Dear Readers,

We have been discussing various topics related to investment and analysis of stocks in the stock market with the recent posts.

In stock market investing, rejecting the shares of sub-standard companies is a more effective way to safeguard your time than merely selecting the shares of the best companies you desire.

Your selection process will be far superior if you understand what you don't need, rather than focusing solely on what you do need.

Whenever you find yourself in a situation where there are an overwhelming number of opportunities or a vast array of alternatives to choose from, you should prioritise rejection over selection.

For example:

Let us assume you are a manager at a company that requires a total of five new employees. If you simply advertise the vacancies, schedule interview slots, and issue a general invitation for candidates to attend, virtually every unemployed individual who sees your advertisement is likely to show up for the interview.

Suppose, for instance, that around 500 people turn up. Interviewing every single one of them to identify the most qualified candidates for hiring would be an extremely time-consuming process. Even if you were to allocate just 30 minutes per candidate, it would take you at least 10 full days just to complete the interviews.

Consequently, your regular work schedule for those 10 days would be severely disrupted. Furthermore, if—after interviewing all 500 individuals—you fail to find any suitable candidates, your precious time will have been completely wasted.

This raises the question: "What, then, should be done?" The answer becomes clear if you simply observe how companies typically structure their job interview or recruitment advertisements.

Specifically, by raising the minimum qualification standards required for the position, you can easily filter out and reject unsuitable candidates.

For instance, if you specify that you require only candidates who hold a university degree, a significant number of applicants will be automatically screened out. If you subsequently add a requirement for a minimum of five years of relevant work experience, many more candidates will be eliminated from the pool. Furthermore, if you stipulate that candidates must commit to working under a mandatory five-year contract, some individuals may choose to opt out of the process. In this manner, simply by clearly defining and presenting the specific qualifications required for the job upfront, you can effectively filter out a large number of unsuitable applicants.

Subsequently, only 10 to 20 knowledgeable individuals will remain; selecting the specific 5 individuals you require from this group—through interviews—helps prevent the unnecessary expenditure of your time.

The greatest challenge in the stock market lies in the selection of stocks.

Suppose you have ₹100,000 available for investment; yet, standing before you are over 6,500 companies. You are free to invest in any of these companies according to your preference—that remains your personal choice. However, attempting to analyze each of these 6,500+ companies individually to determine which one is worthy of investment is a practically impossible task.

What, then, should we do in the stock market?

We cannot realistically dedicate the time to go through and analyse each of the 6,500+ companies individually; for an investor, such an endeavor would result in a massive waste of time.

Therefore, investors must be extremely clear about what they *do not* need. Failure to do so will make the selection process exceedingly difficult and lead to significant time wastage.

It typically takes me anywhere from 2 to 3 days to select a single company. However, attempting to analyse each and every company listed on the stock market within a mere 2 to 3 days is an impossibility—for my entire lifetime would expire before I could complete such a task.

I focus my efforts primarily on how quickly I can reject stocks. I am often able to reject a specific stock within a timeframe ranging from just 30 seconds to 2 minutes.

Consider this analogy: suppose someone approaches us asking for money. The decision to lend them the money or to refuse is entirely our own personal choice; no one else has the right to interfere in that decision. The very same principle applies to the stock market.

For example:
PE Ratio < 15

If a company's PE ratio exceeds 15, I will invariably reject that company—regardless of how fundamentally sound or excellent its underlying business metrics may otherwise be.
Debt-to-Equity Ratio < 0.5

Unless a company happens to be a bank or a financial services institution, I will reject it if its Debt-to-Equity ratio exceeds the threshold of 0.5—irrespective of how otherwise excellent the company might appear. ROE > 15
ROCE > 20
Promoters holdings > 35
Price to Book value < 3
Cash Conversion Cycle < 0
Current Price < Intrinsic Value
Free Cashflow > 0
Interest Coverage Ratio > 5
Current Ratio > 3
(These qualifications vary from industry to industry and specific companies)

And many more...

What can I say, if the company does not meet the qualifications we expect, we can reject that company. If not, we will invest in another company. We must decide what qualifications the company we invest in should have.

How much time is wasted on unnecessary companies?
How quickly can you reject companies? Learn to reject them as quickly.
The faster your rejection is, the less time you will spend on unnecessary companies.

No matter how great an investor Warren Buffet is, he can never go back to his 25th birthday-right!?

Time is the real investment in the world!

Have a great time ahead in the markets!