We're gearing up for an all new trading experience. Here's a sneak peek at what's to come. Visit old website here.
Ventura Wealth Clients
6 min Read
Wealth
Share

The popularity of equity investing gained momentum over the last two years—evident from a 120% jump in the number of active demat accounts. Factors that led to this success are: investor education campaigns, convenience of online account opening and stellar returns generated by equities during this time period, amongst others.

Equity Markets

Today, new investors seem to be convinced that equities can help them create wealth. In that sense, investments in equities and equity mutual funds is considered to be ‘a must have’ by and large. 

 It’s noteworthy that the industry took more than 2 decades to reach the 4 crore account  level but it took just 2 years to clock the next 4 crore. Put differently, nearly half the existing investors are yet to see a downcycle in equities. And we at Ventura Securities believe the stock broking industry needs a more focused investor education effort to retain the 4 crore new investors.

If you are a new investor and have started your market journey during the pandemic, you are likely to face some typical issues going forward that new investors often face under difficult market condition.

The most common issues novice investors face under challenging market conditions are:
  • How to identify potentially rewarding stocks
  • How to analyze the effects of new developments on the portfolio
  • And how to maintain faith in equities when the picture looks bleak

Thankfully, many legendary investors have already offered ample insights on stock market investing and wealth creation. Thus, instead of reinventing the wheel, we thought of highlighting their tenets most suited to beginners under the present market conditions. However, following them blindly or relying on oversimplified interpretations might cause more harm than good.

For instance, in One Up On Wall Street, Peter Lynch wrote The best place to begin looking for the tenbagger is close to home. Tenbagger simply means a stock that can potentially rally 10 times over its current price.

Now if you and I were to follow his advice blindly, we might end up focusing only on new-age high tech start-ups and some consumer goods companies, including those manufacturing consumer electronics products.  That’s what we are exposed to the most these days, aren’t we? 

But in the same book, Peter Lynch has also warned against getting carried away by the success of just a few blockbuster products of a company. He underscored the importance of considering the contribution of vastly popular products and services to the company’s bottom line.

Now if we were to look for a possible tenbagger close to home, we might suddenly find it difficult to shortlist stocks based on Peter Lynch’s aforementioned additional criteria.

Getting the essence of an argument is crucial

Looking close to home for a potential tenbagger doesn’t mean you literally have to restrict yourself to your physical environment. It suggests being aware of even the mundane companies doing business around us, not just the easily identifiable.

For example, naming the real estate projects that have cropped up in your vicinity over the last 6 months might be relatively simple. But what if somebody asked you about companies supplying cement and other building materials to them?

Well, in case you don’t know, you need not worry.

Reading a research report on the cement sector can help you do competitive analysis of various cement companies, know their market share in various geographies and identify their strengths and weaknesses.

How to adjust to the rapidly changing investment environment

Dealing with an information overload and identifying the impact of the latest news and developments is another challenge novice investors often face. Under such a situation, developments that can potentially affect the company’s long term earnings capacity should matter the most to you.

In One Up on Wall Street, Peter Lynch argued that only earnings and assets can make any company potentially more valuable tomorrow than it is today.

How to position your portfolio for uncertain times

Amongst many unique concepts discussed in One Up on Wall Street, those pertaining to the classification of stocks are noteworthy.

According to Peter Lynch, stocks can be classified into 6 categories:
  1. Slow Growers
  2. Stalwarts
  3. Fast Growers
  4. Cyclicals
  5. Asset Plays
  6. Turnarounds

The beauty is he didn’t advocate one over the other. In fact, he talked about a potential role each of these categories may play in one’s portfolio.

For instance, stalwarts are giant companies which aren’t exactly agile but are nimbler than slow growth companies. These companies typically offer reasonable protection during challenging economic scenarios. Against that, cyclicals can make you quick gains and losses depending on when you enter and exit.

Should you make your choices depending on the economic and business environment? 

Well, your risk appetite and time horizon should be the primary factors driving your decisions. But having said that, knowing the pulse of the market and economy might help you immensely too.

And here’s a bonus tip for you!

Making sense of unrelated things often offers vital clues to investors. For instance, we are suddenly hearing about mergers and takeovers of giant companies.

Elon Musk’s tweet created a narrative last month for his offer to buy the micro-blogging platform, Twitter.Elon Musk

The Tesla supremo is as famous for his speculative bets as he is for his innovative business. Does his intent to buy Twitter underscore the importance of social media platforms in moving public opinion? Or does it talk about the changing political scenario in the US? Or a bit of both?

As an individual investor, you would be better off avoiding such noises on most occasions. But you should always be watchful of the big picture.

Back home, HDFC and HDFC Bank announced a merger a few days ago, subject to regulatory approvals. This is expected to be a win-win situation for the shareholders of both the companies.  However, Financial Times quoted HDFC Chairman stating that the merger was partly motivated by the regulatory tightening.

You see, the changing political and regulatory scenario can affect some stock categories mentioned by Peter Lynch more than others.

Consider this too…

According to media reports, the world’s largest cement maker Holcim is planning to exit its India business. It owns a 63.19% stake in Ambuja Cements and a 4.48% stake in ACC. Ambuja owns a 50.05% stake in ACC. These companies coming under one roof may unlock synergies and the buyer may potentially become the second largest cement company in India.

Similarly, L&T Infotech and Mindtree, two tech companies owned by Larsen & Toubro are rumoured to be considering a merger to create a giant tech consulting and digital solutions company. The potential merger is expected to offer cost savings and better bargaining power.

Connecting these dots might give you some clarity on the current business environment. Perhaps, companies are looking for scale, integration and synergies to tame cost escalations, grow their market share and augment profitability amidst rising geopolitical uncertainties and high inflation.  

Under such circumstances it appears that Stalwarts—as per the classification of Peter Lynch—are likely to dominate the business and investing landscape.

What do you think? Do let us know.

You may also like to read: Should you bet on these 5 Nifty Next 50 Jewels?

Disclaimer:

The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.

We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.

We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

Like what you see?

Subscribe for regular updates

Zero spam. You can unsubscribe any time.
Privacy Policy