Stock Market, Corona, Economy and the way forward

Yesterday VGO and I had a discussion about how the world will change in the light of COVID-19. All goalposts, reference points, ways of doing business etc. have changed permanently. In India most businesses across sectors have suffered a lot and many are on the verge of closure. Young men and women will have to search for employment or think of a business idea which hasn't been explored yet. It has to be such a field where there would be a supply scarcity. There are a few businesses in the financial services space which have opened recently. Brokerages and depositories have listed. Private insurance companies are making their mark in the capital markets. Specialised, niche NBFCs are operating in a very crowded space. The telecom sector was similarly placed a few years ago. Now there are only 3 players left. The rest have perished or have merged with bigger players. NBFCs would see such churn in the coming years. It would be prudent to be employed or stay invested in only those companies which have strong balance sheets and good management pedigree.

VGO has made the prediction that many would now prefer to Work From Home so maybe the traditional approach of paying a monthly salary would also change. There would be many freelancers who would work for many companies simultaneously. These workers/operators/designers/coders may prefer to get a fixed monthly retainer which would be a fraction of a monthly salary and a percentage of each assignment. This may prove to be a win-win situation. We may have to explore this avenue in the coming months as I am finding it onerous to meet our salary commitments. Our business has already seen tremendous rapid change and we were unable to cope up. Digital seems to be the way forward as more and more companies are now shifting to this colourful bandwagon.

I was grappling with the thought of doing something to create an alternate source of income. The stock markets seemed the only viable option as I am already an investor and have some interest in this. Technical Analysis, in spite of all the gloss and projections made by Ashish Thakur will only serve as an useful tool for me to identify stocks. I can never be a day or momentum trader. My recent bets with HDFC Life, Avenue, Cadila etc. saw me getting too edgy. It is a bad work ethic to constantly check the rates. Also my solitary experiment with a Call in F&O ended disastrously. I will stay away from Futures and Options (Call and Put) till such time that I gain some mastery over it.

Yesterday I saw Varinder Bansal being interviewed by Vivek Bajaj of StockEdge. This nearly 2 hour long interview has many key learnings. Mr. Bansal has outlined the following steps in identifying stocks for investment:

1. Never look for the next HDFC Bank or Kotak. These two banks became great because of their work ethic and strong balance sheets. Always invest in established leaders in any sector.
2. 90% of listed stocks in India are not investment worthy.
3. Knowing what not to buy is more important than what to buy. So by a corollary rejection is more important than selection.
4. Always do a thorough background check before you invest in any company. 
5. Trust earnings rather than stories (e.g. land bank, demerger etc.)
6. Your entry price is very important. There is no point in investing in a great company at a bad price and vice versa.
7. One should know why one is investing in a company.
8. Screening is filtering and is just 10% of your study. 
9. Look for sectors whose cycle is about to begin. AI, financial services, APIs etc. seem to be emerging sectors.
10. Try to hunt for companies which are not in the news. Media has a tendency to hype up companies which are in the news and particularly those which make waves in the F&O segment.
11. RoCE, debt to equity, PE ratio, historic PE, promoter holding, pledge, dividend payout, consistent sales and profit growth, gross block (ploughing back profits in the company to add capacity), manageable debt, history of at least 10 years... these are some of the parameters which are necessary in identifying a investible company.
12. Monitoring of your portfolio every quarter to make hold, add or sell decisions.

One has to understand and accept one's mindset. I perhaps do not yet fit in the mould of a trader. To be a successful investor (value?) would need iron discipline from me as I tend to get enamoured with names and pedigree and hold on to shares which do not yield much in the long term. Varinder Bansal says that never ever copy the investments made by reputed investors. You have to derive your own methodology or system to identify stocks. This is where most falter. 

I have now decided to start studying systematically. Dipti is lending a helping hand. The way she has blossomed and grown would make anyone proud. Simply marvelous!