Historically, the equity asset class has outperformed all asset classes over the long term. But without understanding the basics of investing you will get identical results as playing poker without looking at your cards. Definitely, you will lose. By reading the stock market books for beginners you not only improve your investing knowledge but also maximize your chances to get better returns from the stock market over the long run. Here are the top 15 stock market books India that you must read.
Book #1. ‘The Intelligent Investor’, by Benjamin Graham
After spending decades in the stock market ‘Father of Value Investing’, Benjamin Graham delivered the insights and wisdom in this book. By reading this book a novice investor will learn,
- The difference between an Intelligent Investor and a Speculator,
- What is the Margin of Safety and how to calculate it to diminish significant losses,
- Who is Mr. Market and how Mr. Market plays with the investor,
- Active Investor Vs. Defensive Investor.
Investing versus Speculation
According to Benjamin Graham, roughly there are two types of investors namely Investors and Speculators. To become an intelligent investor you should follow the 3 principles,
- Evaluate a company on various parameters before investing,
- Diversify the investment portfolio to protect yourself from severe losses,
- Focus on safe and steady returns between 12% and 15% a year over the long term.
What is the Margin of Safety and how to calculate it?
Let’s make it clear with the following example. You need to analyzing the qualitative factors namely, management, corporate governance; and quantitive factors namely, assets, earnings, you have calculated the true value i.e. intrinsic value of any security. Suppose the intrinsic value of the said security is $60. You have found that security is currently trading at $100. But you applied a margin of safety of 30% and buy the security when the security’s market price is $70. By applying the margin of safety you diminish the potential downside risk significantly.
Who is Mr. Market and how Mr. Market plays with the investors
Benjamin Graham stated Mr. Market as a person whose mood swings between optimistic and pessimistic. Mr. Market plays with the emotions of individuals. Mr. Market knocks at your door daily quoting different prices of various securities.
One day, Mr. Market knocks your door enthusiastically and offers you either to buy his stake or sell your stake at an astronomically higher price. The other day, Mr. Market looks pessimist and offers you either to buy his stake or sell your stake at suspiciously cheaper prices.
As an intelligent investor, you should ignore the market trend in the short term. Do your research, and stay invested for the long turn to achieve fruitful returns since the stock market is a voting machine in the short run but weighing machine in the long run.
Active Investor Vs. Defensive Investor
According to Benjamin Graham, there are two types of intelligent investors namely,
Active or Enterprise Investors – This type of investor continuously researches and makes an investment portfolio across various asset classes namely bonds, preferred stocks, IPOs, etc. Graham refers this investment strategy as the “active” or “enterprising” approach. This investment approach requires a lot of time and energy. It involves not only altering the investment portfolio but also buying low and selling high of selected growth stocks in special situations.
Defensive or Passive Investors – This type of investor has a portfolio of a mixture of bonds and stocks. You should diversify your stock portfolio between 10 and 30 stocks. Benjamin Graham offers a checklist that a defensive investor should follow to build a profitable portfolio. You should invest in such a company that has,
- A strong balance sheet and earnings numbers,
- Consistently paying a dividend since the past 20 years,
- Price to Book ratio of less than 1.5.
As a Defensive investor, you should fix a budget that you are going to invest every month or quarter. After fixing it, start investing no matter how the market fluctuates and what the price of any security is. Although the investing approach was termed as ‘Formula Investing’ by Benjamin Graham, now it is widely known as Dollar-cost Averaging.
Book #2. ‘Common Stocks and Uncommon Profits’ by Philip A. Fisher
Besides Benjamin Graham, Warren Buffet follows the investment principles of San Francisco based investor Philip A. Fisher. Philip A Fisher invests in high-quality Growth stocks in the long run. The author advises investors to follow ‘Scuttlebutt’ investing. To make a sound investment you should start investing in any company after analyzing the firm’s competitors, suppliers, and customers. Apart from this, the author has given a detailed 15 point checklist while buying a stock. Here are the few,
Point #1. Whether the demand for the company’s products and services increases even after 10 years that will lead to seizable sales growth in the long run?
Point #2. Does the management leverage the innovation and research efforts by hiring new talents to improve and renew the existing products or services for the new technologies to maximize profitability?
Point #3. Does the company have launched new products/services that boost total sales?
Point #4. Does the company have delivered a robust profit margin in line with the sales margin?
Point #5. What tactics are the companies applying to cut costs and maximize profit margins? Analyze carefully if the company possesses a pricing power that enables a company to increase the prices of products/services in case there is a hike in raw materials and equipment.
Point #6. Does the company have maintained harmony between labour and personnel relations? It is crucial to solve any dispute instantly since profitability increases with job satisfaction and strong employee relationship.
Point #7. Does the company have outstanding executive relations? Since this decides whether the business will form or burst. Use Scuttlebutt to know the firm’s insider deals, competitors, suppliers, and customers.
When to Sell a Stock?
Additionally, the author has given the 3 reasons to sell a stock,
- You have made a mistake while selection,
- The company doesn’t fit anymore in most of the 15 point checklist,
- You find a company that meets the 15 point checklist.
10 Don’t when you evaluate a company,
Here are the 10 don’ts offered by Philip Fisher while picking growth stocks for the long term,
- Never invest in promotional companies,
- Never buy a stock after analyzing annual reports only,
- Don’t ignore a good stock as it trades ‘over the counter’. When a company has delivered good earnings numbers, the stock experiences a high volume of trades.
- A high P/E doesn’t mean there is no upside potential,
- When you find fit a company on most of the 15 parameter checklist, don’t wait to buy the stock at an oracle price that may never hit.
- Don’t diversify your portfolio to 20 stocks since it makes difficult to make a regular assessment.
- You should invest in equities on a war scare since equity bounces back sharply once war breaks off,
- Don’t concentrate on what doesn’t matter such as returns delivered in the past since it doesn’t guarantee future returns,
- While investing in good growth stocks you should consider not only the time but also the price you buy since various actions temporarily correct the share price.
- It is never a good idea to follow the crowd instead you should follow your research.
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Book #3. ‘One Up on Wall Street’ by John Rothchild and Peter Lynch
Even though ‘The Intelligent Investor’ is the best value investing book ever written, One up on the Wall Street’ is one of the best books to learn stock-picking strategies from one of the best money managers of all time. By reading this book you will be able to identify the potential multibaggers before the stock starts bull run. Here Peter Lynch discussed the investment strategies that helped him to deliver a whopping 29% annualized returns for a period of 1977 to 1990 as a fund manager in Fidelity’s Magellan Fund.
Should you buy a house before start investing in the stock market?
Peter emphasizes you should buy a house before starting investment in the stock market since ‘in 99 cases out of 100, a house will be a money-maker’.
What amount you should invest?
You should invest the capital you don’t require for the upcoming 10 years.
Avoid expert’s advice
If the experts have derived a success formula to make money why do they offer it to you $99 a month? They tend to keep their mouth shut and never reveal that secret strategy. Here the author advises you should avoid these analysts and do your own independent research to pick the best stocks.
How to pick winning stocks?
To heap stellar returns in the stock market in the long run, you should have a skill and ability to research a company before investing. People tend to invest in such a company of which they have watched an ad somewhere. The biggest mistake common retail investors make is they invest $10,000 on such companies of which they don’t know the business model, revenue sources, profitability, etc. Then eventually make a loss. You should invest in a company after proper analysis of earnings, dividends payout, balance sheet, profit and loss account, etc.
Peter Lynch divided the stocks into six broad categories namely, Slow Growers, Stalwarts, Fast Growers, Cyclical, Turnarounds, and Asset plays. To pick the best stocks you need to follow the following principles, Instead of investing hottest stocks in the hottest industries, you should invest in simple companies that can solve any national problem and aren’t on the radar of the market. You should invest in companies that have
- A low debt to equity ratio,
- Stable earnings growth,
- A steady rise in dividend payout over the last 20 years,
- Low price to earnings ratio compared to peer companies.
You should diversify your stock portfolio that doesn’t exceed 10 stocks. Buy quality stocks at the time of sharp market correction. It is the best time to pick multibagger stocks at attractive valuations.
What company should you buy?
If you are an Indian then you might have heard of Fevicol or Fevistick. So, Pidilite Industries must be a very good stock! What if Fevicol is just 10% of Pidilite Industries’ total sales and the rest of the products contribute the remaining 90% products and are not excellent? From the above example, you should avoid investing in any company solely on any specific product or service. Instead, analyze carefully what other products or services a company is selling and whether each product or service contributes a significant percentage to the company’s sales and profit margin.
When to Sell a Stock?
You shouldn’t sell stock in respect of the share price of a company. Sell a stock when the stock has lost significant market share for two consecutive years. You should sell a stock once it achieves your goal since you haven’t married the stock. Finally, the author advises, instead of futile efforts to predict the market, you should conduct your own independent research to pick quality companies.
Book #4. ‘The Little Book That Beats The Market’ by Joel Greenblatt
The market prices of companies irrespective of how a successful company varies for no intact reason over a short time horizon make it difficult to pick quality stocks. In this investment classic, Joel Greenblatt offers an investment strategy to pick quality stocks that can yield better returns in the long run. By applying the exact investment strategy he generated a 40% annualized return for two decades. The author judges a stock by analyzing two parameters namely Earnings Yield and Return on Capital.
What is the Earnings Yield?
Earning Yield can be defined as how much money you can make per year for each rupee you invest in equity shares. By analyzing the earnings yield, you will evaluate if the returns are up to the mark in comparison to the risk. Invest in such stocks that have delivered a higher earnings yield than the industry average.
What is the Return on Capital?
By calculating the Return on Capital you will find if the company has effectively molded the capital into profits. The Return on Capital is a key indicator of whether the company has a significant competitive moat. The author suggests you should invest in such companies that have delivered a 25% ROC for the past 5 years. Finally, the author has advised a retail investor to stick to the long term. This investment strategy is the boring one, but the most effective to yield fruitful returns. After applying the magic formula, if you invested Rs. 1,00,000 in 1990 then this capital amounts to Rs. 1,00,00,000 in 2020.
Book #5. ‘The Little Book of Value Investing’ by Christopher H. Browne
When you are in search of the best value investing books ‘The Little Book of Value Investing’ is considered one of the best books to learn the basics of value investing and how to do fundamental analysis. Here are the lessons you will learn by reading this book.
Before investing in any company review the company like a banker
You should ask the following questions before investing in any company like a banker does while issuing a loan to any company or any new venture.
- What are the revenue sources?
- What is the debt and equity ratio?
- What do the assets and the liabilities a company has?
This will eliminate the risk of losing your capital potentially. The author emphasizes you should check the balance sheet of the company since this will reveal the company’s financial health. The balance sheet reveals,
- Current assets and liabilities a company has,
- The Goodwill of the company,
- The worth of brand value, patents, trademarks, and copyrights the company has.
Margin of Safety
You should maintain a healthy margin of safety after analyzing the stock’s current market price and its intrinsic value. According to the author, you shouldn’t pay higher than $66 when the true intrinsic value of the company is $100. The best time to buy a stock is when it is available on sale!
What stocks to buy?
Don’t try to time the market since investors like Benjamin Graham, Christopher H. Browne could not even forecast the market in the short run. When investors like them were not able to predict the market how you will forecast the market movement? The best thing all retail investors can do is to start investing in companies with intact fundamentals and which are available at an attractive valuation. The author cites retail investors should buy simple businesses where there is a demand for its products and services in the future. You can include quality stocks in sectors like Banks, FMCGs that have sustainable ‘economic moats’.
Avoid fool’s gold
After you have selected a basket of stocks that are available on cheap valuations, now you need to investigate why the selected stocks are available on cheap valuations. Are they have deteriorating earnings numbers or have high debt to equity ratio? By analyzing the above-mentioned facts you make sure why they are available on cheap valuations and also check whether they can deliver a stellar return in the long run. Don’t dump the share when quarterly earnings aren’t up to the analysts’ expectations or during a sharp correction in the market. Grab the opportunity and buy the stocks when a stock is available below the intrinsic value if its fundamentals are intact.
The best time to buy a stock
When company buybacks its own share or insiders are buying the company’s stock, this is a strong signal that they have an optimistic view about the future of the business and they think the price is undervalued. Finally, you should remember stock market investing is a marathon, not the sprint. Get rid of checking stock prices daily when you stay invested for the long run. Just like a property, your stock unlikely to soars up the next day after you buy it.
Book #6. ‘Beating the Street’ by Peter Lynch
If you had invested $37000 at once when Peter Lynch took charge as a fund manager at the Magellan’s Fidelity Fund your investment would have been worth a million-dollar when he stepped-up as a fund manager. He made this miracle by investing in small and mid-size growth stocks with a positive outlook [even in the year of 1987 when the stock market gave a negative return]. Peter Lynch categorized two broad categories namely, Small growth stocks [that are Cyclical in nature] and Conservative stocks. When the market is in the bear phase he sells the conservative stocks and buys the growth stocks.
Peter’s 21 Principles of Investing
By reading this book you will learn what strategies enabled Peter Lynch to generate an astounding return for a decade. Here are the few,
- When you prefer to invest in bonds you haven’t got any idea what you are missing. The only scenario you can invest in the bonds is when the bonds surpass the dividend yield of the S&P 500 by 6 percent or more.
- Avoid weekend-warriors who offer why the economy will tank and the world is most likely to end. Ignore the weekend warriors and short term market volatility and find good undervalued businesses that will yield better returns than timing the market.
- Stop hunting for the ‘Perfect Stock’. Maybe you have owned it already. Stick to the quality businesses and buy more!
- If you have found that insiders are buying the company’s stock this signifies that they have a strong belief that the company is undervalued. You should buy those stocks where the management team or promoters increase their stake.
- Look for ‘flowers in the desert’ i.e. good businesses in bad industries, since they have the lowest costs and the highest profit margin.
Peter’s 25 Golden Rules of Investment
The author summarizes the most important lessons from two decades of investing,
- The world of investing is full of fun and excitement, but dangerous only if you haven’t done any research.
- You can outperform the market by investing in companies or industries that you have a strong understanding of.
- To beat the market return the only thing you should do is to ignore the weekend warriors.
- At the rear of every stock find what the company is doing.
- Focus on the chances of the success of the company and the stock, since there is a 100% correlation between the success of the company and the return.
- Before you own a share you have to know what you own and why you want to own the share.
- If you haven’t found any company fit, put the money in the bank until you discover a few.
- Never invest in such companies that are with a poor balance sheet.
Finally, start investing in stocks and/or equity mutual funds after proper research since equity asset class will always outperform a portfolio of bonds and money market funds in the long run.
Book #7. ‘A Random Walk Down Wall Street’ by Burton G. Malkiel
If you are looking for a time-tested investment strategy then this book is a must-read. The author here analyzes heavily the most interesting topic i.e. Technical analysis Vs. Fundamental analysis.
Technical analysis vs. Fundamental analysis,
Technical analysis shows the price movement in the short term that is driven by traders, while Fundamental analysis evaluates whether the company is overvalued or undervalued. The author describes technicals help the broker to buy a yacht since the trading commission is the lifeline of various brokerage houses. According to the author, the individual investors should stick to the fundamentals and stay invested for the long run.
What is ‘Firm Foundation’ and ‘Castles in the air’?
The Firm Foundation Theory is based on calculating the true intrinsic value of the company before investing in it. Find such a quality business that is in line with ‘Firm Foundations’ theory and stick to it to achieve superior returns in the long run. Make use of ‘Castles in the air’ model by analyzing what the crowds are doing and whether you can make money [by investing in companies with robust fundamentals] by riding the waves of the people.
How to Diversify your Portfolio,
Stay with equities when your goal is for the long term. Invest in bonds and cash when your goal is in the short term to minimize risk.
Book #8. ‘You Can Be a Stock Market Genius’ by Joel Greenblatt
There are various investment books that offer the basics of value investing but you will find hardly any book that offers how to detect, inspect, and make money from ‘special situations’. The book reveals what strategies the author applied that enabled his hedge fund to deliver 50% annualized returns over a decade between 1985 and 1995.
The author outlines two examples that will give you the basic insights on how to think about the market in a storytelling mode.
- In the first story, the author emphasizes searching stocks that are undervalued and helps to find out what companies are going to be the next Facebook or Microsoft.
- In the second story, the author outlines how to identify the best places to invest.
Here are the key points that the author outlines,
- You can’t eliminate the overall market risk by purchasing either 8 stocks or 500.
- Buy stocks when it is available relatively cheap, limited downside risk, no one is buying but the insiders.
- Sell a stock when there is a surge in stock price or valuation and the company’s fundamentals are not as per your expectations.
Finally, the author cites various case studies on how to make money on ‘special occasions’ namely Spin-Off’s, Rights Offering, Merger Arbitrage, Bankruptcy and Restructuring, Recapitalizations, LEAPs, and Options.
Book #9. ‘The Warren Buffet Way’ by Robert G. Hagstrom
Want to learn how Buffet managed to make $8.3 billion with a small investment of $100? This book offers not only the practical insights of Buffet’s investment strategy but also how you can make this.
Invest in such business that you have a complete understanding of
Analyze the management since the management is the backbone of any business. It allocates finance to create a sustainable competitive advantage to make the business secured. You need to understand the strengths and weaknesses of the business a company has. Warren Buffet used to start investing after making a proper analysis of,
- Whether the company has a sustainable competitive advantage.
- The management’s integrity, transparency, and efficiency.
- The Return on Equity, and Earnings per share.
Ignore the economic scenario
The Ace Investor Warren Buffet spent hardly any time to analyze the state of the economy since economic cycles oscillate from time to time. Avoid the ups and downs of the market. The prices alter frequently without any reason in the short run. Search quality business and start investing. Speculators may benefit from ups and downs in the short run, but value investors win in the long run.
Buy stocks when they are available at below their intrinsic value.
You should wait for the correct time to buy a business. Identify an opportunity when the business is actually available at an attractive valuation. Then invest in it.
Diversify your portfolio
You should pick a bunch of quality businesses available at an attractive valuation. Warren Buffet’s portfolio mainly consisted of consumer durables and finance sectors. Like Warren Buffet you should invest in such sectors that you have a complete understanding of. Buffet avoided technology sectors since his primary focus was to invest in such sectors of which he possessed complete understanding.
Book #10. ‘Value Investing: From Graham to Buffett and Beyond’ by Bruce Greenwald, Judd Kahn, Paul Sonkin, Michael Van Biema
The basic concept of value investing is that one retail investor requires calculating the intrinsic value of a company and buy a stock with a proper margin of safety to diminish the risk to a greater extend. Apart from return on equity, return on investment, steady growth in Sales/Profits, and Earnings Per Share, the authors offer three components you should use while calculating the valuation of the business.
#1. Asset’s Value
#2. Earnings Power Value
After calculating the above two, three scenario is possible,
- Asset’s Value > Earnings Power Value
- Asset’s Value = Earnings Power Value
- Asset’s Value < Earnings Power Value
When Asset’s Value surpasses the Earnings Power Value, it signals either the industry has excess overcapacity or the management is not effective to utilize the assets to generate incomes.
When Asset’s Value is equal to the Earnings Power Value, it can be assumed that the industry is the competitive one and the management of the company is of average. You can take either of value as the intrinsic value of the business.
When Earnings Power value is larger than the value of assets, we can assume that the industry has created an entry barrier or the company has a sustainable competitive advantage. When an industry has an entry barrier it allows a company [that has efficient management] to manage assets efficiently and generate high profits.
#3. Growth Potential
After analyzing the two, you need to avoid mistakes while calculating the growth of the business in the near future. It’s not a good idea to invest in such a company that doesn’t have any sustainable competitive advantage. Competitive advantage secures earnings power to a greater extent and enhances asset value.
Finally, the authors have discussed the strategies by eight maestro of stock market namely, Warren Buffet, Mario Gabelli, Glenn Greenberg, Robert Heilbrunn, Seth Klarman, Michael Price, Walter Edvin Schloss, and Paul Sonkin.
Book #11. ‘Poor Charlie’s Almanack’ by Charles T. Munger
If you want to become a rational investor then this is the must-read book for novice investors. By reading this book you will learn,
- What checklist you must apply before investing.
- A brief guide on metal models i.e. psychological biases, opportunity cost, inversion, etc. that helps to avoid mistakes.
- Before you’re outside of your circle of competence you should learn before acting on it.
How to pick Quality Business
The best time to buy a stock is when it is small and undervalued. The best time to own a stock is when a stock is available at two or three times of book value. You need to find a few quality businesses. Then buy the stocks and sit tight to enjoy the best returns. Apart from valuation, you need to find businesses that have a sustainable competitive moat.
How Metal Models affect investment decisions
You need to learn, modify, and destroy any idea after analyzing the flip side. Apply logic and invert always since hard questions can easily be solved only when you analyze them from the flip side.
According to the author, we all have three baskets for investing namely ‘yes’, ‘no’, and ‘enigmatic’. To invest in ‘Yes’ basket you should find such business that you have a proper understanding of and have the ability to sustain and thrive irrespective of the market environment. Since the author of the book and Warren Buffet failed to understand the technology sector i.e. nature, software developments, etc., they tend to avoid that sector.
Finally, stay disciplined and do the necessary when it ought to be done whether you like it or not. The author regrets that he lost billions by not investing in Berkshire Hathaway at the right time. Invest heavily when the stock is available at cheap valuations to make money from the stock market. Don’t get married with an investment. You should sell the stock when it has fulfilled your purpose or having deteriorating numbers.
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Book #12. ‘Learn to Earn’ by Peter Lynch
No school or college teaches either the basics of investing or how the stock market works. This is a must-read book for those who have to make important decisions like saving for retirement. By reading the ‘Learn to Earn’ you will learn what exact strategy the author Peter Lynch had applied that had enabled him to deliver Fidelity’s Magellan fund a 29% annual return for a period of 13 years between 1977 and 1990.
What is the best time to invest?
According to the author, you should spend less than your income, and invest the rest right now.
Where to put the savings?
Peter Lynch outlines the five places where you can put your money, Cash, Collectibles, Real estate, Bonds, and Stocks.
How to pick the best stocks to invest?
A US adult wears the shoes of Nike, Reebok. He goes out to dinner at McDonald’s, drink Coke, or Pepsi. But anyone barely owns the share of the above-mentioned companies. They are neither interested to own them nor know how to own them.
The same scenario you will find in India also. Every Indian techie dreams of working at Tata Consultancy Services, Infosys, Tech Mahindra, etc. But only a few Indians own the shares of the above-mentioned stocks. Any individual Indian is familiar with the names i.e. ICICI Bank, HDFC Bank, Kotak Mahindra Bank, etc.
Every Indian techie has a dream of working at Tata Consultancy Services, Infosys, Tech Mahindra. But only a few Indians own the shares of the above-mentioned stocks.
The author stated that opportunity is everywhere. After gathering the vital information and making a proper analysis of the above-mentioned companies start investing to yield better returns in the long run. Peter Lynch outlines the 5 stage lifecycle of a company,
- The Inception stage,
- IPO stage,
- Value stage,
- Growth Stage, and
- Old Stage.
Finally, analyze the management since the management is responsible for the success or failure of any venture. Peter Lynch puts efficient management and value stock in line since this will decide whether your portfolio will outperform or underperform.
Top 3 Best Stock Market Books India Written by Indian Authors
It awaits the same fate to invest in the stock market solely on the stock tips and without learning the ropes. You should understand the basics of investing before investing in the stock market since the stock market is efficient enough to lead to a financial disaster. Hence, I will give you a detailed summary of the best investing books to learn investing in the stock market India written by Indian authors. These books may be beneficial for you to get started in the Indian stock market.
Book #13. ‘How to Avoid Loss and Earn Consistently in the Stock Market by Prasanjit Paul
Are you looking for the best books to learn about stock market investing in India? Then you must read this book. This is one of the best stock market books by Indian authors. This book not only gives what important matrices you should analyze but also offers how to avoid loss in the stock market. The author Prosenjit Paul has given the following insights while investing in the stock market,
How to avoid loss in the stock market?
To cut the losses in the stock market you should,
- Avoid following blindly the stock tips by analysts and brokers in the news channels and elsewhere.
- Avoid Intraday trading since large losses can be possible in a single trading day. You can hardly find any millionaire or billionaire who becomes a millionaire by doing intraday trading.
- Stop investing with borrowed money.
- Avoid trading in Futures & Options without mastery since F & O trading may wipe out a tidy sum in no time.
How to pick quality stocks that will yield better returns in the long run?
Here are the key parameters that should be watched out before buying a stock,
- Low debt to equity ratio i.e. less than one. The best stocks to invest i.e. debt-free stocks or stocks with a marginal debt.
- If the stocks have delivered 20% ROE during the past 5 years.
- If the sales growth rate is higher than 10% during the past 3 years.
- If the profit growth rate is higher than 12% during the past 3 years.
- The return on Capital Employed is higher than 20% during the past 5 years.
- Price to Sales ratio is less than the industry average.
- Price to Book ratio is less than one.
What is the best time to buy and sell a stock?
You can invest in such companies that have delivered a 300% return but the fundamentals of the company are elevated. You should sell a stock that has a deteriorating number irrespective the stock price is moving upward or downward. Don’t sell a stock owing to the reason it has corrected 30% within a quarter. Instead check the fundamentals, if they are satisfactory stick to it.
Finally, you should check how efficient the management of the company is. Management is the backbone of any company. It decides the venture’s success or failure. Invest in those businesses where promoters have increased their stake. The promoters increase their stake. It gives a clear signal that the promoters are quite optimistic about the venture and expect the best returns. Apart from that, you need to find such quality business where not only Domestic institutional investors but also Foreign Institutional Investors put their money.
Book #14. ‘Stocks to Riches’, by Parag Parikh
You will find the best books on value investing, but hardly find quality books that cover the behavioral part of investing. Stock to the Riches by Parag Parikh covers not only the fundamental aspects of a company but also the behavioral biases that lead to a loss in the stock market.
What is Decision Paralysis and how to tackle Decision Paralysis?
While investing in the stock market you need to make various decisions that determine how we will make money. And if yes, then how much money we are going to make. You will face decision paralysis because of,
- The fear of going amiss and lose a tidy sum in the market,
- Aversion of taking a risk,
- Make an investment proposition and it is proved wrong.
To deal with the decision paralysis you need to exercise the following tactics,
- If you are not investing in the stock market owing to the inherent risk of losing your capital consider what you are losing by not investing in the equity asset class.
- Start investing via Systematic Investment Plan,
- After the stock has reached your deemed price sell the stock since you haven’t got married to your stocks.
- While taking a decision you should apply Dale Carnegie’s principle to depict the worst outcome when the decision does not go in your favour.
Finally, start investing in quality companies with intact fundamentals. Diversify your portfolio in a manner where the fund allocation in any sector doesn’t exceed 20% and 10% in any stock. To minimize the risk and maximize the returns buy when there is a panic and everyone is selling.
Book #15. ‘The Dhandho Investor: The Low-Risk Value Method to High Returns’, by Mohnish Pabrai
If you had invested $1,00,000 in Mohnish Pabrai led ‘Pabrai Investment Funds’ since inception, this would have amounted to a whopping $ 659,000 in 2006! This fund delivered an astounding annualized return of 29% that surpassed almost 99% managed funds. ‘The Dhandho Investor’ reveals the Dhandho framework that consists of 9 principles,
Principle #1. You should buy the few publicly traded stocks that don’t require huge capital to get started. This is the best strategy to create wealth in the long run.
Principle #2. Start investing in a simple business that will offer a decent return and are unlikely to burn your money.
Principle #3. Hunt for distressed business where bad news is coming out. Start investing in quality businesses available at cheap or attractive valuations.
Principle #4. Start investing in such businesses with a sustainable competitive advantage i.e. durable moats. These businesses are able to deliver better returns over the long term.
Principle #5. Don’t diversify your portfolio heavily that consists of 100 stocks. You should look out for opportunities and invest heavily when odds are overwhelmingly in your favour to make money.
Principle #6. You should look for arbitrage opportunities with sustainable competitive moat since this will enable you to earn an astounding return on capital at minimal risk.
Principle #7. Maintain a healthy margin of safety while investing in stocks to minimize the risk and maximize the returns.
Principle #8. Even though you can minimize the risk while investing, you can’t gauge the performance of the company that is in distress. To get better returns you need to think the best possible scenario in the near future and invest in low-risk, high-uncertainty businesses.
Principle #9. Stay invested with the copycats rather than the innovators and analyze whether the copycats cope with the innovators.
Although this post is about the top 15 stock market books in India, don’t stop yourself in the above-recommended books only. You can check the following best books to learn about stock market investing in India. Here are the few best selling stock market books in India,
- ‘A Beginner’s Guide to the Stock Market: Everything You Need to Start Making Money Today’ by Matthew Kratter,
- ‘Bogleheads’ Guide to Investing’ by Mel Lindauer, Michael LeBoeuf, and Taylor Larimore,
- ‘Buffett: The Making of an American Capitalist’ By Roger Lowenstein,
- ‘Stock for the Long run’ by Jeremy Siegel.
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- Read also: Top 25 Stock Market Books Every Investor Must Read
- Read also: Top 21 Best Personal Finance Books You Must Read in India
These are the top 15 books on the Indian stock market for beginners. Feel free to suggest any books to understand the stock market India which I missed in this column.