MoneyWorks4Me - SEBI Registered Investment Advisor | Stock Advisory Services In India | Mutual Funds Advisory Services (2024)

Quality. Find potential winners and avoid the rest.

Valuation. Take smart price-related decisions:

Price Trend. Decide to act now or wait.

10-Year X-Ray. See details to gain confidence:

Investing in stocks successfully essentially boils down to how you decide which stocks to buy at what price and build your portfolio, and at what price do you sell them. The biggest reason for not succeeding at stock investing is letting your emotions drive your decisions.

The solution to both these is having a sensible decision-making process and sticking to it. This process needs to be right more often than not and when it fails it should not be a calamity. If you survive long enough doing this you will grow your money handsomely and create wealth by investing in stocks.

You need a method for answering 3 essential questions for a stock:

1. Is it worth investing in or should you avoid it?
2. Is the current price attractive or is it over-valued?
3. Should you act now or wait?

The process should enable you to invest in worthwhile stocks at attractive prices and sell it when they are over-valued and losing steam. It should also prevent you from investing in poor quality stocks, buying expensive and selling a good stock early.

DeciZen answers the 3 essential questions by rating stocks on 3 parameters: Quality, Valuation and Price Trend which answers the above 3 questions in that order.

So, when you enter the stock name in the MoneyWorks4Me search box you get answers right away. For example, here’s what DeciZen will tell you about Mahindra & Mahindra currently

It says that the stock has 4 green stars, is a Very Good Quality company, currently Fairly valued and its Price Trend is Semi-strong. Once you understand this a little better you will be able to draw the right inferences and make a better-informed decision.

Quality answers the question should you consider investing in a stock? Good Quality is most important for investing success because no price is low enough to buy a poor-quality stock and there is no right time to buy a poor-quality stock. DeciZen uses rigorous criteria to separate the Very Good quality companies from the rest.

For a company to be worth investing in it must be capable of consistently generating healthy profits. For a stock to qualify as Very Good on DeciZen it must exceed a minimum hurdle rate for return on capital employed and free cash flows for last 10 years

Because all companies are essentially ‘engines’ that use capital and generate profits and hence they must be efficient. For them to be consistently efficient above a hurdle rate (think of it as well above its cost of capital) over a 10 year period which generally includes economic and market cycles they must be inherently robust; strong business model, brands, distribution, operations, patents, switching cost, management, client relationships etc. In short, something that enables them to earn healthy profits consistently.

DeciZen rates stocks as Very Good-Green and 2 stars on Quality when they are consistently efficient. Less consistent but still investment-worthy are rated Somewhat Good -Orange and 1 star. Not consistent are rated Not Good-Red and No stars. You should prefer Green Quality company stocks, invest only in a few Orange ones and avoid the Red ones.

There are two broad methods of valuing a stocks:

1. Relative Valuation which as the name suggest is valuation based on a comparison with others eg similar companies, peers etc and even with the stock’s historical prices. Comparing absolute prices does not make sense as the stock’s value changes with the performance of the company. Therefore, valuation ratios such as P/E, P/B, P/Sales, EV/EBITDA etc are compared.
2. Intrinsic Valuation: In contrast this method of valuation estimates the absolute value of the company. There are different methods to do this and the most common is based on current value of the cash flows it will generate in the future (estimated). This is done by experienced Equity Research Analyst.

DeciZen uses relative valuation methods. It compares the current valuation ratios with the stock’s historical valuation ratios but with some important tweaks. It adjust the company’s financials for cyclicality and normalized profitability. This removes extraordinary and unusual valuation ratios numbers and provides a more realistic statistical value. Also, it uses more than one valuation ratio that is relevant for the company.

DeciZen rates stocks on valuation on a 5-point scale- Over-valued, Somewhat Over-valued, Fair-Valued, Somewhat Under-valued and Under-valued depending on how its current valuation ratios compare with its historical ones represented by its median. This is visible on the company page as well as used in Screeners.

However, DeciZen uses a 3-colour coding system and Under and Somewhat Under-valued both are represented as Green while Over and Somewhat Over-valued both are Red. Fair-value is Orange.

Through its rating on Price Trend. Only after a stock qualifies on Quality and Valuation is the question of whether you should act now or wait, relevant. This is essentially an assessment based on the likely price movement of the stock in the short term (relatively). Short term time frame has little to no significance for long-term investing but it can help in deciding how fast or how slow one can add the identified opportunity.

DeciZen give a rating on the Price Trend; the stock price strength using moving averages and relative strength on shorter timeframe. It is indicated as Strong-add quickly, Semi-strong-add slowly and Weak- add slowly or wait.

DeciZen uses a 3-colour rating system for Quality, Valuation and Price Trend to enable you to make an informed decision on whether you should invest in a stock at the current price and now. The table below summarizes DeciZen’s rating system

Every stock then has an overall rating that is an addition of the stars it has. The maximum a stock can achieve is 6 green stars. However, to limit the star rating system to a max of 5, for such stocks the last green star is converted to Gold Star.

We have made DeciZen ratings available on various list eg Nifty 100 below. Using these along with other data points you can spot opportunities with more ease and take better decisions. These are available to you on registering and Downloading the app.

The DeciZen rating are provided everywhere -Screener, Watchlist, Boughtlist, Portfolio Manager and you can make the best use of it for investing in stocks systematically by subscribing to MoneyWorks4Me Alpha at unbelievably small investment! Subscribe