Money Wise with Smart Alex – Part 5: Pratik learns the trick of picking the best stocks

Moneycontrol News

Masala dosa might be among South India’s most famous exports, but what does the cost of dishing out a plateful of steaming dosas tell us about the valuation of companies? Warren Buffet, nicknamed the "Oracle of Omaha", might not have partaken in one of Anna Ji’s dosas, but the guiding principle that dictates his investment activity, draws on the same example that Alex presents Pratik, while munching on the popular snack.

Buffett once said, "price is what you pay and value is what you get". Smart investors should therefore try to calculate future cash flow from the present value of the company. Thus, buying stocks of a company quoting below its intrinsic value is enough to ensure that one does not lose money.

In the previous episode, Pratik got acquainted with the vagaries of the business cycle and how it can impact investments even in companies with seemingly sound fundamentals. Armed with the knowledge of Smart Alex, Pratik learns how to compute the intrinsic value of companies and how to forecast their cash flows in the future. Will he recover his savings? Watch on to find out.