How to buy shares: 10 powerful things to know on how to buy stock in India profitably

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The title of the post is Bamboo Investing. Let me be very clear that this is not about investing in Bamboo grass! We will look into various mental models of learning.

Also, there is no phoenix. Before we get to the point, here is a small puzzle. Below are share price charts of a few companies over a certain time period. What is common between them?

Within matter of six weeks, it stock market companies india the height of 90 feet i. There is a clear linkage to the earlier puzzle. A good stock may remain dormant and boring for many years, and then accelerate to surprise everyone.

As such this can happen for the entire sector or most of the stocks in any country, depending on the triggers. One should watch out for improvement in business fundamentals and earnings power. If prices don't move but the business is improving - that is the best ground to hunt.

So the answer to the puzzle is that all of the above companies Balaji Amines, Maruti and Avanti Feeds respectively were boring and dormant but accelerated to become multi-baggers in a very short period stock market companies india time. Now, the above outcome may look surprising in an efficient market. Is there an underlying anamaly? Well, I have tried to think through and found that there are two broad factors driving this: Rapid earnings growth and PE re-rating.

Sector and country re-rating: This can stock market companies india when there are certain key structural changes in the sector or the country which expands the PE multiple rapidly without any change in earnings growth mostly in anticipation of future earnings growth.

Company is widening its moat for the long term: When companies demonstrate an ability to efficiently stock market companies india capital and create shareholder value - they stock market companies india get re-rated with further acceleration due to continued execution.

Now it has rapidly re-rated due to a more efficient capital allocation Read case study by Sanjay Bakshi: The Grand Strategy of Ajay Piramal. There are several instances where disclosures for stock market companies india small and midcap stocks are minimal.

Also, some of these companies are too small to qualify for the mandate of large investors. Many companies could be showing a lower earnings or worse losses due to certain structural bottlenecks.

When these roadblocks are resolved, the company is naturally well positioned for a turnaround. This may be triggered due stock market companies india single event such as debt repayment, management change, regulatory change, change in strategy, consolidation of industry, structural fall in raw material prices etc. There may be several such factors which can result in multi-fold returns in a short period of time. However, this does not imply that every company which is dormant or boring will follow this trajectory.

The lesson is that one needs to stick to the original theme and if it is intact or improving - then just hold on. Ideally the focus should be on business performance. A combination of Technical and Fundamental analysis. Some of the technical indicators like price-volume break-outs, momentum indicators, formation of trend lines are very powerful to identify such companies at their inflection point. Adding fundamental analysis on top of it can filter some of the false signals generated by technical and helps to identify and stock market companies india such companies with conviction and then again technical analysis can be used to determine the Hold or Sell criteria.

See technical chart below for BEPL: The capex approval came soon after break-out giving fundamental confirmation and conviction to hold. This was further accelerated by the PE exit and promoter buying from the market. Thus, one must use this approach to identify such stocks and once these are identified correctly, just SIT tight until the story plays out and enjoy the Bamboo Investing way of stock market companies india creation!!

Chinese Bamboo is quite a thing. It can grow upto 90 feet in height!! Lessons from the story There is a clear linkage to the earlier puzzle.

What are the triggers? Basically, they are bleeding cash today to achieve sustainable long term growth tomorrow. There may be low liquidity for the stock. One needs to ignore short-term price movement and see if the business is continuously improving. Its important to focus on Earnings Power coupled with business strength. How to identify such companies?

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