Copycat Investing.

In this guide, I will show you how, in less than hour, to find WINNING STOCKS.

I will help you find the Best Stocks...

Contrarian Strategy

A little about the Contrarian Strategy I am certain you have heard of the term "herd mentality". By using the contrarian Strategy, you are literally forcing yourself to go against the crowd, or common sentiment among most investors.

"But... what about the other advice, that "the trend is your friend"? Isn't that true?"

If you are a Day Trader, a momentum player, a person who enjoys the feeling of a roller coaster ride and watching your share price do the same thing by the hour and days, then follow that advice.

If you ask me, my take is to go against the trend. The two best things about not following the herd mentality are (1) when a market bubble burst, you will not likely to be in it, as bubbles are always found in the latest, hottest industries, and (2) you get to buy into companies at lower valuation (cheap is good!). Well, the one lousy thing about being a contrarian is that you have to get prepared to see your share prices hammered for a while before it rebounds. Patience is the key here. You got to have the stomach to see your share price plunge for a while, which could be weeks or even months.

Choose Only the best.

Stocks are usually unpopular for good reasons. Most of the companies that are not doing well deserve it - poor management, poor business prospects, loads of debt etc. The task now is to sieve out those companies that were punished undeservingly by the market. If you have read the other guide, you will know that share prices are punished in many ways. Most investors, including institutional investors, respond to short term bad news in a knee-jerk manner. Our mission is to find these great companies at low price and buy in!

We want Companies with Low Debt.

Debt /Equity Ratio should be from <=0.5 to <=1. This increases the debt a company has but it is still within a very safe zone. The purpose of raising the debt level by just this bit is to find companies that are taking out bank loans to expand their business operations. This is a signal of growth within that company We want Companies with High Earnings.

Operating Margin should be >=10 this ensures that the companies selected are making profits. There is a difference between Operating Margins and Sales. An impressive increase in the number of sales revenue does not equate profits. The company could very well be trying to clear its stocks by selling them off cheap.

We want Companies with Low Volume.

As mentioned before, we are looking for companies that are not overly popular. We are trying to spot the winner that everyone (well, almost) had missed.

So Volume should be <=10 lac. For the same reason, remove the Criteria Earning Growth (Next 5 year). This is to narrow your list of companies to those not covered by analysts. We want Companies that are Under-Valued. Look for Balance Sheet, choose Price/Book Ratio and here the conditions is it should be <=2. We want Companies with Strong Financials.

-- Profitability-->ROE > 12 for companies that are performing well for their shareholders.

-- Valuation-->P/E <>Free Cash Flow > 10 lac for companies with spare of cash to handle emergencies

In less than 1 hour, the Steps I outlined allow you to find good companies. The harder part comes next. Read on, if you are serious about making your money grows! The faster way to losing money is to take somebody's advice (mine included!) on which stock to buy without first doing enough research.

Final Advice

If you are serious about your hard-earned savings, I suggest you:

1. Do more homework. Try to understand their business. If you cannot understand how they earn their money, do not consider them.

2. Read their annual reports. Skip the glossy sections and go straight to their balance sheet. Are they facing litigation, serious lawsuits? Is the company facing problems? Are these problems short or long term? Is the earning spike recently an anomaly? Has the company been asked to restate it financial statements?

3. Find out how their nearest competitors are doing.

4. Find out whether it is a cyclical industry. If it is, you will try to avoid buying in at the peak of the cycle.

5. Read great books on investments. Understand the investment styles of Warren Buffet and Peter Lynch.
6. Try out your choices on moneybhai.com. It is a fun yet safe place to play with virtual money. It is a good place to start learning how to buy stocks. And of course, it is FREE to play!

I hope you will find this guide helpful in understanding more about investing. It does involve a certain amount of work, but at least when you put your money into a company, you are assured that you have done your homework to find a company that you are proud of to be a co-owner.



Disclaimer:

Any decision to buy any of the stocks is yours alone. I will not be held liable in any way for your decision. No one can be held liable other than yourself, not even your broker, for you to invest your money, the decision lies with YOU.