When the market is in down downtrend, the main question should we ask?
- Should we invest right now?
- Where to invest?
- How to mitigate risk?
Example – Analysis of SBI Cards – No need to read annual reports, just basic googling.
- Growth Industry? – Check industry growth rate & margins means – Operating margin = Operating income / revenue, pick industries with good profit margins.
- Profit/Revenue = Profits should be increasing.
- Red Flags = Good Management & Fundamentals.
- Good Price = Buy when the price is under pressure.
- Tailwind/Headwind = Reason for support ( means something is positive happening in the company/Industry)
Now analyze SBI card –
- Growth Industry – Yes (low credit card penetration)
- Profit & revenue increasing – Yes
- Price – PE is at an all-time low.
- Red Flag – Does the card business get affected by loan issues?
This is 20% quality information.
Most people don’t act on this 20% quality information; they go to the news, and they will not get information. If you act, most probably you will be wrong.
This is a powerful way of thinking (Like the 80-20 rule) & applies in investing.
What if the stock falls? Now, understand
- Risk Mitigation – Think: What is the safest asset for mitigating risk?
Investing in Nifty-50, whenever the market (Nifty-50) is down (look at Nifty-50, 200DMA), invest at – average buying price.
Risk is also mitigated in the same way (80-20 rule) in Real Estate –
- Buy with a Boundary wall.
- Construct a boundary wall as per the construction license from the government.
- Paperwork will decrease the overall risk.
- Have the title search report.
- Know nothing, take a bank loan, banks only give loans for legit assets