Power of growth

Let me start this blog by asking one small question. You have to answer this question in 5 seconds.

So the question is: You have to select one from the following two options.

  • a) For the next 30 days, every day, I will give you Rs 1,000 per day. Which means Rs 30,000 for the month (30 days).
  • B) Option B is that I will start paying you 1 paisa on day one and from there on I will double your pay each day. Which means on day two I will pay you 2 paisa, day three 4 paisa and so on.

Option ‘A’ sounds tempting, isn’t it? Every day for the next 30 days you will get Rs 1,000 per day. At first glance we are pretty sure that start from the 1 paisa and double every day will not fetch more than Rs 30,000 a month.

If you still believe that option ‘A’ was better than let me reveal you that if you had selected option ‘B’ you would had taken home rupees five million on 30th day!

Our ancestors never understood the exponential power of growth. They always believed that to become wealthy you need to work hard (physical). But if you start savings and invest in the products where there is a scope for your investments to grow exponentially, you will find your savings to grow faster than what your hard work is producing. Stock market is one of the tool where you can grow your savings.

There are again two kind of approach that investors take while investing in the stock market.

  1. Trader
  2. Investor

Trader

I will relate here trader who is happy to make that Rs 1,000 a day ignoring potential of a stock which they sell for such small benefit. Nothing against them personally, their goals might be different and their skills too, to look at the chart and find its lows and highs.

Investors

This is the group where we fall. We cannot predict lows and high of any stocks. But we can figure out its valuation zone. This helps us to take decisions like, buy, hold or sell and also how many to buy. We look for ideas where there is a good chance to make 4X in 10 years time. One of the most important ingredient of good stock is to know at what speed its earnings are growing. you cannot look at growth stocks in isolation. You also need to look that company is generating healthy IROE (incremental return on Equity).

5 growth stocks of 2018

Here is the list of 5 stocks where many analysts and forecasters are expecting growth in its earnings either returning from its lows or are on verge to grow faster.

  1. BHEL
  2. BEML
  3. Bank of Baroda
  4. M&M Financial Services
  5. Emami Ltd

Let me remind you here again that not all these stocks are trading within 2018 valuation zone. Except Emami Ltd all the other stocks are trading above their 2018 intrinsic value band.

Earnings growth is not the only thing we look while selecting any stocks for investment. But it is one of the essential need that company should own.

A quick disclosure over here that we own few Emami Ltd stocks in our portfolio.