We have a patented methodology for analyzing stocks and putting out recommendations (just joking). And you have guessed it, it has 5 tenets within which all investment decisions can be done. Many theoreticians have written tomes on security analysis and investments, and when I started out l'affaire Sensex, I read all the classics. I was naïve and I sincerely believed that by reading them, I will become a millionaire double quick time. Time taught me my lessons, and I am penning my doctrine to help you dear reader, to learn from my mistakes. A wise man had once told me that most of us never learn from our mistakes, and repeat them while buying or selling stocks, and. There is nothing catastrophic about making losses, provided one learns from it, and considers the loss as tuition fees. Only a handful avoid repeating mistakes and become rich. For most people, the markets takes much more then what it returns.

Over years, I have used the following principles as my touchstone for making any buy or sell decision. And also remember that setting a time frame for your investment is critical. Let me explain by giving you an example, a farmer can either utilize land for growing wheat or teak. If he decides to grow wheat, he will generate quicker cash flows as gestation period for growing teak is 15 years. A smart farmer will grow both teak and wheat, but that is a different issue altogether.

To come to the patented methodology (J) -

What is the business?
If you are going to buy a stock, you might as well know what the company does? The name of the company doesn't say it all nor does the fact that your cousin's wife's father has bought the stock a good enough reason to buy any stock. When you ask this question, do not stop at "We make steel". There is life beyond that -
- What is your capacity?
- Are you globally competitive?
- How much do you export?
- Is your business capital intensive?
- Is the industry heavily protected?
- What is the demand-supply situation?
- What are the critical success factors?
- What parameters should be tracked?
- Would you need to make large cash calls frequently?

Who is the management?
If person X comes and asks you for a loan, your first instinct is to evaluate the guy's credibility, credit history and credit need - a reality check on the guy. You need to do the same with the management of any company - whether you invest in debentures or equity. We always believe a good management can make a mediocre company perform well and similarly a bad management can make a mess of the best possible business. The Indian corporate firmament is littered with numerous such examples for us to recount here. So what do you look for in management?
- Track record.
- Attitude towards minority shareholders.
- Disclosure of information.
- Penchant to take large projects, unrelated diversification and frequent   cash calls on the market.
- Ability to manage change and growth.

Whither cash flows?
Cash is the lifeline of any organization. As they say "Cash is king". We have read in our accountancy classes how a company, which has higher sales then its rival, loses out to its competitors as it keeps selling on credit and soon runs out of cash to produce further goods. And not only is cash important, but the source of that cash is equally important. Is it coming from operations? Or is it coming from financing activities due to large borrowings or frequent cash calls form its shareholders? What is the cash being used for - to fund debtors or inventories or to generate fresh capacity and to attract new business? What would the cash flows be in the next five years? These are the questions that must be answered. It is just not enough to have cash. It is also as important to judiciously use this lifeline.

Why should I buy (or sell)?
Finally, you have finished your due diligence. But now comes the crunch - do you buy (or sell) the stock? It is always a good practice before talking the decision that you have three strong reasons behind your decision - and three good reasons would do, you do not need ten. If you do not have three reasons for your decision, then maybe you should revisit your decision. Your reasoning should tell you where is the upside or downside in the stock price. It will also help you track the stock at a later date.

Where can I go wrong?
There would always be ifs and buts. Stock price movement would depend upon the probability of certain events taking place or not taking place. In a disciplined approach it is important to know "Where can I go wrong?". If you have this clarity then you know when to reverse your decision or position on a stock.