Ways to Find Stocks which are Under Valued

You need to have a strong grasp of finance and accounting. In addition to that look at some of the things like market crash or a government policy having an adverse effect on stock(s).

You should have certain parameters to find stocks which are undervalued. Those can be:

• Price to Earnings ratio(PE) - A very simple way to gauge whether the stock is undervalued or not by comparing it with peers or sector average or with its own historical PE.

• Earnings Yield - Earnings yield are the earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company.
• Price to Book value - The price-to-book ratio (P/B Ratio) is a ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Calculated as: A lower P/B ratio could mean that the stock is undervalued.
• Price to Sales - Price–sales ratio, P/S ratio, or PSR, is a valuation metric for stocks. It is calculated by dividing the company's market cap by the revenue in the most recent year; or, equivalently, divide the per-share stock price by the per-share revenue.
  
• Intrinsic value of share or a firm - Intrinsic value refers to the value of a company, stock, currency or product determined through fundamental analysis without reference to its market value.

You can also use a stock picking tool like Stock Screener for Indian Stocks: Screener.in

• Find top stocks with our stock screener
• Stock Screener - Yahoo Finance

Anecdotes from life and lessons learnt

All through my school life, I was an introvert and lacked an ability to start conversations. I went on with the same mindset in college but the environment was different. College taught me to explore, to dream big and work towards it, to make lifelong friendships and many more such things. I went on with the environment and now I can see the benefits of that.

Lesson learnt - Be ready to change when you can see that it's for the good. It helps being dynamic and in not being rigid. If we are open to ourselves, we can unleash our potential.

I was someone who tried to manage things by studying less and scoring more than average. I was getting confident of soaring through CA but my habit of studying less and relying on instincts and at last moment studies did not work. I failed during my CA - IPCC (Intermediate Level). It broke me. I could not gather my confidence back and as a result I became insecure in life. I wanted an approval from my family that I am doing things correctly even though I was not. Finally, those delusions came to an end one day when I had decided to take charge and lead my life through perseverance. That helped immensely.

Lessons learnt 

- There's just no shortcut to success. You have to work hard to earn it. Even if you fail there will always be a satisfaction that you tried your best.

- It is about accepting yourself the way you are. 

Very often in life, we all are very harsh on ourselves. If we do not succeed the pangs of self guilt create a huge problem in accepting those failures. We try to fight with reality but to no avail. We need to accept ourselves the way we are. That is of course, after working hard to achieve something.
If something doesn't come to us even after working hard then we need to accept ourselves and the reality. It will be satisfying and it will surely create a base for success in the future.

My close friend and cousin sister moved to Mumbai in March 2015 after bagging a great profile at one of the big four. I became possessive and demanding, all this while her job required her to put in a lot of hours. As a result, I was always left with little or no time with her. I felt like being left out but soon developed other interests and I was able to understand her situation very well. This in turn made her happy.

Lesson learnt - Don't be way too possessive about people whom you love. Sometimes, just giving a little extra makes all the difference.

Mistakes you should avoid while investing in the Stock Market

I have been investing in the market and analyzing investor behaviour for some time and have tracked markets for last 7 years. Here are the few mistakes which you should avoid while investing in the market;

• A lot of investors these days don’t really put in the hard work in micro managing their portfolio. Now, this is an important aspect. Your portfolio manager might be doing a fantastic job but at the end of the day, it’s your portfolio, you have to analyze it and make sure you bring in the desired changes by talking to your manager. 

• In the market but without any fundamental knowledge of markets and finance, and blindly following the recommendations of Analysts, Commentators and brokers.
  

• Not spending much time in understanding the data related to volumes of the index or even particular stocks. If an investor does some number crunching about indices or stocks, he’s more likely to get a good deal.

• Going for ‘Averaging’ when stocks go way below the purchase price. There’s a reason why a particular stock has fallen from the peak. You don’t have to catch a falling knife just to average your purchase price. You are already in losses and instead of going for good companies, you are again putting money in a company which has been a bad investment for you.

• Showing more inclination in buying a company which is of lower price (say a two/three digit) than a quality, proven business which is of higher price (say a four digit).

• Buying without any return expectations. The investor should be sure about his risk taking ability and his expectations of return from the investment.

• Trying to game the market. It’s almost impossible to game the market. You have to respect the volatility and other aspects of the market.

Key Learnings from Investing

I have always been quite passionate about Investing and understanding the Capital Markets. And after carefully analyzing everything, here are few of my learnings from investing;

• Never consider stock just as a piece of paper. You should always judge a stock as a part interest in a business. Look at the business underlying it. You cannot look at it in isolation, but you can more easily value a stock if you can value the business it represents as a whole.

• Have a good margin of safety. It means that the price being paid is less than what a prudent investor might consider a fair market price. This difference between price paid and the fair price acts as a cushion during difficult times. In the worst of times, it would minimize the chances of a loss; in the best of the times, it could lead to super profits.
  Benjamin Graham argued that investments could be made successful with such margins of safety. And such opportunities were more common than people thought.
  

• Finding Bargains. Often enough, one could find companies valued at less than the working capital it employed or less than the value of cash in hand plus its own portfolio of investments. A bargain? Are you serious? Yes. Are these opportunities common? Quite common during tough market conditions, but also possible during normal market conditions. Can you deploy big money for these? Yes. Not if you analyse things objectively.

• Look at the quality of management of the company. The quality of management is judged by how often they meet their budgets and how closely they stick to a proven formula. If you want to know whether the management is honest and looking after its shareholders, you can know this from the financial statements as well. For example, if there are many one time accounting entries or special charges in year-after-year financial statements, it probably means that the management team is doing accounting jugglery, overstating the profits and is not being transparent with its investors.
  Further, if the prices of the stock options being given to the management are being revised downwards, it shows its tendency to make money at the expense of its shareholders.
  

• Analyze the financials of the company. Take a macro view of everything. And just to explain this point in greater detail, understand EBITDA (Earnings before Interest, Taxes, Depreciation and Adjustments) and ROCE (Return of Capital Employed). EBITDA is the profit from the core operations of the business. It reflects the operational performance of the company. ROCE is how much money a company makes on the total money it uses from debt and equity sources. A strong ROCE is a prerequisite for a good investment.

A Small Token of Appreciation for You - Mom

We all have role models in life; someone whom we look up to or like some superhero or a celebrity. I liked Batman a lot in my childhood simply because he was a human and yet he could do superhuman things. I was amazed by his skills but little did I realize that I have my very own superhero in the form of my mother. She did and still does everything out of unconditional love and never did I have to ask her to give me a hug or anything; she knew it whenever I wanted it.

Over the years, I have observed that people of my age are very shy of showing their love and true emotions to their parents. I don't know why they do that. May be they are afraid of being viewed as ‘emotional’ by their friends or relatives. But I think it’s better to let the emotions flow rather than choke it. I wish many boys and girls take this initiative and let their near and dear ones know how much they mean to them. Our lives would become a lot more satisfying.

Well mom, as I write this I am filled with emotions and love. You have been there for everything; my exams, mood swings, frustrations of failures, joy of success and caring for me all through when I was not well. I have called you for things which I have forgotten and you have responded with the exact location of that thing in the house. I hope I have made you realize how fortunate I am to have you as my mom. It’s truly been a sweet blessing.

You have made me the center of our universe and it feels amazing to have someone to support & listen to you 24*7 in a world which is increasingly becoming self centered. You’re my best friend, teacher, mentor, guide and everything which I have missed out writing here.

You have responded positively to almost all of my acceptable demands and also showed the way for what is not unacceptable. I was passionate about cricket and you let me enjoy the game without imposing any condition. It’s you who has led by example by showing the importance of values like love, kindness and compassion to me. You have given confidence and made me to embrace vulnerability and failures. You have made me who I am.

You have been extremely patient with me all through my failures and have been proud of my accomplishments. You supported me and believed in my dreams and ideas even when everyone else was skeptical about it. You’re the first one I turn to whenever I face any adversity and seek re-assurance and you’re also the first one I go to with good news to celebrate. You simply have been my pillar of strength for so many years and for many more years to come by.

And now looking back, I don't know whether I was good enough to be your son since you had set high standards with the way you have conducted yourself in this life. This is the moment. I am sorry for letting you down with me not grabbing a lot of opportunities that came my way. Mom, words won't be able to convey what I am feeling right now. May be tears do. But, you have done a wonderful job in making me the best person I could become. Don’t ever carry a regret that you didn’t do enough for me. You have given me more than I deserve.

If there's ever a concept of re-birth I would ALWAYS WANT to be your son.

All yours for life,

Your little one.