HOW TO IDENTIFY GOOD QUALITY STOCKS???

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Ask anybody why they bought something, anything and the most common answer is quality, “Achhi Quality Ka Hai”. I don’t think you are any wiser after such an answer. So, if you are smart you will ask “what did you see in it that convinced you that this is good quality?”. You need to ask the same question when talking about the quality of a stock.

How can you evaluate the stock and draw conclusions about its quality? Let's understand this with the help of cricket, because then we understand things better. There is no doubting the talents of Sehwag and Dravid. If you had to pick just one, who would you pick? There can be a lot of discussion about the answer depending on the other team members, current form, who we're playing against, and whether it's a T-20 match or a Test match. But what if you had to choose between them for a test match? The answer would be overwhelmingly Dravid. Why? Lots of reasons, but basically because Dravid is a more consistent performer, better at shot selection and better suited to a tryout temperament.
Now investing in stocks is like a tryout. And you're backing a team (portfolio) that has a lot of players (stocks) with Dravid-like qualities. Investing is less fun and exciting to watch as a test match than T20, but remember you are not investing for entertainment, thrill or adventure but to grow your money and achieve financial goals.When it comes to companies, consistency is key in generating returns, and shot selection may be related to management's capital allocation policies. A company that is able to generate consistent returns in excess of its cost of capital is undoubtedly of good quality. As shareholders, we now want any profits generated to be used for further profitable growth (returns similar to the current business) and any additional profits to flow back to us as dividends. But what if a company (promoter) tends to make large capital investments for future business opportunities, consuming all the cash flow generated and more that may not yield similar returns to the current business? Cricket is like a good batsman who starts chasing every ball to make a boundary. And we know the batsman will be out sooner or later. We want to avoid stocks like this. What we want as investors is a management that has a good capital allocation policy and values ​​the interests of us minority shareholders.When making investment decisions, assessing quality should always be the first step. It only makes sense to look at the rating after determining the quality and avoid companies with poor quality. Instead, look for investment opportunities in the universe of very good quality companies. Reasonably good quality companies can be researched a little more carefully before deciding to invest in them. After identifying good quality companies, look at their reviews and see if investing in them makes sense.