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How to select the Shares and Mutual Funds

Lately users have been asking me whether X share is OK to invest or my views about Y share, asked me to tip them about a particular share or worse still "Which share to buy ?"But it was Dinesh who asked me the right question - "How do you choose a share ?" This actually forced me to think ya why not put this in the forum itself!!!

So to tell you the truth I never go on recommendations and as far as possible avoid giving recommendations too....it is up to you whether you want to follow this or not ... However I do listen to all, do my analysis and then decide whether to take the risk or not. RISK it is ...!! Lets face it if you do not have extra money and always are in need of more, then stay away from Shares. It is not for you ... at least for the time being. Neither is it for weak hearted who start to jump at the slightest bearish/bullish turn of the market.

Shares is risky and like I said before, so are all the other types of investment. So if you are not ready to take risks and are happy with 7-8 % returns in an year ..then settle for it and live happily with it. In such a case there is no need to waste your time reading this post.
Since you continue to read this, will take it that you do have spare money and that the thrill of learning new things excites you more then the fear of loosing them. So let me start with MUTUAL FUNDS first.

In simple terms when you buy MUTUAL FUNDS it is like you are giving some experts your money to invest in proper places viz Shares, Bonds, Gold etc which are given in the mutual fund document. Details about the mutual funds are posted in the prior posts/attachments, please read them for more details.
Selecting any mutual fund is quite theoretical. My approach too is conservative but it has paid me the results. I generally track their previous records and returns of last 1, 3 and if possible 5 yrs. Remember this, while there is no guarantee that the same fund will perform again, but is still a safer bet than going blindly for what your fund manager advises you. Also remember that do not diversify by having plenty mutual funds of same type (equity) in your portfolio. This is because no Mutual fund buys 1-2 types of shares they themselves buy 30-40 sometimes even 100 types of shares to diversify and lower their risk. Thus if you have plenty of MF then your return will be low if all do not perform well. For me I personally suggest to keep max 3-4 types of mutual funds and the best is SIP for long terms (15-20 yrs horizon). I also prefer SIP over going and investing all amount together in the MF, specially now when the Market has breached again 19000. Of course the returns will be less in SIP but it is somehow assured in long term (at least I think it that way !!!).
For searching which Mutual funds are the best I use
http://www.moneycontrol.com/mutualfundindia/

For SHARES as far as possible I avoid trading e.g. Buy today sell today/tommorrow or within a month. I still do not understand F&O and keep aloof. Always have some target for your shares and sell them once the target is achieved (unless you have strong reasons to hold). Personally speaking I target for 20% within an year. Believe me if you think that it is really less than any analyst will tell you that this is greedy ...there are very few people who have consistently gained such high profits. I will repeat again, I only invest my spare money with constant experiments that if the share looses value after my buying by more than 20 % then I start to check back again on the companies performance / fundamentals...I never start to average out the share unless the loss is more than 25-30 % and then again only on good shares.
I define good share as :
• low P/E (preferably less than 10 best is less than 5),
• High EPS (preferably more than 10 best is more than 20),
• Low Debt/Equity ((preferably less than 1)) and
• High B/V (preferably more than 10 best is more than 20).
I am learning how to check the Balance sheet but Satyam case and lot other cases just show how easily they can be manipulated. If you are wondering what those terms are then please check the attachment of the below posts ...Also remember that the trade volume is equally important as larger volume with increase in price is a good indicator while small trade volume with increase in price might very well be manipulative ...The websites where I search before buying any share are:

My favorite is moneycontrol.com. There are so much in it that I always start from here. The footer of all pages have shares indexed alphabetically and so you can click and get all the details about the shares from here. While initially they did not had the company and peer performance but they have added that too for easier reference.
http://www.moneycontrol.com/india/stockmarket/pricechartquote/A

My second favorite is myiris.com. The below links gives the details in such a tutorial form that it seems like the site is  shouting STAY AWAY or GRAB THIS share.
http://www.myiris.com/shares/rstutorial/index.php

Even when I did searched everything about a company yet there have been time after time that shares gave me a loss of more than 50 % and am still awaiting recovery. I found that Moneycontrol are a little late in updating the Financial results of the Companies. I also found one site, via moneycontrol itself, which briefed the dates about when the companies have stated to declare there results but lost that link.
Presently I use BSE and NSE site directly for this purpose. They give the future dates when the Financial reports are to be declared for the week at the below links. The good thing is that BSE also lists the FII investment in previous quarter in any particular company, a very handy information indeed. While the website is not exactly what I am looking for as it gives dates only for a week and I am still searching for a good website for this, yet for the time being it is OK.
http://www.bseindia.com/qresann/rstcal.asp#1
http://www.nseindia.com/marketinfo/companyinfo/online/resultslist.jsp

While I admit that I have a conservative and orthodox approach but it has most of the times (beware not always!!) achieved my set target. Hope it helps you and you too have a happy hunting for those bullish shares.