Top Shares To Buy For Beginners

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What are the best shares to buy for beginners in India? Investing in shares for beginners can be tricky as they are not very conversant with stock investing.

While dealing with shares, beginners must realize that they are playing with fire Top Shares To Buy For Beginners.

If beginners invest in stocks without sufficient know-how, it is like playing with fire Top Shares To Buy For Beginners.

Hence learning how to invest in shares is essential for beginners Top Shares To Buy For Beginners.

Shares are an inherently risky form of investing money Top Shares To Buy For Beginners.

The risk of losing what is invested is very high Top Shares To Buy For Beginners.

We all want to earn high returns on our investments (ROI) Top Shares To Buy For Beginners.

But the probability of making big losses is also very high in shares Top Shares To Buy For Beginners.

If practiced with knowledge and care, share investing in India can give high returns, even to a beginner.

Top Shares To Buy For Beginners

Alternatives available of shares are:

• Debt linked plans.
• Real estate.
• REITs, and
• Gold.

Mutual funds and exchange-traded funds (ETF’s) can also be seen as an alternative of shares.

Investing in them is like indirect investing in shares

SIP in Debt Mutual Funds a Good Investment?

Is SIP in Debt Mutual Funds a Good Investment decision for the common man?

My readers ask about systematic investment plans (SIPs) Top Shares To Buy For Beginners.

This form of investing has become very popular as it allows us to manage investment risk easily.

Investors get very attracted towards equity through SIP route Top Shares To Buy For Beginners.

The reason for this attraction towards equity is because of the possibility to earn high returns.

Top Shares To Buy For Beginners

Top Shares To Buy For Beginners

There is no doubt that long-term return from equity is superior to debt mutual funds.

But if investors psychology is defensive, a negative effect of inflation is not the main investment criterion.

For defensive investors, building a ‘continuously growing wealth’ more important than ‘fast compounding of money’.

A lot of energy of defensive investors goes into managing the following three investment milestones:

Increasing risk-free source of income
Saving Money by optimizing spending habits
Consistently appreciating wealth

SIP in debt mutual fund can help defensive investors to manage all these three milestones in one.

Starting SIP will help investors to divert funds consistently, hence inculcating a savings habit.

As debt funds can give long-term, risk-free return in a range of 8% per annum.

It means it helps in capital appreciation as well Top Shares To Buy For Beginners.

Debt funds also provide investors with the option of income generation Top Shares To Buy For Beginners.

One can start SIP in debt mutual funds with monthly income plan Top Shares To Buy For Beginners.

One of the best CRISIL rated debt funds is SBI Magnum Fund Top Shares To Buy For Beginners.

Top Shares To Buy For Beginners

Conclusion

SIP in debt mutual funds is a good investment decision for defensive investors.

I have observed that a large population represent ‘boundary investing’ Top Shares To Buy For Beginners.

By boundary investing I mean a mix of aggressive and defensive investing Top Shares To Buy For Beginners.

Aggressive investors invest in 100% equity and defensive investors invest in 100% debt.

For boundary investors, there is an investment option called balanced fund.

Mutual fund companies have developed balanced funds whose investment portfolio includes a clever mix of equity and debt.

In a growing economy like India, investing in a balanced fund can be a good option.

A balanced fund portfolio consists of 75% equity and 25% debt Top Shares To Buy For Beginners.

Hence, comparatively the return of balanced fund, in long-term, is higher than debt funds and less volatile than equity funds.

One of the best CRISIL rated balanced funds is ICICI Prudential Balanced Fund.

Top Shares To Buy For Beginners

Best Stocks to Buy in India for long-term

What we will discuss in this article is about “how to identify” the best stocks to buy in India.

I am sure majority of you are reading this blog post with the intention to get a ready-made list of such best stocks.

You will get such a list at the bottom of this post-Top Shares To Buy For Beginners.

But my humble submission to you is, “never believe such lists”. Such lists could be as bogus as a scam.

This is particularly true when they are provided like free on the internet.

There are websites which offer financial reports of stocks for free Top Shares To Buy For Beginners.

But what a layman can do with those reports? Very less Top Shares To Buy For Beginners.

Why? First, because not everyone knows how to read financial reports Top Shares To Buy For Beginners.

Second, even fewer people know how to calculate “fair value” of stocks from the numbers in financial reports.

This is where this “stock analysis worksheet” can be of help to its users…

Top Shares To Buy For Beginners

Who is the best stock picker of the world? Top Shares To Buy For Beginners.

Warren Buffett. Does he go around the world telling people which stocks he is researching? No. Why?

Because he doesn’t want to do it. Why?

Because his declaration will attract attention towards such stocks Top Shares To Buy For Beginners.

More positive attention means more demand, which will eventually make the stock overvalued.

So what Warren Buffett does?

He does his research quietly, and then simply buy his analyzed stocks first Top Shares To Buy For Beginners.

After the stock has been purchased (contract is sealed), the news is gently leaked to the media.

So what we can learn from Warren Buffett?

• Learn to self-identify best stocks.
• Keep it a secret till you grab them.

Top Shares To Buy For Beginners

How to identify best stocks to buy in India?

To answer this question one must first answer, what it means by the best stock?

Stocks representing a “good business”, available at “undervalued price” levels.

What is a good business?

The business whose future free cash flow is more certain Top Shares To Buy For Beginners.

What does it mean by undervalued price? Top Shares To Buy For Beginners.

Stock available at a market price less than its intrinsic value Top Shares To Buy For Beginners.

Suppose a stock is trading at a market price of Rs.100 per share Top Shares To Buy For Beginners.

Upon calculation, its intrinsic value comes out to be Rs.120 per share Top Shares To Buy For Beginners.

Such a stock is said to be undervalued Top Shares To Buy For Beginners.

So, to identify best stocks, the essential keywords are:

• Free Cash Flow.
• Intrinsic Value.

Top Shares To Buy For Beginners

The complication starts here…

It is almost impossible to identify best stocks to buy without knowing their free cash flow and intrinsic value.

Does this understanding make the best stock picking simpler? Yes and No.

Yes, because we now know what stock parameter must be looked at to pick best stocks.

Otherwise, we simply waste our time looking at less important stock metrics like ratios etc.

No, because estimation of both ‘free cash flow’ and ‘intrinsic value’ is a special skill. Only gifted people can do it accurately.

This is the reason why, at the beginning of this post I said, “never believe such lists which are published for free on the internet“.

People who are publishing such lists are not Warren Buffett’s and Peter Lynch’s.

Only a handful of people in this world can accurately deal with free cash flows and the intrinsic value of stocks.

So why to believe lists published by any tom dick and harry? Top Shares To Buy For Beginners.

But Am I not getting too pessimistic here? Top Shares To Buy For Beginners.

If only Buffett can prepare a list of best stocks, then the story ends here Top Shares To Buy For Beginners.

I must stop writing this post here itself, right Top Shares To Buy For Beginners.

But I will not. Why?

Because I have a solution to the limitation of best stock picking Top Shares To Buy For Beginners.

Top Shares To Buy For Beginners

What is the solution?

The solution lies within us Top Shares To Buy For Beginners.

Like we need to learn to ride a bicycle, we must also learn to estimate the intrinsic value of stocks.

But am I not contradicting myself? I have already said that estimating free cash flow and intrinsic value is a special skill?

So how we common men can learn it? Perhaps this contradiction makes stock investing so unique.

Best stock picking is simple, but we make it complicated by “not learning this skill and not practicing it ourselves”.

From my experience, I can say three things about intrinsic value estimation:

First, estimating an approximate intrinsic value of a stock can be done by even common men (even by non-finance people).

Second, the more one practices it, more accurate will be the estimation Top Shares To Buy For Beginners.

Thirdly, it is better to believe in the intrinsic value estimated by self, rather than having a blind-belief on free lists published on the internet.

I am sure this simple logic is making sense, right? Top Shares To Buy For Beginners.

So now the bigger question is, how to estimate free cash flow and intrinsic value of stocks?

What is the purpose? To shortlist best stocks by oneself.

Top Shares To Buy For Beginners

What constitutes intrinsic value?

Before we get into the math part of an intrinsic value, let’s understand what are the steps involved in the estimation of intrinsic value.

 Calculate the present Free Cash Flow to Equity (FCFE).

 Forecast FCFE growth rate for next one year. 

 Quantify your expected return (say 5%, 8%, 12% etc).

 Calculate intrinsic value.

The above listed 3 things build the intrinsic value of any stock Top Shares To Buy For Beginners.

Present Free Cash Flow to Equity (FCFE)

This is the most important step in the process of identifying the best stocks to buy.

In this step itself, it becomes evident that if the stock in consideration is worth even an analysis or not. How?

A stock must show a positive free cash flow (FCFE). If the FCFE is positive, the stock may be a good buy.

A negative free cash flow means the stocks intrinsic value is negative. Not a good buy.

To estimate the free cash flow of a company, it is essential to dig into its financial reports.

But the problem is, even the financial reports do not declare the companies free cash flow.

We must dig into the financial reports and earth the relevant number ourselves, and do the calculation of FCFE.

What type of calculation is required to estimate free cash flow Top Shares To Buy For Beginners

Top Shares To Buy For Beginners

Forecast FCFE growth rate for next one year.

More accurate will be the free cash flow (FCFE) estimation, nearer will be the calculated intrinsic value to its true value.

This is the reason why numbers should be taken directly from the companies audited financial reports.

Though we can also get the numbers from websites like moneycontrol, economic times etc.

But often their reporting format is not as detailed as required Top Shares To Buy For Beginners.

To convert FCFE into intrinsic value, we need to assume two growth rates:

• FCFE growth for next 1 year (g).
• The expected rate of returns for the next 1 year (k).

Thumb rule: g = 5% per annum.

Logic? In India, average inflation over a period of last 10 years is close to 7.5% per annum.

Over a period of time, a good company will make sure that its Free Cash Flow (FCFE) must beat the inflation rate.

But this will happen only in long-term. In shorter time horizon (like next 1 year), assuming a smaller growth rate (less than inflation) is better.

Hence I have settled for FCFE growth rate of g=5% Top Shares To Buy For Beginners.

Top Shares To Buy For Beginners

Difficult way:

Calculate the FCFE for last 5 years. See the trend and then make a safe assumption.

But I will suggest that initially do not do it the difficult way Top Shares To Buy For Beginners.

Downloading annual reports, searching for data in the reports, preparing the excel sheet will take time.

People do lose interest this way Top Shares To Buy For Beginners.

The better approach for a beginner is to use the easy way first. Assume 5% FCFE growth (1Y) and move ahead.

If after the calculation, the stock looks attractive, repeat the process using the difficult route.

Logic? Over a period of last 15-20 years, Sensex/Nifty has grown at a rate of 12% per annum (CAGR).

So a stock investor, who is interested to invest in stocks should have an expectation in and around 12% mark.

What means by this assumption?

Over a period of the next 15-20 years, our stock in consideration might give returns @12% per annum or more.

But now, we do not have to make an assumption for the next 15-20 years time horizon.

Hence I have settled for a rate of return of g=5% Top Shares To Buy For Beginners.

My suggestion will be to repeat the calculation with the following combination of “g & k” values:

Top Shares To Buy For Beginners

Conclusion

Indian stock market has thousands of stocks available for trading Top Shares To Buy For Beginners.

These stocks are bought and sold each day by hundreds of people Top Shares To Buy For Beginners.

But important is to realize that, picking any random stock is not a good investment.

We cannot buy any other stock Top Shares To Buy For Beginners.

Out of all stocks that we have in the market, only very few can qualify as a good-buy.

Hence stock picking must be done with extreme care Top Shares To Buy For Beginners.

The focus should be to buy, “only” the best stocks offered to us by the market Top Shares To Buy For Beginners.

To a beginner, it can be overwhelming to identify best stocks to buy Top Shares To Buy For Beginners.

So how to pick the best stocks Top Shares To Buy For Beginners.

Best stocks are not available off the shelf. Best stocks are often hidden in the heap of other stocks.

One must learn to screen their best stocks from this heap. This is what is called stock screening.

There are 5,000+ stocks currently trading in Indian stock market (BSE) Top Shares To Buy For Beginners.

Out of these, which are the best stocks? The answer is not easy Top Shares To Buy For Beginners.

In fact, the answer is so unique that people who can find this answer, become millionaires.

Top Shares To Buy For Beginners

The lure of big money has always thrown investors into the lap of stock markets Top Shares To Buy For Beginners.

However, making money in equities is not easy Top Shares To Buy For Beginners.

It not only requires oodles of patience and discipline, but also a great deal of research and a sound understanding of the market, among others.

Added to this is the fact that stock market volatility in the last few years has left investors in a state of confusion.

They are in a dilemma whether to invest, hold or sell in such a scenario Top Shares To Buy For Beginners.

Although no sure-shot formula has yet been discovered for success in stock markets Top Shares To Buy For Beginners.

Proper research should always be undertaken before investing in stocks Top Shares To Buy For Beginners.

Investors generally go by the name of a company or the industry Top Shares To Buy For Beginners.

they belong to This is, however, not the right way of putting one’s money into the stock market.

Top Shares To Buy For Beginners

One thing that even Warren Buffett doesn’t do is to try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares.

A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process.

“So, you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles.

Catching the tops and bottoms is a myth. It is so till today and will remain so in the future.

In fact, in doing so, more people have lost far more money than people who have made money,” says Anil Chopra, group CEO and director, Bajaj Capital.

Top Shares To Buy For Beginners

Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. In a bull market, the lure of quick wealth is difficult to resist.

Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time.

“This leads them to speculate, buy shares of unknown companies or create heavy positions in the futures segment without really understanding the risks involved.

Instead of creating wealth, these investors thus burn their fingers very badly the moment the sentiment in the market reverses.

In a bear market, on the other hand, investors panic and sell their shares at rock-bottom prices.

Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them.

Top Shares To Buy For Beginners

Diversification of portfolio across asset classes and instruments is the key factor to earn optimum returns on investments with minimum risk.

Level of diversification depends on each investor’s risk-taking capacity Top Shares To Buy For Beginners.

There’s nothing wrong with hoping for the ‘best’ from your investments.

But you could be heading for trouble if your financial goals are based on unrealistic assumptions.

For instance, lots of stocks have generated more than 50 percent returns during the great bull run of recent years Top Shares To Buy For Beginners.

However, it doesn’t mean that you should always expect the same kind of return from the stock markets.

Therefore, when Warren Buffett says that earning more than 12 percent in stock is pure dumb luck and you laugh at it, you’re surely inviting trouble for yourself.

Top Shares To Buy For Beginners

If you want to take a risk in a volatile market like this, then see whether you have surplus funds which you can afford to lose.

It is not necessary that you will lose money in the present scenario Top Shares To Buy For Beginners.

Your investments can give you huge gains too in the months to come Top Shares To Buy For Beginners.

But no one can be a hundred percent sure. That is why you will have to take a risk Top Shares To Buy For Beginners.

No need to say that invest only if you are flush with surplus funds.

We are living in a global village. Any important event happening in any part of the world has an impact on our financial markets.

Hence we need to constantly monitor our portfolio and keep affecting the desired changes in it.

If you can’t review your portfolio due to time constraint or lack of knowledge. Best Digital Marketing Course in Indore.

Then you should take the help of a good financial planner or someone who is capable of doing that.

“If you can’t even do that, then stock investing is not for you. Better put your money in safe or less-risky instruments,”

Top Shares To Buy For Beginners

Equity investments historically have enjoyed a return significantly above other types of investments while also proving easy liquidity,

Total visibility, and active regulation to ensure a level playing field for all Top Shares To Buy For Beginners.

Investing in the stock market is a great opportunity to build large asset value for those.

Who is willing to be consistent savers, make the necessary investment in time and energy to gain experience,

Appropriately manage their risk, and are patient, allowing the magic of compounding to work for them.

The younger you begin your investing avocation, the greater the final results – just remember to walk before you begin to run.

What additional tips can you suggest for successful stock market investing?

Before making your first investment Top Shares To Buy For Beginners.

Take the time to learn the basics about the stock market and the individual securities composing the market.

There is an old adage: It is not a stock market, but a market of stocks Top Shares To Buy For Beginners.

Unless you are purchasing an exchange-traded fund (ETF) Top Shares To Buy For Beginners.

Your focus will be on individual securities, rather than the market as a whole Top Shares To Buy For Beginners.

There are few times when every stock moves in the same direction; even when the averages fall by 100 points or more, the securities of some companies will go higher in price.