How and from where to start learning and analysing companies in stock markets?

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How to select companies to invest in?

Before we step into analysing companies, first we need to select the company we want to invest in.

There are multiple sources that can help us selecting company. First look around you, your cities, states and countries. See what is hot, in demand and what are different sectors/themes (type of industries) that are performing well or going to perform well in 2-4-8-10 years down the line. For example, at the time of writing this post, renewable energy, infra, power, semi-conductor, defence as a theme is very hot and a lot of developments are happening. Government has come up with many PLI schemes, offers, support to these sectors. A lot of focus and push from government is on these sectors. So if we take these information as our base, we can assume that companies working in these sectors should perform well in future.

All listed/unlisted companies are categorised into sectors based on nature of product or services they provide. Like companies manufacturing vehicles and its accessories comes under Automobile sector, Software and related companies comes under Information Technology sector, Chemical companies that manufacture differnt chemicals to be used in different products comes under Chemical sector, companies that manufacture medicines comes under Pharma sectors etc. Like that all companies are categorized in more than 40-50 broad sectors.

All these sectors are further categorized into two types

1. Cyclical sectors - sectors that gets affected based on economic growth or slowdown, like Automobile, constructions, airlines, hotels etc are cyclicals.
2. Non-cyclical sectors - sectors that do not get affected based on economy growth or slowdown like FMCG companies (companies that manufacure soaps, toothpaste, utilities), health care. Generally these companies provide services or products that are necessities in our day to day life.

Ideally as a novice investors, we should be selecting non-cyclical sectors to invest in. Once we have some knowledge, experience and some grip over the markets and its companies we can go with cyclical sectors as well.

After selection of sectors we want to invest in, we can try to find the companies operating in those sectors. 

What are different ways to find companies and sectors to invest in?

In order to find companies to invest, there are few ways that helps

1. There are some online disussions groups like ValuePickr, where many learned investors share their views and ideas. By regularly going through them we can get some idea of companies or sectors to invest in.
2. There are some good WhatsApp groups or fellow investors where members discuss about companies or sectors.
3. Some X (formerly known as Twitter) accounts also share their views, knowledge about companies and sectors. Those posts also give idea about companies or sectors to invest in.
4. We can also follow latest financial news and get clue from them.

What are different tools/websites available that helps in analysing companies?

Once the selection of the company is done, it's time to start analysing them. There are broadly 3 types of analysis is done for any companies

1. Business analysis - business analysis is generally done by actually knowing about the company, their management. Visting company in-person, talking with their dealiers, customers, talking with people who are aware about the company workings, their products and services etc. Apart from visiting the company and talking to someone who actually knows company's products and services, remaining can be done online by visting to company website (simply search the company name in google), browse different sections of the company website.
2. Financial analysis - financial analysis is all about company financial performance like sale, margin, profit etc. This can be done online and there are many tools available
   • Screener - very good tool for financial analysis, tracking company announcements, creating watch list etc.
   • StockEdge - good tool for tracking financials performance, big investors activities, block deal between big investors etc.
3. Technical analysis - technical analysis is about analysing company price chart, volume chart etc. Technical analysis is done by plotting different types of graph of the company price, volume traded with different types of indicators such as RSI, MACD, DMA etc.
   • TradingView - good website for technical analysis

What are different thumb rules to start investing?

Once we have done our analysis and we are 100% convinced about the company we want to invest in, we should be following certain best practices that helps in minizing the loss, risks etc.

1. Start investment with establised and large companies as the chances of price going down heavily for these companies will be less as they are already established player in their business. 
2. Do not invest all your investible capital in 1-2 stocks. For example, you have total of 1 lac to invest, do not invest all 1 lac into 1 company
3. Try not to invest in the stock when everyone is talking about it and it's price is all time high (ATH). Generally when we invest at ATH price, the chance of price coming down is more. Sometimes avoiding FOMO (Feare Of Missing Out) is good. When everyone is buying price goes up, most of the time it is good to wait for sometime to cool down the price and then buy.
4. Gradually increase allocation to the stock. For example, we want to buy 1 lac worth of shares, it is better to buy in few batches like 25000 worth 4 times at different prices. In this way, our average buy price may be good as we might have buy some quantyt at high and some quantity at low price.
5. Ideally our total investible capital should be spread across at least 10 different companies with equal allocation to each company, however it depends on person to person and risk appetite of the investor.
6. Avoid cyclical sectors/companies at initial period of investing unless you are very sure about company and its working cycle
7. Do not invest in stock markets for 5-10% profit. Stock markets is to create wealth in long term, if we keep patience after buying good companies, we can make very good money after 3-5-10 years of investment.
8. Keep tracking invested companies business and financial performance every quarter or at least every 6 months to ensure that your initial investment thesis of this company is intact. If not, you may decide to sell.
9. Keep booking some part of profits periodically, say after 2-3-5 years or once your investment has become several times more than invested amount.

What to avoid at initial stage of investing in stock markets?

1. Do not invest in small to very small companies. Generally these companies prices are very volatile, these companies are prone to be operated and you never knows when these companies may get shut down as enough information is not available to pubic for these companies and they are at their initial stage of the business.
2. Do not believe on tips from SMS, WhatsApp Groups, Telegram channels, YouTube videos. 
3. Do not believe in 2x, 5x return in 1 month of few months type of messages. Generally these messages trap the invesors.
4. Do not try to trade (buy-sell on same day or after few days) at initially as most trades loose money initially.
5. Do not do F&O (Futures and Options) trading. As per SEBI, more than 90% of F&O investors loose money. F&O traiding is for very very experienced investors with high risk taking abilities.
6. Do not invest all money we have into stock markets. Money that is not needed for at least 2-3 years only should go into stock markets investments. In short period, stock markets are very volatile and our investments can go up and down.
7. Should never invest borrowed money into stock markets
8. Should never invest family emergency fund into stock markets.

Important notice: The author of this post is not SEBI registered and is written based on his own experience and knowledge for learning and educational purpose only. This is not a buy/sell/hold advice. Please do your due deligence or consule financial advisor before investing.