A few days ago I came across a wonderful book written on investment with keeping a mind of a trader. The winning theory in the stock market by Mahesh Kaushik tell you some of the beautiful methods to pick stocks.
Mahesh Kaushik considers buying a stock is just like he buy vegetables in a large store. It the place where we should buy only when we are getting a proper bargain and should sell when those things have appreciated high in value. I have mentioned below some of the brief points from his book.
- Diversify your portfolio– do not invest more than 5% of your portfolio in the single stock.
- Don’t incline to the same sector.
- Profit book– should happen and don’t get married to any stock. But try to do at the end of the complete year.
- Stock nature– Prefer dividend-paying companies over non-paying companies.
- Averaging out a stock– Never ever average out a stock just because their prices are falling but because you have a high probability of winning.
- Opportunist– Keep free cash for an upcoming opportunity.
- Base price concept– It is an average price of a stock over 3 years.
Buy case- Base price < CMP(current market price). Buy when CMP is around 80% of the Base price. Sell when CMP cross over 120% of base price.
- RPS vs EPS– Look at EPS (earning per share) but don’t forget to look at RPS (revenue per share) as EPS could be negative for a fast growing company for years.
- Book value– When book value is 20% lower than CMP then that company could be a value buy.
- Block deals– Stay away from those stocks where block/ bulk deals happen regularly.
- Buying opportunity- The ratio of stock year high price to year low price should be less than 2.5. Mostly it is recommended around 2.
- Face value comparison– While comparing 2 companies Min(CMP/FV(face value)) is considered better than the other.
- Maximizing profits– If your stock has been appreciated above 20% of base price then you can keep a trailing loss at 5% of the CMP.
- Promoter holding– You should select only those stocks where promoter holding is not less than 15%.
I hope this article will give you basic information about the book. If you are a beginner and want to master the art of winning in the stock market then I would definitely recommend you to read the book. It will add a lot to your knowledge.
Thanks for reading.
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