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 ITC. According to my method of calculating intrinsic value, it is worth around ₹300 a share.
I will start accumulating shares, near Rs 180 levels (strong weekly support). Well, this will not happen overnight. It may take several months.
Some questions answered:-
Q: If it is a fundamentally good company, why the price is not moving up? Does the market doesn’t know anything?
A: Nope. Market knows everything. But, the market generally moves in a direction of “what is expected and what is unexpected”.
Q: So, what’s expected in ITC?
A: Well, it’s a good company, good cashflow, no debt, professionally managed company, etc. When the company performs “as expected”, why should its price move in either direction? Price only moves when unexpected things happen.
Q: Should the people sell the shares who has already bought and invested in it, so that they can buy at a lesser price?
A: Nope. Absolutely not. Investment is not a buy-sell game. It must have long-term view (5 years, 10 years, etc.).
Q: Then what's the solution?
A: Add more shares. Yes. As long as the company is fundamentally strong, buying at dip or discount is best for investing perspective. And this company is giving dividend of Rs 5 approx every year. That translates into at least 2.5 % every year if the current price taken into consideration.
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 ITC. According to my method of calculating intrinsic value, it is worth around ₹300 a share.
I will start accumulating shares, near Rs 180 levels (strong weekly support). Well, this will not happen overnight. It may take several months.
Some questions answered:-
Q: If it is a fundamentally good company, why the price is not moving up? Does the market doesn’t know anything?
A: Nope. Market knows everything. But, the market generally moves in a direction of “what is expected and what is unexpected”.
Q: So, what’s expected in ITC?
A: Well, it’s a good company, good cashflow, no debt, professionally managed company, etc. When the company performs “as expected”, why should its price move in either direction? Price only moves when unexpected things happen.
Q: Should the people sell the shares who has already bought and invested in it, so that they can buy at a lesser price?
A: Nope. Absolutely not. Investment is not a buy-sell game. It must have long-term view (5 years, 10 years, etc.).
Q: Then what's the solution?
A: Add more shares. Yes. As long as the company is fundamentally strong, buying at dip or discount is best for investing perspective. And this company is giving dividend of Rs 5 approx every year. That translates into at least 2.5 % every year if the current price taken into consideration.
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.
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.
We can start accumulating near Rs 180 levels. ITC also offers good dividend yield of 4.93%. Always buy in lots for investing. Add shares of a good company every year as long as it is fundamentally strong.
Disc: This is not an investment advice. Please do your own analysis before investing.