top of page

By:

Kaustubh Kale

10 September 2024 at 11:37:15 pm

Modak and the Art of Investing

As the aroma of freshly steamed Modaks fills homes during Ganesh Utsav, the festive spirit comes alive instantly. My mouth is already watering at the thought! The humble Modak, prepared with love to honour Lord Ganesha, may look simple from the outside. But anyone who has tried making one knows that a good Modak depends on several things coming together - the right ingredients, the right recipe, patience with the process, and finally, enjoying the result. Investing is surprisingly similar....

Modak and the Art of Investing

As the aroma of freshly steamed Modaks fills homes during Ganesh Utsav, the festive spirit comes alive instantly. My mouth is already watering at the thought! The humble Modak, prepared with love to honour Lord Ganesha, may look simple from the outside. But anyone who has tried making one knows that a good Modak depends on several things coming together - the right ingredients, the right recipe, patience with the process, and finally, enjoying the result. Investing is surprisingly similar. Choose the Right Ingredients A Modak is only as good as the ingredients that go into it. Fresh coconut, good-quality jaggery, properly prepared rice flour and the right flavours all contribute to the final result. Our investments and financial products are the ingredients of our financial plan. Equities, mutual funds, fixed income, gold and other investments each have a specific role to play. The objective is not to pick whatever appears most exciting at the moment, but to select suitable, good-quality investments that match our financial goals, time horizon and ability to take risks. Health and life insurance are equally important ingredients. Adequate coverage helps protect savings, the family, and their financial goals and dreams. Good ingredients provide the foundation. But ingredients alone are not enough. Get the Recipe Right You may have the finest ingredients in the kitchen, but if the proportions are wrong, the Modak may still not turn out well. The same applies to investing. Asset allocation is the recipe of a financial plan. Too much of one ingredient can spoil a Modak. Similarly, excessive concentration in one asset or too much money in low-return products can spoil a portfolio. Balance is key. A thoughtfully constructed portfolio brings different investments together in the right proportions. To keep asset allocation very simple - short-term goals can be planned through bank fixed deposits, recurring deposits and debt mutual funds. For long-term goals, one can consider hybrid mutual funds, equity mutual funds or direct stocks. Trust the Process Once the Modak is shaped and placed for steaming, constantly checking whether it is ready will not make it cook faster. Investors often make the same mistake. We keep checking markets, reacting to every correction, chasing recent performers or changing strategies because of short-term noise. Good investing requires patience and discipline. Invest regularly, review periodically and allow your financial plan enough time to work. Compounding is powerful precisely because it rewards those who remain invested for long periods. Sometimes, the best thing an investor can do is simply avoid unnecessary interference. Enjoy What You Have Created Finally comes the most important part - eating the Modak! The purpose of investing is not merely to accumulate the largest possible number on a statement. Wealth should eventually help us fulfil our goals, support our families, create financial security and enjoy life with greater peace of mind. A good Modak needs the right ingredients, the right recipe and trust in the process. A good investment journey needs exactly the same. This Ganesh Utsav, may Bappa bless us with the wisdom to make good financial choices, the patience to stay disciplined, and the prosperity to enjoy the fruits of our efforts. Ganpati Bappa Morya! (The author is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal. He could be reached on 9833133605.)

GRPD Formula for Stock Selection

Writer: Mangesh Kulkarni
Mangesh Kulkarni
Dec 30, 2024
2 min read

Updated: Jan 2, 2025

Stock Selection

Earning profits from stocks isn't a game of chance; it’s a tactical endeavor where insight and information serve as your most valuable tools. Historically, equities have emerged as the top asset class, and they are poised to continue outperforming in the future. However, achieving success in the stock market is not easy. Since the lows experienced during Covid, the Indian Stock Market has delivered impressive returns, yet numerous stocks have not fared as well, with some even leading to significant losses over time. Consequently, the question of "What to buy?" becomes the most crucial aspect of equity investing. Let's explore the GRPD Strategy, which can guide us in stock selection.


Growth

We invest in equities to enhance our capital. For this to occur, a company must exhibit growth in both sales and net profits. It is often said that "history tends to repeat itself," implying that companies with a track record of growth are more likely to expand their profits in the future. Thus, we should focus on companies that have achieved a 12% annual growth in sales and net profits over the past decade. Therefore, a 12% CAGR in sales and net profit serves as our primary criterion for stock selection, with consistency in growth being equally vital.


Return on Equity

Return on equity (ROE) is a metric that offers investors insight into how effectively a company is utilizing the capital contributed by shareholders. In essence, ROE evaluates a company’s profitability in relation to shareholder equity. Investors should consider only those stocks that exhibit a 5-year average ROE exceeding 12%.


Price to Earnings Ratio

The price-to-earnings (P/E) ratio assesses a company's share price in relation to its earnings per share (EPS). The P/E ratio aids in determining whether a stock is undervalued or overvalued. Presently, the post-tax return on Government Bonds is around 5%. Thus, we can deduce that a P/E multiple of 20 (100/5) is reasonable. We should seek stocks with a P/E multiple below 20. It’s crucial to verify the P/E ratio only after confirming compliance with the first two criteria.


Debt to Equity

The debt-to-equity (D/E) ratio compares a company’s total liabilities against its shareholder equity, allowing for an assessment of its dependence on debt. A higher D/E ratio indicates greater risk. Many stocks that have resulted in investor losses had high Debt to Equity ratios. Therefore, we should avoid stocks with a Debt to Equity ratio greater than one.

Comments

bottom of page