The Equity Checklist

Investment Learning
21

How to Keep Track of the Stock?

Now that you have already started investing in a stock with help of the Equity Checklist, it isn’t necessary that the fundamental conviction that you have in your mind will always remain true. It may change from time to time. So it’s necessary to keep track of the stock in order to check if the conviction remains in play or not.

To keep track of the stock, you would need to do the following:

On a Yearly Basis:

  •      Read the Annual Report. (Sections like Chairman’s message, Management Discussion & Analysis, Financial Statements & their Notes will help you in understanding how the company performed around the year and what does it plan to do in the future).

On a Quarterly Basis:

  •      All companies are mandated to release results quarterly around the year. Keeping a track of results of the stock is important. They usually provide a YOY and QOQ comparison which also helps us in understanding if the company is growing or de-growing. (In the year 2021-22, 2022-23, we were making a comparison with quarterly results from the corresponding pre-covid quarter (2019-20), to see if the Revenue/PAT levels have reached pre-covid levels or not.)

  •      Companies usually release an Investor Presentation along with the results which helps in understanding what happened usually during the quarter.

  •      Some companies also organize conference calls wherein the management gives commentary followed by questions & answer session. Usually, during these calls managements do provide some kind of future guidance which helps in understanding the company’s future. The Q&A session helps resolve investor queries may it be related to accounting treatments or business related or sector related. (All investors can participate in the same and ask questions)

  •      You should also look at Research Reports from different brokerages. They usually do have estimates on financials which help you paint a picture for the future. It can be negative/positive/neutral.

  •      Check for any management interviews that might have happened where in the management has given first-hand information on the company.

On a Daily Basis:

  •      A check on the news related to the economy/sector/stock is a must.

  •      As an investor, you can join the Valupickr Forum where you can see insights from different investors on different stocks. It is a discussion forum between investors.

  •      Keep a tab on the exchange filings of the companies that you have invested in. (Can be done via screener.in)

  •      Need to check for any kind of deals (Bulk/Block/Insider) is happening in the stock that you own.

Hope this additional list will help you keep track of your stocks. Happy Investing!!!

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Awesome…This is really good and helpful. Also this is about stock picking checklist.
If you can shed some light on portfolio construction, maximum and minimum number of stocks in portfolio, number of sectors to be included, position sizing and any core or satellite demarcation etc.

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23

Can you please recommend tutorials for cash flow statement analysis, balance sheet analysis?

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You can also refer to the questions i have posed in the above posts and try to answer them. This will also help in analysis.

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26

When to Sell a Stock!

The most confusing question for an investor is “When to Sell a Stock.” It is actually not the most discussed topic. Even brokerages suggest when to Buy a Stock with a Target Price but what if the Target Price is Not Achieved in the said Time Frame and what if the investor wants to Sell before the said Target Price or Time Frame. What does the investor do in that case?

Let me list down the reasons why an Investor should Sell a Stock. The obvious reason to Sell a Stock would be that the Target Price given by a brokerage is achieved. The below listed reasons are applicable for Long-Term Investors especially investing in Mid-Caps/Small-Caps.

  1.   Huge Fundamental Change in the Company: A Fundamental Change would mean that there is a Change in your Conviction that you had set when you first bought the company. For example: We had bought IEX around 160. On June 2nd, 2023 circular from Ministry of Power directed CERC to undertake the process of Consultation & Implementation of Market Coupling. This means that there will be a government entity which will do the price discovery based on which power will be dispatched on platforms like IEX, HPX and PTIX. This would dry up volumes. Currently, IEX is the most trusted platform for electricity spot price determination in India, which is its business moat. Now as price discovery will be done by the government, IEX will merely remain a platform to match bids with asks. There is still confusion on what exactly does the CERC mean by this which puts revenues and profitability in question of IEX which led us to sell the stock at a loss at Rs. 120. Till said date, we haven’t bought back the stock.

So even if there is a loss in a stock, but there is change in your conviction of the stock or business moat of the company, it is better to get out of the stock rather than deal with the volatility of the stock price.

  1.   When in Need of Cash: If you are in Need of Cash, its better to first understand at what Stage the Stock Market is. If the Stock Market is near the highs and you have a lot of profitable positions, it’s better to book profit in this case. If the Stock Market is near the lows, it’s better to sell off the stocks in which you have lowest confidence or recently bought stocks. It’s always better to keep stocks that you have highest confidence in whether they are in profit/loss. The other option would be reduce the size in that particular position. For example: You have 1000 quantity of a stock, you can reduce it to 500 to generate cash.

  2.   Markets in Consolidation Phase: If the Stock Market Scenario is near to the All-Time Highs and has remained near those levels for a significant period of time and it is likely that some kind of correction in the overall markets is expected, it’s better to keep some kind of cash to grab new opportunities that might come when the markets fall. You can either add in new cash or you can book profits in stocks by reducing your position in a particular stock.

  3.   Particular Stock in Consolidation Phase: If a stock is near its All-Time-Highs (given a very good up move recently) and now the stock is in a consolidation phase (that is not moving either way more than 2-3%) it’s better to either reduce the position or completely sell out if your conviction is low. If the conviction is high in the stock and you currently are in no need of cash, then you can continue holding the stock.

  4.   Markets gave a Huge Correction (like in 2020 during Covid or in 2008 during US crisis): In such a scenario, prices correct very irrationally where in even technical/fundamental analysis won’t work. You can either hold the positions that you have (markets will definitely start being rational, but when will be the question so will need to keep the patience for holding) or if you have cash in hand with you, start adding stocks in which your confidence is high. If you are totally invested then what you can do is wait for the markets to rise and sell off stocks where in you feel that it is a wrong buy and switch to those stocks where your conviction is high.

  5.   When the Stock seems Overpriced: This is a very subjective judgement that changes with every investor. Usually investors check valuations via different ratios. For example: A P/E of 50 would be very high for an investor but the same for the other investor would be okay and will not seem overpriced.

  6.   New Opportunity Discovered: If you seem to find a stock in which you have more confidence, then it’s better to sell a stock which you feel will not perform as good.

Some the reasons to sell above are definitely difficult to time such as when a stock/overall market is expected to fall. But this would be a judgement call for a particular investor.

Hope this helps Fellow Investors in Making Better Sell Decisions!

Happy Investing!!!

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27

6 Ws of the Market

Most investors are confused on when/how to take action in the stock markets that is when to buy/sell. Let me comprehend the same for you. (These actions are specific to Microcaps/Small Cap/Midcap Space)

What to Buy: To determine what to buy, you can go through my extensive Equity Checklist which will help you in determining the right stocks under the Microcaps/Small Cap/Midcap Space.

When to Buy: If you are convinced with What to Buy, then you need to decide at which price you would like to enter the stock. I do take help of technical analysis to help me make that decision (Techno-Funda Analysis). But it isn’t always necessary to use it. Consider these questions before making a Buy Trade:

  1. Are you willing to buy more if it goes down by 10%?

  2. Are you willing to buy more if it goes up by 10%?

If it’s a yes in both the questions, then you are definitely ready to start investing the in the stock. (You are convinced with the stock and its ability to grow in the long term).

When to Increase Position: One you are done making the Buy Trade, answer these below questions:

  1. Are you willing to sell if it goes down by 10%?

  2. Are you willing to sell if it goes up by 10%?

If it’s a yes in both questions, this means that you are still not convinced enough to start long term investment in the stock. The position is still a trading position for you. If it’s a trading position for you, then you should definitely keep a stop loss. (Sizing of these positions should be such that you should be able to sleep well at night).

When to Reduce Position: You should reduce your Position in the stock under 2 circumstances.

  1. Profit Booking: If your investment in the stock is profitable, position reducing would be recommended if you feel that the market has given a very good up move in the stock but shouldn’t completely sell off the stock as your conviction in the stock is still high.

  2. Loss Booking: If your investment in the stock is loss-making, you can either hold the position or start booking losses by reducing your position and then add the stock back at an appropriate price (using Technical Analysis) to recover the loss that you have made.

When to Sell a Stock: To determine When to Sell, you can go through my Blog Post on “When to Sell a Stock” for an extensive list on different scenarios of the stock markets and how to act.

When to do Nothing: To not act is the most difficult thing to do in the stock markets. Usually, you shouldn’t act when the overall markets seem in a sideways mode. There is a temporary fundamental issue that has come in light and will be fixed eventually, then in this case you shouldn’t act upon it if your conviction in the stock is high.

Hope this helps fellow investors in making Buy/Sell Decisions!

Happy Investing!!!

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Can we take an approach that since we have found the company after thorough analysis by using your stock checklist and definately sure about its growth prospects in future and hence invested in it…so we can keep on holding the stock , in its thick and thin, irrespective of price movement, as if we are permanent owner of that business?

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Yes. I have been reducing positions/increasing positions in stocks as per price movement but some stocks i dont want to remove completely. Keep on holding them.

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Trimming for Growth: A Comparison of Bonsai Pruning and Stock Portfolio Management

As you can read in the title of the post, Stock Portfolio Management is quite similar to Bonsai Pruning. Pruning means cutting back roots, shoots, and branches to direct and control your tree’s growth and shape. Stock Portfolio Management is similar to the method of Bonsai Pruning. The question of how has been answered below.

ü Pruning for long-term growth: When trimming a bonsai plant, the goal is to shape it into a mini tree with a desired form and aesthetic appeal. Similarly, when trimming a stock portfolio, the aim is to shape it for long-term growth and align it with your investment goals.

ü Removing unnecessary branches: In bonsai cultivation, unnecessary branches or shoots are pruned to maintain the desired shape and focus the plant’s energy on essential growth. Similarly, in a stock portfolio, you may trim or sell investments that no longer align with your investment strategy or have strayed from their original purpose (Stock no longer holds your confidence due to some fundamental changes/management issues/changes in economic moat).

ü Balancing growth and aesthetics: In bonsai, trimming ensures a balance between the plant’s growth and its overall appearance. Similarly, in a stock portfolio, trimming involves balancing growth potential and risk by adjusting sector allocation, diversifying holdings, and addressing overconcentration to a particular stock/sector/industry.

ü Regular maintenance and adjustments: Bonsai plants require regular pruning and maintenance to keep them healthy and maintain their desired form. Similarly, a stock portfolio needs periodic (can be monthly, quarterly or even yearly) reviews and adjustments to stay aligned with your goals, account for market changes, and ensure optimal performance.

ü Patience and long-term perspective: Both bonsai cultivation and stock portfolio management require patience and a long-term perspective. Trimming a bonsai plant doesn’t yield immediate results, just as trimming a stock portfolio might not lead to immediate gains. Both processes involve making decisions based on the desired long-term outcome.

After carrying out all these steps, your bonsai will be ready to grow that is the right stocks are selected & proper weightages are given. Now, keeping the patience is the key. You need to wait years for the bonsai to grow properly and then it will eventually become a bamboo in a few years. When the portfolio is a bonsai, it will give you low returns but if you would’ve waited for it to become a bamboo then huge returns are possible.

Hope this helps Fellow Investors in Managing their Portfolio in a Better Manner!

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If you have lost faith in the company growth or if company is diworsefying and.misallocating capital, then why we should trim it? We will better off selling it altogether…dont u think so?

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Thats depends if the unrelated diversification is performing or not. Eg. ITC. It took too many years for the price to perform as compared to the results but they did. The investor who kept patience would have got great results.

If the diversified business isnt performing well fundamentally, its definitely a good decision to get out. But if you have trust in the management and the guidance they are giving, gives you confidence, it can definitely be wait and watch situation. Its better to remain invested if your conviction is high unless you are in need of cash or get a better stock with a higher conviction.

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