I am sure you would not like to find yourself invested in stocks like Opto Circuits, Kingfisher Airlines, Bilcare, Arshiya International, Zylog Systems, Educomp Solutions, Gitanjali Gems, etc which were once the favorite of market and are now down 70%-90% from their recent highs.
The two basic ingredients to making money in stock markets is to first chose right companies for your portfolio and second to avoid manipulative companies. More money has been lost in stock market by investing in bad companies than by not investing in good companies. We had already been sharing detailed analysis on stocks of good companies, however the second ingredient was missing and we will now be adding the same in Alpha and Alpha +.
One cannot be successful with all his investments and there are bound to be a few failures, however even a new investor can avoid majority of bad stocks by focusing on a few simple points when analyzing a company:
- Avoid companies with low promoter holding
- Avoid companies that carry out too many acquisitions, especially foreign acquisitions. We believe it’s the simplest way of siphoning out money.
- Avoid companies with poor cash flows from operations (check the record for at least 5-7 years). Investors generally look at profit-loss statement and don’t pay attention to cash flow statement and it’s much easier to manipulate the profit-loss statement with credit sales, capitalization of interest cost, etc
- Avoid companies that dilute their equity on regular basis with instruments like GDR, preferential allotment, etc
- In general, avoid companies with very high debt to equity ratio. This is company and industry specific as not all the companies with high debt are bad investment options.
We have added a new feature in our Alpha and Alpha + packages and that will be to share our analysis and caution our members against companies with dubious track record. The above are some of the basic points and we are surely going to carry out a much more detailed analysis when cautioning our Alpha/Alpha + members against investment in a certain company.