Book Review: How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul

Overall Book Rating

Five out of Five; Language: Five out Five; Relevance: Good beginners to intermediate investors.

Who is this book for?

This book is for beginner investors who are looking to learn about investing in the stock market, or have been investing in the stock market for some years and want to increase their knowledge to increase their returns and cut down their losses. This book can be a refreshing read for professional readers for a quick recap. This book provides you a set of rules to keep in mind while investing, and is handy for retail investors who do not have a lot of time at hand to learn about stock investment. By the time you finish reading this book, you will be equipped with a set of tools (checklists) to apply to shortlist stocks to invest in, know when to buy and sell, and most importantly, how to avoid stocks and have an exit strategy in place.

Kindle vs Paperback?

Paperback book.

I prefer paperback book as it has thick pages which makes it easy to underline. Book has large font and decent page margins, which makes it easier to read. Even though this book is available for free on Kindle Unlimited, it will save you INR 270 or $3.7 if you decide to go for the Kindle version.

Top Three Quotes from the book

“Consider losses in the stock market as tuition fees. Write down every mistake and learn from it”

“There is no right or wrong time to invest. There are only right and wrong stocks”

“In the short run price can move up or down, but in the long run stock price will follow company fundamentals”

Three things I liked about the book

1. Easy to understand language: The language of the book is easy to understand. You can skim the book in 3-4 hours sitting. Unlike some other investment books which use complex financial terms, with an appendix of these terms, this book can be read by anyone, a beginner or a professional investor.

2. Chapter Summary: I like that the author ends each chapter with a summary of key takeaways from the chapter. This is good for reinforced learning, and great for folks who don't have the habit of taking notes or highlighting important parts of the book

3. Indian Stock Market Examples: This is one of the few investment books focused on the Indian stock market. There are many examples from Indian stocks in the book, which makes it relatable for an Indian investor.

Three Key Learnings

1: Beware of Scams This is one of the few investment books which outright call out the scams happening in the stock market by brokers. This book gives several examples of these scams, and goes into details of how these scammer make money by giving stock tips, and then charging a subscription fees, before vanishing with your money.

Apart from scams, the book clearly calls out to calculate the actual profit or loss by considering stamp charges, delivery charges, broker charges, short term/long term capital gains tax etc. The author's statement: "The broker always make money on a stock transaction, irrespective of whether the investor makes or loses money", is a strong statement that has stayed with me.

2. Stock Market is not risky: Author drives home the point that in a country such as India where yearly inflation is 6%, keeping money in savings account with 3% interest rate, or doing a fixed deposit giving 5% returns will only make you poorer year on year. Rather investing in stock market, which is growing 15% yearly, is the only risk free to increase your wealth. This was an awakening moment for me, who like millions of other Indians, save their hard earned money in a savings bank account. There is a common question in India, which hints as evaluating the status of a person. The question is: "What is your bank balance?". Higher the bank savings balance, higher the deemed status of the person. But now I know that this is not the case. Higher the bank balance of a person, lower is the financial awareness of that person.

3. Two minute method of evaluating stocks : Author summarizes stock picking in a two minute strategy. Look at return on equity (ROE) of the company, which should be consistently greater than 20% for the past three years. Then look at debt to equity for less than 0.5. Look at promoter holdings which should be more than 30%, signaling that the promoters have confidence in their own company. Look at promoter pledging % which should ideally be zero, or as low as possible. Promoters who pledge their shares to raise money are actually not able to raise money in any alternate way, and do this as a last resort - which signals lack of confidence of banks and other lending parties to this company. And lastly, look at CAGR sales and price growth of the stock for past 3 years, which should be positive and have beaten the stock market index. Very few companies pass this two minute test. Once you have these, then dig in further to value the company using current PE (price to equity) vs last 3 years media PE to determine if stock is fairly valued or undervalued to buy now.