Dhiraj, i am a market student and leaning i am sharing some snippets and that will leads you to filter the stocks. These are from book the next Apple
There are two major ways a stock could appreciate in long-term perspective: grow earnings and grow P/E, which is the price people are willing to pay for a company’s earnings. The first one depends on a company’s ability to execute and some other outside factors, such as competition and regulation. The second is almost entirely influenced by current market sentiment.
The biggest stock market winners of each decade are very different because of 3 main factors: 1. The law of big numbers ( be mindful as Sooner or later, a fast growing company becomes a slow growing company) 2. The law of high expectations 3. The law of innovation
note : When a stock has been a really great performer for the past few years, it becomes a household name. It has extreme coverage from the press, social media and financial analysts. It’s a lot more predictable, and it’s much more difficult to surprise the market.
note 2 : There are very few sure things in life. Customer loyalty fades. Competitive advantages disappear. Pricing power goes away. Mind share dissipates. Earnings and sales growth slow down. In other words, circumstances change. But what we can always count on is that high expectations will eventually mean-revert. Most companies cannot accelerate their earnings growth fast enough to counter the decline in the market’s expectations
note 3 : Great Growth Stories Are Never Cheap Fast growing companies are rare, and they always trade at premium and Investors with a bias against high P/E stocks miss some of the greatest stock market winners of all time
note 4 : At some point, valuation matters, but only if earnings don’t catch up, you plan to hold forever and you don’t have an exit strategy. If price gets you in a trade or investment, price should take you out. If you don’t know why you bought, you won’t know when to sell.
Note 5 : No one knows which new all-time high is the beginning or an end of a journey. No one knows how far a trend could go or how long it could lasts.
Nothing work out to the 100% certainty in the stock market only truth is ," Prices Change When Expectations Change" only controllable attribute which a small retail investor could do is the control PURCHASE PRICE . Your return is directly proportional to the price you pay There are various style of investing and check which you found suitable for you and as per your personality .
10 years is pretty long time in that case you need to focus one one stock at a time and write why you want to invest in it ? ( it will help you when you have to make the selling decision - you just pull it out and see the rational is intact or not as i am sure with next years stocks from your listed list may swing 50% negative territory … ) .
Another good snippet from the book ,
**Stocks are just like products – just like there are different buyers in the different stages of a product cycle, there are different people buying at every stage of a typical growth stock’s price cycle. There are innovators, early adopters, early majority, late majority and laggards. There are various market participants with different philosophies and reasons to buy: **
**A) Some buy early, long before the crowd, because they understand or speculate about the potential impact a company or an industry will have. Some buy when a company is still losing money, but it has great potential, a great story behind it. **
**B) Some buy when a company breaks out to a new 52-week high from a proper base. This could happen well before a company reports any earnings or an improvement in growth. There are market participants who don’t care whether the company is making plush bears or space rockets. As long as its stock price is making new highs, they ride it. **
**C) Some buy when there’s fear of missing out. Institutions have to put money to work, and they have to choose assets to allocate to. At any given time, there are only a few great growth stories in the market and thousands of institutions that want to own them. In this case, P/E ratios often don’t matter. It is all about catching the next big thing. Trends persist because supply is limited – early buyers are not eager to sell, and there are plenty of new buyers that would like to participate. There’s a scarcity of great growth stories, and Wall Street loves growth. **
**D) Some buy when the company reports its first profitable quarter. **
**E) Some buy when a company has had several quarters of high growth and has a group of analysts that follow it. **
**F) Some buy when a company reaches a certain size. **
**G) Some buy because they are forced to cover their early/wrong short position. Every trend needs doubters and skeptics. Otherwise, there wouldn’t be anyone left to buy. The existence of large short interest has fueled not or one or two big trends. **
**H) Some buy when a certain market cap is reached – some large funds cannot participate in companies with market caps under $5 billion because they cannot accumulate a position that is big enough to make a difference in their returns. When a company gets from $1 to 5 billion and it continues to deliver solid growth numbers, it will find a whole new set of buyers On some occasions, market participants are forced to buy or sell regardless of price, which exaggerates current trends and the impact of newly discovered catalysts: **
**1) Forced liquidation during market corrections: This occurs when investors sell not necessarily because they want to, but because they have to due to margin calls and redemptions from scared clients. **
**2) There is forced selling, but there is also forced buying When speculators bet against a stock and it keeps rising higher, they are forced to cover their positions and, in the process, become fuel for even higher prices. **
3) Inflows of cash to mutual funds that require portfolio managers to buy every month disregarding of price.
It is game of nerves … so i wish you a good investing journey … last but not the least try to preserve the capital and has strong conviction in the stocks before you invest. I want add at last if you are new to stocks, keep at least four things in mind. Firstly invest in good quality mutual funds for long term, and allow the money to grow there rather than experimenting in stocks. Secondly read, read, and read about investing in stocks. Thirdly when you had read enough ( at least three books a) ONe up the Wall street b) Five rules of successful investing and c ) Next apple ,than start investing in companies with good business ( search what should be criteria ? ) , reputed management ( set some point basis how to evaluate the management ? , and low debt ( debt can be good if the cost of capital is less than company’s growth )
