Finding Stock-A

Once in a lifetime opportunity

I have this one stock that I will discuss in this article which I believe is one of the best investment opportunities that comes rarely in the stock market. It is a small listed player in the e-commerce space that has recently started operations in the niche market of smart phone accessories just like flipkart started with books. A micro cap that has the potential to become the next flipkart. Looking at the valuations of currently established and mature e-comm players like flipkart and the kind of scope a country like India with a population of one billion plus consumers offers, this particular stock has the potential to grow multi-fold within a short period of time. By multi-fold I mean atleast few hundred times from current value. Do you want to know the name of this stock?

Did you fall for it? if yes :(, please read this blog again. If not, congratulations! Stock picking is serious business, don't look for tips. It's no fun even if you make money on tips. Besides remember the goal is to create long lasting wealth and not to make pocket money by betting on one time tips.

Find your own Stock-A

Stock picking is a life changing event. It is like finding a diamond in a coal mine. On one of those rare occasions you will find your very own "The One" neo stock, that will be a rock star in your portfolio and I can guarantee you that it will never come from a tip. It will come from your own hard work and will make you proud, it will make you rich. Remember the feeling when you got your first medal at a sports event or when you won a scholarship in a competitive exam after lot of preparation or when you got your college degree after four years of rigorous hard work staying away from home? That is the kind of feeling you will get when you have found your Stock-A. Don't settle for anything less. This is going to be your master pick, A Taj Mahal in monuments, a Mona Lisa in paintings, a David in sculptures. For some like Rakesh Jhunjhunwala it is not that rare an event, probably that is why he called his investment holding company as rare enterprise where he ironically holds many of those rare gems in huge quantities.

Is it really that big a deal?

You think that's over exaggerated and stock picking is not really that big a deal? It is. Remember excellent investment picks never expire, it is a lifetime relationship. You buy them and keep them forever, it is a perpetual investment and it will keep making you richer and proud of yourself year after year, every single day, perpetually. Once you have found your Stock-A and you have invested well into it, you are done for this life as far as money is concerned. You can use the rest of your time for things you like travelling, spending time with family, sports and adventure, social impact, whatever is your thing. You will not have to worry about money again. You have built for yourself a perpetual source of income that will never be over. More on this in my blog on retirement planning here.
It will give you complete freedom from all your money worries and help you make wiser trade-offs in life like health and happiness. More on money worries and trade-off here. Now is it not a great deal? So let's quickly take a look at few stock picks.

Rapid Fire Round

Is Infosys a good buy? it is a good buy but it is not great. Everyone knows Infosys it was discovered decades ago, now it is a mature business and will give you steady returns
Is Reliance Industries a good buy? depends. It's a complex business oil, telecomm, retail. It is too complex to track & understand for me. Besides there are regulatory issues. It is like an elephant that eats a lot, takes lot of time but moves slowly.
Is Airtel a good stock to buy? No, TRAI regulations (any regulated sector is not good) some stupid operations in Africa, I have no clue what is going on at Airtel Africa, high competition. All you need to disrupt the the telecom market is a Mukesh Ambani dream offer as a follow up to Dhirubhai Ambani dream offer, high operation cost with crazy spectrum valuations, asset heavy business model, etc
Is SunTv a good buy?  No, it is more politics than business.
But SunTv is very cheap, great bargain? Still no, focus on the business first, price later.

*Note all of the above are good stocks in general but none of them is a great stock (Stock-A)

Enough of rapid fire, let's do one slow & detailed analysis

Then what is a good buy ? Let's take one example. Say Asian Paints.
"I think" Asian Paints is one example of a truly great business. The business is simple, they make paints. It is a market leader with over 60% share in the entire paint industry. It competes well both in premium as well as mass segments. It has an unmatched retail network with deep market penetration. You will always see a paint shop selling Asian Paints almost everywhere.
The demand is going to be huge with the the recently launched "Housing for all" scheme and Asian Paints is gearing up for it with new capacity additions in Chennai. It is in the free market space, government does not decide the price of paints. The demand will be persistent, the "Housing for all" dream is expected to be completed only by the year 2020. Actually it will take much longer. Besides in a country like India, there is a tradition of re-painting the house every Diwali so repeat demand is high for paints.
It is a household name. Everyone knows Asian Paints just like everyone knows Britannia biscuits or Lux soap, so marketing costs will remain low. It uses oil & oil derivatives as a raw material, the price for which is fortunately in a down cycle, so manufacturing costs are expected to be low.
It is run by high quality management with proven track record, clean image and has shareholder friendly policies.
It has few competitors Nerolac, Berger but they are no match for Asian Paints. It is a domestic story and in many ways recession proof from what is going on in the rest of the world.
There are no controversies in Asian Paints, no politics, no corruption, no fighting within the company, no consumer complaints, no pending cases or litigation, no stock manipulation, no economic offense or tax frauds.
It is one of the best brands, it is one of the best employers, it is a fairly responsible corporate entity, it has good quality products, it is able to keep up with changing times and technology.
It is just a plain simple paint company, selling paints the demand for which is going to be there forever and it is geared up to meet that demand forever. Simple and beautiful business model. It is a fairy tale dream stock.

Any disadvantages? 

Well it is fairly discovered, fairly priced and a mature business. So it will offer steady growth in your portfolio. It may not offer spectacular growth. But note that it is still a far better story than Infosys discussed above based on future growth prospects and other aspects like competition, revenue dependence on international markets, forex risks, macro factors, etc

Now here is your challenge

Find a stock like Asian Paints that meets all the above selection criteria and even exceeds it if possible, but is not yet discovered and as well known as Asian Paints. It could be a mystery as deep as the Da-Vinci code but that is where the fun is. Isn't it? If you find one, secretly message it to me also :)

DISCLAIMER: This is not a recommendation to buy Asian Paints or sell any other stock discussed above. It is just an illustrative example for showing the thought process behind picking great stocks for investment. 
Stock picking is an extensive subject and I will have to write a book to cover all the details. That is not the goal of this article. This article is just meant to give you a starting point, the journey ahead is far greater than intergalactic distances.

Happy discovery for the gem in your portfolio!