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Blue Chip Investing, Creating Wealth From Dividends.
//THREAD//
//THREAD//
Blue Chip Investing refers to buying *high-quality stocks* at a *reasonable price*
Why invest in a Blue Chip?
Less risky.
Good quality.
Outperformance.
Strong dividend histories.
Why invest in a Blue Chip?
Less risky.
Good quality.
Outperformance.
Strong dividend histories.
Understanding quality:
Quality is subjective. But you can filter quality stocks using some basic criteria.
Something like this
Quality is subjective. But you can filter quality stocks using some basic criteria.
Something like this
Adding to this, quality stocks generally have
Longevity.
Concentrated biz.
Consumer-facing biz.
Dominant market position.
Competent management etc.,
Longevity.
Concentrated biz.
Consumer-facing biz.
Dominant market position.
Competent management etc.,
Understanding Value:
Valuation has always been a problem for quality stocks.
A quality co may get a high valuation due to
High ROE.
High Dividends.
Profitable growth etc.,
But there is always a risk of overpaying.
Look at the below pic
Valuation has always been a problem for quality stocks.
A quality co may get a high valuation due to
High ROE.
High Dividends.
Profitable growth etc.,
But there is always a risk of overpaying.
Look at the below pic
Approaching valuation:
You can use 4 simple buy signals to deal with this problem.
1. Implied growth < Expected growth:
When implied growth is less than expected growth, it is a buy signal.
Refer to Implied growth thread here https://twitter.com/money_theory/status/1342788591315865600?s=19
You can use 4 simple buy signals to deal with this problem.
1. Implied growth < Expected growth:
When implied growth is less than expected growth, it is a buy signal.
Refer to Implied growth thread here
https://twitter.com/money_theory/status/1342788591315865600?s=19
2. Dividend yield > 3%:
The average dividend yield is around 1% to 3% in India.
So when the div yield > 3%, it indicates either there has been a price correction or dividend increase.
This is a buy signal.
(Dividend yield = Dividend/Price)
The average dividend yield is around 1% to 3% in India.
So when the div yield > 3%, it indicates either there has been a price correction or dividend increase.
This is a buy signal.
(Dividend yield = Dividend/Price)
3. Current dividend yield > Average dividend yield:
The reason is simple.
Blue chips have long track records of consistent dividends.
So when the current div yield is greater than the average div yield, it is a buy signal.
The reason is simple.
Blue chips have long track records of consistent dividends.
So when the current div yield is greater than the average div yield, it is a buy signal.
4. Current PE < Average PE:
When current PE < Average PE, either there is price correction or earnings fall. This is another buy signal.
(PE = Price/Earnings)
Note: Points #3 and #4 assume that the firm has not gone through a significant change.
When current PE < Average PE, either there is price correction or earnings fall. This is another buy signal.
(PE = Price/Earnings)
Note: Points #3 and #4 assume that the firm has not gone through a significant change.
So, that's all for valuation.
And as in any investment strategy, picking only 1 or 2 stocks gives bad results.
So, the portfolio approach should give decent results.
And as in any investment strategy, picking only 1 or 2 stocks gives bad results.
So, the portfolio approach should give decent results.
When to sell?
Generally, Blue Chips are fit for *buy and hold strategy*
So, you can sell
When you need money or
When the stock is extremely overvalued.
Generally, Blue Chips are fit for *buy and hold strategy*
So, you can sell
When you need money or
When the stock is extremely overvalued.
Let's conclude by quoting Ben Graham's words from the Book "Intelligent Investor"
Note: This thread is inspired from Motilal Oswal Wealth creation study titled "Blue Chip Investing" Read the full study here
https://motilaloswalwcs.com/images/pdf/WC16.pdf
Disc: For educational purposes only.
https://motilaloswalwcs.com/images/pdf/WC16.pdf
Disc: For educational purposes only.
Thank you for reading. If you liked the thread, like and retweet the first tweet so that others can learn too. Have a great day. https://twitter.com/money_theory/status/1359490878797090819?s=19
