In the wonderland of investments, you always want to buy stock early and hope it turns into a multi-bagger. As we make our way through the festive season, experts flaunt their skills in investing. Every business news channel, newspaper or social media site would have someone suggesting their festive picks. How do they know what you do not know?
Well, that is no rocket science. It is just that the experts are good at connecting the dots. For example, if you find people using more Apple devices with the launch of every new version, you know that the company is on to something. Apple manages to sell $200bn worth of iPhones in a year, making it the most valuable company in the world. The market value of Apple is similar in value to India’s GDP!
Closer home, if you notice the number of people buying Royal Enfield motorcycles. Had you made that observation over the past ten years, you could have got yourself a multi-bagger as an investor. The company behind that bike, Eicher Motors’ share price, was trading around Rs 234 around this festive time ten years back. Today, the share price is Rs 3,597.
There are many such examples.. You may realise now that a simple strategy is to invest in a company when you see people around you buying that company’s products. A tiny population of India has managed to do that by investing in multinational corporations that produce consumer products like soaps, detergents, toothpaste or other consumer durables in the 80s and 90s. Then there are big pharma companies that manage to bring blockbuster off-patent drugs to Indian consumers. They pay an excellent dividend and offer capital appreciation.
In the book One up on Wall Street, Peter Lynch, a famous American fund manager, classifies companies into six broad categories which includes slow, stalwarts, fast, cyclical, turnarounds, and asset plays. The idea is to identify companies that would potentially reward shareholders. Slow and fast growers are companies that give average or above-average profit growth each year. Stalwarts are businesses like Apple or Coca-Cola that already have a name. Cyclicals are typically companies in sectors like commodities. Turnaround stocks could be businesses in any sector that have managed to make profits or are likely to do so. Asset plays are businesses that own physical assets or diverse businesses that can be sold to make profits in the future.
Lynch managed the Magellan Fund at Fidelity and generated an average return of 29.2%, twice that of the US S&P 500 for 13 years to 1990. That is a feat unmatched to date.
Stock picking is an art. Not everybody can master that art without adequate knowledge. Lynch achieved that performance by analyzing the data at hand. That included company performance, sector growth potential, and internal and external factors.
Technology can help you analyse businesses better than ever in the past. You can use data analytics to predict companies that could give you multi-baggers of tomorrow and today. Talking of stock picking led by technology, Alphaniti has a special festive treat for you this season called “Diwali Picks”, our exclusive recommendations on alphagenie corner. Visit www.alphaniti.com while you fire crackers & devour festive treats, let your investments light up with our special Diwali Picks. We wish all our readers a very Happy Diwali on behalf of Team Alphaniti!
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