Hi guys. In this post, I planned to write something different. And then, I come up with the idea of why not to write about the fun facts about the Indian stock market.
Everyone is so much busy reading about the valuation, fundamentals, technicals, ratios etc that they forgot that there is so much fun investing in the Indian stock market.
Therefore, today I present you with 7 fun facts about Indian stock market. Do read the post until the end, because there is a bonus in the last section. So, let’s get started.
7 Fun facts about Indian Stock Market:
1. Bombay Stock Exchange (BSE) is the biggest stock exchange in the world in terms of the number of listed companies on an exchange. BSE has over 5,500 listed companies.
2. BSE is also the oldest stock exchange in Asia. It was established in 1875.
3. The participation of the common people in Indian share market is below a satisfactory level. Less than 2.5% population of India invest in the market.
4. When master blaster used to play international cricket, his dismissal adversely affected the Indian stock market.
A study by economists Russell Smyth and Vinod Mishra of Monash University in Australia showed that the Nifty index was generally flat the day after India wins a match, but the day following a loss, the index dropped by an average of 0.231%. When Sachin Tendulkar is on the losing side, the loss on the stock market is almost 20% more.
7. Nifty has given a return of 11.32 percent p.a. since its inception [till Nov’2017]: The base value of nifty was 1,000 in 1995. Recently nifty crosses 10k mark and it is currently at 10,360 points.
Bonus- Fun facts about the stock market in the world:
Here are few bonus fun facts about the stock market in the world.
1. World’s oldest stock exchange was established in the year 1602called Amsterdam stock exchange. It was established by Dutch East India company and offered printed stocks and bonds.
2. World’s most expensive stock is of Warren Buffett’s company – Berkshire Hathaway (Class A). One stock of Berkshire Hathaway costs 284,900 USD (on 30 November’2017), which is equivalent to Rs 1.85 crores. How many stocks are you planning to buy? ;P
3. The month of October is considered to be jinxed month as two of the worst stock market crashes in history occurred in this month in the year 1929 & 1987. On black Tuesday in October 1929, dow jones fell around 25%. Whereas, on black Monday in October 1987, dow jones fell 22%.
That’s all. I hope this post on fun facts about Indian stock market is entertaining to the readers.
Further, if you any additional fun facts about Indian stock market, please comment below. Sharing is caring.
Happy Investing.
Tags: Fun facts about Indian stock market, facts about bombay stock exchange, basic stock market facts, did you know facts about stock market, stock market facts 2017, national stock exchange facts, Fun facts about Indian stock market 2018, interesting stories about stock market
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Among on the wolves of the Dalal-street, there is this she-wolf who has got so much attention by investing in the lesser-known companies which later turnouts to be multi-bagger stocks.
Dolly Khanna is a Chennai based investor. Her net-worth has crossed 500 crores.
Her stock portfolio is managed by her husband Rajiv Khanna, who is a graduate of IIT Chennai in chemical engineering. Rajiv Khanna was the owner of the ‘Kwality milk foods’ one of the well-known food company in India until he sold it to Hindustan Unilever in 1995.
From mid-1990’s, Dolly Khanna and her husband Rajiv Khanna started investing in the Indian stock market. Dolly Khanna is the brain of their investments.
Few of the biggest investments in Dolly Khanna portfolio which made her a tycoon in investing world are Neelkamal, Mannpurnam finance, Trident, Hawkins India etc.
Neelkamal gave her a return of over 900% when it grew from Rs 160 to Rs 1950.
Few small-cap companies in Dolly Khanna Portfolio which gave her good returns are Wimplast (7x return), Cera sanitary ware (7x return), RS Software (4x return), Avanti feeds (5x return) and Amara Raja (3x return).
Few of the recent investments of Dolly Khanna portfolio are in Rain Industries, Nahar International Enterprises, and Ruchira Papers.
Top 10 stocks in Dolly Khanna Portfolio (November 2017)
Here is the list top 10 stocks in Dolly Khanna portfolio updated till November 2017.
The stock picking style of Dolly Khanna is definitely unique due to her technique of investing in lesser-known small-cap companies. Nevertheless, it looks like her investments are working great for her.
Leave a comment below on any of the latest pick in Dolly Khanna Portfolio
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Where should you invest your money? This is one of the most popular questions for anyone new to the investment world.
Everyone has their own living style and financial dreams. Some people are frugal while many are spendthrift.Some people live their life below their means and save money. While there is another group of people who spend a lot of money every weekend in parties and outings. They do not care about savings and have a huge credit card debt.
However, there are not only two kinds of people in this world. There are also many people whose spending habits lies between that of the extremes.
Anyways, when it comes to investing, all these kind of people are confused and have the same question- “Where should I invest my money? Where can I get the best returns on my investments?”
In this post, I am going to give a simple answer to this question- ‘Where should you invest your money?’ So buckle up and plan your financial journey ahead.
Factors affecting your investment decision:
Before discussing the various investment options available in India, first, we are going to understand the factors that can affect your financial decisions. Here are the four pillars for making a sound investment decision:
1. Investment goal:
Before you decide where should you invest your money, you need to define your investment goal. Your investment amount will depend a lot on your goals.
Your goal can be anything like buying a new car, buying a new house, savings for marriage, to fund your higher education, retirement or even just for fun.
Now depending on your goal, you will have to adjust your investment amount. If you are investing to fund your higher education (after 2-3 years), then you need to ‘save more’ and ‘invest frequently’. Here the time horizon is small and hence the power of compounding will not be that helpful.
On the other hand, if you investing for your retirement, then even the small investments will add up to a huge sum when compounded over a large period of time.
2. Risk appetite:
This is the amount of risk that you are willing to take. Not everyone believes in ‘high risk and high reward’. Many people want minimum risk for their investment so that they can a sound sleep.
Your risk appetite will decide your investment style. We will discuss the risks involved in different investment options later in this post.
If you have a huge debt like education loan, car loan, house loan etc, they pay it off first. There’s no point getting returns from your investment and directly giving it back to your lender. Therefore, get rid of your debts first.
Next, your investment decision will depend a lot on your financial situations. If you have dependents, then you might first need to have insurances, LICs etc. If you are single with no dependents, then you can invest without any worry.
Moreover, you will also need emergency fund so that you can have some financial flexibility.
4. Time Horizon:
The longer you remain invested, the greater will be the returns. The time horizon of your investment will vary with your age. If you are in your 20s you will have long time horizon compared to people who are in their 40s and just starting to invest.
There is a famous thumb rule of asset allocation while investing. This is called ‘100 minus your age’.It says that the total percentage of your investment should be equal to 100 minus the age times of your net worth.
For example, let’s say that you are 28 years old, then you should invest (100-28)= 72% of your net worth and keep the remaining in your saving account.
This rule is based on the philosophy that as you grow old, your needs will increase (like children’s tuition fee, children’s marriage, house debts etc) and hence you won’t be able to invest much. Therefore you should invest more when you are young and have minimum liability.
Where should you invest your money?
Now that you have understood the different factors affecting your investment decisions, here are the few of the common investment options available in India-
1. Fixed deposit (FD):
This is a low risk and low return investment. You can expect a return of 6-8% per annum by investing in FDs. The capital invested in FDs are considered to be safe if you do not count inflation and taxes.
2. Stocks:
Investing in the stock market involves high risk and high returns. You can expect a return of 15-20% per annum by investing in stocks.
Investing in stocks has been a life changer for many people. Although a number of people have lost money in stocks, however, many of the billionaires in India created huge wealth by investing in stock market.
New to stocks? Here is an amazing course on the stock market for beginners: How to pick winning stocks? Enroll now.
3. Mutual funds:
This is a moderate risk and high return investment. You can expect a return of 10-14% by investing in mutual funds. These funds are managed by highly qualified fund managers and hence it doesn’t require much involvement of the investors. However, these funds are also subjected to market risk.
4. Gold:
This is one of the conventional ways of investing which has been followed over thousands of years. This is a low risk and low return investment. The best part of investing in gold is that- it will always retain its face value.
Moreover, it is easily acceptable and highly liquid. You can sell your gold jewelry, gold bar or gold coin to any of your neighbor jewelry shop. The only disadvantage of investing in physical gold is its safety.
Nevertheless, after coming of GOLD ETFs, even this problem has been solved.
This is a low risk and high return investment. One of the best option available in a growing economy like India.
If you buy a property and hold it for 10-15 years, your initial investment can give multiple times returns. In many developing cities, the prices of a flat double itself just in 2-3 years.
Overall, the returns from real estate investment are tremendous.
However, the two big problems with real estate investment are high initial investment amount and liquidity. You cannot find a seller for your property in a day and it takes time for the paper works.
Nevertheless, don’t stop yourself from investing in real estate just because of these two reasons. The return on this investment is amazing. Moreover, if you do not own a house, it can be one of your biggest investment.
Few other points to know:
Stocks and real estate investment are the ones which have given the best returns in the past.
You can find a number of millionaires who made their fortune by investing in stocks and real estate. However, you will hardly find anyone who created huge wealth by investing in FDs, mutual funds or gold.
The other options available in India for investments are currencies, commodities like silver, metals, crude oil etc.
In addition, it’s better to invest in more than one option. You can own a property and remain invested in stocks at the same time.
Like the elders say -’Do not put all your eggs in one basket’. This is one of the best advice of all time.
Conclusion:
Risk
Reward
Fixed Deposits
LOW
LOW
Mutual Funds
MODERATE
HIGH
Stocks
HIGH
HIGH
Gold
LOW
LOW
Real estate
LOW
HIGH
No investment is completely risk-free. However, the severity of the risks is different in different investment options. Select the investment option carefully depending on your investment goal, risk appetite, time horizon and current financial situation.
Take advice from your financial advisor or knowledgeable friends. But make your own financial decisions. Remember, no one cares more about your money than you do.
That’s all. I hope this post on ‘Where should you invest your money?’ is useful to the readers.
Please comment below if you have any questions. I will be glad to help you.
Happy Investing.
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Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Be fearful when others are greedy and to be greedy when others are fearful. -Warren Buffett
Hi investors. In this post, we are going to discuss one of the less-talked topic- ‘What is contrarian investing?’. And why it is difficult to be a contrarian investor?
You might have heard about value investing, growth investing, Intraday trading, Swing trading etc. However, have you heard about contrarian investing? If not, then you are going to learn about it in this post. Let’s get started.
What is contrarian Investing?
Contrarian investing is the ideology in which an investor attempts to make profits by making his decision against the popular understanding but only when the conventional wisdom appears to be wrong.
A contrarian investor moves against mass psychology and looks for an opportunity of mispricing of the stocks due to consensual opinion. They believe in betting against the crowd.
When the stock prices are down and the people are bearish, contrarian investors find good opportunity to buy the under-priced stocks. On the other hand, when the stock prices are high and the people are bullish, a contrarian investor tends to sell his stocks as he finds it over-priced and believes to make a good profit by selling it at that time.
A contrarian investor likes to invest opposite of the trends and what the majority are doing. He believes in taking advantage of the temporary mispricing of the stock by the masses. By choosing out of the favor stocks, a contrarian investor tends to make a profit by following the same old strategy i.e. buy low and sell high.
How are contrarian investors different from value investors?
A contrarian investor is very similar to the value investor as both tend to look for undervalued stocks. However, the basic difference between both of them is: A value investor buys/sell stocks purely based on the fundamental analysis. Whereas, a contrarian investor also cares about volume trading, analyst forecast, and media commentary.
Why it’s difficult to be a contrarian investor?
There are very few true contrarian investor in the market. This is because a contrarian investor looks stupid most of the time when they take the decision opposite to the common thinking or what the majority are doing. Moreover, ofter in the case when the trend changes and they turned out to be correct, the contrarian investors are just referred to as the ‘lucky’ ones.
Here are a few more reasons why it’s difficult to be a contrarian investor:
1. Herd mentality: When everyone is buying/selling a stock, it takes a lot of courage to do the opposite of the crowd.
If everyone is purchasing a stock whose share price is continuously increasing for the last one year, then its really hard to ignore that stock. Similarly, when the price of a stock starts falling at a high pace and the majority of investors are bearish, it’s tough to hold that stock or buy more.
2.Group thinking: Most people are okay with a stock that is not performing if everyone else is also holding that stock. However, buying a non-performing stock (that no one in their group is buying) gives them a headache. Looking at what others are buying/selling and doing the same as their group, makes people more confident than doing the opposite and being a contrarian investor.
3. Following the veterans: Watching one of a big investor or a big institution buying/selling a stock attracts a common investor as they see them as a sign of authority. On the other hand, a contrarian investor tends to think opposite and hence doesn’t find any authority support or social proof for their investment decision.
4. Short term losses: A contrarian investor has to suffer short-term losses and sometimes these losses may extend to years until the trend is reversed. Most of the common investors can’t see their portfolio in losses when others are making money and hence disregards the contrarian investing philosophy.
Summary:
Contrarian investing is one of the most successful investment approaches over the long term. Warren Buffett, one of the richest investor of this time, follows this approach which itself validates the power of contrarian investing.
A contrarian investor tends to get maximum benefits of both good and bad market. Although it’s difficult to go against the crowd, however, if you are confident about your analysis, then following contrarian investing approach can make wonders for your investments.
That’s all for this post. I hope this is useful to the readers. If you have any questions, please comment below. I will be happy to help. Happy Investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
2017 has been a good year for the Indian stock market. After a small setback during demonetization, the market has taken a positive trend. Even GST has been implemented smoothly this year.
The investors remained bullish throughout the year. NSE Index ‘Nifty’ has given a return of 27% till now (From January’17 to November 2017).
In this post, I am going to give the names of those stocks that gave more than 500% return in 2017. There are also few stocks on this list which gave more than 1,000% return in last 1 year. For example Indiabulls Ventures, Soril Holdings, and HEG.
Note that if you just were happy with 1-2 times returns, you might have missed the multi-bagger returns from all these stocks. Do not cut your winners and stay invested for long.
Here is the list of 5-baggers to 12-baggers in last 1 year. Are you holding any?
Stocks that gave more than 500% return in 2017:
Name
Last Price
Market Cap
1-Year Change (%)
Indiabulls Ventures
259.85
115.64B
1.24K
Soril Holdings Ventures
228.55
10.99B
1.09K
HEG
1651.5
69.24B
1.04K
California Software Company
74.45
879.77M
962.13
Goa Carbon Ltd
873.7
8.38B
849.69
Blue Circle Services
38
773.19M
845.27
Graphite India
579.9
116.46B
714.99
Yuken India
2808
8.34B
685.92
Rai Saheb Rekh
400
5.98B
651.10
Goldstone Infratech Ltd
197.9
6.83B
631.52
Sanwaria Agro Oils Ltd
18.2
13.99B
620.15
Bhansali Eng Polymers
162.75
26.54B
591.16
Rain Industries
327.55
112.37B
581.22
CC Constructions Ltd
97.05
2.61B
572.19
Bella Casa Fashion Retail Ltd
210
2.17B
565.64
Akme Star Housing Finance
117
1.43B
554.05
Venkys India
2875.05
40.23B
553.33
Lancer Container Lines
175.45
1.05B
539.01
Jindal Worldwide Ltd
1159.25
22.31B
506.70
Aditya Consumer Marketing
101
1.48B
500.00
Note: You can get this list using stock screener from INVESTINGwebsite.
Further, I will not suggest you buy these stocks just because they have given good returns in the last 1 year. Study the company carefully before investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Is it worth investing in IPOs?: Everyone gets excited about new things. The new clothes, new bike, new car, new job, etc always attract the public. Investors are also like ordinary people and hence they are also tempted by the word ‘NEW’. Be it new technology, a new industry or a new company.
In this post, we are going to discuss whether it’s worth investing in these new companies which enter the market for the first time.
What is an Initial Public Offering (IPO)?
When a privately held company offers its shares for the first time to the public, then it is called Initial public offering (IPO). It is a way for companies to enter the stock market. Until a company offers IPO, the public is not able to buy the company’s share.
Before the IPO of a company, its shareholders include limited people like founders, co-founders, relatives, friends and initial investors (like an angel investor, venture capitalist etc). However, after the company offers its IPO, anyone (public, institutional investors, mutual funds etc) can buy the shares of the company.
A few of the famous IPOs of 2017 are BSE, CDSL, Avenue supermarket (Dmart), SBI Life insurance etc.
What does ‘Going public’ mean?
Going public means that a ‘privately owned company’ is conducting an initial public offer (IPO) to the public in order to enter the stock market as a ‘public company’.
In short, when a company is offering an IPO, it is said that the company is going public.
There can be a number of reasons why any company offer an IPO. Here are a few of the top ones:
For a new project or expansion plan of the company
To raise capital (financial benefit)
For carrying out new research and development works
To fund capital expenditures
To pay off the existing debts or reduce the debt burden
For a new acquisition
To create public awareness of the company
For the group of initial investors desiring to exit the company by selling their stakes to the public.
In addition, IPOs generate lots of publicity for the company and hence helps in creating market exposure, indirect exposure, and brand equity.
Why are the disadvantages of conducting IPOs?
Here are the few disadvantages for the companies who offer their IPOs:
Public disclosure: When a privately held company offers its IPO, it has to disclose a number of documents to the public like its financials, promoters list, debts etc.
Entering a regulated market: Indian stock market is highly regulated by Securities and exchange board of India (SEBI) and hence the newly public company has to play by the rules of SEBI. There has been a number of cases of companies getting delisted by SEBI as they do not follow the norms of the market.
Market pressure: The companies performance are closely scrutinized by the public and investors. Hence, the company’s management is consistently is pressure. Sometimes the companies focus more on short-term performance over long-term due to market pressure.
Loss of control: As the shares are distributed among the investors, the decision making power is now in the hands of the shareholders.
Failing of IPO: Many companies fail to attract investors during its IPO and the offered shares might remain under-subscribed. In such a scenario, the company is not able to raise enough capital that is expected to achieve the goal of IPO.
Why do many IPOs come in the bull market?
The promoters of the company sell their stakes only when they are confident of getting a good price. This generally happens only in a bull market.
During a bull market, the owners of the company can raise enough fund for their cause as the public is optimistic. People are willing to pay good prices to buy shares of the company.
Why do not many IPOs come in bear market? During bear market, people are pessimistic and are not willing to pay a good price for the shares of a newly public company. The owners feel that they won’t be getting the right price for their shares and hence most owners do not introduce their IPO during a bear market
There is a common myth that the company’s shares are undervalued during its IPO and hence the early subscribers of the IPO feel that they have made a very good deal.
However, IPOs are the by-products of a bull market and they are generally over-priced.
The owner and the initial investors of the company (like angel investors, venture capitalist etc) are the ones who get maximum profits during an IPO as they are able to sell the shares at a good price.
Why are people excited about IPOs?
There are a few common reasons why people are excited about IPOs. They are:
Under-pricing myth: When a company announces its IPO, it’s presumed that the offered price is less than its true value. People are excited about the fact that they are the first one to buy the stock and will be rewarded handsomely when the company’s true price will be realized by the market. However, it’s very rare that the owners will be willingly underpricing the shares.
Herd-mentality: As everyone they know will be applying for the IPO, people do not want to be missed out.
Overhype by media/ underwriters: Media gets a high advertisement fee for the promotion of the IPO. Moreover, IPOs are intentionally overhyped by the investment banker and the underwriters. They make sure that these IPO’s get enough attention as this is their job to promote and sell the shares.
‘The Next …’ strategy: People compare the upcoming IPO with the Winners in the same industry and conclude that it will perform the same. ‘The next Eicher motors’, ‘The next symphony’, ‘The next Infosys’ etc. This ‘Next’ philosophy makes a lot of people excited about the upcoming IPO.
Is it worth investing in IPOs?
A lot of investors have made huge wealth by investing in IPOs. Had you invested in ‘INFOSYS’ when it got listed, you might have been sitting at a huge pile of wealth today.
However, the performance of the majority of the IPOs in the Indian stock market is under-satisfactory. The number of IPOs underperforming in long-term are comparatively quite larger than the number of IPOs that performs well in the market.
Further, IPOs are never priced in the benefits of the public.
In the case where few IPOs are fairly priced, it gets a lot of demand from the public during its offerings and gets over-subscribed. Moreover, it soon becomes over-priced once it starts trading in the market. A few IPOs might give you a good return in the 1-2 months of its listing as they are introduced in the bull market, however, in the long run, their performance is quite poor.
If you are willing to invest in the long-term, then be cautious about investing in IPOs. Focus on the quality of the company, not the hype generated by media or underwriters.
Nevertheless, you can always pick these companies from the secondary market once the hype is over and the price is attractive. There are over 5,500 companies listed in Indian stock market. It’s better if you pick a good one among them than picking the upcoming hyped (5,500+1)th company.
New to the stock market? Confused where to begin? Here is an online video crash-course for beginners: How to pick winning stocks?
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Market order vs Limit order: Basics of stock market
The share market is very volatile. The prices of the shares fluctuate every microsecond. You can easily find a number of shares whose price increased/decreased by 3-4% in a day.
But how can a retail investor place order to buy/sell a share in such scenarios? What to do if the stock that you want to buy was at Rs 120 at 10:00 and is currently at Rs 124 (plus continuously increasing)? How to place an order to buy the shares?
There are two ways by which an investor can place an order to buy/sell shares – 1)Market order 2) Limit order.
Both have their advantages and disadvantages. In this post, we will discuss market order vs limit order. Let’s get started.
Market order vs Limit order
Market order:
When you want to buy/sell a share at the current market price, then you place a market order.
For example, if the current market price of ‘Tata Motors’ is Rs 425 and you are ready to buy its share at the same market price, then you place a ‘market order’.
Here are few key points about the market order:
Market order is executed at market price
Order is executed instantaneously
A market order cannot be used to set stop loss.
Advantage: The order is executed instantaneously if the buyer/seller is available.
Disadvantages: As the market is dynamic, you might not be able to get the stock at the same price at which you first ordered. For example, if the current market price of Tata Motors is Rs 425, and by the time you place a market order it goes up to Rs 430, then the market order is executed at Rs 430 only.
Sometimes due to the explosive movements of the stock price, you might have to pay a lot more than what you wished for while placing the market order. Nevertheless, you will get the shares.
Limit order means to buy/sell a share with a limit price. If you want to buy/sell shares at a specific price, then you need to place a limit order.
For example, if the current market price of ‘Tata motors’ is Rs 425. However, you want to buy it at Rs 420. Then you need to place a limit order.
Here are few key points about the limit order:
You have to specify the buying/selling price
Order is executed when the price reaches the trigger point
Limit order can be used to set stop loss
Advantage: You buy/sell the share only at your desired price.
Disadvantage: You might not be able to buy/sell the share if the trigger point is not reached.
For the same example of Tata motor share, let’s say that its share price never came down. It went up to Rs 430+. In this case, your order will not be executed and you won’t be able to buy the share.
Summary:
It’s good to place a limit order on the volatile stocks. Placing a market order is explosively moving stocks can result in a bad purchase/sell for the trader.
Tags: Market order vs Limit order, market order vs limit order example, limit order definition, market order definition, should i use market or limit orders, market order example
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Hi investors! In this post, I’m going to give you the book review of ‘Common stocks and uncommon profits’ by Philip Fisher. The book is an evergreen classic and was originally published in 1958.
The author of the book, Philip Fisher was a very successful investment legend of his time. He had a great influence on Warren Buffet, the billionaire investor and one of the richest person on this planet. Buffett himself has stated he is “85% Graham and 15% Fisher.”
*Graham was Warren Buffett’s mentor and also known as the father of value investing.
Before we start the common stocks and uncommon profits book review, let me first give you a small introduction to Philip Fisher.
Phillip Fisher started his investment journey in 1928 after dropping out of the Stanford Business School to take a job of the securities analyst. He started his own company ‘Fisher and company’ in 1931 and worked there till 1999 at an age of 91.
Philip Fisher was interested in growth stocks. His philosophy was to invest in well managed high-quality growth stocks for long term.
Apart from ‘common stocks and uncommon profits’, the other famous writings of Philip Fisher are:
Now, that you have got little knowledge about the author Philip Fisher, let’s move to continue our book review.
Common stocks and uncommon profits book review:
The book ‘Common stocks and uncommon profits’ was an instant hit when first published and Philip’s idea of growth stock investing became immensely popular.
In the book, Philip Fisher described ‘what to buy’ for high-quality stocks, where he called these stocks as ‘Scuttlebutt’. Scuttlebutts are those common stocks which have gone through a detailed analysis like the study of its promoters, suppliers, customers, stakeholders, employees, competitors etc to find out about the company’s future prospect.
The most important chapter of the book is ‘What to buy’ where Philip Fisher described his famous ’15 points to look for a common stock’.
In this chapter, Philip Fisher describes the different factors to check for a common stock like validity of products/services for long life, management efficiency to continue growth and increase sales, Research, and development center of the company w.r.t. its size, sales organization, profit margin, improving profit margin, labor & personnel relations, executive relations, cost analysis and accounting controls, competitors, and transparency & integrity of the management.
Although Philip Fisher mentioned that it’s highly unlikely that a company will meet all the 15 points in his checklist. However, if the company fails to meet multiple of these points, then it definitely is a danger point for the investors. Here is Philip Fisher’s 15 points checklist to look into common stocks before investing.
Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
How effective are the company’s research and development efforts in relation to its size?
Does the company have an above-average sales organization?
Does the company have a worthwhile profit margin?
What is the company doing to maintain or improve profit margins?
Does the company have outstanding labor and personnel relations?
Does the company have outstanding executive relations?
Does the company have depth to its management?
How good are the company’s cost analysis and accounting controls?
Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
Does the company have a short-range or long-range outlook in regard to profits?
In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
Does the company have a management of unquestionable integrity?
The next key chapter is ‘when to sell’ where Philip Fisher argues that the best time to sell a good stock is ‘never’ as long as the company behind the stock maintains its characteristics of a usually successful enterprise.
The other important chapters of the book is ‘When to buy’, ‘Hullabaloo about dividends’ (Philip Fisher suggests that the dividend consideration should be given the least, not the most, by those desiring to select outstanding shares), ‘Five don’ts for investors’, and ‘How I go about finding a growth stock’.
The book attempts to show what to buy, when to buy and when to sell for those who are desiring to get uncommon returns on their investments. To sum up, this is a good read to understand the fundamentals of growth investing. I will definitely recommend reading this book.
Grab a copy of ‘Common stocks and uncommon profits’ on Amazon here.
That’s all. I hope this post on ‘Common stocks and uncommon profits book review’ is useful to the readers. Further, comment below which is the best book on investing that you have ever read.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
When I first entered the investing world, I spend a lot of time googling the key terms in share market. Definitely, Investopedia was my favorite website to learn the meaning of those words. Although there are thousands of terminologies that a stock market investor/trader should know, however, they are a handful of them which are repeatedly used. This basic domain knowledge of these terms is really important if you want to enter and succeed in the share market.
In this post, we are going to present an elementary guide for the beginners to help them understand the key terms in share market. Let’s get started.
27 Key terms in share market that you should know:
Share: A share is the part ownership of a company and represents a claim on the company’s assets and earnings. It fluctuates up or down depending on several different market factors and is exchangeable at stock exchanges. As you acquire more stock, your ownership stake in the company becomes greater.
Shareholder: An individual, institution or corporation that legally owns one or more shares of stock in a public or private corporation are called shareholder. Shareholders have a claim on the company’s ownership.
Primary market: Also known as New Issue Market (NIM). It is the market place where new shares are issued and the public buys shares directly from the company, usually through an IPO. The company gets the amount on the sale of shares.
Secondary Market: It is the place where formerly issued securities are traded. The second market involves indirect purchasing and selling of shares among investors. Brokers are Intermediary and the investors get the amount on the sale of shares.
Intraday: When you buy and sell the share on the same day, then it is called intraday trading. Here the shares are not purchased for investing, but to get profits by harnessing the movement in the market.
Delivery: When you buy a share and hold it for more than one day, then it is called delivery. It doesn’t matter whether you sell it tomorrow, after 1 week, 6 months or 5 years. If you hold the stock for more than one day, then it is called delivery.
Bull market: This is a term used to describe the scenario of the market. A bull market is when the share prices are rising and the public is optimistic that the share price will continue to rise.
Bear Market: When the share prices are falling and the public is pessimistic about the stock market, then it’s a bear market. The public is fearful and thinks that the market will continue to fall and hence, selling increases in this market.
IPO: When a privately listed company offers its sharers first time to the public to enter the share market, then it is called initial public offering.
Blue chip stocks: These are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years. Their stocks have low risk compared to mid cap and small cap stocks.
Broker: A stockbroker is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients. Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service.
Portfolio: A stock portfolio is grouping all the stocks that you are holding. A portfolio shows the different stocks and the quantities that you are holding. It’s important to build a good portfolio to maintain risk-reward in the stock market.
Stock Exchange: Just like a vegetable market, exchanges act as a market where the stock buyers connect with stock sellers. There are two big stock exchanges in India- Bombay stock exchange (BSE) and National stock exchange (NSE).
Dividend: Whenever a company (whose shares you are holding) is in profit, the company can either reinvest the profit or distribute the amount among its shareholders. This share of the profit that you get from the company is called dividend.
Companies may or may not give dividends to their shareholders depending on their needs. If it’s growing fast, it might re-invest the profit in its expansion. However, if it has enough cash, the company will distribute it among its shareholders.
Index: Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.
Sensex is the index of BSE and consists of 30 large companies from BSE. Nifty is the index of NSE and consists of 50 large companies from NSE.
Limit Order: Limit order means to buy/sell a share with a limit price. If you want to buy/sell a share at a given price, then you place a limit order. For example, if the current market price of ‘Tata motors’ is Rs 425, however you want to buy it at Rs 420, then you need to place a limit order. When the market price of Tata motors falls to Rs 420, then the order is executed.
Market order: When you want to buy/sell a share at the current market price, then you need to place a market order. For example, if the market price of ‘Tata Motors’ is Rs 425 and you are ready to buy the share at the same price, then you place a market order. Here, the order is executed instantaneously.
Good till cancellation (GTC) order: This order can be placed when an investor is willing to buy/sell the shares at a specific price and the order remains active till it is executed or canceled.
Day order: This order can be placed when an investor is willing to buy/sell shares on a particular day and the order gets automatically canceled if not fulfilled on that day.
Note: If you are new to share market and want to learn how to pick winning stocks, then here is an amazing crash course that I highly recommend you to check out.
Trading volume: It is the total number of shares being traded at a particular period of time. When securities are more actively traded, their trade volume is high. Higher trade volumes for a stock mean higher liquidity, better order execution and a more active market for connecting a buyer and seller.
Volatility: It means how fast a stock price moves up or down. More volatile assets are considered riskier than less volatile assets because the price is expected to be less predictable and may fluctuate dramatically.
Liquidity: Liquidity means how easily you can buy/sell a share without affecting the share price. A highly liquid share means that it can easily be bought or sold. A low liquid stock means that the buyers/sellers are hard to find.
Short selling: It is a practice where the trader sells share first (which he doesn’t even own at that time) and hope that the price of that share starts falling. He will make a profit by buying back those shares at a lower price. Overall, both selling and buying are done here, however, it’s sequence is opposite to the regular transactions to get the profit of the falling share prices.
Going long: This is buying the shares in expectations that the share price is going to increase. When a trader say I am “Going long…” or “Go long”, it indicates his interest in buying a particular share.
Average down: This is an approach that investors use to buy more shares when the share price starts falling. This results in an overall lower average price for that share. For example, you bought a stock at Rs 100. Then the stock price starts falling. You bought the stock again at Rs 80 and Rs 60. Hence, the average price of your investment will be lower i.e. Rs 80. This is the approach used in averaging down.
Public float (free float): Public float or free float represents the portion of shares of a company that is in the hands of public investors.
Market capitalization: It refers to the total rupee value of the company’s share. It is calculated by multiplying the total number of shares by its present market share price. We define large cap, mid cap or small cap companies based on their market capitalization.
Bid: The bid price represents the maximum price that the buyer/buyers are willing to give to buy a share.
Ask: This is the minimum price that the seller/sellers are willing to receive to sell their shares.
Bid-Ask spread: This is the difference between the ‘bid’ and ‘ask’ price of a share. Basically, its the difference between the highest price that the buyers are willing to buy a share and the lowest price that the sellers are willing to sell their shares.
Demat account: It is the short form for ‘Dematerialised account’. The demat account is similar to a bank account. Just as money is kept in your saving account, similarly bought stocks are kept in your demat account.
Trading Account: This is a medium to buy and sell shares in a stock market. In simple words, the trading account is used to place buy or sell order for a share in the stock market.
Margin: Trading on margin means borrowing money from your stock brokers to purchase stock. It allows the traders to buy more stocks than you’d normally be able to.
That’s all. Apart, there are thousands of more terminologies involved in trading/investing. However, these are the key terms in share market that a beginner should know. I hope this is helpful to the readers. Comment below if I missed any key term in share market that should be listed in this post. Happy Investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Value Investing and behavioral finance by Parag Parikh- Book Review
Hi Investors! Today I’m going to give you the book review of ‘Value Investing and behavioral finance by Parag Parikh’. I have been reading this book for last few days and now that I have completed it, here is the book review. Stay tuned.
Value Investing and behavioral finance by Parag Parikh- Book Review
“Those who do not learn from history are condemned to repeat it” – Santayana
This book is quite compelling for value investors and covers a number of fundamental concepts.
The best part is that the book focuses on Indian stock market and all the chapters are explained with the help of Indian stocks.
The book is well structured and contains 12 chapters. Here are they:
Success and failure
Understanding behavioral traits
Behavioural obstacles to value investing
Contrarian investing
Growth Trap
Commodity investing
Public sector units
Sector investing
Initial public offerings
Index investing
Bubble trap
Investor behavior based finance.
Although there are great learnings from every chapter, however, I am going to give you the brief summary of few of them, so that it won’t kill the fun when you read the book.
In the first chapters, Parag Parikh explains why people fail while investing. He gives the explanation using the human nature of laziness, greed, self-interest, ignorance etc. One of the main reason for the failure of people that he explained is ‘unwillingness to delay gratification’. The instant gratification causes the vast majority of people to indulge themselves in short-term gain for long-term pain.
A new term about investing that I learned from this book by Parag Parikh is ‘Heuristics’.
Heuristics is the shortcut that brain takes when processing information. Our brain does not process full information. This leads to cognitive bias. Some common valuation heuristics are- Price to earnings heuristics, Price to book value heuristics and price to sales heuristics.
Contrarian Investing:
The fourth chapter is an interesting one and covers the concept of contrarian investing.
A contrarian investor can be defined as the one who attempts to profit by betting against conventional wisdom, but only when consensual opinion appears to be wrong. What really differs a contrarian investor is his emphasis on looking for opportunities where the sensual opinion has led to mispricing.
Parag Parikh explains how contrarian investors have outperformed the other investors in a long run. He clarifies the difference between a value and contrarian investor. Further, he also suggests why it’s difficult to follow contrarian investing with the behavioral reasons of group thinking, false consensus effects, ambiguity effect, herding etc.
Growth Trap:
In the chapter growth trap, Parag Parikh supports the concept of value investing over growth. He argues that many investors get trapped in growth investing without totally understanding the history and behavior of growth stocks. He explains the various reasons for growth trap like going with the herd, peer pressure effect, overconfidence bias, bystander effect etc.
The concept of IPO investing is explained in chapter 9 of this book. Parag Parikh suggests that there has always been the craze of new things among the public like the latest dress, latest bikes, latest cars etc. He argues that even the investors are not free from this behavior and easily get influenced by the listing of a new company or a new emerging sector.
However, investing in IPOs is not a good idea for the value investors. Parag Parikh explains this with the help of a study he conducted on the long-term performance of IPOs from 1991 to 2006. The study showed a disappointing picture.
From a total of 3122 IPOs which got their initial public offering in this period, only 1540 managed to remain listed. More than 50% of the companies either got delisted, merged, bankrupted or vanished.
Further, more than 56% companies from this list of 1540, gave negative returns in the long term. Only 15% of 1540 companies gave return more than Sensex.
Parag Parikh concluded that the IPOs are the byproducts of the bull market and a long-term investor should be very cautionary while investing in IPOs.
Commodity, PSUs, and Sector Investing:
There are also full chapters on commodity, PSUs, and sector investing.
In the public sector units chapter, Parag Parikh explains the common perception of the stock market towards PSUs, advantages, and disadvantages of investing in PSUs etc.
In the sector investing chapter, he coverers top-down analysis approach and sector investing. Here, Parag Parikh analyzed different sectors like automobile, banking, real-estate, telecommunications, FMCG etc and explained its past performance with future expectations. It’s a good read for all those who want to study the performance of different sectors or are interested in investing in a particular sector.
In the index investing chapter, Parag Parikh argues how the market index, over the long term, has given a better return than over 90% of actively managed mutual funds. He explained this with the help of returns from the indexes- Sensex and nifty.
Overall, In this book- ‘Value investing and behavioral finance’, Parag Parikh focused on value investing and manifests that over the long term, value stocks have given best returns to its investors.
The book educates the readers about the much-needed topics that are ignored by most financial websites, books, and media. It’s definitely one of the best books on value investing based on Indian stock market.
I highly recommend the readers to read this book to get the best insights into Indian stock market. And its surely worthwhile reading it.
Grab a copy of ‘Value Investing and behavioral finance by Parag Parikh’ on Amazon here.
That’s all. I hope that this post on ‘Value Investing and behavioral finance by Parag Parikh- Book Review’ is useful and entertaining for the readers.
Please comment below- which is your favorite book on investing?
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Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
It’s a known fact that less than 2% population of India invests in share market.
After coming of PM Modi in the government, even though the stock market is bullish; however it hasn’t been able to attract more people towards investing. If we consider just the percentage of the population in India which invest in share market, it’s same as that in the 1990’s.
There has been a number of changes in the last 10 years. Smartphones, high-speed internet, social-networking, connectivity etc all have seen a boom in their industry.
If we just compare the scenario of India 10 months back, we can notice how watching youtube on your phone internet pack was a rare scene, even for the working class people. However, after coming of Reliance Jio, we can find even a 3-year old watching ‘Doraemon’ on his/her phone.
The things are changing too fast with time. However, the investing world is still missing the boom. People who should start investing by their first salary, wait until their 30s to even invest their first penny.
If you are not investing, then you are missing out. The upcoming world belongs to the fast-mover. When you are busy deciding whether to invest or not, at the same time many have earned lakhs from their investments.
But why people do not invest in share market? Are they really unaware of the power of investing or are they still afraid? What’s stopping them from creating huge wealth?
Definitely, it cannot be the 4% annual return on the savings. Do you really want to keep Rs 1 lakhs in your saving accounts for one complete year, just to get Rs 4,000 in returns?
Moreover, if you are in your 20’s and belong to a working class, then what’s really stopping you? Why you never bought a stock?
It definitely can’t be fear. No one in his/her’s 20s fears spending money. If you can buy a Nike shoe of Rs 8,000, spend Rs 2,000 every weekend on drinks, then certainly investing Rs 1,000 per month on stocks won’t scare you.
Further, accessibility can’t be a reason why you are not investing. The people who are currently in their 20’s are an expert in using the internet at all platforms- no matter its phones, tablet or laptops.
Or are you afraid of opening a ‘Trading and demat account’? A generation who has credit cards, debit cards, 3 savings accounts, a passport, Aadhar card, pan card, driving license, voter id etc just can’t say that they are afraid of doing little paperwork to open a new trading account.
While finding the answer to this question, I met over 300 people. Most of the people whom I asked this question were in their 20’s or 30’s.
Here are the few common reasons that I found out about the people who never own a stock.
Why you never bought a stock?
You do not understand the stock market and it’s like ‘Chinese’ to you:
The most common answer that I got to my question. ‘I don’t understand why stock price changes’.
When I asked my next question that did you searched the same on youtube, most of them said ‘no’. For a generation, who spend over an hour daily on youtube, searching something that they do not understand should not be uncommon.
However, most of you will never search it. Although the answer to ‘why you never bought a stock’ is ‘I do not understand it’, however, the root answer for this is different. It’s unwillingness.
If you are new to stocks and want to start investing in stock market, here is an amazing online course for beginners- How to pick winning stocks? – which is currently available at a grand discount.
You do not want to start small:
You never bought a stock because you want big profits. Why invest Rs 10,000 in the market, if even a 20% returns will make only Rs 2,000 in a year? You want to make millions from the market, and according to you ‘I need huge money to make money, If only I have Rs 10 lakhs to invest…’.
You will only invest in the market when you will have lakhs of rupees or maybe more. Nevertheless, you ignored the fact that every successful investor once started small.
Waiting too long for the perfect time
‘Oh, the market is quite high currently, I cannot invest in share market now’.
‘Nah, the market is falling. I won’t invest in share market in these bad times.’
This category of people is always waiting for the perfect time to invest and try to time the market. However, their emotions are taking control of them.
When the market is high, they think that they will buy the stock when it’s lower. When the market is low, they argue that they cannot make money in this falling market. Hence, they never buy any share.
You do not want to move your lazy a** and prefer others to manage your finances:
You are one of those people who are just too lazy to buy stocks on their own. Moreover, you believe in lending money to your friends, siblings or financial advisors so that they can invest in your place.
But while doing so, you forget that you never bought any stock. It was your friend/sibling/financial advisor who bought it and. You never learned how to invest and even after earning a good salary, you are financially literate.
The market is too high, there might be a 2008-09 market crash again. This category of people relates every market movement with the 2008 economic crash.
Few of the common questions of these people are- ‘When will be the next crash in the market?’ ‘What if the market crashes tomorrow?’, ‘What if it’s even worse than 2008-09 economic scenario?’. This category of people is too afraid to invest and always considers the worst that could happen. The fear of the past stops them from buying their first stock for future.
You consider it as gambling or scam:
As you never understood the stock market, you consider it as gambling or scam.
‘How can that stock give 5 times returns in 2 years? That’s impossible. It’s just gambling’. Whenever you hear your friends making money from the market, you just consider them lucky.
You think that your friends have got good luck but you are not that lucky. The image of stock market investing as gambling/scams stops you from buying your first stock.
You are a pessimist and only notices people who lose money in the market:
This category of people only notices how his friend lost money in the market and how much he lost. They are confident that no one can make money from the market until they are gifted on lucky.
When they are busy loathing the people who lost money in the market, they do not notice that there are many who made tons of money from the same share market.
Besides, there might be multiple other reasons that why you never bought a stock, however, these are the ones that I found common and repetitive.
Please learn lessons from this post and start your financial journey today.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
#5 Things Warren Buffett looks for before investing
Warren Buffett, the veteran investor and one of the richest man on this planet, is certainly an icon to look for in the investing world. The success and wealth that Warren Buffett has accumulated are really galvanizing.
In this post, we are going to discuss the five important factors that Warren buffet looks for before investing in any company.
#5 Things Warren Buffett looks for before investing
1. Circle of competence:
Warren Buffet looks for the business he can understand and analyze. He only invests in the company that is in his circle of competence. (And it makes sense because if you can’t understand the business, then you can not forecast its future business performance.)
For example, during the technology boom in the 1990s, everyone was investing in the technology stocks. It didn’t matter to the investors to understand the underlying business of the company they were investing in it. However, Warren Buffett didn’t invest in technology stocks simply saying that he cannot understand them.
He said- ‘I can understand the business behind coca-cola, automobile or textile industry. I know how they work and how they can generate profit. I can predict their growth. However, I do not understand technology companies. These companies do not lie inside my circle of competence, therefore I do not invest in them’
The technology sector was a boom in those time and gave amazing returns to everyone that invested in that sector. However, if you fast forward a few years, you will know that there was a big crash in the technology sector which destroyed the wealth of lots of people who were just following the herd mentality.
His advice to other investors- Stick to your circle of competence and do not take an irrational decision by investing in companies that you do not understand. Expand your circle of competence but do not cross it.
Warren Buffett gives a lot of weight to an efficient management. He evaluates the management’s rationality towards reinvesting for growth along with rewarding its shareholders. Further, he is very stern about the honesty of a management.
3. Value:
‘Price is what you pay, Value is what you get.’.
Warren Buffet spends a lot of time reading the financials of the company. He goes through all the annual reports of the company to find its profitability, returnability, liquidity, valuation etc. Warren Buffett always analyses the value of the company before looking at its market price. This is because he does not want to get biased by knowing the company’s market price before analyzing its financial statements.
4. Moat:
The concept of the moat was popularised by Warren Buffett.
A moat is a deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack. Some stocks have a similar moat around them. That’s why it’s really tough for its competitors to defeat them in its sector.
Warren Buffett always looks for a company with a wide economic moat. This moat helps the company’s business to outperform its competitors. The moat can be anything like brand value, license, patent, switching cost etc
In addition, Warren Buffett also prefers older companies which have been public for over 10 years. He avoids buying shares in Initial public offerings.
‘A good business is not a good investment if you overpay for it’.
The concept of margin of safety was originally introduced by Benjamin Graham, the father of value investing. He was also the mentor of WarreBuffetet.
This is the central concept of value investing. Basically, this concept states that if you think a stock is valued at Rs 100 per share (fairly), there is no harm in giving yourself some benefit of the doubt (if you are wrong about this calculation) and buy at Rs 70, Rs 80 or Rs 90 instead. Here, the difference in the amount is your margin of safety.
Warren Buffett looks carefully for a margin of safety in a company before investing. He only invests if the company is currently selling at a discount.
To calculate the margin of safety, he first finds the intrinsic value or true value of the company. The current market value should be less than the intrinsic value of the company. Generally, he prefers to buy a. company with a margin of safety of at least 25%.
These are the five things that Warren Buffett looks in a company before investing. I hope you have learned a lot from this legendary investor’s way of investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Hi Investors. In this post, we are going to discuss taxes on investing & trading. We will cover the taxes involved in intraday, short-term, long-term, and futures & options. However, before you study about the different capital gain taxes on share market, here are a few things that you need to know first.
Terms to know before we get started:
Long-term investment: When the holding period of your investment in equity is more than 12 months, then it is called long-term investment. The gain on selling these stocks after one year holding time is called long-term capital gain.
Short-term investment: Those investments in equity where the holding period is less than 12 months are called short-term capital investments. The gain on selling stocks under 1-year holding time is called short-term capital gain.
Speculative business income: The income from intraday trading is considered under speculative business income. They are appraised as other income (than your salary or business income), and hence they are taxed according to the income tax slab you fall in.
Non-speculative business income: The profit or loss from the Futures & options trading is considered under non-speculative business income.
Income tax slab for Individual taxpayer in India (Less than 60 years old)
In case you do not know the tax rate under different slabs, here is the income tax slab table for individual taxpayers in India.
Income Slab
Tax Rate
Income up to Rs 2,50,000*
No tax
Income from Rs 2,50,000 – Rs 5,00,000
5%
Income from Rs 5,00,000 – 10,00,000
20%
Income more than Rs 10,00,000
30%
Capital gain taxes on share in India
Short-term capital gain:
For the short term capital gain, investors/traders have to pay flat 15% as tax.
It doesn’t matter which income tax slab you are in, you have to pay a flat short-term capital gain tax of 15%. For example, Let’s say your annual salary is Rs 12,00,000 and you have a short-term capital gain of Rs 50,000. Here, although your tax slab is for 30%, you have to pay the short-term capital gain tax of 15% on Rs 50,000 i.e. Rs 7,500.
However, if your net income is less than the taxable amount (i.e. less than Rs 2.5 lakhs), in such case the 15% tax will only be paid on the amount above Rs 2.5 lakhs. For example, if your salary is 1,80,000 and you have an additional short-term capital gain of Rs 1,00,000. In this case, your total income will be Rs 2,80,000. However, you have to pay short-term capital gain tax only on Rs 30,000 {Rs 2,80,000 – Rs 2,50,000).
Here are a few other important points regarding short-term capitals loss:
Short term capital loss can be set off against short or long term capital gain from any capital asset. However, you cannot offset short-term losses against salary income/business income.
In case of loss not entirely set off, it can be carried forward for the next 8 years.
Long-term capital gain:
There is no tax on the long-term capital gain. You do not need to pay anything to the government if you are holding the stock or equity mutual fund for more than 1 year.
According to the updated tax rules announced in budget 2018 by Mr. Jaitley, long term capital gains exceeding Rs 1 lakh will be taxed 10% after 1st April 2018.
For example, let’s suppose you bought stocks worth Rs 12,00,000 and the market price of those stocks moved up. After one year, you sold the stocks and your final selling worth is Rs 14,50,000. Here, you made a long term capital gain of Rs 2,50,000. As the government has given a relaxation of gains till Rs one lakh, therefore, you have to pay a capital gain tax of 10% on (2,50,000- 1,00,000=) Rs 1.5 lakh.
In the case of long term capital losses, it can now (post introduction of LTCG tax of 10% in budget 2018) be set off against long term gains and can be carried forward to subsequent eight years.
As mentioned earlier, gains from the Intraday trading are considered under speculative business income. This is because you will be trading without the intention of taking delivery of the contract.
These gains are taxed as per tax slab you fall in.
For example, if you have an annual salary of Rs 12,00,000 and you have a capital gain of Rs 1,00,000 by intraday trading. Then your total taxable amount will be Rs 12,00,000 + Rs 1,00,000 at a tax rate of 30% on the total amount.
Here are the other important points that you should know about speculative business income:
You can offset the speculative income loss against speculative income. However, you cannot offset this loss against salary income, business income or non-speculative income.
Nevertheless, this loss can be carried forward to the next 4 years.
Futures & options trading is considered under non-speculative business income as in F&O contracts are meant to be held for a longer time. These instruments are used for hedging and also for taking/giving delivery of the underlying contract.
Few other non-speculative incomes are income from rent, income from selling products etc. These incomes are taxed as per your tax slab.
For example, if your annual income is Rs 6,00,000. Then you are under 20% tax slab. If you earned a profit of Rs 1,00,000 by future trading in a year, then your total taxable amount will be Rs 6,00,000 + Rs 1,00,000 = Rs 7,00,000.
Few other important points to know:
You can offset the non-speculative loss against non-speculative & speculative income. However, you can’t offset it against salary income.
Non-speculative loss can be carried forward to the next 8 years.
Note: All the cases mentioned above are for those whose primary source of income is salary, self-employment or business. In case you declare trading as your primary business income, i.e. in case of full-time traders, you have to pay the short-term capital gain according to your tax slab (not a flat 15% tax). Other cases will remain the same as they are charged according to your tax slab.
Taxation on dividends
Income from dividends is exempted from tax in India.
This is because the company issuing dividends already pays a ‘dividend distribution tax’ to the government before giving the dividends to its shareholders. Effectively, you already paid the tax through the company. Anyways, an income from dividends above Rs 10 lakhs is taxable to 10%.
Note: For the dividends to be greater than 10 lakhs, you have to invest above 2.5 crores (if we take a high dividend yield of 4% of the stocks). [Also read: Dividend stocks: Should you invest in it?]
Conclusion:
Here is the answer to a few of the most common questions asked about taxes on share in India.
Is income from stock market taxable?
It depends on your holding period. If you are holding the stocks for long-term (more than 1 year), then the capital gain is not taxable For the long term, the capital gain exceeding Rs 1 lakh, is taxed 10%. However, for the short term capital gains (holding period of less than 1 year), there is a flat capital gain tax of 15%.
How much do day traders pay in taxes?
Day traders, who are involved in intraday trading, pay taxes according to their tax slab. For example, if you have an annual salary of Rs 12,00,000 and you have a capital gain of Rs 1,00,000 by intraday trading. Then your total taxable amount will be Rs 12,00,000 + Rs 1,00,000 with a tax rate of 30% on the total amount.
Do you have to pay the taxes if you do not sell the stock?
No, you do not have to pay taxes if you do not sell the stock. Moreover, if you sell the stock after holding it for more than 12 months, again there will be no tax then you have to pay a tax of 10% (for gains above 1 lakhs). A 15% Tax is applicable when the holding period of stocks is short-term (less than 12 months).
Are dividends taxable?
Dividends are exempted from tax. The shareholders do not need to pay any tax on the dividends it receives from the company he holds.
That’s all for this post on ‘What are the capital gain taxes on share market in India?’. I hope this is useful to the readers. If you have any question, feel free to write in the comment box below.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Hi Investors. In this post, we are going to discuss dividend stocks and should you invest in it?
Dividends are one of the most debatable topics while picking a stock. While many consider high regular dividends as a healthy sign for a company, on the other hand, many think that giving high dividends are counterproductive for a company.
Therefore we will discuss all the prospects of dividend stocks in this post. Whether they are good or bad for an investor?
Here are the points that we are going to cover in this post.
What are dividends?
Important terms that you should know regarding dividends
Why some companies give dividends and other don’t?
Why dividend matters for investors?
Common misconceptions to know about dividend stocks.
Should you invest in dividend stocks?
So, let’s get started.
What are dividends?
Whenever a company has a profit, it can either pass it to its shareholders or reinvest that profit in its business.
The profits that the company shares with its shareholders are called dividends.
Dividends are the corporate earnings that companies pass to their holders to reward them.
Companies can give dividends to their shareholders multiple times in a year. However, most of the companies give dividends twice a year- Interim and final dividend.
Here are few financial terms that you should know regarding dividend stocks.
Dividend yield: The dividend yield is the dividend per share, divided by the current share price. It indicates how much a company pays out in dividends each year relative to its share price.
Payout ratio: The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount of total net income of a company. The amount that is not paid out in dividends to stockholders is held by the company for growth and is called retained earnings.
Why some companies give dividends and others don’t?
In general, growing companies don’t give dividends whereas mature financially strong companies which do not have much scope to grow or to reinvest the profits, give dividends to their shareholders.
When the company is still growing, they invest their profits in growth. The profit amount can be used in business expansion, new project, acquiring a new company, share repurchase, etc.
Even large companies that can grow, reinvests their money and does not give dividends.
Few sectors which are saturated and give big dividends to its shareholders are PSUs, utility industry, etc. For example- Coal India, HPCL, BPCL, NHPC etc.
Why dividend matters for the investors?
If the investors are getting regular increasing dividends, this is a powerful message of efficient management and good financial health of the company.
Dividends are big commitments and are considered as a promise to the public.
When a company’s management pays a dividend to its shareholders, its a serious commitment as the company tends to give regular (increasing) dividends in future. This also shows the confidence of the company in its future performance.
Dividends are also the returns that many investors rely upon for their future plans like retirement funds, without selling their stocks.
Common misconceptions to know about dividend stocks:
Dividend stocks are financially strong companies:
Although most of the dividend-paying companies are mature and financially strong, however, there are few who aren’t.
There have been cases where the companies are taking debt to maintain the regular dividends to the shareholders. The investors might think that the company is giving a regular dividend and must be financially healthy, however paying dividends on debts is a terrible signal for the investors.
There are few companies which are paying high dividend yield, however, can’t be considered as a safe investment. These companies have saturated and there is not much growth left in their Industry. If you are planning to buy such stocks for long-term (retirement plan), then the company might not be profitable by then.
For example- Coal India. The company gives a healthy dividend. However, there is very little possibility of growth in this industry, and in the next 20 years, the company might won’t even be in any profit to reward its shareholders with dividends.
High yield is good for dividend stocks:
Dividends are the cash that is paid out to the customers and hence, this amount never gets reinvested in the business. A high dividend is good for your portfolio until the payout ratio is high.
If the payout ratio is large, this means that there is not much growth option for the company, and that’s why the company is giving all its profits to its shareholders in place of reinvesting the profit.
Dividend stocks can only be considered value stocks if you can find a high yield stock with a low payout ratio (<50%). Such companies are maintaining a healthy balance between reinvesting and rewarding its shareholders and thus, tends to offer high returns.
Dividend stocks are from boring sectors:
As a general scenario, most of the PSUs, utility company etc give high dividends to their shareholders and belong to a slow growth / saturated industry. Hence, dividend stocks are considered to be boring. However, there are many stocks who give high dividends to their shareholders and belong to a growing industry.
Should you invest in dividend stocks?
If you are planning to play safe and want some regular income (without selling your stocks) along with the capital appreciation in your investments, then dividend stocks are a good option for you.
However, if you want high returns and are willing to take some risks, do not invest in dividend stocks.
Although, you won’t get a dividend in growth stocks, however, the capital appreciation will be large enough to compensate for the dividend yield.
Nevertheless, if you are getting any dividend in the growth stocks, you can sleep well. Dividend matter, even for the growth investors.
Dividend stocks are not a wealth creator. However certainly, they are a reliable source of earnings.
Now, in case you are looking to invest in dividend stocks, make sure that the company is fundamentally strong.
Dividends are only paid when the company is in profit.
In case you didn’t pick a fundamentally strong company, and it didn’t perform well in future (i.e. no profits), then you won’t get any dividends. In such a scenario, even the basic reason for your investment will fail.
Bottom line, it totally depends on your investment goals and preference to whether you should invest in dividend stocks or not. Nevertheless, it’s good to have a few dividend stocks in your portfolio for some consistent earnings.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Stock split vs bonus share – Basics of stock market
Most of the beginners are confused about stock split vs bonus share. Whenever they hear that one of their holding stock is going to split or is giving a bonus share, they do not understand what does this mean and how this will affect their investment.
As both results in an increase in the quantity of stocks and adjustment of share price, most beginners are confused whether they are same or different.
Further, they do not understand why company announces stock split or bonus share. What is the basic difference between them?
Therefore, in this post, I’m going to explain you the difference between stock split vs bonus share with the help of few past examples from Indian share market.
Be with me for the next 5-6 minutes to understand this basic of the stock market.
Past example of stock split vs bonus share:
Stock Split
Yes bank split its share in the ratio of 1:5 on 26th July 2017. This means that every shareholder who has 1 share of Yes bank, had got 5 shares in total.
If you were holding 30 shares of yes bank, you would have got a total of 150 shares.
You might be thinking- ‘Awesome, I got extra shares for free!!’.
However, after the stock split, the share price of the stock also splits in the same ratio. Here is the chart of yes bank after the stock split.
Please notice that the stock price of Yes Bank changed from Rs 1880 to Rs 376 after the split.
Moreover, the price chart gets adjusted after the stock split. Therefore if you look at the same chart few months/years later than the split date, it’s impossible to estimate the date/year of the stock split. For example, here’s the price chart of Yes Bank (as of June 2018). Here, you cannot notice any spike or fall in the price of the stock split in July 2017. This is because the price history of the stock got adjusted automatically.
Why does this happen and what is the impact of the stock split on its shareholders? This we will study in next section in this post.
Bonus Share
Now, let us see an example of bonus shares.
Hindustan petroleum corporation limited (HPCL) announced bonus shares to its shareholders in two consecutive years.
First, on 20th July 2016 in the ratio of 2:1.
Second, on 26th May 2017 in the ratio of 1:2.
Announcement Date
Bonus Ratio
Record Date
Ex-Bonus Date
26-05-2017
1:2
12-07-2017
11-07-2017
20-07-2016
2:1
15-09-2016
14-09-2016
In the first case, the shareholders got 2 shares for every 1 share in their portfolio.
In the second case, the shareholders got 1 share for every 2 shares in their portfolio.
If you notice the stock chart of HPCL on google, you cannot identify the bonus stock dates.
You cannot decide the bonus given by the share chart as there are no sharp spikes on the chart. In the bonus share, the stock prices are automatically adjusted.
However, if you check the chart on money control, you can notice two bonuses of the share of HPCL.
We will first understand bonus shares. We will define some financial terms here, which we are also going to use later in the post.
1. Bonus Shares:
Bonus shares are the additional shares given to the shareholders by the company. This is a method of rewarding the shareholders.
How does a company give the bonus?
Companies accumulate its profits in the reserve fund. During bonus share, these reserve funds are converted into share capital and distributed among its shareholders as a bonus.
In short, when a company gives bonus shares, it’s share capital increases while its reserve fund decreases.
Why companies give a bonus?
Here are the few reasons why company gives a bonus to its shareholders:
For rewarding its shareholders.
To improve the liquidity and hence, the total trading volume of the stock.
To decrease the share price and to make it more affordable for retail investors.
It increases the confidence of the shareholders towards the company.
Impact of bonus shares on shareholders:
Although a bonus share is a positive news for the shareholders, however, it doesn’t affect their investment amount much. After the bonus is given, the share price of the company will fall in the same proportion.
Therefore, there will be no noticeable difference in the wealth of shareholder.
2. Stock Split:
In a stock split, the company splits the share price into different parts.
For example, in a stock split of 1:1, stock price splits into two parts.
In a stock split of 1:5, stock splits into 5 parts.
The fundamentals of a company remain same in a stock split. There is neither increase or decrease in the share capital or reserve in a stock split.
You can remember stock split as splitting the pieces of pizza. You can split the 4 pieces of pizza into 8, however, the overall pizza will be the same.
Why company split stocks?
Here are the few reasons why company split its share:
To increase the liquidity of the stock and increase the trading volume.
To make the stock more affordable for the retail investors.
Impact of the stock split on shareholders:
There won’t be much impact on the personal wealth of the shareholder.
1 stock of Rs 10,000 or 5 stocks of Rs 2,000; both are same for the existing shareholders.
NOTE: During a stock split, EPS (Earnings per share) decreases in the same factor as stock split (because the earnings will be same, but the number of outstanding shares will increase). Hence, the price to earnings (PE) ratio will remain the same (as both Price and EPS decreases by the same factor).
That’s all for this post. I hope you have understood the difference between stock split vs bonus share.
If you have any doubts, feel free to comment below.
Tags: stock split vs bonus share, difference between stock split and bonus share, distinguish between bonus issue and stock split, split vs bonus, stock bonus and split
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Selecting your stockbroker is the one the biggest step that you take while entering the world of investing. You cannot start investing/trading until you have a broker (unless you are using someone else’s account).
When I opened my first brokerage account, I had no one to guide me. I belong to a family where no one invests in stocks. My father has few holdings in mutual funds, FDs and LICs, however, he never invested directly in the stock market.
Therefore, I have to go through a number of websites to educate myself about where to start and which stockbroker to chose.
That’s why I am writing this post for the beginners so that they can say a lot of time. I won’t be recommending any stockbroker in specific here, but I will teach you how to choose a stockbroker. So, let’s get started.
First of all, I would like to mention that your first broker won’t necessarily be your broker for life. You can definitely switch to another broker anytime you like. Personally, I have also switched brokers.
However, it’s good to start with a decent broker and choosing a bad stockbroker may ruin your first experience in investing/trading. In addition, it may also cost you some bucks as switching cost if you moved to another broker.
How to choose a stockbroker?
There are a number of factors that you need to check before choosing your stockbroker. Here are a few of them:
Research:
Conduct your own research. Listen to the advice of the experienced investors/traders but do not follow them blindly. You can carry out your own research by visiting various stockbroker’s website. Get a general idea about the stockbroker, account opening charges, facilities offered etc.
Background & reputation of the broker:
Check the background of the stockbroker and their reputations. You can inspect the reviews, complaints and have a survey of the personal experience by the existing users. If you are going to use the mobile platform, check the mobile app ratings on the app store.
Stockbrokers are the registered members of the stock exchange and they can directly buy & sell shares in the share market for their clients. They charge some commission for offering this facility known as brokerage charge.
Now, there are two types of stock brokers in India: A) Full-service broker & B) Discount broker.
Full-service broker provides advisory service along with the trading platform. These brokers charge commissions on every trade their clients execute as a percentage of each trade executed.
Discount brokers only provide the trading facility. They offer low brokerage and charges a flat fee per transaction.
Choose a suitable broker according to your preference. If you want stock research advisory, go to a full-service broker. If you just want a trading facility and do not want to pay an extra commission, go with a discount broker.
You can use this site for brokerage comparision and calculation.
Customer Services:
If you are new to investing/trading, you will require a lot of customer service, unless you have a guru or advisor. Check the customer service provided by the stockbroker. An easy way is to try calling their customer care helpline number. If it takes years for the customer executive to pick up the phone, then avoid that stockbroker. Further, if you want one-to-one customer service, then check the website of the stockbroker if they provide personal services.
Trading platform:
This is one of the most important factors to examine. Inspect whether the trading platform offered is friendly and easy to use. Check the demo videos of the trading platform on youtube.
Advisory & research facilities:
If you are not planning to invest in your own and need advisory, then check for the facility offered. The reliability of the advisory is a must to check. The stockbroker should have a good reputation in advisory and research works.
The range of facilities offered:
If you are looking for diversified investment and planning to also invest in other options like mutual funds, bonds, currencies, FSs etc, then check if these range of facilities are available with your broker or not.
Hidden Charges:
There should be no hidden charges and all the charges incurred while transactions should be specifically mentioned. Asked for any hidden charges with your customer care executive before selecting the stockbroker. Transparency is the key to any service.
Fund Transfer:
Easy linking facility with your saving account should be available. Ask for the fund transfer process in your stockbroker. Online money transfer and withdrawal should be fast and easy.
Tools of education:
Many stockbrokers provide education facility. For example, Zerodha educates its clients via ‘Varsity’ and its blog for free. If you are in the learning phase, ask your customer support executive if any tools of education are available with your stockbroker. This is not a ‘must have’ for your stockbroker, however it can be an add-on.
Most of the important points to are already covered above. However, there are few other points also that a beginner should know on ‘how to choose a stockbroker’. They are listed below:
If you are new to Indian stock market and want to learn the basics, here is an must-read book by Parag Parikh that I personally recommend you to read: Value Investing and behaviorial finance.
Few other points to know:
Discounts and low-commission are not always good:
If you are new to the market and you will need a lot of help in the service while getting started. Although, its good to pay less, however, if you are getting premium facilities at a commission, it’s better for the beginners. Once you are experienced, you can carry out your investing/trading on your own.
Availability is important:
There are very few branches of discount brokers, whereas there are tons of branches of full-service brokers. If you can find a branch in your local, where you can easily go and personally meet the customer care executive to clear all your doubts, then its good to go.
Check out our upcoming course on stock market here.
Do not avoid customer services:
Investing/trading using online platforms are easy to use and have a number of resources available online. However, there may be a few times when you will require technical support. It’s good to have someone to look for in such cases. Do not avoid customer services. Look for the reviews before opting for any stockbroker and if the customer service is poor, then search another broker.
Look for extras/add-ons:
Many stockbrokers provide extras like no ‘annual maintenance charge’ for the first year, free brokerage amount of Rs 500 etc. Check the add-on and added benefits. It’s always good to have some bonus.
That’s all. These are the important points before selecting stockbrokers. I hope this post on ‘How to choose a stockbroker?’ is useful to the readers. If you have any doubts, feel free to comment below. I will be happy to help you out.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Hello Investors. Today, we are going to discuss why do stock prices fluctuate.
Every day you might hear the fluctuations in the stock price. You can read the stock news of last day which says something like HPCL increased 0.7% percent, Yes bank fell 0.35%, Reliance industry was flat with 0.01% in positive. Further, sometimes these fluctuations are shockingly high in a single day like titan moved +18% in one trading session.
Why do these happens? Why do stock prices fluctuate so much? What causes stock prices to change?
It’s really important to understand the reason behind the fluctuations of stock price for success in the stock market.
Why do stock prices fluctuate?
The reason behind the fluctuations of the stock prices is ‘supply and demand’.
Now, let us understand the funda of supply & demand in the stock market.
There are two kinds of people in the market.
‘Supply’ refers to the total number of people who would be willing to sell their shares at any price.
‘Demand’ refers to the total amount of people who are potential buyers and would be willing to buy at any price.
The point where the supply and demand meet i.e. all the potential buyers and sellers trade until there is no-one left who agrees on the price is called market equilibrium.
If the number of people who are willing to buy the stock (demand) is greater than the number of people who wants to sell the stock (supply), then the stock price increases.
On the other hand, if the number of people who want to sell the stock (supply) is greater than the number of people who wants to buy the stock (demand), then the stock price decreases.
Although its simple to say that the price fluctuations are due to demand and supply, however, what causes the demand and supply is an interesting topic to understand.
Why people like some stocks and dislike others are due to various reasons which we are going to discuss next.
The main reasons that affect the demand and supply of the stock are:
Important news regarding the company (either positive, negative or neutral):
If there is a positive news regarding a company, then its demand increases. If the news is negative then the demand decreases and people are trying to sell their stocks. And if the news is neutral, then people can be uncertain.
Ideas and strategies of the investors:
I have never met two such investors who agree on every point regarding a stock. Every investor has his own ideas and strategies. Some people may like the stock, while the others dislike (due to various reasons). This difference in the ideas and strategies of the investors also affects the demand for a stock.
Psychological factors:
Stock market is run on sentiments and ‘greed & fear’ are the driving force here. When the people are greedy, then the demand increases. When the people are fearful, they want to sell all their stocks and exit which causes an increase in supply. The greed and fear of the people cause the fluctuations in the stock price. Further, all the people are not greedy or fearful at the same time.
Earnings of the company:
Earnings are the measure of company’s profitability. Everyone wants to invest in a profitable business. Stock prices shows the present value of the future earnings expectations of the company.
Other factors:
There are a number of other variables also that govern the fluctuations in share market. They are- change on government policies (new charges, increase in excise duty, sales tax, annual budget), fluctuations in bank interest rate, domestic and international institutional investors involvement, fluctuations in international indexes like dow jones of US, DAX in Germany, Nikkei in Japan etc, speculations of people, political instability, country’s economic, business conditions etc
Now, that we have understood the reason behind the fluctuations of stock price, let us understand why demand or supply increases in any specific company.
Here are the few reasons that causes increase in the demand and makes the people like that stock:
Positive news regarding the company (for example new tender, decrease in tax in the industry etc)
Strong financial results for the company (like increase in sales, earnings etc)
Healthy news from the management like new plant set-up, new acquisition, etc
Why demand decreases?
Here are the few reasons that cause decrease in demand and increase in the supply.
Negative news regarding the company
Poor financial results/performance in a quarter/year
Increase in debts etc
Note: There are a number of financial gurus who have their own philosophy about the stock price. Some believe that it isn’t possible to predict the share price while others argue that they can determine the future price of the stock from the past charts and trends in price movement.
Nevertheless, for the bottom line, whether he is a buyer or seller, both thinks that he is making a good deal. Buyers are optimistic about the stock and believe that its undervalued and have good future potential. Sellers think that the stock is overvalued and cannot give good return in the future.
Summary:
Stock prices fluctuations are a function of supply and demand.
The factors such as earnings, financials, economy and so on may affect the desirability of owning (or selling) the stock.
That’s all for today. I hope you have understood the logic behind why do stock prices fluctuate.
Further, if you have any other doubt, feel free to comment below.
Tags: Why stock prices change, what causes stock prices to change, why do stock prices fluctuate, how do stock prices change, what makes stock prices change
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Hello Investors. Today we are going to discuss one of the hottest topic in the investing world- Full-service broker vs discount broker and which one to choose? However, before moving forward, let us first understand who is a stockbroker.
Who is a stockbroker?
A stockbroker is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients. Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service.
Now, there are two types of stock brokers in India:
Full-service brokers (Traditional Broker)
Discount brokers (Budget brokers)
Let us understand each type of stockbrokers:
Full-Service Brokers (Traditional Brokers)
They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute as a percentage of each trade executed. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.
Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal etc.
Discount Brokers (Budget Brokers)
Discount brokers just provide the trading facility for their clients. They do not offer advisory and suits for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives. A few examples of discount brokers are Zerodha, ProStocks, RKSV, Trade Smart Online, Achiievers, SAS online etc.
Full service brokers vs discount brokers:
Here are the key differences between full service brokers vs discount brokers based on different criteria:
FULL SERVICE BROKERS
DISCOUNT BROKERS
Brokerage
They charge commission in percentage terms of each trade executed.
They offer a flat fee on each trade executed.
Brokerage rates
Typically between 0.3 to 0.7%
Generally Rs 20 per trade.
Primary Service
They provide trading platform along with advisory for investment.
They only provide a trading platform (no investment advisory provided).
Suitable for
Full service brokers suit those who want advisory for their investment.
The discount broker is suitable for those who research on their own or have a financial advisor.
Research Department
They have their own research departments for advisory.
No such department.
Network
They have a large number of branches in different cities.
They do not have many branches.
Customer service
Face to face customer service available.
Online services for customers.
Other Facilities
Besides stocks, commodities & currencies, other facilities offered are forex, mutual funds, IPOs, FDs, bonds, insurance, etc
Only stock, commodities & current trading available
Add on services
Research reports, recommendations, funding, extended margin etc
The answer depends on your knowledge, preference and time. If you want stock advisory for your investment, then you should choose a full-time broker. On the other hand, if you want to do research on your own or you have a financial advisor, then you should choose a discount broker.
Further, you should also consider brokerage charges carefully before selecting your stockbroker.
I will highly recommend you to choose a discount broker (like Zerodha) as it will save you a lot of brokerage amount.
Initially, I started with ICICI direct (which is a full-service broker), but soon realized that it was too expensive compared to the discount brokers. Moreover, I wasn’t using the advisory facility by the ICICI direct. Hence, it didn’t make sense to pay extra brokerage charges even if I can get similar benefits on the cheaper stockbrokers.
I then shifted from ICICI direct to Zerodha.
Zerodha (discount broker) charges brokerage of 0.01% or Rs 20 (whichever is lower) per executed order. This is way cheaper compared than ICICI direct (full-service broker) which asked a brokerage of 0.5% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 250 (on the other hand, Zerodha will ask only Rs 20, a difference of Rs 230).
In addition, as this amount is charged on both sides of the transaction (buying & selling), hence you have to pay a total of Rs 500 for the complete transactions (way too expensive compared to a total brokerage of Rs 40 on both sides of transactions in Zerodha).
In short, if you are new to investing and want to open a trading account, I would recommend choosing discount brokers, so that you can save lots of brokerages.
However, in the end, it’s your knowledge, preference and time that matters the most while selecting a stockbroker. If you have enough knowledge and time for your stock research and prefer not to pay an extra commission, then you should go for a discount broker. On the contrary, if you do not mind paying extra commission for the advisory services to save your time, you can select a full-service broker.
That’s all for this post. I hope you have understood the difference between full service brokers vs discount brokers. Further, if you have any doubts, do comment below. I will be happy to help you out. Happy Investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Hi Investors. Today, we are going to discuss- How many stocks should you own for a diversified portfolio? How many stocks are too few and how many stocks become too many?
In general, there is no correct answer to this question and the answer varies according to your investment goals. However, there are few thumb rules for defining the number of stocks in your portfolio. We will discuss them in this post. But first, we should understand the meaning of a diversified portfolio.
What is a diversified portfolio?
A diversified portfolio is investing in different stocks from dissimilar industries/sectors in order to reduce overall investment risk and to avoid damage to the portfolio by the poor performance of a single stock.
For getting good returns from your investments, it’s important that your stock portfolio is well diversified. Both under diversification and over-diversification is adverse for an investment.
Under diversified portfolio has more risk as the poor performance of a single stock can have an adverse effect on the entire portfolio.
On the other hand, over-diversified portfolio gives low returns and even good performance of a single stock will lead to a minimum positive impact on the portfolio.
As a thumb rule, as the number of stocks in the portfolio increases, the portfolio becomes more diversified, and risk decreases (but profit on the portfolio may be lower).
In a similar way, as the number of stocks in the portfolio decreases, the portfolio becomes under-diversified, and risk increases (but profit on the portfolio may be higher).
How many stocks should you own for a diversified portfolio?
Minimum 3 stocks from different industry:
There should be at least 3 stocks from dissimilar sector/industries in your portfolio.
Maximum number of stocks should be 20:
The maximum number of stocks in any retail investor’s portfolio should be 20. If the number of stocks becomes greater than 20, then it becomes counterproductive for the portfolio. Although the risk decreases but the profit margin will also decrease. The impact of a single stock in the portfolio will be minimal.
Note: Here the number of stocks in a diversified portfolio is suggested for an investment over Rs 10,000. If you’re investing lesser amount, then your stock portfolio can be different.
Diversification is a good method to safeguard your portfolio during market correction or a bear market. All the stocks in your portfolio will not perform poorly at once and even the poor performance of few stocks will be canceled out with your good performing stocks.
However, the diversified portfolio does not act as a shield for your portfolio during recession or market crash. During 2008 market crash, when Sensex fell over 60%, then even the well-diversified portfolios weren’t able to safeguard the investor’s portfolio.
Other points to note:
Rebalance your portfolio regularly: Sometimes one of your stock might be performing extremely well and can become a major contributor in your portfolio. In such cases, rebalance your portfolio so that it can remain diversified.
Hold the winners and Cut the losers: Do not hold the underperforming stock too long just to keep your portfolio diversified. Sell the losing stocks and re-organize your portfolio.
In general, a retail investor should hold stocks between 3 to 20 from dissimilar industries/sectors. However, 8-12 stocks are sufficient in your diversified portfolio.
That’s all. I hope this post on ‘How many stocks should you own for a diversified portfolio?’ Is useful to the readers.
If you have any doubts regarding your portfolio, please comment below. Invest smart, invest long.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Hola Investors. Today I am going to teach how can monitor your stock portfolio in an easy and effective way.
First, let me clarify that in this post we are going to learn how to monitor the performances of the holding stock in your portfolio.
We are not going to discuss how to track your profits or how much money you have made from the market. There are a number of financial websites and apps that you can use to track your profits or losses.
Here we are going to discuss how to monitor the performance of the holding stocks. How is the company doing? Is the company’s performance improving or declining?
This post has nothing to do with the stock price movement, but to monitor the company’s performance and growth.
As creating a good stock portfolio is important, similarly, it’s equally important to monitor the performance of the holding stocks in your portfolio.
Quick Tips:
There are few tips that I would like to give you first before we start discussing how to monitor your stock portfolio. They are:
1. You do not need to check the stock prices daily:
Until you are involved in Intraday trading, checking the stock price daily won’t help you much. It’s a lot easier and stress-free if you do not check the prices of your stocks daily.
2. Moreover, do not calculate your net profit/loss daily:
The stock market is dynamic and the stock prices change every second. And hence, there is again no use to check your net profit/loss daily.
3. ‘Buy & hold’ is old:
If too much involvement is wrong, in the same way, extra ignorance towards your stocks is also bad. Do not trust blindly on your holding companies. ‘Buy and hold’ strategy has few loopholes and you need to monitor even your best performing stock.
4. Look at unexpected changes:
If there is a drastic rise/fall in the price of any of your holding stock, then you need to investigate the reason behind it.
Now that you have understood the quick tips, lets us study how to monitor your stock portfolio.
How to monitor your stock portfolio?
1. Read the important news about the company:
Keep updated with the latest happenings of the company and the industry. There are a number of factors that can affect the company which can be both domestic (government norms, taxes, duties etc) and international (Currency exchange rates, crude oil, war scenarios etc).
To keep updated with the news you can set google alerts for the companies in your portfolio. All the news related to the company will be directly sent to your email inbox.
Further, you can also read important news on few financial websites like money control and screener if you create your portfolio on it. These sites will notify you about the news regarding the company.
Every company in India releases its results quarterly i.e. 4 times in a year. Typically, a company releases its results within 45 days after the end of every quarter (March/June/September/December).
Study the quarterly results of the company in your portfolio. If the results are good, then enjoy. However, if the result is bad, then do not get influenced by the loss of the company in just one quarter. In any business, there will be losses sometimes. What matters is the consistency. Nevertheless, if the company is continuously giving bad results, then you need to reconsider about the stock.
3. Read the annual results:
Company’s annual reports are the best way to evaluate its performance. Using the annual reports, you can compare the company’s performance with its past to check its growth. You can also read the company’s future plans and strategy in the annual result.
Read the corporate announcements to remain updated with corporate actions of the company like new acquisition, merger, appointment or resignation of senior management etc. This information can also be found on the company’s website.
5. Monitor the shareholding patterns:
You also need to check the shareholding pattern of the company, mainly the promoters shareholdings.
An increase in the shares of the promoters is a healthy sign. Promoters are the owners of the company and they have the best knowledge of the company. If they are confident about its future growth, they are usually correct.
However, if the shareholding of the promoters is continuously declining, then it’s a bad sign. Investigate further why the promoters are selling their stake.
Besides, do not get afraid if mutual funds, FII, DII are buying/selling the stocks. They buy the stocks on the availability of funds.
Promoters pledge of share is always a sign of caution. If the pledging is continuously increasing, then be aware. You can check the promoter’s pledge of share on the company’s website.
Although it takes few efforts and time to continuously monitor the stocks in your portfolio, however, it’s worthwhile doing it.
Nevertheless, if you have less number of stocks in your portfolio, say 8-10, then it won’t take much time to monitor your portfolio.
Moreover, the Google alerts and mobile app notifications have made the life of investor lot easier. You can read most of the news and information on your mobile without much effort now.
That’s all. I hope this post on how to track your stock portfolio is useful to the readers.
If you have any doubts, do comment below. I reply every one of them.
Tags: How to monitor your stock portfolio, how to monitor stock performance, how to track your stocks, portfolio monitoring, how to monitor your investment portfolio
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
