Simple ideas in investing

1. Buying a preferential allotment company at <25 PE will make money 80-90% of the time (especially if the rally just begun) 

2. Buying a company which got an order which is 2 times the current revenue or more and to be executed quickly, will make money 80-90% of the time. 

3. Similarly, twice the capacity expansion at less than 30 PE/ at fair PE, makes money 80-90% of the time. 

Allocate equally so that you never have a big position of wrong side of probability. 

Also, valid for PROFIT UPTREND companies only 

Framework (parameter and reasons) to filter the stocks for investing

The article is articulated in the three parts 

1. Defining the framework (parameter and reasons) to filter the stocks for investing

2. SWOT analysis on the recommended stock

3. Talks more about how do you make it more predictable (or improves the probability) for 3-5-8 years that the stock will be a multibagger and brainstorming on some of the methods known from some famous investors 

Based on the defined framework I recommend - 

Stock name - Share India Securities

Mcap - 6100 (as on 27th march 2024)

Sector - 14.66 (lesser than the industry average PE)

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Part 1. Defining the framework (parameter and reasons) to filter the stocks for investing

The first part is written in the below format - 

<parameter>

• <reason-1 why the parameter is important / significance of the parameter in the context of investing>

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Last Qtr Financial - 

• For the current year the profit in 3 qtr should be equal or more than the last year annual net profit 

• Curr year (3 Quarter net profit available or via extrapolation ) > last fiscal year net profit 

• Here the last qtr profits become important to extrapolate the current fiscal year profit

TTM PE

• If the stock is relatively cheap than its peers gives the more valuation comfort

• Even its more than its peer it should certainly not too much overvalued based on the other companies in the overall market  

Capex 

• Just like the increase in the sales it is important that the company is having growth in the capex which will further enhance its sales / top line in the future 

Profit Margins

• Better operating margins simply defines the company is more efficiently managed than its peers

• Better the profit margin more the money is reinvested in the company 

Sector growth rate

• Famously quoted by Vijay Kedia sir - “Stay in a Sunrise industry at any cost. Stay out of the Sunset industry at any cost.”

• Health sector growth rate simply defines the overall sector will beat the market / gdp of the economy in 3-5 years 

• Investment done in the more growing sector in the early stages tends to attract more premiums and PE in the future

Potential future growth in the company - any acquisitions, entry in foreign markets

• Directly increase in the top line

• Gaining the market share   

Top investors in the company (or any mutual funds, PE funds or FII)

• If some mutual funds, PE is investing in the company then it reduces my due diligence for few of the things as they might have already done the enough to make sure that there is no potential risk in the company which will wipe out its mcap like 

• If the company has growing concern 

• Certain other risk parameters w.r.t to the promoter history, any major litigation in the company 

Promoter shareholding

• More the promoter equity gives the comfort that the promoter can divest some part of equity to seize more bigger opportunity like how reliance did and divested the shares to facebook and google

Customer Feedbacks and dependency (Strong Moat)

• If applicable and if gettable what does the customer say about the company's core product

• Is the company monopoly in the business and there are not many choices for the customers 

• If the customer are happy they are going to be loyal and less chances of switching to other competitor

Time to entry in the stock

• Returns are highly dependant on the price at which we have entered the stocks

• Using some technical indicators (MACD, RSI, Supertrend etc)

• % difference b/w the current price and life time high price etc

Risks

• Dependency on raw material from the supplier

• Exposure to the international volatility

• Too much debt 

• Can increased cost easily passed to end customer

The above parameters for Share India Securities

Parameters	Value	Comment
Last Qtr Financial	115 cr	after extrapolating for next qtr it will result in 33% growth in net profit from last year
TTM PE	14.66	less the industry avg
Capex / Investment	-	they are doing international expansion, they have acquired Silverleaf Capital
Net Profit Margin	30.83% (last Qtr)	margins in the last qtr have slightly increased from the previous year they have significantly better net profit margin when compare to Angelone and choice broking which are more close to them in business model
Sector Growth Rate	above 25%	India's growth rate is more than china which is at 25% https://asia.nikkei.com/Business/Markets/India-and-rest-of-Asia-drive-surge-in-global-derivatives-trades
Investment by DII and FII	yes both by DII and FII	have increased the stake in last qtr
Promoter shareholding	49.89%	-
Customer Feedbacks	-	recommended by the industry veteran and influencers https://www.youtube.com/watch?v=IiUR2lVm_e8
Risks	Nothing major as of now

Time to entry in the stock (Share India Securities)- 

• Based on the Fibonacci Retracement the stock is trading at the support level of 1600 also there is strong support of 1540 (further downside can be up to 1540)

• RSI indicate that it is nearly at oversold level

• MACD also suggests +ve more going forward

• ADX and bollinger bands suggest the stock may consolidate at this level for some more time 

Conclusion  - Can enter in the stock at the current price with the further downside risk of 4-5%

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Part 2. SWOT analysis on the recommended stock (Share India Securities)

Strength

• It is having 10-15% of the market share of the total derivative volume in India

• The management really understands the value to remaining technology relevant in the fast changing technology it is proven in their con calls and also recent acquisition of Silverleaf Capital

Weakness

• In one of the interview the ceo said that the one of the reason to acquire Silverleaf Capital is that the company was not able to made the sophisticated infrastructure which was with the Silverleaf Capital which simply shows that the current product managers or programmers in the company need more skill enhancement, once the company release its weakness it knows where it has to improve on or shift focus on

Opportunity

• Indian derivative market is growing like no other economy and same with the no Prop traders which the company can capitalize on with their platforms like uTradeAlgo

• They are entering into the other growing economies / market (international expansion) which will benefit them in the long run / first movers advantage

Threats

• Switching cost is very low, customer can easily move to some other more lucrative / advanced platforms for trading but the company is continuously work on its tech to stay ahead in the game

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Part 3. Talks more about how do you make it more predictable (or improves the probability) for 3-5-8 years that the stock will be a multibagger and brainstorming on some of the methods known from some famous investors 

Part 1 in the above article make it very much predictable for good returns in the next 1 year 

Part 2 of the article tried to estimate the current state of the company

? Now here how do we make sure or be more probable that the company which we are investing will thrive and become multibagger in the next 3-5-8 years

Coffee can investing - Seeing the past history to be more sure of the similar returns in the future

Now in the coffee can investing Saurabh Mukherjee tried make it more predictable by seeing the historic data and operating history and here the base assumption is how the company have performed historically in the past it has potential to repeat the same in the future and making sure it is robust in the long run

Warren buffet style of investing which evolved over the years - 

• Either the company should be highly undervalued and trading low to its true value and there is surety that in some years the market will realize its true value and you will get good returns on your investment  

• Making sure you are betting on the best possible management in the industry who are capable of increasing the mcap and currently the company trading on the average industry PE and hence you will get good returns on your investment

• Investing on the good companies (like Apple, innovating, strong envy of the brand, growing) even if the valuations are little higher but at reasonable price this also makes it very much probable that your investment will give good returns 

Conclusion - I do feel making it more predictable (or increasing the probability) that the stock will compound in the next 5-8 years (longer horizons) and holding it in market ups and downs with conviction is very subjective and this is what makes an investor a great one. 

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Option selling parameters checklist

 

Before filtering which stock we can apply option selling strategy, there are few parameters which can be checked to increase the probability for making a profitable trade 

option selling parameters checklist
	option chain data (stock)		macro analysis
	m cap		market trend - nifty
	curr price		sector trend
	stock high
	stock low		fundamental analysis (stock)
	support (option chain)		last Qtrly results
	resistance (option chain)		valuations
	max conjestion strik price (option chain)
	max movement (based on IV)		technical indicators (stock)
	PCR		ADX indicator
			Supertrend (20,2)
	technical (stock)		MACD
	support (chart)		RSI
	resistance (chart)		VWAP
	support (fibonacci retracement)		Bollinger Band
	resistance (fibonacci retracement)		Bollinger Width
	trend (chart) past 10-15 days action
	weekly trend (chart)

Based on the trend we can apply one of the below mentioned strategy

stock	strategy 1	strategy 2	strategy 3
sideways	short straddle (hedged)
sideways less risk	short strangle (hedged)
slightly bullish	call spread	sell hedged put
slightly bearish	put spread	sell hedged call
bullish	sell hedged put	buy call	call spread
bearish	sell hedged call	buy put	put spread