Selecting the right stocks to invest in requires a disciplined approach, meticulous research, and a keen understanding of market dynamics. A great way to go about it is to adopt an investment philosophy like Roots & Wings (RAW), designed by JAMA Wealth.
Under RAW’s ‘Roots’ approach, look for companies that have low debt, demonstrate consistent Return on Equity (ROE), Return on Capital Employed (ROCE), and Return on Assets (ROA). These indicate the financial strength of a company. Also, verify the integrity of the promoters and their commitment towards the business. Avoid very small caps as they may entail higher risks.
The ‘Wings’ approach calls for investing in companies with strong growth prospects. This could be those growing at a rate significantly higher than the GDP growth, demonstrating substantial operating cash flows, and possessing strong market dominance.
Investment is not a ‘buy and forget’ exercise. Regularly monitor your portfolio to ensure that the companies you’ve invested in continue to adhere to these principles. This ongoing review process will help you exit risky stocks in time and protect your capital.
In essence, RAW philosophy can be a potent strategy for stock selection, blending the need for both wealth preservation (Roots) and growth (Wings). However, investing in stocks comes with its own set of risks, and it’s always wise to do thorough research or consult a financial advisor before making any investment decisions.
