馃攳
HOW TO INVEST In Stocks For Long Term Using SIP In Stock Market (Stock Selection For Long Term) - YouTube
Channel: Trade With Trend - Raunak A
[1]
- [Instructor]
Welcome to the video
[2]
on how to invest in
stocks for long term
[3]
using SIP in stock market.
[6]
Now in this video I
will be listing out
[8]
four fundamental
analysis criteria's
[10]
and two technical
analysis criteria's
[12]
for stock selection for
long term investing.
[15]
Now I have identified the
best performing stocks
[18]
over the last 20 years,
[19]
and then identified
common characteristics
[22]
shared by all these stocks.
[24]
Now most of the
points given out here
[26]
are based on teachings of
Peter Lynch and Stan Weinstein
[29]
and hence all
credit goes to them.
[32]
So let's get started.
[35]
So let us first begin
with understanding
[36]
what are Growth Stocks,
Value Stocks and Garp Stocks.
[41]
Now understanding this forms
the basis, of this video.
[44]
Now Growth Stocks are
usually more "expensive".
[47]
Their stock prices are high
[49]
relative to their
sales or profit.
[52]
Now this is mainly due to
expectations from investors
[55]
and traders, on front of higher
sales or more profitability.
[59]
Now investor also expect
these stocks to grow faster
[63]
than the growth seen
in the broader market.
[65]
Now, one thing that you
have to keep in mind
[67]
is that Growth Stocks
are a lot more riskier.
[71]
Now, these stocks are
highly priced today,
[73]
because investors expect
Stock to grow in near future.
[78]
Now, if growth plans
don't materialize,
[80]
then price of stock
easily correct 25 to 45%.
[86]
Now, If you look at
most Growth Stocks,
[88]
they have strong projection
in terms of Growth rate,
[91]
Return on Equity and
Earnings Per share.
[95]
You need to keep in mind
that smaller companies
[97]
will probably grow at 15% plus,
[100]
and larger companies
will grow at 8% to 10%.
[104]
So let us now move
to Value Stocks.
[107]
Now value stocks are
relatively less "expensive"
[110]
their stock price are low,
[112]
relative to their
sales or profit.
[115]
And this is what mainly
[116]
attracts investors
to these stocks.
[119]
Value stock per se are also
less risky, as these stock
[123]
as have already
proven their ability
[125]
to generate sales and profit,
[127]
based on their robust
business model.
[130]
It's important to
note that Value stocks
[132]
are not cheap stocks.
[134]
Usually investors prefer
to look for value stocks,
[137]
where stocks are already
trading at 52 week low levels.
[141]
Now with sound business
model in place,
[144]
investors like to
think that Stock Market
[146]
is currently
undervaluing these stocks
[148]
and once the cycle turns,
[150]
these stocks will again
start moving higher.
[153]
Now, some of the
characteristics of value stocks
[155]
are that the price
to earnings ratio
[158]
is in the bottom
10% of all stocks,
[161]
and price to earnings growth
ratio that is the PEG ratio
[164]
is usually less than one.
[166]
Now this actually indicates
that stock is undervalued,
[170]
given that other
parameters match as well.
[174]
Now Equity to Debt ratio in
such stocks is less than 1.5.
[178]
And this is why investors
are willing to bet
[181]
on such companies,
[182]
which are currently facing
a downturn in business.
[187]
Let us now move to GARP Stocks.
[189]
Now GARP stocks was a concept
made popular by Peter Lynch.
[192]
And in this video
we will be focusing
[194]
on those stocks that
fall in this category.
[197]
For those of you who don't know,
[198]
GARP means, Growth
At Reasonable Price.
[202]
Now, GARP investors
generally aim for P/E ratios
[206]
that are higher
than value stocks,
[208]
and lower than Growth stocks.
[210]
Now, this is just one of
the conditions to check.
[213]
Now other than P/E ratio,
[215]
investor focus upon
stable earnings growth,
[218]
sales growth, profit
growth, return on equity,
[222]
and return on capital employed.
[224]
Now GARP investors
aim to catch a stock
[227]
that is valued richly by market,
[229]
but can become more
expensive from here,
[232]
to enter the Growth category.
[234]
Now this process where stock
moves from GARP category
[238]
to a Growth Category stock
[240]
is Where maximum money is made.
[242]
Now like growth investors,
[244]
GARP investors are interested
in a stocks future prospect.
[249]
They try to visualize
where the stock would be
[251]
in the next five to 10 years.
[253]
And both investors look
for earnings growth
[256]
over the past few years, along
with strong sales growth.
[260]
Now, GARP investors look
for stability in growth
[263]
rather than aiming for stocks,
[265]
that are experiencing
rapid growth
[268]
in their business cycle.
[270]
So, let us now move
to the technical
[272]
and fundamental criteria
that we have to consider.
[275]
The first criteria
to be considered
[277]
is that of Revenue Growth.
[279]
Now let me explain why
Revenue Growth is important.
[283]
Now the main purpose of
a Stock Market Company
[285]
is to make profits.
[287]
The more profit a Stock makes,
[289]
the more opportunity it can
have to expand its reach,
[292]
and hence grow exponentially.
[294]
Don't forget that the main
driver of profitability
[297]
is revenue growth.
[299]
The more you grow
in terms of revenue,
[301]
the more likely
it is for a stock
[303]
to increase its
profit potential.
[306]
Now, as Revenue grows,
[307]
if a company manages
to bring down costs,
[310]
then profitability
automatically expands.
[313]
Now, once this happens,
[314]
Stock company can either
distribute profits
[317]
in terms of dividends,
[318]
reinvest profits in the business
[321]
or it can use the same to
acquire more businesses.
[324]
Now, let us not forget
that revenue growth
[326]
and managing cost, has a direct
impact on stock valuation,
[331]
the better accompany
management can do this,
[334]
the higher the Stock
Valuation will be.
[336]
Now in this chart,
[338]
I have posted revenue
growth of Bajaj Finance
[341]
over the last 12 years.
[343]
Now, look at how steadily
revenue has increased
[346]
with each passing year.
[348]
Even in times when
economic did not do well,
[351]
that is in 2008,
[353]
2011,
[354]
2013,
[355]
2016.
[357]
Bajaj finance continued
to grow its revenue.
[360]
Now, these are the
kinds of stocks
[361]
that you have to identify,
[363]
when you think of doing,
SIP in stock market
[366]
for the long term.
[367]
Now, most of the stocks
that will do well
[369]
over the next 10 years,
[370]
will have consistent
revenue growth
[373]
despite adverse
Economic conditions.
[376]
The second criteria to consider
is that of Profit growth.
[380]
Now profit growth tells us
how well a stock company
[383]
is able to convert its
revenue into profit.
[386]
For the kind of stocks
that we need to focus upon,
[389]
look for consistent
profit growth
[391]
irrespective of Economic cycles.
[394]
Always remember
that Good businesses
[396]
find a way to beat
Economic slowdown.
[399]
Now, keep in mind
that Stock can have
[401]
one or two of years where
profit growth is not visible.
[405]
But other than this,
[407]
trend of profit growth should
clearly be on the upside.
[411]
Now in this chart,
[412]
I have again posted
the Profit growth data
[414]
for Bajaj Finance.
[416]
Look at how consistently
Profit has risen
[418]
over a period of time.
[420]
Even in the recent
quarter if you see,
[422]
performance of Bajaj
finance was exceptional.
[426]
Now, once you have
identified a stock
[428]
and you wanna do SIP in it,
give it some time to perform.
[432]
Do not start judging
the stock's performance
[435]
from the moment you
start investing in it.
[437]
This is the most common
mistake committed by investors.
[443]
Third criteria to consider
is that of Return On Equity.
[446]
Now Return On Equity or ROE,
[448]
is the return that
a Stock generates
[450]
on its own equity capital.
[453]
If you see, this is
a very useful metric
[455]
of how well Stock's
management creates value
[457]
for those who have
invested in the stock.
[460]
Now, as a rule of thumb,
[462]
when the Return
on Equity goes up,
[464]
it is considered as a very
healthy sign for the stock.
[468]
Now in many ways return on
equity measures efficiency,
[472]
or rising ROE directly reflects
[475]
stock's management's ability
to increase profit growth,
[478]
without needing more
capital to do the same.
[481]
Now, this is the
main reason why ROE
[484]
remains one of the most
widely tracked ratios.
[487]
Now, by using ROE do note
that, you cannot compare
[491]
ROE from one
industry to another.
[494]
The main reason for this
is that some industries
[497]
tend to have, higher returns
on equity than others.
[500]
Therefore, comparison
between industries
[503]
is something you have to avoid.
[505]
Now, in this chart,
[507]
I have marked out ROE
data for Titan Industries.
[511]
What you need to aim for
[513]
is sporting consistency
in ROE data.
[516]
Now, any ROE reading
between seven to 15%
[520]
is really good, and you need
to focus on those stocks.
[524]
Most GARP stocks if
you see, have ROE ratio
[527]
between seven and 17%.
[531]
Now, the fourth
criteria to consider
[533]
is that of ROCE or Return
On Capital Employed.
[537]
Now, along with ROE,
ROCE is one of the most
[540]
important ratios to track.
[542]
A higher ROCE indicates more
efficient use of capital,
[546]
and this should be higher than
company's own capital cost.
[550]
You need to focus
on those stocks
[552]
where long term ROCE, is
clearly above six to 8%.
[559]
This would reflect optimum
utilization of capital
[561]
and efficiency of management.
[564]
Now more than ratio, you
need to focus on ROCE
[568]
trend over the years.
[570]
Now in general,
[571]
investors tend to incline
towards those stocks,
[574]
which are stable and
rising ROCE numbers.
[577]
In this chart I have marked out
[579]
Return On Capital Employed data
[581]
for Bajaj Financial services.
[583]
Now what you need to aim for,
[585]
is sporting consistency
across our ROCE data.
[589]
Now any ROCE reading between
seven to 15% is really good,
[593]
and you should focus
on such stocks.
[595]
Now most GARP
stocks that do well
[597]
have our ROCE ratio
between seven to 14%.
[602]
Now towards the
end of this video,
[603]
I'll be showing you how to
get all this data for free.
[607]
Now fifth criteria to consider
[609]
is that of Long-Term
Relative Strength.
[611]
Now this is a concept
that I've taken
[613]
from Stan Weinstein's teaching.
[615]
Now whether is Intraday trading,
[617]
Swing trading or
Positional trading,
[619]
I always include this
metric in most of my videos.
[623]
This just goes to show how
important relative strength is,
[626]
as an indicator.
[628]
When it comes to investing,
[630]
Relative Strength
is more important
[632]
as it directly reflects long
term interest in the stock.
[636]
Now for this video,
[637]
you need to check
relative strength
[640]
on a weekly timeframe chart.
[642]
Now what I found is
that in GARP Stocks,
[645]
long term Relative Strength
[646]
forms a structure of
higher high consistently.
[650]
Now you can check for
Relative Strength charts
[652]
on tradingview.com.
[654]
I have posted the code in
the comment section below.
[657]
Now this chart that you see
[659]
is that of Long-term Relative
Strength of Bajaj Finance.
[662]
Now as years progressed,
[664]
Relative Strength of Bajaj
Finance kept moving higher,
[668]
not once did we see
structure of higher high
[670]
and higher low being violated.
[673]
Now this is the precise thing
[674]
that you have to spot on stocks,
[676]
that you shortlist for SIP.
[679]
Let us now move to how
to create SIP in stocks
[682]
that you shortlist.
[683]
Now timeframe for the
chart should be set
[685]
to weekly timeframe.
[687]
Now, if you look
at all GARP Stocks
[689]
that do exceptionally well,
[691]
none of these moved below that
200 weekly moving average.
[696]
Now 200 daily, and 200
weekly moving average
[699]
work really well,
[700]
especially when you know
how to use these correctly.
[704]
Now for SIP in stocks,
[706]
you are using five
different filters,
[708]
and then using 200
weekly moving average,
[711]
as the last filter.
[713]
Now when it comes
to SIP in stocks,
[715]
I don't like looking at
any other Technical factor.
[719]
If Relative Strength is up,
[721]
I simply check for price
[722]
with respect to its 200
weekly moving average.
[725]
Now, once these
conditions are fulfilled,
[728]
I then execute SIP in selected
stocks, on a monthly basis.
[734]
Now, as far as risk
management goes,
[735]
I like to create
SIP when price is
[738]
above the weekly moving average
[740]
and has fallen more than
10 to 15%, from its peak.
[745]
Now, this is when I start
buying into the stock.
[748]
Other than this,
[750]
I don't like to over
complicate things
[752]
with respect to Risk management.
[754]
Now, if a Stock falls
20% from my average price
[757]
at any given point,
[759]
I then re-analyze the stock
[761]
and price structure to see
if something has changed.
[764]
Now in the chart
in front of you,
[766]
I have marked out
all the regions
[768]
where I will be interested
in doing SIP in the stock.
[772]
Now since Risk management
varies from trader to trader,
[776]
in case you have any
question about this,
[778]
then let me know in the
comments section below.
[782]
Let me now come to the
section where I'll show you
[784]
how to get this data.
[785]
Now all data in this
video has been pulled up
[787]
from screener.in.
[789]
Now this is a free website,
[791]
and it presents fundamental
data in a user friendly format.
[794]
Now Technical data of
Price and Relative strength
[797]
is available through
tradingview.com.
[800]
I have posted details of same
in the comments section below.
[804]
To implement what I
have discussed here,
[806]
you would not require
any software as such.
[810]
All that I've discussed
can be executed
[812]
through web platforms
that are all free.
[816]
Now in screen.in,
[817]
you will be required
to run a basic query
[819]
to filter out
potential GARP stocks
[821]
out of the 3000 odd stocks
[823]
that trade on National
Stock Exchange.
[826]
Now once you filter
out this initial list,
[828]
you will then be left
with 30 to 60 stocks
[831]
that you will have to
shortlist manually.
[833]
Don't let the simplicity
of this method
[836]
make you question
its effectiveness.
[838]
Now this is a very
simple framework
[840]
and this works
exceptionally well.
[843]
Now, once you
identify 10 stocks,
[845]
you will need to
do little more work
[847]
in terms of identifying
what they do,
[850]
and will that be relevant
in the next 10 years.
[853]
Now, this is not that difficult,
[855]
and requires more
of common sense,
[857]
than expertise of a
particular sector or industry.
[861]
Now, if you want
screen.in query from me,
[864]
and you are unable to
make one on your own,
[866]
then just let me know in
the comments section below
[868]
and I will share
the same for you.
[870]
Now, all conditions discussed
here are very straightforward,
[873]
and based on case studies
[875]
on which GARP stocks have done
extremely well in the past.
[879]
Now why list of conditions
is not exhaustive.
[882]
These are the most
important criteria
[884]
that most strong
stocks had in common.
[888]
You can certainly
add more filters
[889]
based on your
finding and research.
[892]
I will also ask you to
read books by Peter Lynch,
[895]
as this would help you
understand GARP stocks better.
[899]
So kindly consider
hitting the like button,
[901]
and sharing this video if
you find the content useful.
[904]
Thanks a lot for
watching this video guys.
[906]
Take care and be safe.
Most Recent Videos:
You can go back to the homepage right here: Homepage