Introduction to Fundamental Analysis Basics — Learn Long Term Investment — Stock Market A-Z E11

[00:00:00] Speaker 1: Everybody says, select good quality stocks and invest for the long term so that you can become rich and become financially independent. But how to pick good quality stocks? That's exactly where I'm going to help you. Welcome to the 11th episode of the Complete Learning Series of Stock Market Investing and Learning and the very first episode of the Long Term Investing Masterclass. As always, I put all the videos into a playlist and the playlist is available here in the i button. Make sure you watch all the videos in the right order and learn really well. Let's all invest together and grow together. So we have completed one phase of our learning journey. We have learned probably all the basics regarding the world of stock market. Now it's time to get serious. Now it's time to learn actionable stuff. So in the next few videos, we'll be learning everything that is there to long term investing, fundamental analysis, how to pick good quality stocks, how to do valuation of stocks and whatnot. So that is the journey that we are embarking on right now. So I won't take a lot of time in the introduction. One thing I have to tell you is that long term investing and fundamental analysis can sound a bit complex. Never be scared. Never be intimidated. Just go ahead with a lot of strength. Let me assure you that you can also learn fundamental analysis and you can also become a very good long term investor. So the agenda of this video is very clear. Number one, we'll revise what long term investment is and why it should be done. Number two, we'll even discuss about how to pick good quality stocks, how to find stocks. Number three, we'll discuss about when to do long term investing and number four, we'll discuss about how much money you should be investing for the long term. So without further ado, let's get right into it. Welcome to Market Feed. So yeah, you've come here to learn long term investing, right? Great decision for sure. So going ahead in the multiple videos that I'll be putting out, we'll learn everything about long term investing. But the problem here is, as I said in the introduction, it can sound a bit too complex. We'll talk about stuff like reading and understanding a large company's P&L, profit and low statement, its cash flow statement, understanding a company's assets and liabilities, understanding the financial ratios of a company like EV by EBITDA, price to book value ratio, stuff like that. So when I see a lot of beginners, when they hear such terms, they become scared and intimidated and they decide not to learn fundamental analysis and not to get into the core of long term investment. Please don't do that. I mean, take it as a challenge, take it in the right spirit, make sure that anyways, I'm going to explain it all. So make sure that you are going to learn it, you are going to practice it and you are going to become a great successful long term investor. Cool? If you can give me a promise to that, that you wouldn't run away seeing and hearing complex terms, then make sure that or give me a promise that we are doing this together. Cool? If the promise is given, go down into the comment section, mark your attendance, let's get started. Now, before starting, one more thing. The fact is, I've already done a video regarding the absolute basics of long term investment. So if you have no idea what long term investing is, then make sure that you watch the video here. I'm giving the link here and the i button. If you have already watched this video, then this video is going to even help you get into the scene because in the following videos, we'll learn a lot of complex stuff. So this is going to take you into the scene. Then, let's get started. The first thing we are doing today is a bit of a refresher. So let's get it done quickly. Topic number one, what is long term investing? As we all know, long term investing is nothing but investing for the long term into the stocks of good quality companies. Very easy, right? Buying the stocks of good quality companies and taking the stocks as delivery into your DMAT account and holding it or staying invested for a very long period of time. And when we say a long period of time in long term investing, long period of time means minimum of 5 to 10 years, minimum even 10 years to 20 to 30 years. That is when it can be called a long term investing. I see a lot of beginners coming into the market. They buy a stock, they hold it for maybe 2 or 3 or 4 months and they say, hey, I've become a long term investor and they even sell the stock booking the profits saying that, hey, I have made money from investing. That is not investing, my dear friend. That is positional trading. When we say long term investing, it has to be for 5 to 10 to 20 to 30 years of time. The second thing we are learning today is why to do long term investing. Now, it is super simple and super clear, right? You need to invest for the long term so that your investments or your money will grow at a pace faster than inflation. So what happens here is you're investing into good quality stocks which is growing at a rate of 15% CAGR. You've already learned what CAGR is, right? So your investment is growing at a good rate compared to inflation or compared to any other investment asset classes like FD, like bank savings account. If you compare your good quality stock investments with them, your money is growing at a much faster rate. Since your money is growing at a much faster rate, after 20-30 years of long term investing is done, a huge amount will be formed there it is called a corpus. A huge corpus will be amassed there. Since you'll be having a very huge amount at a later age of your life, you can use that amount to retire, to be financially independent, to take care of your life's goals and ambitions, maybe to take care of your child's education, right? So the why is super clear, invest into good quality stocks or even mutual funds for that matter so that your investments grow at a much faster rate so that at a later stage in life, all of your life's goals can be met with that large capital that you would have amassed by then. I'll actually go to the screen and show you something very, very interesting. Number one is long term investing has the power of compounding attached to it. Now, like Albert Einstein has said, power of compounding is the eighth wonder of the world. Now, when it comes to long term investing into stocks, your investment is basically growing at a rate of nearly 15% or even above that every year. Now, if you're investing into FD or bank savings account, if your money is staying there, all returns you're going to get as well, nearly 5-6% so that change in growth is what I'm going to demonstrate now. Now, I'm come here to a lump sum calculator, right? Now, I'm going to give an example where you're going to invest 10 lakh rupees of your money into a long term stocks portfolio compared to what would happen if you invest 10 lakh rupees of your money into say an FD. Let's see the comparison. Okay. Again, I'm not endorsing any brand here. This is one random lump sum calculator I got on the internet. So, I come here. Lump sum I have selected. For an example, I'm going to invest 10 lakh rupees here. Okay. Let me remove this 10 lakh. Yeah. So, 10 lakh rupees I'm going to invest into a long term stocks portfolio and let's assume that it is going to grow at a expected return of nearly 15% and the time period I'm going to invest is for let's say 30 years. Cool. Now see 10 lakhs invested today after 30 years it would become 6 crore 62 lakh 11,772 rupees. Power of compounding kicking in into a long term stock portfolio which would give you a return of 15%. What are the other avenues available in the market today? Someone would probably go and invest into a FD, right? FD is giving how much now? Probably 6% returns. Sorry. 6% returns, right? So, the same money if you invest into FD today after 30 years it would only become how much? 57 lakh rupees. FD, 57 lakh rupees and stock market investment is at 6 crore rupees. Is it even comparable? No. Right? So, isn't the why clear? The why of investing into the stock market for the long term is super clear. You can make much, much higher returns and with that returns that you've made you can take care of all your life's goals, needs and ambitions. The third topic we are going to learn today is how to pick good quality stocks for long term investing. I know this is the segment that you've all been waiting for. You all need to know this, right? That magic formula to find great stocks that can double, in the coming next 5, 10, 20 years. Right? So, let's learn the magic formula then. Now, the magic about the magic formula is the fact that there is no magic to it. It's all science. It's all something that you can learn and something you can all do. So, the question is what is to be done? What is to be done in order to find good quality stocks to invest for the long term? Very simple. The answer is study about the companies. Do a very thorough about the companies which are listed in the stock market. Understand everything that is there to the business. Their business model, their financials, how they have been performing, how they can perform in the coming years and once you do all these thorough fundamental studies, then you can know if these companies or if the company that you were studying is good or not and after the study, if you feel that the company is good, then invest your money into it. Now, what is this called? This is exactly called or this study is called fundamental analysis. The word says it, right? Fundamental analysis. You're fundamentally analyzing a company and its performance. After fundamentally analyzing a company, then you decide, okay, I'll invest my company, my money into this company because after fundamental analysis, I feel that the company is good and it can do well in the coming years as well. Now, the purpose of this video is to give you some basic understanding of what fundamental analysis is and what all to be studied in fundamental analysis and what all are the tools, skills and data that you require to do fundamental analysis. We'll definitely do that. Once you have the basic understanding, in the coming videos, we'll actually get into the complicated intricacies of how to do fundamental analysis. I'll actually do fundamental analysis of one company and show it to you and tell you that, hey, this is how fundamental analysis should be done. But before doing all those, let me tell you one thing. You anyways have to do fundamental analysis to decide if a company is good or not. But even then, when it comes to picking good quality stocks for long-term investment, there are two schools of thoughts here. Number one is called value investing. Number two is called growth investing. Okay? Now, what value investing or the school of thought of value investing says that you do fundamental analysis of a company and then you find the true valuation of a company. Okay? You find the true valuation of the company based on the current and the previous financials of the company and also the future potential of the company. And then you compare the valuation you found out with the current market valuation of the company. If the valuation that you found out is lower than the current market valuation of the company, then buy the stock. Because eventually, the share price of the company would move up so that the true valuation meets the market valuation. Now, this is what value investing says. Now, I'm sure you all would have heard great investors' names like Warren Buffett and the very respected and the late Rakesh Jindirwala. Now, both of them are very, very respected value investors. Now, let's talk about the second school of thought here, growth investing. Now, what growth investors do is the fact that they also do fundamental analysis of a company, but they don't give a lot of value to the valuation of a company. What they see is, they'll do all the studies related to a company, but even if the valuation that they found out about the company is higher than the market valuation of the company, they'll still invest. Because they feel that, okay, the true valuation is higher than the market valuation, but it is a strongly growing company, so there is still chance that the company will keep growing further and further and further, so why not invest? So these are the two large and the biggest schools of thoughts when it comes to investing for the long term, value investing and growth investing. No worries, we will be learning it in the videos coming up ahead. Now, before moving ahead, let's talk a bit more about fundamental analysis. Now, what is to be studied in fundamental analysis? I'll give you a three-letter word which can make things simple for you. M, B, V. These are the things that you need to study about a company when you are doing fundamental analysis. What is M? Management. What is B? Business. And what is V? Valuation. These are the things that you need to study about a company. Number one is management. You clearly need to know who is running the company. What is their background? Are they actually really good at running the company? Can they actually scale this company to great heights? You need to learn a lot about the management. Are they actually taking a lot of salary even though the company is making losses? You actually have to read and find out such things about a company. Number one, management done. Number two is business. You have to understand what business this company is doing. What is their business model? Is it relevant today? Will that be relevant going ahead as well? And is the business model actually exciting you? You have to learn about the business model as well. And number three is valuation. This is where you actually have to get into a lot of numbers. You have to see the revenue of the company, the expenses of the company, the net profit of the company, the margin the company is generating and the actual profit and the dividends even maybe it is redistributing back to its shareholders. So when it comes to valuation of the company, it's a lot of numbers crunching to understand how the company has been performing and how the company can perform in the future purely from the money perspective and put a valuation to the company and understand if it is a good investment or not. So fundamental analysis, when we talk about it, these three things are what you should learn about. Management, business and valuation. Now, that was the most simple and the generalized way in which I could explain fundamental analysis to you. Now, if you're actually getting the hang of it, I'll take a step further and I'll actually tell you that when you're doing fundamental analysis, what you have to analyze is two different set of factors. One is quantitative factors. Number two is qualitative factors. Okay? And I'll give you some examples here in the videos coming up ahead. We'll actually talk about a lot of examples which would fall under qualitative analysis and quantitative analysis. Now, let's talk about some examples so that you can get a hang of it. You'll start understanding, okay, this is what fundamental analysis is. Right? Let's first talk about some qualitative factors that you need to learn about a company. Number one is the business model itself. We just talked about that. You have to understand what business the company is running only if you understand the business, only if you appreciate and the business model excites you, only then you should be investing into a company for the long term. Number two, as you can see here is management background. Now, we have already talked about this. We really have to have a strong understanding of who is running this company, what their background does and are they capable of running the company. Number three is ethics. It is super important for the management to be ethical, for the company to be ethical. They have to be ethical to their customers, to their shareholders. Super important. Number four is corporate governance. We have to understand if the company is actually having a good organizational structure. Are they structured in a way that they can have maximum productivity and are they doing really well? The next qualitative factor you see here is moat. Now, moat is something which sets a company apart from its commutators or even from other companies. Say something very special to a company which is desirable by other companies and other companies cannot reach the level of this company because this company has a moat. Now, I will give you an example for a company with a moat. Let's take the example of Pidilite Industries. This is the company which manufactures the brand Fevicol. I am sure we have all heard about Fevicol. Now, you tell me if some other company starts today with huge capital and huge branding and marketing and what not access to resources also even then if that company is manufacturing gums and adhesives do you think this company can beat Fevicol and Pidilite Industries? Very difficult, right? Now, that is a moat advantage that Pidilite Industries have. So, it's very good to have whatever company we are studying if that company has a moat it's good to have. So, it's not necessary. So, whatever qualitative factors and quantitative factors we are telling it's not necessary for all companies to have the best performance in each factor. It's not necessary but it's your job and duty to learn about everything. one another qualitative factor that you can learn about is the industry in which the company is operating. You can read about the industry how it is performing how it can grow in the coming years all that will also help. Now, these are just a few examples of qualitative factors. There are much more qualitative factors that you should learn about a company we will be learning in the coming videos. Now, the question is how do we or where do we collect the qualitative factors of a company from? where to collect such data from? Do you know? The number one answer to it is the annual report of a company. We've already learnt this in one of the previous videos, right? Annual report is a document that a company publishes every year having all the information related to a company. It will have everything even qualitative and quantitative factors. It will have everything about the company. So, it is downloadable from the website of the company or from somewhere else also. I'll actually show you how to download the annual report of a company so you actually read the annual report of a company which is a 300 to 400 page document. You just read the document annual report and you can understand all these factors. You can actually do fundamental analysis. In fact, let's actually go to the screen and download annual report of a company. Let's do that. Take this as an assignment. Make sure that you also download the annual report of a company and start reading it. You might not understand anything today but over the course of the next few videos you'll start understanding everything. Cool. So I have come to this website called tickertape.in. Again, this is not sponsored. I am not endorsing any brand here. Here I come to the search and now I am planning to download the annual report of Tata Motors. So I am typing Tata Motors here. And yeah, I can see Tata Motors here. I am clicking on it and I can see a lot of information regarding Tata Motors here. A lot of numbers as you can see. Again, some quantitative factors here, right? So all of these will help you do fundamental analysis. So do not get scared and intimidated. Going ahead, we will learn everything about this. Now I am going to financials. Again, a lot of numbers here. Don't get worried. We will exactly learn about them in the next few videos. So I am coming down here and I can see annual report. See, financial year 2022, annual report is already available for download. Financial year 2023, it is actually annual report is pending. Financial year 2021, 2020, 2019, everything is available. So I am clicking on 2022, annual report. Yes, the annual report of Tata Motors has opened up here. As you can see, it is a 447-page document. You scroll down, you see the initial pages are very colourful showing the highlights of what they have been doing. So you come below and you see the table of contents as well. See, everything related to the business is here. About the company, performance review, message from all the top management of Tata Motors, business segments, value creation, sustainability review, statutory reports, and finally financial statements. You get everything about a company in its annual report and this is how you download it. So we have talked about qualitative factors here. Let's even talk about a few quantitative factors. Again, a few examples, we will learn more about them in the coming videos. Number one, as you can see, is earnings and growth. Understand how much the company is earning. What is the earnings of a company? It's revenue, right? What is its revenue today? What has its been revenue over the last many years? And what is the growth of the revenue over years? Number two is look at its expenses. How are they spending money? Are they spending too much? Are they spending wise? Yes, you should even know that. You should actually go into the annual report and see if a company is making 1,000 crores and if they are spending 1,500 crores, do an actual study of where each penny was spent. Maybe that year they spent a lot of money because they invested into something. They're building more infrastructure. That is the reason why they had huge expenses that year. The next year that specific expense wouldn't be there and the company can be profitable. Such deep studies can be done about a company. Finally, understand how much profit the company is making. Understand what is the margin about the company. Also understand the assets and the liabilities the company is having and also very importantly read and learn about the debt of the company. There are a lot of companies which are in debt trap. They might be having huge debt and with that debt or loan is how they're fueling growth. So such quantitative factors should also be learned about. Now where do you learn about these quantitative factors? Very simple right? The annual report of the company has its financial statements. Every company has three financial statements. One is a P&L statement. Number two is the balance sheet of the company. Number three is the cash flow statement. You go and read through all these three different financial statements. You can understand all of them. Very clear? So again just summing things up fundamental analysis is studying everything about a company. And when I say everything study qualitative and quantitative factors about a company. Where do you learn from? From the annual report of a company. And once you know everything you can actually judge if a company is good or not. And if your judgment says if the company is good invest your money into the company. This is fundamental analysis for you. Now just to add on to what I've been saying so far annual report is the largest bible kind of source from where you can learn about a company but at the same time you can actually get into media. You can watch video interviews of the founders of a company management of a company. You can read their articles or read their interviews which comes on newspaper or even on business magazines and understand about a company. So annual report is the single largest source to learn about a company but all other extra accessories you can find maybe video interviews written interviews articles about a company make sure they are not paid interviews okay in that case you can use them also as study materials to do fundamental analysis. The next topic we are going to learn in today's video is when to buy stocks. I will actually explain this by telling you what exactly happens in the market today by telling you how people normally buy stocks in the market today okay real life examples I am going to take real life stories I am going to tell you normal people what I have seen in the market is when do they buy stocks they do it in two ways they either invest say if they have a lot of money in their hand at one go maybe they would have received bonus from their company they might be having a huge amount of money in their hand in that case what I have seen people doing is they put all of that money into the stocks that they love in one go such types of investments are called lump sum investment then there are the other set of people that I have seen they are mostly salaried people they have an income every month and one portion of their income or a percentage of their income they invest into the stocks that they love every month that is called the SIP mode of investment systematic investment plan of investment okay now these are the two ways in which I see people investing into the market so the question is when to buy stocks so I see people doing these both basically whenever they have a huge money they invest into stocks they love or whenever they get money as salary maybe every month they invest into stocks now if you compare these two ways of investing which is lump sum and SIP I would always say that go with SIP mode of investing because in this case you are investing every month or every systematic time that you decided right so you are buying the stocks that you love at multiple price points you're highs and lows which means that your average would be really good but in the case of lump sum investment you might be investing money when the stock price is at a very high price maybe after you invest maybe for the next one or two years maybe the stock price might just keep going down and down and down so anyways I've seen people doing both these types of investing right lump sum investing and SIP investing and in this I feel that SIP investing is a better way of doing it now even when you're doing SIP investing the question still stands right when to actually do your SIP investment when to put your money and buy stocks two ways of doing it the most common way of doing it that I have seen as people normally fix a time okay the fifth day of every month I will buy the stocks okay that's a very simple system that they are following out of a fixed day or date or time they will invest into the stocks they will not look into anything else is that bad not really bad I would say it's actually good to do that the second way that some people do is they'll actually do something called a study called technical analysis low if the stock price is low only they'll put money they'll buy the stock if the stock price is high they wouldn't buy the stock they'll actually wait for the stock price to come down and their technical analysis study to say that hey the stock price is low now then only they'll put in their money now what is technical analysis again it is a study where people actually look into the charts of a company and they'll apply some technical indicators and they'll apply some price action studies and then they'll decide if the stock price is high or low now you'll be a bit scared and intimidated right because you don't know what technical analysis no worries when we go ahead in the course we will learn everything about technical analysis technical indicators and price action trading so no worries so my point is if someone is doing an SIP I have seen people do it in two different ways the first way is just invest blindly on the fifth or the tenth day of every month or the second way of doing it is by doing technical analysis and making sure the stock price is low only when the stock again the lump sum people that we talked about earlier right what was the question when to buy a stock so the complex answer to that is buy a stock by doing technical analysis and by making sure that the price is low only then buy a stock that is the complex answer but let me say you one thing very real and honest when you are actually investing for the long long long term when you are investing for 30 40 years I don't really think that you should be doing technical analysis each time that you are investing even I personally invest on a specific time every week okay that's my SIP I invest every week that's my systematic investment plan every week from the profits I make from my trading activities I take some money out and I invest for the long term and I do think that when you are investing for the very long time even if you invest on a fixed time period kind of a system that is fine if you do technical analysis it's much better but I personally don't think it is worth the effort that you are putting in you are looking into charts you studying a lot I don't think that that much effort that you put in is going to give you that higher returns when it comes to long term investing as I said in the introduction video if you remember the benchmark actually is to make what 17 to 20 percentage CAGR over the next 20 30 years for that I do think that if the stocks or the underlying which you are investing into is actually of good quality even if you invest via an SIP mode maybe on a fixed date on a month is still going to give you good returns so that can be a good way to buy stock so the last topic we are going to learn in today's video is how much money you should be investing for the long term very interesting right now this kind of baffles me the fact that whenever I go out if someone sees me the question they ask me is how much money should I invest very interesting right now again I'll give you one answer to begin with maybe so the very simple answer to that is a very universal general rule which is available out there in the Google a lot of influencers talk about the same what is that the very famous 50 30 20 rule okay now what does the 50 30 20 rule says say your income is 1 lakh every month all your needs your basic needs like your food shelter travel transport whatnot right all your basic needs use 50% of your income use the next 30% for your wants what are wants wants are basically your desires it's not necessary to do your wants to actually keep living but you would love to do your wants right like going out and eating in a restaurant maybe going out and watching a movie buying a font that you loved all of these are wants so spend 30% of your income every month for your wants what about the rest 20% 20,000 rupees invest that amount okay now this is a blanket universal rule out there which says that 20% of your income you can invest for the long term every single month it will definitely make you successful in life now again one thing 20% cannot be applicable for everyone as your income goes higher and higher say you have 2 or 3 lakh rupees of income your needs or wants wouldn't go up so much right in that case you can actually invest a higher percentage of your income so I think your goal should be to invest a higher percentage as possible maybe invest 30% or 40% or 50% of your income into long term investing now even is this answer right I wouldn't say so as I said this is just a universal larger umbrella thing available on the internet I don't think we should be learning like this my answer to how much money you should be investing for the long term is it is a very subjective and personal thing I can never tell it to you I don't know who you are I don't know your current living style I don't know when you want to retire you might be a person who is 25 years of age today and you want to retire at 40 you might be a person who is watching might be 35 years of age now and you might want to retire only at 80 I don't know who you are what your income is what your lifestyle is when you want to retire and when you want to retire after retirement what kind of a lifestyle you want to maintain what are your other life needs in between before you retire I don't know right so depending on who you are you might be having a story and depending on that story because that story will tell you how much corpus should you have at the age you want to retire so that you can retire with that amount your story will tell what other life goals you have only after knowing all those you can actually decide how much money you should be investing sounds interesting we can actually calculate that and that's exactly what I'm going to do in the next video I'll take an actual example of a person I'll tell his life story and using that life story much money you should be investing in your life interesting then look forward to the next video because I'm personally doing that as well right I'm super thrilled and excited for the next video and that does sit in this video so as I said we are entering into the world of long term investing I hope you now at least appreciate the fact that you should be doing long term investing it is term investment masterclass is done I want you to see everyone of you investing for the long term start creating a portfolio of your own start pick stocks of your own and invest every month some amount of money into it cool looking forward to it so that is it from my side for today in this video if you like the video make sure that you smash the like button as always a community that I run on Market Feed app the link to join is given in the pinned comment and the description fill out the form and download Market Feed app and you can access the community we host regular live discussion and Q&A in the app so be there talk to me there right so yup as I always say share the video to maximum people invite them to join this revolutionary community that we are building here at Market Feed so that's it from my side for today let's learn invest trade and grow together see you in the next class bye bye All in the...