Trading and investing are completely different in nature.
In trading, we don't care about the prices whether it's fair or not.
We buy high and sell even higher.
But in investing, we should only buy a stock near its intrinsic value. No matter if everyone is making money except us. But, price which is justified by fundamentals are sustainable and proved sustainable historically.
"Intrinsic value is upgraded or declined based on fundamental changes. I amend my intrinsic value every year based on the growth of the company."
So here I am with a stock named Coal India. According to Sir Benjamin Graham's method of calculating Intrinsic Value, it is worth around ₹249 a share.
A shareholder mainly makes profit from different two ways, 1. Appreciation in the share price and 2. Dividend paid by the company. This stock is offering "9.13%" dividend yield. It means that you're getting approximately 9.13% return every year as a dividend payment (which is obviously better return than current FD rates). And I think the share price will also appreciate in the upcoming months. Why?
Let's analyze what we see in charts.
It had formed "Inverted Head and Shoulders Pattern" (a bullish reversal chart pattern) on weekly charts during the month of Feb. It looked like it breakout of neckline on 22 Feb weekly candle. But it proved fake breakout and reversed backed to consolidation. Now I think the neck-line is already weak. I am expecting a huge breakout in upcoming months which can take stock to Rs 200 levels or even higher. Well, this will not happen overnight, it will take months to years as well. But I think staying invested in this stock is not a bad deal as long as it has very good dividend yield.
Some questions answered:
Q: At what price should I buy?
A: Well, this stock looks hugely undervalued and I suggest to start accumulating shares NOW.
Q: Well, if it is good undervalued fundamentally strong company, why the prices doesn't move up?
A: Like most of the public sector companies, it pay most of the profit in form of dividend. Therefore, on ex-dividend date, the prices get already discounted to dividend paid by the company. And investors are happy with the dividends paid by the company which restricts them to bet for higher prices (like what we are seeing in the Metal sector now).
Q: Should I buy shares tomorrow, at on go?
A: Nope. Divide your capital in at least 3 lots. You buy first lot tomorrow, second lot after 2-3 week (as you like) and third lot AFTER BREAKOUT.
Disclaimer: The views expressed in this article is of my own, you're solely responsible for any decision taken in the markets. The analysis I've shared is just for informational and educational purposes only.
In trading, we don't care about the prices whether it's fair or not.
We buy high and sell even higher.
But in investing, we should only buy a stock near its intrinsic value. No matter if everyone is making money except us. But, price which is justified by fundamentals are sustainable and proved sustainable historically.
"Intrinsic value is upgraded or declined based on fundamental changes. I amend my intrinsic value every year based on the growth of the company."
So here I am with a stock named Coal India. According to Sir Benjamin Graham's method of calculating Intrinsic Value, it is worth around ₹249 a share.
A shareholder mainly makes profit from different two ways, 1. Appreciation in the share price and 2. Dividend paid by the company. This stock is offering "9.13%" dividend yield. It means that you're getting approximately 9.13% return every year as a dividend payment (which is obviously better return than current FD rates). And I think the share price will also appreciate in the upcoming months. Why?
Let's analyze what we see in charts.
It had formed "Inverted Head and Shoulders Pattern" (a bullish reversal chart pattern) on weekly charts during the month of Feb. It looked like it breakout of neckline on 22 Feb weekly candle. But it proved fake breakout and reversed backed to consolidation. Now I think the neck-line is already weak. I am expecting a huge breakout in upcoming months which can take stock to Rs 200 levels or even higher. Well, this will not happen overnight, it will take months to years as well. But I think staying invested in this stock is not a bad deal as long as it has very good dividend yield.
Some questions answered:
Q: At what price should I buy?
A: Well, this stock looks hugely undervalued and I suggest to start accumulating shares NOW.
Q: Well, if it is good undervalued fundamentally strong company, why the prices doesn't move up?
A: Like most of the public sector companies, it pay most of the profit in form of dividend. Therefore, on ex-dividend date, the prices get already discounted to dividend paid by the company. And investors are happy with the dividends paid by the company which restricts them to bet for higher prices (like what we are seeing in the Metal sector now).
Q: Should I buy shares tomorrow, at on go?
A: Nope. Divide your capital in at least 3 lots. You buy first lot tomorrow, second lot after 2-3 week (as you like) and third lot AFTER BREAKOUT.
Disclaimer: The views expressed in this article is of my own, you're solely responsible for any decision taken in the markets. The analysis I've shared is just for informational and educational purposes only.
Trade closed manually:
Sell Coal India at Rs 330 or more (ah! my bearish instinct:)). Please do your own analysis and/or consult your financial advisor before taking any steps. I don't have any type of position in the stock.
Comment:
I have written this article in my early days of learning. My perspectives and opinions have changed a lot. You must have noticed, I have "copy-pasted" multiple sentences that I've heard from various sources. Some of them doesn't work anymore. For e.g. intrinsic value is a very very "subjective" topic. It differs from person to person. Sometimes it includes a lot of "expectations" of future earnings from analysts as well as individuals. Survival of fittest holds absolutely true in the markets as well. So you have to "have your own edge" to succeed in the markets. You shouldn't blindly follow me or some random joe or friends/family or news TV analysts. "Have your own edge and keep polishing it!"
Comment:
I expect anyone who is reading my writings to know that there is nothing "certain" in the markets. Neither the %gain on stock nor "out-performance" or "under-performance". There is a risk and opportunity cost involved in both, buying and selling. Selling at any price can often result in "opportunity loss" when the stock moves higher and higher. Human psychology is a culprit here. For e.g. I post any stock which seems undervalued or overvalued to me on tradingview. When anyone makes money on that, they wont appreciate me "a single word". But when they lose or it results in opportunity loss, they are bound to blame me. I don't criticize any person, because I know their psychology has defeated them. At last, there is nothing like "easy money" in the markets. The survival of the fittest holds absolutely true here.
This stock has a high dividend yield, hence it's price corrects on every payments.