Hello investors & friends,
How are you all doing? I hope you are all learning by reading the content here. I also sincerely hope that you are passing this on to your loved ones.
Before reading this, please have a look at the Fundamentals of Investing in the Stock Market (Click here to read)
It's result season and the companies which zoomed without reason are getting punished. Also, investors who invested without substance are getting bankrupt - I am serious. There is heavy panic in the retail investing community especially after the Bloodbath in the Markets (Click here to read)
I am sure all of you are definitely invested in a few businesses/stocks in the market or atleast preparing to do so. Is it the Right time to Invest in the Market? Click here to find out :-)
Now, in this article, I bring out 5 Important Questions you need to truely and consciously ask yourself before buying a business or a stock. If you do not have the answers, start finding them out NOW :-) Digest each question thoroughly.
The five basic questions which you need to have answers are the following:
Question 1
Do I understand this business well enough to make a good decision on buying the shares? If yes, what do I know about the business?
This is the raw basic question you need to have the answer for. If you are an expert in one field, stick to it. If you are not an expert in anything, try to look at companies which sell products which you use everyday. When you go to a shopping mall, or watch an advertisement, or eat something yummy, keep your ears and eyes open and see which company is giving you that product. If it is listed, study it.
Question 2
Who are the promoters and their experience in this business? Are they transparent and investor friendly?
Let me tell you from my experience, that the management is everything in a business. We have seen so many companies rise from the ashes due to a great management. Please remember that even the best companies have gone through hard times. But, if the management is sincere and determined, they will overcome these hiccups. Now, how to do you know if a promoter is good or bad? How do you know their intentions? First, find out who the promoters are. Try to google them and read everything you can about them. Go to Linkedin and see their profiles. See if they or the company has ever been in the news for unethical or bad reasons. Also try to see if they have given dividends which shows their investor friendliness.
Question 3
What is the future for this business?
Friends, please remember that the past is just a guidance but the future is everything. If a company was awesome but the future looks bleak, you are most definitely entering at the worst time possible. So when you are picking the business, try to figure out the future of the business. Every company will have to innovate in order to sustain. Closely observe if the business has a future requirement in the market? Is it saturated? Even old solid companies keep doing new things to keep in pace with the world. This is a very important question to be answered.
Question 4
How has the business fared in bad market times compared to its competitors?
There are times when a particular sector is going through tailwinds or multiple problems. Sometimes, currency issues, slowdown, low demand, bad margins etc can be challenging for any business. How has the company fared when its industry is going through a hard time? Today, there are many companies which are still performing well in spite of their sector immersed in problems. Maybe their margins have reduced. But if their integrity is not compromised, they are doing a great job. This is extremely key in valuation.
Question 5
How much does the business performance depend on changes in micro and macro economic conditions?
The world is never perfect. Sometimes, there are situations which are out of our hand. Geopolitical problems in Europe, Greece finance issues, Unemployment in US, Currency devaluation in China, Slow growth rate, Real Estate Problems, Diseases, Dumping etc have hit the world markets in the last few months. In these times, unfortunately, even the quality companies get punished for no reason of theirs. But their bounce back will be equally quick. Try to keenly observe these movements in the past tough times. Strong companies have a beautiful upward chart if you see the last 10 years.
Now, you need not stop with these 5 questions. But these are the basic ones which you should definitely have the answers for.
Start searching for every possible detail about the company which you can gather. Do not look at the stock with a clean eye. Try to scrutinize it from every angle. I am sure that if you start hunting for information, you will definitely be able to get a lot of inputs. Try to send emails to the company (see the email ids in their website) or call them and bug them. They will respond if you have genuine questions. You just need to be a shareholder to get in touch with a company.
I believe this is the best time to start your research if you have not done it yet. Most of the high quality stocks are beaten by more than 50% from their high. Do not miss this opportunity.
I would also love to help you out in case you want me to review your thoughts. Click here to get my details in About FI page.
Good luck,
Fundamental Investor
How are you all doing? I hope you are all learning by reading the content here. I also sincerely hope that you are passing this on to your loved ones.
Before reading this, please have a look at the Fundamentals of Investing in the Stock Market (Click here to read)
It's result season and the companies which zoomed without reason are getting punished. Also, investors who invested without substance are getting bankrupt - I am serious. There is heavy panic in the retail investing community especially after the Bloodbath in the Markets (Click here to read)
I am sure all of you are definitely invested in a few businesses/stocks in the market or atleast preparing to do so. Is it the Right time to Invest in the Market? Click here to find out :-)
Now, in this article, I bring out 5 Important Questions you need to truely and consciously ask yourself before buying a business or a stock. If you do not have the answers, start finding them out NOW :-) Digest each question thoroughly.
The five basic questions which you need to have answers are the following:
Question 1
Do I understand this business well enough to make a good decision on buying the shares? If yes, what do I know about the business?
This is the raw basic question you need to have the answer for. If you are an expert in one field, stick to it. If you are not an expert in anything, try to look at companies which sell products which you use everyday. When you go to a shopping mall, or watch an advertisement, or eat something yummy, keep your ears and eyes open and see which company is giving you that product. If it is listed, study it.
Question 2
Who are the promoters and their experience in this business? Are they transparent and investor friendly?
Let me tell you from my experience, that the management is everything in a business. We have seen so many companies rise from the ashes due to a great management. Please remember that even the best companies have gone through hard times. But, if the management is sincere and determined, they will overcome these hiccups. Now, how to do you know if a promoter is good or bad? How do you know their intentions? First, find out who the promoters are. Try to google them and read everything you can about them. Go to Linkedin and see their profiles. See if they or the company has ever been in the news for unethical or bad reasons. Also try to see if they have given dividends which shows their investor friendliness.
Question 3
What is the future for this business?
Friends, please remember that the past is just a guidance but the future is everything. If a company was awesome but the future looks bleak, you are most definitely entering at the worst time possible. So when you are picking the business, try to figure out the future of the business. Every company will have to innovate in order to sustain. Closely observe if the business has a future requirement in the market? Is it saturated? Even old solid companies keep doing new things to keep in pace with the world. This is a very important question to be answered.
Question 4
How has the business fared in bad market times compared to its competitors?
There are times when a particular sector is going through tailwinds or multiple problems. Sometimes, currency issues, slowdown, low demand, bad margins etc can be challenging for any business. How has the company fared when its industry is going through a hard time? Today, there are many companies which are still performing well in spite of their sector immersed in problems. Maybe their margins have reduced. But if their integrity is not compromised, they are doing a great job. This is extremely key in valuation.
Question 5
How much does the business performance depend on changes in micro and macro economic conditions?
The world is never perfect. Sometimes, there are situations which are out of our hand. Geopolitical problems in Europe, Greece finance issues, Unemployment in US, Currency devaluation in China, Slow growth rate, Real Estate Problems, Diseases, Dumping etc have hit the world markets in the last few months. In these times, unfortunately, even the quality companies get punished for no reason of theirs. But their bounce back will be equally quick. Try to keenly observe these movements in the past tough times. Strong companies have a beautiful upward chart if you see the last 10 years.
Now, you need not stop with these 5 questions. But these are the basic ones which you should definitely have the answers for.
Start searching for every possible detail about the company which you can gather. Do not look at the stock with a clean eye. Try to scrutinize it from every angle. I am sure that if you start hunting for information, you will definitely be able to get a lot of inputs. Try to send emails to the company (see the email ids in their website) or call them and bug them. They will respond if you have genuine questions. You just need to be a shareholder to get in touch with a company.
I believe this is the best time to start your research if you have not done it yet. Most of the high quality stocks are beaten by more than 50% from their high. Do not miss this opportunity.
I would also love to help you out in case you want me to review your thoughts. Click here to get my details in About FI page.
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Please share this post on multiple public platforms so that many more can get benefited and master the art of Investing in the Stock Market !!!
Good luck,
Fundamental Investor