The price at which you buy the stock is nothing short of a gold rush!

Someone asked me what is the right price to buy the stock. There are many ways you can predict a stock price but none of them guarantee a great profit if you blindly follow the tools. Catching a trend in stocks and trying to buy it, is just as good as a gold rush. When you start to pick a stock and post, the journey is nothing short of mining the gold — Brutal, hard, treacherous, and often leads to catastrophe. To explain this phenomenon, I would like you to look at the 1850 gold rush that made Australia a focal point in the globe as the gold hub.

and while this was what we know, the following pictures of the conditions of miners should help you realize how hard it is to find and refine the gold. Not to mention, many die due to exhaustion, want of food, shelter, brutal cold/hot weather, and many other factors.

As you can see, knowing that gold exists is just one part, rest is simply a painful ride that is unimaginable and often tricky.

So what’s happening today with pharma, chemical and IT stocks are nothing short of a gold rush — The story so far is, since everyone needs a vaccine, pharma stocks have an edge and everything is online, so IT is bound to rebound. Somewhere there is a thinking that chemical companies just like pharma have a great chance to do better. Maybe they equate chemicals to vaccines :).But then that’s how the stock market works. Eccentric behavior at its best!! Everyone wants a pie of spectacular returns stock market promises to give. But hold on, there is more to it than what you imagined. Not all pharma companies are making money and not all IT companies have solid future growth. Chemicals are mostly in demand at specific times.

In such a situation, we tend to do what we are good at ie pick the industry winners. Similar to digging the very same place where you found the gold, What are your chances of making a profit? It is as close to 0 or more. Who knows, we may or we may not find the gold at all.

So throughout, we are just risking our money assuming something will work since it worked earlier. So given this precursor, it is advisable to exercise some caution and don’t get into the mad haste of buying stocks without understanding the fundamentals of a company.

Just like zeroing on the place where there is a high chance of finding the gold, it's imperative to improve your chance factor of profiting from a good stock by choosing the right price for the stock.

That’s the starting point — Just buy a good stock at the right price.

The hardest part of the entire investment course is to know the right cost to purchase! Today, am gonna give you a tool that could help you with some precision to value a stock you are trying to buy, this is called “Discounted Cashflow”.

We need to find an online calculator for this and type in the right numbers of the stock you are trying to buy and ola, you know if a particular stock is overpriced or underpriced. If it is later, indeed you have a high chance of finding the winner.

Here is a snapshot of the calculator I found online — https://www.finology.in/Calculators/Invest/DCF-Calculator.aspx

And the stock I am talking about is Vinati Organics.

As you can see the current price of the share is 1666/- vs the price that the tool just spit out was 1108/-. So if someone does not want to lose his shirt, he should only buy the stock at 1108/- or below! So if you think you can catch the trend, you would squarely have to be blamed!

Agreed, this tool is a little technical and requires you to understand the financial jargon a little more. Well, you are up for a gold rush, and am sure you will have to make some effort to learn the tricks of the trade. So why not start here and start understanding the techniques to price the stock rightly and make your own judgment on the price you are willing to pay.

This effort of training will make you a great investor and over a period of time, you will appreciate the journey of investment a little better.

Just like gold diggers over a period of time learn to deal with tools, extreme weather, unknown terrains, and successfully find more gold, I have no doubt you will also find the treasure and the hunt would become fascinating.

So next time before you hit a buy on any stock, think of the gold rush and all the madness, try to make meaning out of the chaos, and then buy. If this seems odd with your interest, simply invest in a well-diversified mutual fund — In that case, you are not the actual gold digger but someone interested in finding gold and is simply looking for a craftsman. In this case, a good fund manager could give you a meaningful return. To that extent, their work is nothing short of a miracle that hopefully leads to exponential returns for years to come.No wonder they are highly paid in the industry and respected for their ability to generate double-digit returns. But finding the right gold digger rest with you!

As John Sutter aptly said,

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Kiran Prabhu d p

Kiran Prabhu d p

Founder of iNvestwise Advising and a Technologist.Bringing Finance and technology together to help people achieve financial freedom.