Fundamentals of Stock Analysis | A step-by-step process to analyse stocks #StockMarket

Summary

In this informative video, the host delves into the essential knowledge required to profit from stock market investments. Emphasizing that the majority of retail investors lose money due to a lack of fundamental education, the host outlines a four-step approach to understanding finance, conducting industry and company analysis, and evaluating financial ratios. The video dispels common misconceptions about stock market behavior and encourages viewers to learn intrinsic valuation before diving into investments. The host also recommends resources for learning and assigns a homework task to calculate the intrinsic value of the YouTube channel, fostering an engaging learning experience.

Takeaways

• 📈 The majority of retail investors lose money in the stock market due to a lack of fundamental education about finance and the market.
• 💡 To succeed in the stock market, one must understand basic finance, have an intuitive grasp of business and financial ratios, and conduct both industry and firm-specific analysis.
• 🔍 Industry analysis involves evaluating the growth potential and trends within a sector, such as the telecom industry's shift towards a few dominant players like Jio and Airtel.
• 📊 Fundamental analysis of a company includes looking at its financial health through metrics like revenue growth and profitability, as exemplified by the comparison between Bharti Airtel and Tata Communications.
• 📚 Financial ratios are crucial for stock evaluation, but their interpretation can vary by industry. For instance, high debt might be acceptable for capital-intensive industries during infrastructure buildup.
• 📉 The stock market is not a straight line; it involves volatility and fluctuations that do not always correlate with a company's reported earnings or news.
• 💹 The price of a stock is determined by the interplay of supply and demand, which can be influenced by market sentiment and news, rather than just the company's intrinsic value.
• 📚 For beginners, it's advised to start with understanding intrinsic value calculations, then move to mutual funds, and only later to direct equity trading and more complex financial instruments like FNO.
• 📖 Recommended resources for learning about the stock market include books like 'The Intelligent Investor' and online content that focuses on fundamental analysis and understanding market psychology.
• 🎓 The video ends with a homework assignment to calculate the intrinsic value of the YouTube channel using data from Social Blade, applying the concepts discussed.

Q & A

What is the main focus of the video?

The main focus of the video is to understand how much knowledge of finance is needed to make money in the stock markets and to outline sequential steps for a beginner to take in order to invest successfully.

What percentage of retail investors typically lose money in the stock market according to the video?

The video suggests that close to 95% of retail investors lose money in the stock market, highlighting the importance of financial education for investors.

What are the four key points one must understand about the stock market as mentioned in the video?

The four key points are: 1) Basic understanding of finance and intuitive understanding of business and fundamental analysis. 2) Understanding of industry outlook and basic financial ratios. 3) Knowledge of how to analyze specific stocks within a growing industry. 4) Understanding of financial ratios and their significance in relation to the industry.

Why do most retail investors lose money in the stock market according to the video?

Most retail investors lose money in the stock market because they lack fundamental education about how the stock market works.

What is the importance of understanding the balance sheet as per the video?

Understanding the balance sheet is important because it provides insights into a company's financial health, including its ability to manage debt and generate profits.

How does the video suggest analyzing the telecom industry as an example?

The video suggests analyzing the telecom industry by looking at mergers and acquisitions, the number of key players, and the overall direction of the industry, such as the shift from oil and gas to telecom by companies like Reliance Jio.

What is the significance of a company's revenue growth according to the video?

The video emphasizes that a company's revenue growth is a positive sign, indicating that sales are increasing and customers continue to use the company's products or services.

Why might a company have fluctuating net income despite growing revenues, as discussed in the video?

Fluctuating net income despite growing revenues can occur due to the company's heavy investment in infrastructure, which is common in industries like telecom. These costs can initially lead to losses, but as sales pick up, net income can turn positive.

What is the role of customer switching in evaluating a company's stock, as mentioned in the video?

The video suggests that low customer switching rates indicate a good sign for a company's stock, as it implies customer retention and loyalty, which are positive indicators for the company's future performance.

How does the video advise against generalizing the interpretation of financial ratios like PE ratio and debt?

The video advises against generalizing the interpretation of financial ratios by emphasizing that they must be considered in the context of the industry and the company's specific circumstances. For instance, high debt might be acceptable for infrastructure-heavy companies, while a high PE ratio might indicate expected growth.

What is the recommended sequence for a beginner to start investing in the stock market according to the video?

The recommended sequence is to first learn how to compute the intrinsic value of stocks, then start with mutual funds or smallcases, gain experience in direct equity buying, and finally move on to more complex trading strategies like FNO.

Outlines

00:00

📈 Introduction to Stock Market Knowledge

The speaker, Akshat, introduces the video's focus on the necessary financial knowledge for successful stock market investment. He addresses common questions from viewers about how to start investing and what resources to use. Akshat proposes a simple four-step process for understanding the stock market and emphasizes the importance of education in finance and business to make informed investment decisions. He also sets a homework task for viewers to engage with the content and encourages them to like the video for motivation.

05:04

💼 Fundamentals of Finance and Industry Analysis

Akshat delves into the first point of understanding finance and business, stressing the need for intuitive knowledge of financial ratios and industry outlook. He explains the importance of fundamental analysis in evaluating a company's health and industry growth potential. Using the telecom industry as an example, he illustrates how to analyze industry trends and company performance, such as Bharti Airtel's survival in a competitive market, based on revenue growth and industry dynamics.

10:04

📊 Stock-Specific and Financial Ratio Analysis

Continuing the discussion, Akshat moves to stock-specific analysis, focusing on Bharti Airtel's financials. He discusses the significance of revenue growth and profitability, using net income as an indicator. He also touches on the importance of comparing a company's financials with industry peers, like Tata Communications, to understand the market context better. Akshat highlights the telecom industry's capital-intensive nature and how it affects financial ratios, advising viewers to look beyond simplistic interpretations of debt and PE ratios.

15:06

📉 Understanding Stock Market Dynamics

Akshat clarifies misconceptions about stock market behavior, emphasizing that stock prices do not move in straight lines but fluctuate. He explains that stock prices are determined by the demand and supply equation, which can be influenced by news and market sentiment, independent of a company's intrinsic value. Using Zomato's IPO as a case study, he illustrates the difference between short-term market behavior and long-term intrinsic value, urging viewers to learn to calculate intrinsic value to make informed investment decisions.

20:07

📚 Learning Sequence and Resource Recommendations

Akshat advises viewers on the sequence to learn about the stock market, suggesting starting with understanding intrinsic value before direct equity investment. He recommends beginning with mutual funds or passive investments for beginners and gradually moving to more complex trading strategies. He also provides resource recommendations, including books like 'The Intelligent Investor' and 'The Psychology of Money,' and encourages watching fundamental analysis videos. As homework, he challenges viewers to compute the intrinsic value of his YouTube channel using data from Social Blade.

Keywords

💡Stock Market

The stock market is a platform where shares of publicly traded companies are issued and traded. It is a key component of a market economy, allowing companies to raise capital by selling ownership in the form of shares. In the video, the speaker emphasizes the importance of understanding the stock market for making informed investment decisions, highlighting the need for knowledge to avoid losses, which are common among retail investors.

💡Fundamental Analysis

Fundamental analysis is a method of evaluating a security's intrinsic value by examining related economic, financial, and other qualitative and quantitative factors. The video script mentions that understanding fundamental analysis is crucial for investors to assess the health and potential of a business, which is key to making profitable investments in the stock market.

💡Industry Outlook

The industry outlook refers to the projected future performance and trends within a specific sector or industry. In the context of the video, the speaker discusses the importance of understanding the industry outlook to predict whether an industry is likely to grow or shrink, which is vital for making strategic investment decisions.

💡Financial Ratios

Financial ratios are quantitative measures used to evaluate a company's financial performance and position by comparing line items found on a financial statement. The video script underscores the significance of understanding financial ratios for analyzing businesses and stocks, as they provide insights into a company's profitability, efficiency, and risk.

💡Intrinsic Value

Intrinsic value represents an investment's real value, which may be above or below its current market price. The video discusses the concept of intrinsic value in relation to stock valuation, emphasizing that investors should understand and evaluate the intrinsic value of stocks to make informed investment decisions, rather than relying solely on market prices.

💡Debt

Debt in a corporate context refers to funds or financial instruments borrowed by companies for various purposes, such as financing operations or expansion. The video script explains that the level of debt a company carries is not inherently negative; it should be assessed in the context of the industry and the company's financial health.

💡Price to Earnings Ratio (PE Ratio)

The price-to-earnings ratio (PE Ratio) is a valuation ratio of a company's current share price compared to its earnings per share. It is used to determine if a stock is overvalued or undervalued. The video script challenges common misconceptions about the PE ratio, arguing that a high PE ratio does not necessarily indicate a bad investment if the company has strong growth potential.

💡Return on Capital Employed (ROCE)

Return on Capital Employed (ROCE) is a financial metric that measures a company's profitability in relation to the capital it employs. It reflects how efficiently a company generates profits from its capital. The video uses ROCE as an example to illustrate how certain companies can command a high PE ratio due to their efficiency in turning capital into profits.

💡Supply and Demand

Supply and demand is an economic model of price determination in a market. The video script explains that the price of a stock is determined by the intersection of its supply and demand, which can fluctuate based on market sentiment and news, and is not always reflective of the stock's intrinsic value.

💡Investment Strategy

An investment strategy is a plan or approach for investing money with the goal of achieving a financial objective. The video script suggests a sequence for beginners to learn about the stock market, starting from understanding intrinsic value to gradually moving into more complex forms of trading, which is an investment strategy designed to minimize risk and maximize learning.

💡Mutual Funds

Mutual funds are investment vehicles made up of a pool of funds collected from many investors for investing in securities like stocks, bonds, and money market instruments. The video script recommends mutual funds as a starting point for beginners to get exposure to the stock market in a diversified and managed way, which can reduce risk compared to direct stock investments.

Highlights

Understanding the knowledge required to make money in the stock market is crucial.

Majority of retail investors lose money due to lack of fundamental education in stock markets.

Successful investors like Rakesh Jhunjhunwala have made significant money through knowledge and strategy.

A four-step process is introduced for making money in the stock market.

Basic understanding of finance and business is essential for stock market investment.

Intuitive understanding of financial ratios is necessary for stock analysis.

Industry analysis is vital for predicting growth or decline in different sectors.

Telecom industry analysis reveals insights into the growth potential of companies like Jio and Airtel.

Financial analysis of Bharti Airtel indicates the importance of revenue growth and profitability.

Comparative analysis with peers like Tata Communications helps in understanding industry dynamics.

Understanding the debt structure of infrastructure-heavy companies is important.

Price to Earnings (PE) ratio and its implications on stock valuation are discussed.

HDFC AMC's high PE ratio is justified by its growth potential and Return on Capital Employed (ROCE).

The stock market is not a straight line; it involves understanding volatility and market trends.

Stock prices are determined by the intersection of demand and supply, not just company performance.

The sequence for learning about stock markets should start with understanding intrinsic value.

Books like 'Intelligent Investor' and resources on fundamental analysis are recommended for beginners.

Homework assignment involves calculating the intrinsic value of a YouTube channel using Social Blade data.

Transcripts

Hi, everyone. Welcome to today's video.

So today we are going to understand how

much knowledge of finance do you need to make money in the stock markets.

Now, many of you comment on my videos that hey Akshat,

you analyze stocks really well.

So can you please give us some tips on how we can get started in the stock market?

Which books should we read?

Which course should we take?

So I'll break down this topic on this video

that what are some sequential steps you

need to take to make money in the stock markets.

I'll explain a simple four step process, nothing major.

I'll give you real world examples.

So please stay tuned till the end of the video and there is a homework for you.

So please don't run away and pause this video.

It's a very interesting homework. Please complete it.

That would indicate to me that you actually learn something from my video.

And please press the like button.

That would mean a lot to me and it will make me super happy.

So let's get started and let me start this

video by asking you a very simple question.

The question is that what percentage of people or what percentage of retail

investors do you think lose money in the stock markets?

The short answer is that there are a lot

of people who lose money in the stock market.

In fact, majority of the retail investors lose money in the stock market.

Some studies indicate that close to 95%

retail investors lose money in the stock market.

Right.

So almost all the retail investors net- net lose money in the stock market.

This is a very scary situation, but there is a very important lesson here.

What is the lesson?

The lesson is that majority of the retail investors lose money in the stock market

because they are not fundamentally educated about the stock markets.

If you have knowledge in the stock market, you can make money.

Big players like Rakesh Jhunjhunwala, RadhaKrishnan Dhamani, they have been making

insane amount of money in the stock market for decades.

Right?

So it's not a blind game that you just come into the stock market,

make random bets, and just make money in the stock market.

So the lesson is that if you're a retail

investor, then you must learn about the stock market and then only enter it.

So stock market is a game where people

with knowledge make money and where people with bad knowledge lose money.

So it is very important for you that if you are interested in the stock market,

you understand the following four points about it very, very systematically.

Point number one, you need to have a basic understanding about finance.

More importantly, you must have an intuitive understanding

about finance and business because at the end of the day in the stock market,

you're investing money in companies which are businesses.

Therefore, you must understand fundamental analysis.

How good the fundamentals of a particular business are.

Number two, you must understand what the industry outlook is.

Is it likely to grow or shrink?

You must also understand some of the basic ratios.

Right?

I'll speak about it in a minute, but you must have a basic understanding

of financial ratios, how to analyze businesses, how to analyze basic stocks.

So point number one is that you must have a basic understanding of finance.

Now, why is it important?

Because when you are investing your money

in the stock market, for example, if you're going and buying Bharti Airtel or if

you're going and buying HUL or Tata Motors, what are you doing?

You're eventually buying a business.

So you must at least understand that what the business looks like.

What are some of the good things,

bad things about Tata Motors, some of the good things, bad things about ITC.

Similarly, you must also understand what the industry outlook is.

So this is called as forwardlooking analysis of different industries.

So you must pick certain cues, which industries

are going to grow and which industries are going to shrink.

Similarly, you must understand basic ratios.

You must understand how to look at the balance sheet,

at least the basics of it.

So now let me illustrate this point by giving you two real world examples here.

So let me jump to Tickertape and let me talk a little bit about industry analysis.

What is it that you need to keep in mind when analyzing different industries?

So you might have read a lot of articles around telecom industry, that telecom

industry in the past has been very unprofitable.

There have been a bunch of companies,

a bunch of mergers and acquisitions that have happened in the telecom space.

And eventually we are moving to a point where there are going to be two or three

key players. Which are two three key players in the Indian telecom space?

One is Jio. Of course it's Reliance.

So many international investors, like Google, Facebook,

are pouring money in Reliance Jio, and it is a massive stock from that angle.

So of course, you can understand just

by looking at the mergers and acquisitions that is happening in this industry,

that something big is happening in this industry.

Reliance is focusing it's almost entire business now on Jio platforms.

They're moving away from the oil and gas industry.

So if I were to ask you a simple question, so from this discussion and tell me

in the comments that do you think that oil and gas industry is dying?

Is it going down? Comment

yes or no. Second, do you think that given this information what I have told you

and this is something that you would read in news, you will consume information

about? Do you think that the telecom space? Is it growing or shrinking? So

the correct answer is that, hey, the oil and gas space is going down,

unfortunately, and the telecom space is going up.

So what are some of the major players in the telecom space?

Reliance Jio

is there, Airtel is there, these are two prominent companies right now.

Now, if we go and take a look

at Bharti Airtel stock, you will see a bunch of information being played out.

Right. So if you are doing industry analysis,

what is the first thing that you will consider?

You will consider the first question as

that hey is Bharti Airtel going to survive in this race?

The answer

seems like yes, there is going to be Reliance, Jio and Bharti Airtel is surviving.

So what gives us that strength to say that Bharti Airtel is going to survive?

So let's look at financials very quickly before jumping into the financials.

What did we do?

We did a very quick industry analysis and ascertained that telecom stocks look fine.

It's a growing industry, good industry to pick.

Second step. What are we going to do?

We are going to do stock specific analysis.

Right. So we are looking at Bharti Airtel.

Why? Because our hypothesis or our belief is

that Bharti Airtel is going to go up going forward.

So let us validate that now. Why am I saying that

Bharti Airtel has a good chance of survival in this race of acquisitions, mergers

and whatnot? The reason is that if the revenues are

growing for any company, it means that its sales are going up.

People are still continuing to use Bharti Airtel.

And that is one of the surest signs that this is a very positive sign,

irrespective of whatever else is happening.

So one is that the company is able to sell

more units of whatever product it is selling.

And this has gone up in the last few years.

There has been a consistent growth, which is good.

Number two, what specific thing you need to know

in terms of fundamental analysis? You must understand that okay

hey, the company is generating revenues.

But is it still profitable?

If not, why not? Right.

So here let's take a look at net income. So you will see that

hey, some years it has been positive.

Some years it has been negative and it has been negative.

So this looks like a worrying trend.

Now, after looking at net income, you might get really stressed out that hey

this is a loss making company and something might be wrong.

Most of the occasions the equation holds true that

if the company is making consistent

losses, then probably it's a bad company to invest in.

But you need to see this in conjunction with the entire industry.

Right.

Don't just look at one single stock, look at the entire industry.

So even compare Bharti Airtel stock with its peers.

For example, if you take a look at who we

peers or competitors of Bharti Airtel, you will see that

ok.

Tata Communication Limited is one of the peers.

Right.

So let's look at the financials of Tata Communication.

Now, here we are.

So total revenues have they been growing for Tata Com? The answer is no, right.

It has almost stayed flat.

Since 2018 net income has been negative, negative, negative.

And then suddenly it became positive.

Now this is a very interesting thing, right?

That one company, Bharti Airtel, its revenues have been going up,

but its net income is still fluctuating, negative, positive.

But Tata Communications,

its revenues has stayed stable, but its net income has become positive.

Now, why does such a scenario play out?

You need to further investigate in terms of understanding the industry.

So essentially, what happens in the telecom industry is

that the company first has to build a lot of infrastructure.

For example, they have to buy a Spectrum, 4G, 5G.

Then they have to establish data cables

when they have to establish offices, hire a lot of staff,

and then they start selling the Internet or any other additional services.

The same scenario played out when Jio was launched.

That Jio was incurring massive amount of losses,

insane amount of losses when they started doling out Internet for free.

But once people bought jio services, they stayed put.

So the customers switching was very less.

Similarly, the customers switching from AirTel to Jio is also very less.

So that's a good sign.

That's a good matrix that you need to consider.

And both Bharti Airtel and Jio are doing well on that bit that's point 1 and point 2 is that

now this net income actually becomes

positive for infrastructure heavy industries as the sales pickup.

So the point that we need to note down

for our telecom based industry is and this is something that you will understand if

you read a lot of articles along the telecom industry that telecom industry

stocks are good if the customers switching is less and the revenues are growing.

So from that angle, Bharti Airtel is agood stock. Now this is not a stock buying recommendation.

I'm just trying to tell you how to do industry analysis and firm analysis.

This is stuff that people would not teach you.

Please understand this fundamentally and do it from a learning purpose.

So this is how you do industry analysis.

This is how you do basic stock analysis.

There are a bunch of different things

depending on the stock, but this is where you get started.

Now let me move on to the next point, which is about analyzing financial ratios.

Now I'll make a separate video on this how to analyze financial ratios.

But in case you're just getting started,

you need to understand two three things things about financial ratios.

First and foremost,

there is a lot of misinformation that if the PE of a stock is high, do not buy it,

or if the debt of a company is very high, do not buy it.

It really depends on the industry again.

For example, on the previous case, Bharti Airtel, of course, they are going to have

debt because they are an infrastructure heavy driven company.

They have to establish so much infrastructure, they have to buy Spectrum.

Whatnot?

So they have to spend a lot of money up front.

So at that period of their business, the debt will be high.

But as the money starts rolling in, after a while, the debt will go down.

So if the debt is high on such businesses, it is okay, they will still survive.

But if the company is very small and it is using capital inefficiently in an industry

where companies do not have high debt, then of course that's a bad company.

So just don't generally assume that the debt is bad, right?

It really depends on the industry.

Second, many people believe that, hey, the price to earnings ratio,

if it is high, if it is greater than 30, then do not buy the stock.

That is completely incorrect.

So let me prove that via an example.

So let us look at the finances of one

of the top stocks in India right now, which is HDFC

asset management company, also called as HDFC AMC.

Now, if we take a look at the P E ratio.

So let us compare rather with peers.

So you will see here that hey HDFC AMC has 46 P/E ratio.

Now, if you ask me, hey Akshat, would you buy this stock?

The answer is yes.

I'm actually buying the stock. Right.

When Bajaj Holding has only 11.84. Right.

Nippon has 36. This has 23.

So why are you buying this?

Because as I explained on one of my earlier videos, also that PE ratio

is also an indicator of growth.

People are giving this stock a high PE

because they believe that going forward, this company will grow.

Now, what is the way to check if a company will grow or not?

And then you can ascertain whether this company deserves a high PE ratio or not.

So let me quickly show you that how you can check

if a company can actually grow.

Now, a bunch of different things will go into it.

But first and foremost, you must see that if the company has a history of growth.

So if you take a look at the sales of the company.

So if you take a look at 2016, the sales were approximately 1500

and now it has gone up to 2194 in a matter of five years.

So the company knows how to grow.

The profit has more than doubled, more than doubled in a span of five years,

which is great growth for a company with such a high capital under management.

Now this is a big company and it is

increasing its profit at a rate of 2x in five years.

This is massive growth.

This is massive growth because the company itself is quite big.

So this growth is very high.

So the point I want to prove is that the company knows how to grow profitably.

It has done it in the past.

And if the industry outlook looks good,

then this company can again quadruple its sales

quadruple its profits.

Why does this happen?

Because companies as they become bigger

and if they know how to churn out profits, their ROCE becomes very high.

So if you check the ROCE for HDFC AMC, it is 39.9, which is massive.

It shows that if you are putting or if you're giving RS100 to HDFC AMC,

it can turn out the profit of approximately Rs40, which is massive,

which is a massive ROCE for a company like HDFC.

Now we were comparing it to Bajaj.

Now let's do the same analysis for Baja Holding.

Now you tell me if the ROCE of Bajaj Holding is what? It's 11.6. So therefore,

this is what ratios and understanding ratios can help you uncover that

if you understand that a company's growth rate has been very high,

it is growing profitably, and it has a consistent history of growth

with very high ROCE, it means that it is a very effective company.

It definitely deserves a high ROCE.

Now, its competitor, Bajaj, does not have the same ROCE.

That is the problem.

And that is the reason why HDFC AMC commands a very high PE ratio.

So you must know at least this level

of understanding before you start directly investing in stocks.

So the first point was a little longer

because I was teaching you the fundamental analysis of the business.

The second point that you need to note

down is that how do we understand the stock market?

There are certain points that you must understand.

And there are a few things that I've

observed people getting wrong about stock market.

First and foremost, they assume that the stocks move in a straight line.

If they're buying a stock next day, it should go like this.

If they are selling a stock next day, it should go like this.

It should just fall down.

It doesn't work that way.

Pick any stock and it will have a consistent up and down

trajectory. Right.

Stocks will move like this. Right.

So please keep this in mind.

This is the first key misnomer that people have about investing in stock markets.

The second key point,

that the price of a stock, for example, it's HDFC AMC is trading at 2864.

Right.

The price of the stock is determined by what?

The price of the stock is determined

by the intersection of demand and supply curve.

Right.

If there are more buyers than sellers for the stock, the stock price will go up.

If the supply is more than the demand, then the stock price will go down.

Right.

This is a very important concept, and this needs to be seen in conjunction.

This has got nothing, absolutely nothing with the intrinsic value of the stock.

Right.

I can't stress on this point enough.

For example, many a times you might have seen that ITC or any other company would

have posted great results, but the stock price actually came down.

Now, why?

Because of this fact. Similarly a lot of companies post

horrible results but their stock price go up.

Now, latest example here is Zomato.

So when I made the IPO of Zomato analysis,

in fact, I said it on the Zomato analysis also and you can check it

towards the end of the video,

I categorically said that there might be listening gains.

That is extremely short term. But people kept on commenting that hey

Akshat you got your IPO analysis wrong about Zomato.

No, I was doing a business and fundamental analysis of the business.

A few days after I had posted that video,

Professor Aswath Damodaran wrote a blog around the IPO of Zomato.

Right? This is the link.

You can actually go and check this entire article.

He categorically pointed out on this blog

that the intrinsic value of Zomato stock is Rs41.

It got listed at approximately Rs70.

Now it's trading at 140 Rupees.

See, what is happening here is that this is short term, right?

This is extremely short term.

It is extremely volatile.

Even when the bad news of yes bank came

into the picture, the stock fell like this.

Then it jumped. Right?

People made like 100% return and then it fell back, so on and so forth.

So there is a lot of fluctuation that goes on in any stock.

But if you talk to any person who understand finance, for example,

professor Aswath Damodaran is considered one of the principal authorities on valuation.

He has written books on valuation,

Wall Street companies go to him to take advice on how to value companies.

If he's saying that the valuation

of Zomato is Rs41 per share, I am going to believe it 100%.

And that is precisely the reason why

Rakesh Jhunjhunwala also came out with the Disclaimer that hey,

I'm not investing one rupee in this company unless I see profits.

Now, this does not mean that I am

fundamentally against Zomato or any other company.

But you need to understand a more indepth point here.

The indepth point is very simple

that the price of a stock is determined by demand and supply equation.

Now demand and supply can be manipulated by news.

It can go up, it can go down.

Problem that happens is that retail investors lose money because a lot

of people will get stuck with Zomato, or any other company.

And if the business does not pick up,

then you're stuck at Rs140 or whichever price it hits.

Right. That's the problem.

And then you will never get an opportunity to get out of that stock.

So this is the principal problem that you assume that just because the price is

hitting 140, Zomato has an intrinsic value over X million dollars.

Right? That is not correct.

Please do not assume it.

So please develop your skills

to understand the intrinsic value of the stock because whether the stock

goes down, whether the stock goes up, you will at least not do panic selling

in that stage. There are enough stocks from which I have made 100% return.

Right?

It's not as if that I am regretting not investing in Zomato IPO.

First and foremost, if you are investing in IPOs, you hardly get allotment.

And even if you somehow magically do the allotment amount is very less.

It hardly makes any difference.

But important point to note is that you

must develop your skills to understand what the intrinsic value of stocks are.

So I will highly encourage you to read

this entire article which is written by Professor Aswath Damodaran.

He has explained categorically how companies are valued.

This will be an excellent case study for you to absorb and understand how to do

intrinsic valuation of different companies.

Now you might say that, you know what?

What's the guarantee that you are right about Zomato?

No guarantee.

But we can all learn from history and previous data.

For example, you might have heard of 1990s dot com bubble.

At that stage, companies were raising

millions, raising millions without even a pitch deck.

Right?

If you're a tech company, if you're a tech founder and you were

talking tech tech tech, you were raising millions of dollars.

But eventually what happened? At some stage

this bubble burst. Same goes for financial crisis of 2008.

It's not as if the people were not able to avail loans.

They were availing loans.

This bubble kept on going up and it eventually popped at certain stage.

So please do not assume that investing in housing was great by the time 2007,

2008 hit because the housing prices were soaring.

Yes, they were soaring for a little bit of time.

And then the bubble burst.

So please keep all these specific points

in mind before you start making massive investments.

Understand and fundamentally evaluate what

the intrinsic value of a particular stock particular industry is.

If you have no clue,

then please adopt simple strategies that are outlined on some of my other videos.

So moving on to point 3 many people ask that hey

Akshat, what sequence we should learn about stock markets?

Should we do FNO first, should we do intraday trading first?

Should we do swing trading, or should we just do long term investing?

So first and foremost,

if you are a complete beginner, number one goal should be that you must

understand how to compute the intrinsic value of industry and stock.

Okay, that's one.

If you don't understand it,

play the mutual fund game or smallcase game till then, right?

That's one very important.

If that is also complicated,

please invest your money in passive mutual fund, for example, Nifty 50 or Sensex.

You cannot go wrong because you're betting

on the economy in that respect and you will not lose money.

I've said this statement in the past

that you will start making money in the stock market.

That is not a problem.

You just have to stay long enough

in the stock market and not get burned in the initial days.

If you're just starting out learning about

stock market and if you start taking FNO trade, it's bad, right?

You can get badly burned and you will never come back to the stock market.

So here is the sequence that you should follow.

First and foremost,

keep learning about calculating the intrinsic value of different stocks.

Once you feel comfortable,

then only jump in the stock market in terms of direct equity buying. Number two,

if you have to start investing, then start with mutual fund.

Start with Sips. Start with small cases.

Those are much simpler to understand.

So start making investments there and start aggregating your knowledge here

in terms of computing the intrinsic values.

Once you have that little bit

of experience in buying direct equities, after you have understood how intrinsic

values are calculated, you move on to doing different trading.

To start learning more about technical

indicators, you start learning more about technical indicators.

Then you move on to FNO and more complicated gmaes from there. Point four,

and the final part of this video is that where should you get started?

Should you start by reading books? Should

you start by watching YouTube videos? It does not matter,

right? What I would recommend is read a book called as Psychology of Money

that will help you understand more about money in general. Right?

Not just stock markets, because stock market is a combination

of psychology, history, business valuation, trading patterns,

whatnot?

So it's a very complex, animal, complex beast, right?

So don't jump into and read a book on stock market investing.

Read the book Intelligent Investor.

It's a wonderful book to read.

It's slightly complex, but you will understand some of the key concepts.

Watch videos of people who talk about fundamentals.

I try to put out a lot of fundamental videos.

I teach about ratios, analyses, etcetera. Watch those videos.

It might become simpler for you to understand.

And then finally, you can handpick certain books to develop what?

To develop the understanding of computing intrinsic value of stocks.

Once you get to that stage, you are comfortable.

You can start learning more about stock markets.

It does not matter which resource you want to follow.

So as a homework, once you have read professor Aswath Damodaran's

blog, do try to compute the intrinsic value of this YouTube channel.

Do try to compute the intrinsic value of this YouTube channel.

There is a site called as Social Blade.

You can get a lot of data from it about this particular YouTube channel.

Go figure it out and try to compute

the intrinsic value and let me know in the comments.

So I hope you enjoyed the video, and I'll see you the next time.