There is too much focus to today.
As in there is great interest to what is happening now as opposed to how things
are going to shape tomorrow. Infosys results is the case in point. Why so much
of interest in going into this one bad result? Are we missing out the bigger picture and log
terms prospects of the business? While I
am not specifically sure about the particular stock or the business, one thing
is sure as a pattern, stocks go down a lot but they will go up a lot more – if the
future prospects of the business is positive. Is the company in a high growth business?
Is the total income increasing continuously? Is the EPS growing aggressively?
Is the Profit after Tax growing? What is the ROE? How much intangible value is acceptable? Often
a stock sell off is never because of investors who have answered these
questions.
How to value a stock? Accurate valuation
is difficult. One can look at the above factors, dividend track record, its
place in the industry as size matters, governance, institutional holding.
Is it a good time? One can
achieve this methodically by stock diversification and time diversification.
Entry price and exit price band
can be evaluated by finding the intrinsic value of the stock or a discounted cash
flow analysis.
Then of course one has to
understand the economics of the business. There is a very huge sector of
trades, hotel, restaurants, transports which are non-corporate. There is a huge
opportunity to corporatize these sectors in the next decade or two. Investing in
these sectors can lead to huge wealth creation. Any business will have a life-cycle of growth and after that it can stall and fall apart. The stock
market generally moves up because the old and aging businesses are replaced by
faster, newer and innovative companies. The innovators and disruptors have
growth ahead of them and we must be invested in them. The needs of people are
few but wants are many. The successful companies cater to the wants of people
through their brands and marketing.
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