Widely read:
Anand Kumar
There's a near-infinite amount of information in the world, and most of it is not actually information. A lot of it is simply untrue, but as far as investing-related information goes that's not where the problem lies. The real danger comes from information that is true but useless or even harmful. Surprised? Wondering how correct and truthful information can be useless, harmful and dangerous?
Here's an example that I find obvious: a list of stocks that have risen the most in the last one day or one month, or, to use the common term, stocks that have momentum. Such a list seems valuable on the surface - after all, these stocks have done very well lately, so shouldn't they be good investments for the future? Not really. For one, stocks that have boomed recently may be experiencing a short-term price spike driven by speculation, rumours, as well as good old pump-and-dump. The price rise could have - and often does have - a circular element wherein the price rise leads to a price rise. These gains often reverse rapidly, leaving the greater (greatest) fool stranded. So, while the price history is factually correct, it provides no insight into whether further gains are likely. The bigger danger is that compelling-sounding but meaningless information wastes limited time and attention rather than helping the investor.
Of course, this is just one example. The stream of noise that the equity investor faces is endless. Stock tips from friends, sensational headlines, the latest hot trends - everyone and everything has an opinion on the next great investment. Yet most of this information lacks any rigour or substance, or method. The same issues apply to social media pundits and other opinion-peddlers. The most bombastic voices tend to attract attention with sensational and one-sided takes, essentially supplying nothing but what I'd call 'disinfotainment'. In long years (decades, actually) of observing the noise crowding out meaningful information, I've noticed a few common themes. Much of the superficial financial info aims to tap our behavioural biases - playing to our tendency to chase trends, seize on confirming data, or create narratives to rationalise price moves after the event.
What investors actually need is to start not with emotionally charged reactions but with a fact-driven framework, one that provides a quick quality check for every stock as a starting point. A fundamentals-driven rating system would be ideal in this role, provided subjective opinions played no role at all in it. This would have to be something purely numbers-driven. Such a system could filter a large number of stocks - an entire universe, ideally - through an objective, rules-based model to spotlight quality and, just as importantly, the lack of quality. By distilling key metrics, investors could get an at-a-glance view of financial strength. The key is to have a standardised set of criteria that is applied without emotion. Human judgement is innately poor at processing lots of data into a framework.
Of course, a rating system is just a starting point - a way to sort thousands of stocks quickly. After that would come creatively interpreting those signals with wisdom and common sense rather than getting lost in numbers.
So, does such a system exist, at least for Indian stocks? Well, now it does!
Three decades ago, we at Value Research launched our Mutual Fund Ratings based on these very principles. During these decades, millions of Indian investors have used our rating system to choose good funds to invest in and, just as importantly, to avoid bad funds they were tempted by. Now, we bring the same principles and approach to our new Stock Ratings system: we rate every stock; the ratings are freely available and completely objective. Opinions and feelings play no role whatsoever. We have researched, designed and evolved the methodology over a long period, and they are expressly structured to provide this quick first-level quality check. Also, the methodology is transparent and available for anyone to read about.
I won't claim this is the last word on evaluating stocks simply because it's designed to be the first word, not the last. We'll talk more about the details in the weeks to come.
Also read: Why you should use Value Research Stock Ratings
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
