Know Your Business

• An increase in commodity prices can sometimes be reflected as higher profits, but it’s essential to look beyond the numbers.

• Understand the driving factors behind a company’s growth, distinguishing between temporary and permanent problems that may affect its performance.

• Assess whether the company possesses a sustainable competitive edge, which could come from strong branding, regulatory advantages, or a unique position relative to competitors.

• Evaluate the risks specific to your company, including management analysis. Investigate the capabilities and experience of the management team, ensuring that top management remains stable and does not change frequently.

• Consider the history of the management, particularly any past instances of fraud or ethical concerns.

Quantitative Analysis

• Focus on key financial metrics such as cash flow, balance sheet strength, and long-term debt levels, as these will inform you about the company’s financial health.

• Analyze past performance to gauge how the company has navigated various market conditions.

Investment Strategy

• Be cautious with cyclical companies that are heavily affected by economic cycles.

• Pay attention to valuations to ensure that you’re investing at a reasonable price.

Portfolio Management

• For a portfolio worth ₹1 lakh, it’s advisable to limit your holdings to no more than 4 stocks.

• For a portfolio valued at ₹10 lakh, a maximum of 6 stocks is recommended.

• For a portfolio worth ₹1 crore, aim to hold no more than 15 stocks to maintain focus and manage risk effectively.