Is it necessary to be a market expert to learn the art of picking quality stocks that can give profitable returns ? The world’s best fund manager said “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it“. Therefore being a 5th class passed person we should be able to select quality stocks.
Warren Buffet the legendary investor started investing at the age of eleven. How much knowledge can a 11 year boy could have about stock markets ? Another great thing said by Peter Lynch is that “The best stock to buy is the one you already own“. We will get into detail what actually does it mean. Here is one more quote for Peter Lynch
Wall street analysts are better served by visiting a mall than sitting in front of a Bloomberg terminal. Observing your environment can provide you with valuable insight that an investment institution may get only after few quarters or years. Observe clothes your family and friends wear, cars they drive, restaurants they dine.
Now pay special attention to the phrase Observing your environment. That is the the thing you actually require to select good quality stocks and you don’t need to be a market analysts, you don’t need to have any degree in finance and you don’t need to be a technical analysts either. If you have passed 5th grade you can do it.
How To do Observation
We see everything in our surroundings but we don’t observe it. You have stairs at your home you may have used it millions of times going up and down, but do you know how many steps are there in those stairs ? no, because you have just seen it million times but not observed it. Sherlock Homes is considered the master of observation you can read these two books on him to master this art of observation. How to think like Sherlock Homes and Few lessons from Sherlock homes.
When Warren Buffet was nine year old he used to collect bottle caps of cold drinks. He was not doing that just for fun but to know which brand has the highest sales. This observation helped him a lot and he made billions by investing in Coca cola.
If you have observed cars on the streets you will find 80% cars in small cities are maruti cars. In tier 2 and tier 3 cities also more than 60% cars are Maruti cars. By this observation you can know that maruti is doing very well. If you talk to any Maruti car owners majority of them will give the positive feedback and mostly likely will recommend you to buy Maruti car. With this small analysis you can find Maruti is the best car company in terms of sales in India. The similar kind of observation you can do with Bullet bikes made by Eicher Motors.
There was the time when post man use to deliver letters and parcels but now we see courier boys doing that. Before no one used to do online shopping and now more and more people are doing online shopping and this is giving a great business to courier companies. If you observe this thing you can find logistics is a good business. Now you have to find the top companies associated with it. You will come across the names like Bluedart, Gati , all cargo etc. These stocks have multiplied in the last couple of years.
Very few women use to go to beauty parlors before but now many are going and even some men are also going to make themselves look more beautiful. With simple observation you can find that this beauty business is going to grow. Then you have to find listed companies in this business. You will come across marico kaya which has beauty clinics in many cities. I am having that stock from 1000 levels.
Like this you have to do the observation and find the associated company. In the words of Peter Lynch
Now you have found the good business and good company the next question comes
When to buy stocks ?
The worst time in the market is the best time to buy. Whenever the market is in trouble you can buy. Don’t buy in one shot do staggered buying. The specialty of a growing company is that the fall is limited in them (specially large caps) . With each fall the chances of further fall reduces. Buy when there are temporary trouble in the company. This is called contrarian investing. You can read about Warren Buffets Contrarian investing approach.
Now your work is just to give the time to your stocks and let them perform. Time is money and time also makes money. To know about the profit booking strategy check out Guide to profitable investing in stocks.