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How can equity products create long-term wealth? Overall RATE RATE (3.00)

With a logical, conservative, and long-term investment approach, equity markets can generate the corpus to beat inflation. Understanding the value investing philosophy followed by Warren Buffett and his guru Benjamin Graham helps. In simple words, this philosophy means buying Re. 1 for 50 paise. Thus, this means buying a stock or an asset worth Re. 1 for a 50% discount is beneficial. The discount need not 50%, it can also be around 30% to provide a good safety margin.

That said, the above philosophy by no means suggests that if a stock price falls by 30%, we can assume that it is undervalued. It is important to note that a stock’s value is based on its fundamentals. As an investor, you must use fundamentals such as sales, earnings, and book value to estimate a company’s intrinsic value. Estimating intrinsic value of any company helps you build long-term wealth through the equity markets. Take direct equities as a major component of your portfolio. Build a portfolio by buying when stocks are available at a significant discount to intrinsic value. Thus, selling them once they reach their intrinsic value or replacing them with other stocks, which are at a discount helps build a strong portfolio. Such a portfolio is one of the best ways of building long-term wealth.

Before creating such a portfolio, please ensure that you don’t buy company’s stocks:

  • With unstable businesses

  • With high leverage

  • Which misallocate capital

  • Which are overvalued

Do not buy stocks with PE ratio above 30. Further, do not buy stocks of financial companies or banks with Price-to-Book Value above 3. Another effective way of investing profitably is through IPOs. Companies float an IPO for raising equity capital for growth. Investors need to note that in certain circumstances when raising capital becomes highly critical for a company, pricing of an IPO can become highly favorable to the investor. As an investor, you should focus on genuine IPOs priced at a discount to intrinsic value. Other IPOs are not unjustified, but are the ones should be more careful about. Never invest in a company during an IPO if it is overvalued at the IPO price. Generally, you can invest in them a year or so later when they might be available at a discount to intrinsic value.

OFS or Offer for Sale is an exercise similar to the IPO and another good investment avenue. However, the chances of it being a genuine capital raising mechanism for growth are higher. That said, never participate in an OFS unless the pricing is at a discount to intrinsic value.

Other routes such as buybacks can also be evaluated similarly. If the company is doing a buyback at a price, which is at a premium to intrinsic value, you should participate because you are selling to the company. However, if the buyback and the market price are both at a discount to intrinsic value, then you should participate in the buyback and simultaneously buy the shares from the market. This is similar to receiving a dividend from the company and is more tax-efficient for the company.

By Dr. Vikas Gupta 

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3 key fundamentals of investing Overall RATE RATE (0.00)

Yes, what you heard from your grandparents during your childhood was absolutely right. It’s always the early bird that catches the worm, especially in the world of investing. Therefore, starting your investments early can have a huge impact on your retirement corpus and financial plan.

Following are 3 fundamentals of investing that will stand you in good stead, going forward:

Starting early

You might have heard about the compounding effect of investment. Smaller chunks of money regularly invested over a well-defined time horizon will take shape of a larger corpus at retirement time owing to compounding effect. Therefore, starting early gives you more time to compound your investments, it’s as simple as that.

Investing regularly

Starting early alone will not help you as an investor. You need to inculcate a disciplined investment culture, which involves making regular investments. Just imagine you invested for six months and stopped for a year. In that case you would have lost out on the compounding effect of money for the 12 months you did not invest. Moreover, didn’t you hear your mother tell you ‘small money makes big money’. Indeed, smaller chunks of money invested over a defined time horizon can give you amazing results.

Choosing the right investment vehicle and review its performance regularly

You might have started investing early and regularly, but in fixed deposits and bank savings. This would mean that although you’ve started investing early, your retirement corpus will not be as desired, since inflation will beat bank savings and FD interest rates in the long run. Therefore, choosing the correct investment vehicle can have an exponential impact on the end corpus you will create at retirement time. If you would have invested the same corpus in mutual fund SIPs, the results would have been totally different, since the returns will beat inflation in the long run, giving you your desired retirement corpus.

ACMIIL has made financial planning and investment easier for you through its state-of-the-art Investmentz App. The app allows you to create your investment plan, set financial objectives, and plan your time horizon based on your risk-taking ability. Moreover, it will help you make the investments as per your investment plan and based on your diversification strategy. It operates in self-invest and expert-advice modes.

ACMIIL’s Investmentz App helps you invest your hard-earned money keeping the three fundamentals of investing in mind.

To know more about investment planning, give a missed call on 08010968308. You can download the Investmentz App at the Google Playstore and Apple Store.  

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