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Stocks to Watch in November

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November is a month of cranberry sauce and gratitude, but it often means more than that for investors. We’re wrapping up earnings season now. Holiday shopping will kick off near the end of the month, leaving investors with more knowledge than they had when the month began.

Datadog (NASDAQ: DDOG), Activision Blizzard (NASDAQ: ATVI), and Amazon.com (NASDAQ: AMZN) are some of the companies that will be making moves this month. Let’s see why these are stocks to watch in November.

Activision Blizzard: Nov. 6

Die-hard gamers can be fickle, and this isn’t Activision Blizzard at its best. Analysts are bracing for a 29% year-over-year plunge in quarterly revenue when it reports financial results on Thursday afternoon, with profits being slashed by more than half. Expectations are low, and recent tensions in China, where Activision Blizzard’s move to suspend a prolific esports personality for making comments in support of the Hong Kong protests polarized gamers and investors alike.

Investors will be hanging on for hope when it comes to guidance this week. The company rolled out Call of Duty: Modern Warfare — the latest installment of its combat franchise that peaked in 2011 — as well as Call of Duty: Mobile for smartphone players last month. Between the new releases and a better handle on the fallout from its esports suspension, any insight that Activision Blizzard offers on its near-term prospects will go a long way to dictating the stock’s direction.

Datadog: Nov. 12

The last few months have been rough for the IPO market. We’ve seen prolific offerings come undone before the opening bell, and even many of the big names to make it to the trading floor have buckled below their IPO prices. Investing in IPO stocks isn’t easy these days.

Datadog is one of the few recent debutantes to still have its head above water. The cloud monitoring and analytics specialist went public at $27 in mid-September, and it’s currently trading 28% higher.

The first big test for any IPO is its initial earnings report as a public company, and for Datadog that will come next week. It has a lot of growth momentum heading into next Tuesday’s report. Revenue nearly doubled last year, and it has risen almost 80% through the first half of 2019. With more large companies hopping onto the cloud and uptime reigning supreme, Datadog’s been growing its client base, and the same can be said for how much those customers are willing to pay for the platform’s crucial insight.

A strong report will keep the party going for Datadog, naturally. If things don’t go swimmingly — if the top line decelerates sharply or its impressive dollar-based net retention rate takes a breather — it wouldn’t be a surprise to see the stock become the latest broken IPO. It’s hard to regain the market’s confidence if you burn investors in your first earnings report as a public company.

Amazon.com: Nov. 22

The timing of this year’s Thanksgiving holiday is going to pinch some retailers. The holiday that officially kicks off the telltale shopping season is on the fourth Thursday of the month, and since it falls on Nov. 28 this time, it’s the latest possible start for a season that always ends on Christmas.

Amazon is trying to make its own luck. Instead of following the calendar into Black Friday on Nov. 29, the world’s largest online retailer is launching an eight-day Black Friday sale that starts a week earlier. Kicking off sales on Nov. 22 is brilliant, giving it a jump on the brick-and-mortar competition that’s already reeling from the e-tail challenge. With the company continuing to speed up its fulfillment and lowering the minimum for free shipping on Amazon-warehoused goods, things are shaping up nicely again during this crucial time of year.

This article was originally published on Fool.com.
All figures quoted in US dollars unless otherwise stated.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rick Munarriz owns shares of Datadog. The Motley Fool owns shares of and recommends Activision Blizzard and Amazon. The Motley Fool recommends Datadog. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com.
All figures quoted in US dollars unless otherwise stated.



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Millionaire Mentor Update: Checking in From Australia

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In this edition of the update, we’ll take a look at the difference between FOMO and FOML. (Keep reading, it’ll make sense.) Also, some thoughts on the stock market’s reaction to COVID-19. Plus, why having a stick-to-it attitude is so important if you want long-term success as a trader.

“Every expert was once a beginner.” 

— Rutherford B. Hayes, 19th President of the United States

Markets are closed today for the annual President’s Day holiday. Use today to study so you’re better prepared when the markets reopen tomorrow.

But first a little about my recent adventures…

Checking in From Australia

© 2020 Millionaire Media, LLC

Right now I’m in Australia. February is, historically, the worst month for bushfires. So I planned to be here now … to witness firsthand and do what I can to help. When I finally got here it turned out they got more rain than they’ve had in a long time.

Sydney had its heaviest rainfall in 30 years. Other parts of New South Wales had the most they’ve had in 10 plus years, which is good. The rain put out most of the bushfires. That includes one of the worst — a so-called mega-blaze considered too big to put out.

But it also brings more problems. Bushfire-hit areas are prone to flash floods.

Flooding Compounds the Danger to Animals

Even worse, there are animals stuck in the mud. They’re getting flooded and drowned. A lot of animals can’t move because they have infected wounds from the fires — which will kill them. It’s really sad.

 

View this post on Instagram

 

Happy Valentine’s Day! I’d like to introduce you to someone I just met, but she’s already become very important to me in several ways — this baby wombat named Lucy! Lucy may be tiny, but her personality is much bigger than her small stature and despite losing her entire family and getting burnt badly herself in the recent fires here in Australia, her attitude on life is inspiring as she’s still so incredibly positive, which is something many more people can learn during this tough start to 2020. I’m traveling all over Australia with @karmagawa for the next few days as we meet with several wildlife charities and sanctuaries and help support them with the $102,000 our amazing community raised. An estimated 1 billion animals died in the recent fires here that are thankfully out now, but the surviving animals need our help more than ever RIGHT NOW as they have no access to food or medicine and too many are lying helplessly all over the countryside unable to move due to their wounds being infected, condemned to die in the next few days unless they get help ASAP. Lucy was one of the lucky ones to be found and nurtured back to health by a man called “Wombat Bill” (thanks for the intro @sammcglone ) but millions of other animals aren’t so lucky. We must ALL do what we can to help animals all over the world, that’s true love! #savethewombats #happyvalentinesday #wombat #saveaustralia #karmagawa

A post shared by Timothy Sykes (@timothysykes) on Feb 14, 2020 at 2:33pm PST

The combination of severe drought, bushfires, and flooding is creating a compound effect. A lot of people think the crisis is all over here — but it’s not. So we’re still trying to save animals. We raised $102,000 with Karmagawa. We’re donating the money to worthy charities.

I’m personally meeting with the charities. I don’t just wanna give money like too many people do. There are a lot of iffy charities. Not necessarily bad — they still do good work. But the percent of donations that go to actual charity programs is very low.

Some are even low single digits, which seems crazy. But the rest goes for marketing and the expense of building a huge organization. It’s another reason I’m so proud of what we’re doing with Karmagawa. We’re leveraging social media influence to make the world a better place.

“No problem of human making is too great to be overcome by human ingenuity, human energy, and the untiring hope of the human spirit.”

George H.W. Bush, 41st President of the United States

The Stock Market Shrugs Off COVID-19

© 2020 Millionaire Media, LLC

Frankly, I’m shocked the markets just shrugged it off. That tells me we’re in an even stronger bull market than I’d thought. Which means … it could go up a lot more if we get this coronavirus thing figured out.

A virus outbreak like COVID-19 could be really bad news. And the fact that the market didn’t care tells me we could go much higher. But if the coronavirus situation isn’t handled it could be bad. If more people get quarantined and more factories get closed, it means we’re setting up for an even bigger fall.

So if the market was healthy, I think you could expect a reaction. For example if, as a whole, the market said “this is a good excuse to take a 5% to 15% correction.” But it didn’t.

So I think this is gonna lead to a huge amount of upside … or a huge amount of downside.

Some people will say “Tim, that’s the market … up or down.” Yeah, tell me something I don’t know.

My point is, I think the stock market shrug-off means we’re gonna have a lot more volatility. Volatility is useful. So be safe, be prepared, and ride the bull market as long as it lasts.

“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger — but recognize the opportunity.” 

― John F. Kennedy, 35th President of the United States

Now for the …

Trading Lesson of the Week

© 2020 Millionaire Media, LLC

Last week so many students banked … $5K, $10K, $20K … even $50K on the week. But all those students who did that have something in common. What is it?

A year ago, two years ago… three years ago… they were making more like $500 in a week. Or even $200 in a week. And they were still happy.

So the lesson is…

…you gotta stick with it.

“Courage and perseverance have a magical talisman, before which difficulties disappear and obstacles vanish into air.” 

― John Quincy Adams, 6th President of the United States

The longer you stick with it, the more you can scale up your position sizes. Then you can have the $10K weeks like Jack Kellogg, Kyle Williams, and Mark Croock had. And Tim Grittani, I think he might even have made six figures on the week.

[**Please note these results are not typical. These traders have exceptional knowledge and skills that they’ve developed with time and dedication. Most traders lose money. Trading is risky. Do your due diligence and never risk more than you can afford.]

The cool thing is, you now have so many examples of my top Trading Challenge students. It’s getting pretty cool. Remember, they all had the dedication to study and gain experience over time. None of them did it overnight. You won’t, either.

So buckle down and get studying. I know you want a lot of money, but you gotta start small.

“Men are not prisoners of fate, but only prisoners of their own minds.”

Franklin D. Roosevelt, 32nd President of the United States

Finally, it’s time to answer….

Trading Questions from Students

© 2020 Millionaire Media, LLC

Today I’m answering just one question. But I think it’s important because too many newbies focus on the wrong things.

“Tim, how do you balance personal schedule with fear of missing out (FOMO)?”

Fear of missing out is powerful. But this is why I like my retired trader analogy…

I think of myself as a retired trader. I only trade if there’s a good enough play. One so good that I feel guilty missing it from the sidelines.

It’s kinda FOMO-esque. But it helps prevent me from overtrading.

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Remember, right now I’m trading from the other side of the world. I’m up at 2 a.m. or 3 a.m. I’m working with charities all day and then trading all night.

So I put myself in a position to not be really comfortable with trading. And that prevents me from overtrading. (Learn more about the dangers of overtrading here.) I have to put barriers in the way to prevent me from overtrading.

If I’m just sitting in Miami with good Wi-Fi, no meetings, and plenty of time…

…I overtrade.

Statistically, I do better when I’m traveling because it forces me to not have FOMO. It’s the opposite of FOMO.

Here’s what I mean by that…

I have a fear of missing out on adventure. It doesn’t matter my locale. I don’t have a fear of missing trades.

“In the end, it’s not the years in your life that count. It’s the life in your years” 

― Abraham Lincoln

I have a fear of missing life. FOML, if you want to call it that. FOML allows me to focus on the best trades and then go out and live life.  Which, in my opinion, is how it should be for everybody.

Personal schedule is one of the indicators I use in my Sykes Sliding Scale. You can learn how to use this tool to help plan trades by studying my Trader Checklist Part Deux guide.

Millionaire Mentor Market Wrap

© 2020 Millionaire Media, LLC

That’s another one in the books. I’ll be spending a few more days in Australia meeting with charities doing good work. I hope you dream big enough that you can travel and do the things you want in life.

Be safe out there. Take the coronavirus scare seriously, but don’t let it control your life.

And use your spare time to study. Don’t expect to get rich overnight, because it’s not gonna happen. Be willing to put in the work to get there. And whatever you choose to do, remember this quote from our first president…

“Ninety-nine percent of failures come from people who make excuses.” 

― George Washington, 1st President of the United States

How are you spending the President’s Day holiday? Comment below, I love to hear from all my readers?

The post Millionaire Mentor Update: Checking in From Australia appeared first on Timothy Sykes.



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3 Dividend Stocks to Buy and Hold Forever

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The long-term benefits of reinvesting dividends can have a profound effect on your portfolio in retirement. Choosing the right mix of investments early on and holding on those investments for a decade or more can spell the difference between a comfortable retirement or needing to work will into your 60s.

Fortunately, the market gives us plenty of opportunities to acquire that perfect investment mix. Here are three such investments worth considering.

If you need a utility, this is the one to pick

Fortis (TSX:FTS)(NYSE:FTS) is a company that should be on the radar of every investor. As one of the largest utilities on the continent, Fortis has a sprawling portfolio of assets in Canada, the U.S., and in the Caribbean.

Utilities make excellent long-term options for any portfolio, owing to their lucrative business model and stable dividends. In short, utilities provide a necessary service to the communities they serve protected under long-term contracts that can span decades. In other words, as long as the utility keeps the power running, it benefits from a stable and recurring revenue stream.

That stable and recurring revenue stream then enables Fortis to reward investors with a handsome (and growing) dividend. The current payout works out to a respectable 3.27% yield, and Fortis has managed to provide investors with a solid annual bump to that dividend for over four decades consecutively.

In terms of results, Fortis announced results for the fourth fiscal of 2019 last week, which were, in a word, impressive. The company reported net earnings of $345 million, or $0.77 per share, handily beating the $261 million, or $0.61 per common share, reported in the same period last year.

This telecom can make you rich

Another great option to consider is one of Canada’s telecoms. Telus (TSX:T)(NYSE:TU) is an interesting pick in this regard, as the company often flies under the radar compared to its larger and more popular peers.

Like utilities, telecoms are great defensive investments, owing in part to their growing necessity on our daily lives. In the case of Telus, strong growth across its wireless segment continues to spearhead growth at the company. By way of example, in the most recent quarter, Telus announced an impressive 130,000 new net wireless customers, reflecting an impressive 5.5% improvement in the subscriber base over the same period last year.

Telus’s Fibre TV and internet services are also noteworthy contributors to the company’s bottom line. In that same quarterly report, Telus reported $379 million in net income, which came in 3% higher when compared with the same quarter last year.

As a dividend investment, Telus provides a quarterly payout that currently works out to a 4.27% yield. While this is not the highest yield among telecoms, it is stable and continues to see handsome annual hikes, unlike two of its three telecom peers.

Renewable energy can power you to riches

TransAlta Renewables (TSX:RNW) is an investment that is ripe with opportunity. Similar to traditional utilities, TransAlta offers investors a handsome dividend backed up by a defensive business model that few can match.

TransAlta currently boasts a portfolio of solar, wind, hydro and natural gas elements across 10 operating regions in Australia, Canada, and the U.S. Those facilities are backed up by PPA agreements that are not unlike fossil-fuel burning utilities.

That stable business model also means that TransAlta can provide a lucrative and secure dividend while also investing in growth. By way of example, last month TransAlta announced that two wind farms with 119 MW of capacity came online over the holidays.

Turning to dividends, TransAlta currently provides a handsome monthly payout that works out to a 5.38% yield, handily making this stock a solid buy for long-term investors.

Final thoughts

The importance of investing early and often can’t be understated, but equally as important is the need to pick the right stocks for your portfolio. The three stocks outlined above all offer growth and income-earning prospects for nearly any type of portfolio.

Buy them, hold them, and retire rich.

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Fool contributor Demetris Afxentiou owns shares of Fortis Inc.



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The Sahi Way of Investing in Equity – A Guide for Beginners

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If there was a simple answer to how one could earn returns that are higher than the inflation rate, everyone would have flocked to it.

FDs, when done in the safest banks, give interest rates that are almost the same as inflation rates. The reason one earns higher-than-FD returns is that there is a higher risk.

Therefore, in investing, risk cannot be avoided but has to be managed. From amongst the choices available to retail investors, equity is the preferred asset class.

While success is not guaranteed, it can be achieved by following a good process with discipline. This is what we mean by ‘The Sahi Way of Investing in Equity’.

What is the Sahi Way that a retail investor should follow?

The ‘Sahi Way of Investing in Equity’ takes into account the investor’s knowledge and experience in investing and the size of the portfolio.

However, any good process for investing in equities must ensure that they stay invested and let compounding do its magic.

This requires investors to understand and have confidence in the investment recommendations and decisions.

So a good process must have a sound rationale that is easy to understand.

Are there any rules every investor must follow?

Are there any rules every investor must follow

Yes; stay invested for long and let compounding grow your money.

So the do’s and don’ts can be stated simply as:
do everything to stay invested and don’t do anything that will make you stop investing in equities.

Can one get rich following this advice?

Can one get rich following this advice

Yes, absolutely! Savings grow into wealth when you put your surplus money to earn returns higher than inflation and let it compound for a number of years.

Wealth Building Formula

 

As you can see there are 3 variables:

  • Surplus (the saving you put to work)
  • Returns (CAGR) that you earn
  • No of years you stay invested and earn these returns

Look at the graphs below. As you continue to stay invested, even moderate returns above the inflation rate can make you rich.

But, higher returns can create wealth faster!

But higher returns can create wealth fasterYes! Higher returns can grow the savings faster, but that’s on paper. In real life, high returns require taking higher risks and withstanding deeper corrections from time to time.

Retail investors can neither afford this kind of drop in their savings nor do they have the temperament to handle this kind of risk.

So they will not be able to stay invested in a high risk-high return portfolio. Those who claim they can are probably investing a very small fraction of their surplus – the ‘can-lose’ money.

Hence, chasing higher returns comes with a risk of not meeting your wealth creation goal.

How to ensure you stay invested and earn inflation-beating returns?

Why think Portfolio and not individual stock or MF?

Why should you Think PortfolioThinking portfolio puts things in perspective. A well-constructed portfolio neither rises very fast nor falls very hard, thereby reducing the chances of getting sleepless nights that investors dread.

Say you have a stock that falls 20%. You are likely to be upset, very upset if you have put a lot of your savings into it.

However, when you have a 20-stock portfolio, you may see that this stock is only 5% of your portfolio and hence the impact is only 1% on the entire portfolio (or even lesser as some other stock could have gone up). This helps us make level-headed decisions.

Another advantage of thinking portfolio and not individual stock or MF is that you are preventing yourself from getting attached to a stock. This makes it easier to sell when required.

What is a well-constructed portfolio?

What is a well-constructed portfolio?A well-constructed portfolio helps manage both risk and returns. It is instrumental in achieving reasonable returns while managing the risk at a level that ensures that you stay invested and reach your financial goals.

Risk is prevalent and exists, but does not always materialize. For example, you use a motorcycle regularly; sometimes you wear a helmet and sometimes you don’t.

Till now you have not had an accident. Does that mean you were over-cautious on the days you wore the helmet and smart when you didn’t?

An accident is unpredictable but taking precautions and wearing a helmet every time you ride a motorcycle prevents serious damage and saves lives.

But can’t one invest in an MF and be done with it like an FD?

But can’t one invest in an MF and be done with it like an FDNO, you can’t! An FD promises a fixed return no matter what. So all you need to decide is to do the FD with the safest bank, even though they offer a slightly lower interest rate.

Beyond the choice of the bank, there is no decision you are required to take.

However, MFs are not the same – there is no guaranteed return.

That’s why there is the all-famous warning: they are subjected to market risks.

There are 350+ equity mutual funds that follow different processes/strategies. Selection requires some knowledge and expertise.

A Mutual fund is a portfolio managed by an expert. Then why does an investor need to manage his portfolio?

A Mutual fund is a portfolio managed by an expert. Then why does an investor need to manage his portfolio?Mutual funds are products. Fund managers are responsible for managing the product.

However, it is not their responsibility to ascertain whether the product is suitable for you and remain suitable even when market conditions have changed. That’s the job of your Investment Adviser.

An investor needs to know and do what is right for his portfolio. That is where the Investment Adviser comes in.

Investment Adviser is responsible for assessing your return requirement based on your risk appetite. Based on this assessment, a suitable investment solution can be chosen.

Why do the returns of MF vary over time?

Why do the returns of MF vary over timeEvery fund fits in a category. For eg:  Large cap fund managers build and manage the portfolio within the rules specified for the large cap category.

Within these rules, every Fund Manager uses a process or a strategy to select stocks that can deliver great returns and the risks which are acceptable to him.

However, no process works in every market conditions and hence, there are periods of good and underperformance.

For eg: small cap funds outperformed the markets in a bull market of 2017 but underperformed in 2018 and 2019.

And how does one manage this uncertainty?

And how does one manage this uncertaintyBy ensuring your portfolio is diversified. One of the biggest advantages of investing in mutual funds is diversification.

Investing in a fund enables you to invest in multiple stocks – this is one level of diversification. However, this is not adequate.

There is one more dimension of diversification that you need – diversification across investment style/processes/strategies.

The most common ones and the times they work best are:

  1. Momentum – has worked best in rising markets
  2. Value/Dividend – in flat or falling markets
  3. Quality – in tough/bad economic conditions
  4. Size – in good times.

For a more detailed understanding read How to achieve the right diversification in Mutual Funds? 

A lot of people say ‘MF Sahi hai’, but are there any disadvantages of investing in MFs?

A lot of people say MF Sahi hai, but are there any disadvantages of investing in MFs?

MF Sahi hai, but that does not mean every MF is Sahi for you. The way in which MF is sold to you may not be right. MF is mostly sold based on past performance.

This is similar to driving by looking into the rearview mirror; it does not work. A fund is a top performer today because the prices of the stocks in its portfolio have already gone up.

This makes it difficult for the fund to deliver returns again in the coming years since the new money is invested at increased prices.

For example: check any small cap fund and you will see great returns in 2017, but the returns in 2018 are negative and many are still negative in 2019.

So, the right advice should have been to sell small cap funds in 2017 when it was still rising.

However, most retail investors were buying small cap funds in early to mid-2017 and they would not have recovered yet and probably it will be a few years more before they do.

The second disadvantage of MF is that you incur a 1 – 1.5% Fund management cost. If you buy a Regular Plan, an additional 0.75% distribution cost will be added.

Thus, MFs come at a cost. This cost hurts when the returns are not well above the FD interest rates.

If not based on past performance, how do you select the right equity MF?

There are three important things when short-listing an MF:

1. Quality of the Portfolio:

Quality of the PortfolioIt is quite possible that in the race to stand out amongst its peers in terms of returns, a fund might hold comparatively riskier stocks.

However, it can backfire in terms of higher drawdowns – bigger losses when the market corrects. This may not be acceptable and hence you need to assess the quality of the fund’s portfolio.

Alternatively, a fund manager may ‘mimic’ the benchmark index, i.e., the portfolio will be very similar to the Index and hence you cannot expect higher than index returns.

2. Consistency of Returns:

Consistency of Returns

As an investor, we are more interested in a fund earning consistent returns that compounds, rather than swings from very high to low/very low.

We also need a way of looking at returns that do not have the limitations of using past returns, which depends a lot on the start and end dates; especially because we could enter and exit at any time.

3. Upside Potential:

Upside Potential

Once you have shortlisted a fund, you need to know if it is the right time to buy it – especially if you are investing a lumpsum amount.

For this, you need to know the upside potential of the fund; what is the likely return one can realistically expect.

MoneyWorks4me fund selection methodology is based on this:

Should one invest in Index Funds?

Should one invest in Index FundsAn Index Fund is a mutual fund where the portfolio of stocks is not actively selected by a fund manager but is a replica of the Index. Eg: the ‘Nifty 50 Index Funds’ portfolio matches that of Nifty 50.

Mutual funds are called actively managed funds while investing in index funds is called Passive Investing.

The advantage of an Index fund is that its portfolio is predictable and comes at a lower cost. So you get the benefit of diversification at a lower cost.

However, the decision to invest in Index funds is similar to any mutual fund.

What are the advantages of investing directly in stocks?

What are the advantages of investing directly in stocks?The benefits of directly investing in stocks, over a 100% MF portfolio are:

  1. Higher control of your investment: You can decide what to buy when to buy/sell and how much.
    MFs are not the best positioned to take advantages of some opportunities, such as investing at attractive prices in a bear market (usually they face redemption pressures and require to sell rather than buy) or from a short term performance problem in an otherwise good company (because they need to be the best performing fund or close to the top to attract more funds).
    A retail investor can do all this. This can add significantly to better returns while risk can be low.
  2. Lower cost: Investing in direct stocks incurs brokerage cost which is significantly lower than the expense ratio of Mutual Fund.

But isn’t investing in stocks directly risky?

But isn’t investing in stocks directly riskyYes, if you don’t have a good process and research to guide you.

Remember: MFs also invest in stocks.

The biggest risk is ignorance.

So does it make sense to have a portfolio of Direct Stocks and MFs?

Yes! You can think of your direct stocks portfolio as one fund which you can build and manage directly under guidance from your investment advisor.

This enables you to get the best of both:

  1. Invest in strong investment-worthy companies through a direct stock portfolio on which you have higher control and lower cost.
    This is also likely to enhance your returns as you can pick and choose stocks with high upside potential.
  2. Diversify across processes by investing in a set of MFs. SIP for your monthly savings in a set of MFs. Invest lumpsum in those funds with higher upside potential.

However, not all advisors are equipped to guide you on investing in stocks.

How to build your Stocks’ Portfolio successfully?

How to build your Stocks’ Portfolio successfully?

  1. Invest only in strong investment-worthy companies.
  2. Invest only when the Upside Potential is higher than FD.
  3. Invest in about 10 stocks, 10% each. (this is adequate for small portfolio sizes which also have Mutual funds)
  4. Hold for as long as the company performs and let compounding do its work. Sell only if company performance has dropped or it has governance issues or prices rise so high that the upside potential is very low.

How to ensure you have selected a strong investment-worthy company stock?

How to ensure you have selected a strong investment-worthy company stock?Great businesses have one essential characteristic – they have a Sustainable Moat. In olden days, a castle used to be protected by a moat – a wide channel dug around a castle and filled with water.

The wider the moat, the more difficult it was for enemies to enter and capture the castle. For you, the castle is a company in which you want to invest.

The moat is A sustainable competitive edge, which protects the company from the competition and tough economic conditions!

During tough times, companies fight harder to win customers, thereby leading to a fall in prices and thus, margins.

Only a company with a wide, unbreachable moat – a competitive edge – can maintain and grow its profits even during tough economic conditions.

Is there a way to confirm if a company has a sustainable moat?

Is there a way to confirm if a company has a sustainable moat?Yes. If a company has a sustainable moat, it should be able to deliver healthy profits consistently. So look at its financial track record over 10 years.

Why 10 years? This is because, over a 10-year period, the company is likely to have experienced one full economic cycle – good & bad times; growth and recession.

A business does not do well over a 10–year period just by accident! A company which has performed well over a 10–year period is most likely to have a moat.

But does it mean that the past performance is a guarantee of future performance?

But does it mean that the past performance is a guarantee of future performance?No. There are no guarantees because the world is experiencing a high rate of change and disruption.

However, an excellent past performance over a long period is an indication of a competent Management that can handle the ups and downs it is likely to face in the future.

For that, you need to have an assessment of what is the future upside potential from the current price to decide whether you should invest in it at that price.

What else is essential to qualify as a great business worth investing in?

In addition to a sustainable moat and its excellent track record, one more thing is essential: A Respectable Management.

What is Upside Potential in Stocks?

What is Upside Potential in Stocks?Instead of looking at past returns, savvy advisers and investors look at the future upside potential.

There are different ways of making this estimate. MoneyWorks4me makes an assessment of what returns one can expect from the current price should the stock trade at its fair price 3 years later.

It is mentioned as CAGR. This is not to say that 3 years from now, the stock will trade at this fair price.

However, it gives us a good way to decide whether we should invest in it as the current price is attractive or fair or avoid it because it is expensive.

Is there a good thumb rule for making decisions based on Upside Potential?

Is there a good thumb rule for making decisions based on Upside PotentialInstead of obsessing over every stock, one should look at the entire portfolio. Some stocks could have an upside potential of greater than 15%, while some could be in the 10 – 15% range.

A few very good stocks could even be in the 6 – 10% range. Stocks with less than 6% upside potential are expensive and should not be bought.

In fact, one should consider selling such stock partly or fully.

How do you arrive at the fair price of a stock?

How do you arrive at the fair price of a stockThere are different ways of estimating the fair value of a company. Equity Analysts are trained to do this.

However, fair value is an estimate based on certain assumptions that every analyst makes.

They then track actual company performance versus their estimates and, over a period of time, come to a judgment of its fair value.

The usefulness of fair value is that it provides a better anchor for taking buying and selling decisions.

This is achieved by extending the idea of fair value to the stock’s Upside Potential. For more details readWhat is the right price to buy a stock?

What is the best way to invest your monthly savings?

What is the best way to invest your monthly savingsThe challenge of investing your monthly surplus is being disciplined enough to do it every month.

This is tougher than one imagines. Committing to a plan that gets automatically executed without your intervention every month is seen to be most effective.

This is what a SIP (Systematic Investment Plan) does. Right now, you can set this up for mutual and index funds.

Looking at the success of SIP in mutual funds, solutions to invest your monthly savings in a portfolio of stocks are also now available.

They may not be as regimented as mutual funds, but those convinced about direct stocks will find it acceptably simple.

Here’s a summary of what a retail investor must do, to invest in equity and enjoy success:

  1. Invest only that portion of your savings in equity that you don’t need for 5+ years.
  2. Lumpsum Investment: Chose the split between the two (default: 50:50)
    • In a portfolio of 10 (10% in each) strong investment-worthy stocks with attractive upside potential.
    • In two or max three mutual/index funds with good portfolios, consistent returns performance, different styles of investing and an upside potential greater than FD/8%.
  3. Monthly Savings, SIP: In a set of 3 mutual/index funds with different styles of investing, a good portfolio and consistent performance. If you don’t prefer SIP in mutual funds, SIP this into your stocks portfolio.
  4. Track your investment regularly but not frequently. Rotate stocks portfolio to replace those with Upside potential less than FD with good quality stocks having an attractive upside.

Learn more about investing in equities-stocks, mutual and index funds, so that your knowledge keeps pace with your growing portfolio.

You can get everything you need to do all that is part of the Sahi Way of Investing in Equities in one place – MoneyWorks4me PRO.

Also Read:

An excellent step-by-step guide to investing in stocks successfully

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.


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The post The Sahi Way of Investing in Equity – A Guide for Beginners appeared first on Investment Shastra.



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