, it is proof that with proper study of a company and picking out the right ones, anybody can get such high returns.

Like all companies, Infosys also was affected by various economic situations and cyclical changes in domestic and international markets. It was no stranger to economic downturns and other market uncertainties.  Sometime it made more profits and sometimes just managed to keep their profit guidance.

There is a lesson for beginners to stocks to learn here. A wise investor does not waver with each and every market fluctuation. What is important for him is that the management of the company is strong. They have a vision and the right mindset to take tough decisions to keep that vision. The company’s fundamental financials are good and the balance sheet is free from undue liabilities. These are the sort of points that we have to keep in mind before selecting a company. Also, when you are thinking in terms of such long investment durations it is also important that you review your investments and keep a watch on the companies periodically. What was relevant today may not be relevant tomorrow and you may need to re balance or reconfigure your investment portfolio.

Investing in stocks should be based on predictable future of the company, which you can come to know about, by researching the company thoroughly. You can get to know about good companies if you study their financial performance regularly. You can get the required information from their declared financial results every quarter which is displayed on the company website.Then you can bury your pot of gold with them for a long time and unearth with multifold gains. Our section on Learn to Invest has more pointers to help you invest in good stocks.

Investing in stocks is not hard at all and RupyaGyan will try to make it a piece of cake for all who want to begin investing in stocks. Let us help you into a financially secure future.


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