Buying Good Stocks
Today morning when I was about to go to my gym, I met a very good friend of mine. We kept talking about our college days and the hostel food and the late night movies and our juniors.
Topic then turned to the recent sacking of TCS employees and cut in variable pay, also to IBM cutting their recruitments.
Then we started to discuss about the recent Reliance Power IPO. I candidly told him why I felt that investing in Reliance Power IPO is not such a good idea. Since the company is going to show profits only in 2011-2012, it doesnt make sense to lock your money in a company which does not have any profits today. Also the P/BV would be very high even for FY 2012 compared to NTPC and other listed power companies as of today. I told him that even if there is a rally in the stock it will only be a technical rally and that people will sell when the price reaches its issue price, there by bringing the price down again. So I told him there is no point investing in Reliance Power now. He then told me that he had applied for IPO and was alloted 17 shares. I was slightly embarassed as I made him feel as if his decision to invest in Reliance Power was not a right one. He told me that this was his first investment in shares and since Relinace is a trusted name, he felt his investment were secure. I feel bad for first time investors when they invest in shares without knowing the background of the companies, without looking at the EPS, PE multiple of the company, compare it with their peers. They don't look at PEG. They dont analyze the P/BV values.
I felt I should write a small article on my blog related to all the above things.Probably if I get time I will write one. If there are any readers and would like to read kindly comment below this message.
Topic then turned to the recent sacking of TCS employees and cut in variable pay, also to IBM cutting their recruitments.
Then we started to discuss about the recent Reliance Power IPO. I candidly told him why I felt that investing in Reliance Power IPO is not such a good idea. Since the company is going to show profits only in 2011-2012, it doesnt make sense to lock your money in a company which does not have any profits today. Also the P/BV would be very high even for FY 2012 compared to NTPC and other listed power companies as of today. I told him that even if there is a rally in the stock it will only be a technical rally and that people will sell when the price reaches its issue price, there by bringing the price down again. So I told him there is no point investing in Reliance Power now. He then told me that he had applied for IPO and was alloted 17 shares. I was slightly embarassed as I made him feel as if his decision to invest in Reliance Power was not a right one. He told me that this was his first investment in shares and since Relinace is a trusted name, he felt his investment were secure. I feel bad for first time investors when they invest in shares without knowing the background of the companies, without looking at the EPS, PE multiple of the company, compare it with their peers. They don't look at PEG. They dont analyze the P/BV values.
I felt I should write a small article on my blog related to all the above things.Probably if I get time I will write one. If there are any readers and would like to read kindly comment below this message.
posted by amitkeerti | 4:03 AM
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