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Building a Core Portfolio( Equity Based) Part-1

Hello Fellow Investors,
I hope that you are keeping safe and utilizing this lockdown to learn about trading and investing by reading my blogs :)
As promised in my previous blog, We will start building our Core portfolio based on Equity(Stocks).
Let jump right in.

Stock Screeners

There are around 5000 companies( approximately) that trade on NSE and BSE.
What I mean by trade is that you can buy stocks of 5000+ different companies on NSE and BSE.
Great!!! I should buy them all. Unfortunately, we only have limited capital( money to invest) and not all of these companies are worth investing in( some are outright junk or trash).

So as an amateur investor how do we decide which stocks to buy? Well, there is no single approach and I don't feel that one approach is necessarily superior or inferior to the other.

I will discuss the approach that I take to filter a few stocks from the thousands and then dig further into those few selected stocks.

I use what is called Stock Screeners to filter out stocks based on a few criteria such as:
  • Profit growth
  • Market Capitalization
  • Debt to equity
  • Return on equity
  • Price to Earning
  • Return on capital employed 
  • Sales growth 10Years
Don't worry if you don't understand what these terms mean as we will discuss them in future blogs when we discuss Fundamental Analysis.

My favorite screener is SCREENER.IN which is free to use screener for Indian Stocks. You can use any other screener if you like.
  • Open screener.in/screens.
  • Click on +NEW STOCK SCREEN
  • Create a Search Query.
  • Paste the following text in the query box and click on "RUN THIS QUERY"
Profit growth 7Years >10% AND
Market Capitalization >500 AND
Debt to equity <1 AND
Return on equity >20% AND
Price to Earning <25 AND
Return on capital employed >20% AND
Sales growth 10Years >10%








Once you run the query, you will see a list of stocks that fulfill your search criteria.

















NOTE:  If you want to invest only in Large Cap stocks then you should update your query to look like this:
Profit growth 7Years >10% AND
Market Capitalization >5000 AND
Debt to equity <1 AND
Return on equity >20% AND
Price to Earning <25 AND
Return on capital employed >20% AND
Sales growth 10Years >10%

There is no fixed definition of Large Cap companies but they are said to have around Rs. 10,000 Crores of Market capitalization.
I personally regard anything above 5000 crores as large-cap, but then again I don't agree with half of the things that Dalal Street says. So I am not at all arguing with the definition of Large caps.

Company Analysis

Now that you have a list of potential investment-grade companies, let dig deeper into each company to understand if it is worth investing our hard-earned money into it.
For e.g. We will choose the first company from our search result which in our case is Graphite India Ltd.
Disclaimer: This is not an advice to buy/invest in any company. Please proceed at your own risk.

Circle of Competence:

To borrow from legendary investors, Benjamin Graham, and Warren Buffet, no matter how good the company looks in further research, do not invest a single Rupee until and unless you understand the industry the company works in.

For e.g.
As a software developer, I am better off investing in technology companies then in Real Estate companies or pharma companies.

Now that you have been warned, let's dig deeper into Graphite Industries to understand more about the company.



































I would leave you here with your search results and let you decide which companies come under your circle of competence.
Also as an exercise let's read more about Graphite India and Ltd. and write all the details you can find about the company.

In the next blog, I will share a template that I use to write all the details about a company.
Until then, Be Safe and happy learning.

Disclaimer: I am NOT a SEBI registered advisor. All my blog posts are written for educational purposes only and do not constitute specific financial, trading, or investment advice. The blog is intended to provide educational information only and does not attempt to give you advice that relates to your specific circumstances. You should discuss your specific requirements and situation with a qualified financial adviser.








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