How to look for Stocks with markets at an all-time high?

Key points and thought process while considering buying stocks for a relatively long period with broad markets at higher valuations.

Note: By market correction, I don't mean that markets are going to crash tomorrow. The markets might not fall for years. The article focuses on how to find stocks that can keep your capital safe and give you great returns for a long time irrespective of market conditions.

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Hi, If you have read my previous articles then you would know that I am of the opinion that we have been living at very low-interest rates around the globe and there is a flow of cheap money in every asset class, which is causing asset prices to inflate well above their intrinsic value.

Now with a rise in inflation levels and recovery in the economy, central banks are taking their foot off the gas pads and thinking of slowing down.

This will have an impact on corporate earnings and their valuations.

If you have some capital and want to invest in these times with sky-high valuations in most sectors,

First, you have to invest for a relatively long time for decent returns

And second, in a longer period markets may correct themselves and there is a risk of a fall in stock prices.

Sometimes gap between Market prices and actual value/intrinsic value widens too much which causes stocks to become overvalued or undervalued.

By market correction here, I mean market prices may fall down or not give higher returns in longer period to lessen the gap from underlying intrinsic value.

To save your capital and grow it, you have to keep certain things in mind:

1. You need to invest in businesses that can remain intact in tough times, earn good returns and grow their business.

2. I am of the opinion that market valuations are at a level where investors expect companies to earn & grow at the pace they have been doing in the past but with change in interest rates, those future earnings and growth may slow down and cause valuations to re-adjust drastically. To save yourself from that you need to evaluate intrinsic value accordingly and buy them at cheaper prices for "the safety of margin".

3. And other important things like quality of management, especially if most of the earnings/shareholder’s net worth is retained in the company should be considered greatly.

A combination of high RoE (Return on equity), growth, and relatively cheaper valuation compared to its true intrinsic value is what will help you to make great returns on your investments while following Buffett's two rules of investing.

Rule no. 1 is

Don't lose your money

and 2nd rule is don't forget rule no. 1

until then.

Savdhaan Rahein, Satark Rahein.

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Thanks

Kamal J. Sharma