Investing is an art

Contrary to commonly held views, you don't get real investment ideas from television channels, Whatsapp groups or self-professed market gurus. Investing is a slow and long process that you need to develop yourself. What suits one investor may not suit another. There is no one way to pick stocks; there are numerous. Finding what you are comfortable with is essential.

Having burned my fingers in chasing hot stocks, 'the next L&T', TV market guru recommendations, cyclical plays and even defensives at the wrong price, I settled on investing conservatively. Over the years, I moved from investing in asset plays to investing in market leaders. I am an avid adherent of the coffee-can philosophy. According to it, in a portfolio of stocks, some will fail, some will do average but a handful few could become multibaggers.

I don't believe in making a quick buck in the stock market. I believe in staying locked in a stock till the fundamentals stand rather than jumping in and out in search of the next big thing. I think that stocks should have a similar locking period as fixed deposits in a bid to instil discipline and discourage flipping stocks.

Investing is an art that can be learned through patience, discipline and reading what other successful investors did right and wrong. I now look at strongly positioned companies that are seeing a rough patch or market leaders that can be bought when they are out of favour.

I also track the stocks that make it through value-guru screens on the Value Research Stock Advisor website, like rummaging through a discount counter in a supermarket. While most of the stuff deserves to be at a discount, there are times one can find a high-quality product in that discounted pile. (In real life too, I buy only high-quality clothes and other durables when they are at a higher discount than usual - the last pair of sneakers on heavy sale, for instance, or discounted sweaters off-season.) Yet another strategy I use is to look at industries that are changing or where a large opportunity opens up by analysing the top players that stand to gain the most.

How I pick stocks

1. Stocks with short-term problems are often a fertile hunting ground. You want to look for fundamentally sound companies that have got stuck in some short-term problems. The companies need to have little or no debt and should be financially capable of riding out the period of trouble. This strategy works in both cheap and expensive markets.

2. Another way to look at profitable investments is to search for market leaders available cheap. Look for companies that are either the number one or two in their fields and are down for some reason. Though there's a caveat. This strategy doesn't yield much in heated markets. In such markets most market leaders tend to trade at expensive valuations.

3. One method that yields a trove of stock ideas is value-guru screens available on www.valueresearchstocks.com. Stocks filtered as per the search criteria of Joel Greenblatt, John Neff, etc., yield many names worth exploring. A caveat here again. Such stocks are generally facing some problems, due to which they feature in value screens.

4. Look at industries with a large untapped opportunity from which a number of players may benefit. With a large market opportunity, the top players generally stand to gain the most. The trend of automation, for instance, stands to benefit the largest established players more than small nondescript companies in the same industry.