Value Investing

I am pretty sure that i am not the first person to dwell on the current valuations of Indian stock market.It was about 9000 a year ago and then people were talking about it reaching just maybe 10000-11000 in a year.The optimists were predicting it to breach the 12000 mark.But now that we have seen it has reached plethoric heights of 14000...makes me wonder how much far can it go? Also makes you think...is there any method to this madness or we should be as optimistic as the people reincarnating the "India Shining" story....??

Anyhow, the market is currently in a very volatile phase as most of the people are divided whether the market should go further north or settle somehwere down south.I think it is this kind of situations which makes even people with normal intellect and sense lose their sanity ,act crazily even with a slightest provocation in the market and dont follow the most mundane concepts of disciplined investing.Hence anyone thinking about entering the market in this phase has to be more protective and defensive about his money(after all it is your hard earned money) and should think long and hard about making any investing decisions.

While in the dilemma as to "To Be or Not To Be" in the market...i started reading a lot of material on investing .I came across a book known as "The Intelligent Investor" by Benjamin Graham.Popularly known as Ben, Benjamin Graham is supposed to be the greatest value investor and was(and posthumously still is) the "GURU" of Warren Buffett.His concept of value investing is very simple to understand and implement , if u keep a calm head and have patience amidst all kind of noises of "tips" , sure shot winners,et al arnd you.

Unlike brokers,writers,tippers or friends or uncles who guarantee ke ek saal mein double ho jaayega, he makes you develop a methodology which you must follow while choosing any stock.It tries to ingrain in you a discipline of slecting a stock only upon the confluence of all the conditions.It may take days,months or sometimes years when you will have to be plain inactive or wait for the right opportunity.But if that discipline is instilled, you will gain over long term.

In brief, there are certain rules you should run before buying(or selling) any security.They are

1.Invest in business not in company: Invest if you think the business has a good growth potential and company has a monopoly in that business.
2.Financial Condition: Current assets should be at least 1 1/2 times current
liabilities
3.Earnings Stability: There should be no deficit in the last five years
4.Dividend Record: The company should have a dividend record of atleast 10 years
5.Earnings growth: The EPS should have a growth path of 20% year on year.
6.Good Management: Go for companies with a proven track record
7.Price: The price should be less than 120% of is net tangible assets.

The concept becomes more clearer when you read the book.Being a non-finance guy.....it is taking me time to understand the financial stuff in it.The primary thing which the book is aiming at making you understand is that "The market is a pendulum that forever swings between unsustainable optimism(which makes stocks too expensive)and unjustified pessimism(which makes stocks too cheap).The intelligent investor is a realist who sells to optimists and buys from pessimists"

So if you are really interested in getting into stock market or knowing more about value investing, i would suggest you read this book first.

Happy Investing !!!!