INVESTING CONCEPTS

STOCKS

Prepared By:
Vansh Khanuja
Vanshkhanuja78@gmail.com
August 14, 2021
TABLE OF CONTENTS
• WHAT ARE COMMON STOCKS?
• HOW TO ANALYSE STOCKS?
• WHY PEOPLE FAIL?
• CONCLUSION
 WHAT ARE COMMON STOCKS?
You might have probably heard about the stock market many
times but you never add anything meaningful to the
conversation because you don’t completely understand how
the financial markets work. You try learning about the market
on the internet but there are so many different views about a
single subject. How can Warren Buffett and Ray Dalio disagree
about something? What course should you follow when they
do?
Well, Ray Dalio is a lot different than Buffett but then take the
example of Charlie Munger. Munger and Buffett disagree on a
lot of things as well. Same strategy, same framework, many
similarities yet they don’t agree on everything. Then there are
so-called ‘Gurus’ of the market. They can predict the next move
using only a single candle1 . It’s true, some people are in the
market since years yet they don’t even know the basics.
Additionally, people are sometimes arrogant to accept their
mistakes and learn. All these factors combined makes learning
about the market for someone who doesn’t know anything very
difficult.
For these reasons, I will only explain what stocks are, how they
work and how people value them. I will not explain my views to
block your mind, I want you to understand the market, learn
about different kinds of investors/traders/speculators and form
your own opinion. I did the same thing, I compared the great
1 candle here refers to the candlestick chart, the chart is a price-time graph in a candle form.
investors and ultimately, I formed a strategy based on every
investor I admire2 .
So, what are stocks?
Every company needs additional capital to grow. You cannot
take debt every time you need to expand the production. In
this case, a corporation can issue stocks of the company.
Basically, the company is divided into equal parts which
represent the proportional ownership. To illustrate this with an
example, assume there’s a hypothetical company ABC, this
company is currently valued at $ 1 million. Now, the company is
divided into 100,000 shares with each share having a value of
10$ each. The promoter(s)3 can now sell their stake and/or
issue fresh equity to new investors. This way, the company can
fund its growth. This process can be privately done as well as
through public offering. The main objective is the same (at least
it should be) - to raise capital and grow the business.

If you own 100,000 shares of ABC, you are 10% owner of the
company.

2 For more information on my strategy, visit http://thesecurityanalyst.weebly.com , you will find

all the reports I have made till date and I have also explained my strategy in detail.
3 Promoter(s) refer to the people who organized and started the company.
 HOW TO LOOK AT STOCKS?
I will not lay out strict rules here on analyzing stocks, but I will
explain how you should look at stocks. Stocks represent
proportional ownership of a company. To successfully invest in
a stock, you need to first define what a great investment is.
A great investment differs from person to person, a widow
cannot take the same risk as a businessman. You first need to
understand how much risk you can afford to take and how high
your expectations are. This way, you can create a framework
based on which you must create your own strategy. Never
imitate a great investor, you can learn from the ones who are
successful but never try to completely imitate them. You both
are different people and so a great investment for somebody
else can turn out to be a poor investment for you.
If you don’t have time to actively select stocks for your own
portfolio, you can also invest in funds which are managed by
professionals. Here too, you will first need a basic
understanding of how the fund works and how the manager
thinks. Without understanding your own investment, you will
never make money. Never chase high returns, they can be
misleading. I will now explain why people fail in the stock
market if it sounds so simple4.

4
My investment strategy can be found in the website under ‘Equity Analysis’. I am not
explaining much of it here because this report is supposed to be a mere introduction. Link:
http://thesecurityanalyst.weebly.com
 WHY PEOPLE FAIL?
Why then people fail? If I know a company can grow at a really
high rate and I’m paying a decent price then I will do really well
in the long-run, right?
The answer is not easy because there are too many variables. If
I assume that you are not affected by price swings and you view
stocks as ownership of an enterprise, still you can perform
worse than others if your company does not perform well.
There can be a lot of things that can go wrong. Then there is a
price factor, people cannot stand seeing their investment going
down 50%5, they panic and sell whatever is left. In effect,
buying-high selling-low. This is polar opposite of what should be
done. Then there is envy, people want to chase returns others
are earning. If your neighbor doubled his money through some
stock, you will blindly invest without understanding the
investment. This can cause a lot of damage in the long-run. You
are not allowing compounding to work if you do this. I
recommend you to read/watch Charlie Munger’s speech -
‘Psychology of Human Misjudgment’.

5If you stay invested for the long-term, you can expect your portfolio to go down 50% at least
once.
 CONCLUSION
This ends this report. This report was actually not meant to be a
separate one, I intended to mix this with ‘My investment
Philosophy’ but I believe that could have confused people. I
explain my philosophy in that report as if no other strategy
works (bias), so I decided to explain about stocks in a separate
report. I tried to not make this technical so obviously it was not
detailed. This is actually more of an ‘overview’.
If you are interested in stocks and want to learn more, I
recommend you read all the books I’ve read (and more).
My book collection can be found through this link
https://thesecurityanalyst.weebly.com/investing-
blog/category/bookshelf
I have published many reports on how I analyze stocks:
https://thesecurityanalyst.weebly.com/equity-analysis.html
You can also contact me if you have any doubts/suggestions:
vanshkhanuja78@gmail.com