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  • Dec 24, 2019 - Watch This Before You Make Your Investing Resolution for 2020

Watch This Before You Make Your Investing Resolution for 2020 podcast

Dec 24, 2019

As the new year 2020 is about to kickstart, Girish Shetty shares a simple guide on how to improve your stock picking process.

This quick guide will surely help you make better decisions.

Tune in now!

Here's more on smallcap stocks:

Hi, friends. Happy New Year. I am assuming this is the time that you all would be making your New Year resolutions. What can you do better next year? How would you improve yourself on what you've done this year or for the next year?

How about we do this for the stock market as well? How about taking a resolution to improve on your stock picking process next year?

I would like to give you a simple guide on how to improve your stock picking process.

Now let's go through each of these one by one. Basically, these are the filters that me and my colleague Richa look for when we pick stocks for our Hidden Treasure service.

First is the business. Now I believe this is the most important criteria when you short-list a stock. Look at the business, Is the business growing faster than the industry? Is the business growing faster than our country's GDP? If it is and it has been growing at a faster rate over the years, I believe there is something special in the business that the stock is into.

Now, there are furthermore aspects to see in that particular business. Have operating margins been consistent over the years? Has the business been able to generate good cash flows from its business? And there are many other criteria that define a good business model. These are some basic criteria that, if you look for, will help a great deal in shortlisting a good business because I believe a good business goes a long way in your stock performance.

Coming to the second criteria. It would be the management. Now, if you all are of one of those that look for small and midcap stocks, management would be the key make or break criteria for you or your stock performance. Now if the business isn't that great or isn't good, even a great management cannot help with that stock. But shady management or poor management will definitely destroy even a good business or a great business. So, you can't ignore this criterion. It is a very important criteria to evaluate.

First, see if the business is right, and the management is right. You'll go a long way with the stock and the performance of the stock.

Now coming to the third criteria... that is valuations. After you evaluated the business and the management, only then you should come to this criterion. Your stock rejection process should take place much before that.

Now, if you are convinced about the business and the management, then you need to look at the valuations. Why valuations? I believe this will be the difference between making 5% to 10% on the stock or 20% plus on a stock. If you buy overvalued stock with the good business and good management, still your returns would be less than satisfactory. But if you buy a good business with good management at reasonably good price, you would do much better than most of the retail investors.

So, these are the three main criteria that we look at when we evaluate a stock. So for your New Year resolution, I believe if you take a pen and paper and whenever you plan to buy a stock or evaluate a stock, if you note down these three criteria, I guess you'll go a long way and I believe you will perform much better than most retail investors. So, in my future videos, I will delve much deeper into these three criteria and help you select the stock or business much better.

If you like this video, don't forget to click on the like button or leave your comments in the comments section below. Also, don't forget to subscribe to our Equitymaster channel. Thank you.

Girish Shetty

Girish Shetty (Research Analyst), holds a degree in engineering and a masters in finance. His investing philosophy, inspired by Peter Lynch and Pat Dorsey, is based on identifying businesses with strong enduring moats. He believes in the scuttlebutt approach to stock investing backed by solid numbers.

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May 28, 2020 03:33 PM