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
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
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 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
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
75x Returns by Sensex in last 30 Years of Performance:
Hi Investors. Today I have brought an interesting insight for the investors. We are going to discuss the Sensex performance in the last 30 years. So, let’s get started.
SENSEX IN LAST 30 YEARS:
Here is the data of Sensex for the last 30 years.
YEAR
SENSEX (Closing Pts)
1987
442
1997
3,658
2007
20,286
2017
33,573
You can get this data from BSE India website using this link.
Here is the chart of Sensex in last 30 years till date.
From the above data, you can notice that Sensex has given multifold returns in the last 30 years. From a mark of 442 in 1987, Sensex is currently at an all-time high with 33,573 points (November 2017).
The BSE index has given an astonishing return of 75 times in its last 30 years.
In short, an investment of 10 lakhs in the BSE Index fund 30 years back, would have turned out to be 7.5 crores by now.
Note: If we compare this return with 4% p.a. returns from the savings account, we will get just 22 lakhs net amount in 30 years.
Overall, Sensex has turned out to be a wealth creator for those who invested in the market in time. Those who invested even in the index fund of Sensex in last 30 years, would have been sitting on a huge pile of wealth in the age of their retirement.
Nevertheless, those who missed this rally should not be disappointed and should invest in the market on suitable opportunities.
Moreover, they should invest actively by becoming an investor rather than a trader or side walker (short-term investor).
Currently, the market is at an all-time high. However, this should not stop the investors from investing in SIPs even if there might be a correction in the market in near future.
Invest for the long term as it has always turned out to be a wealth creator for most of the investors. Long-term investments tend to reward its investors eventually.
For a short term, there will always be fluctuations in the market. If we study the last financial year 2016-17, we can notice that there were a couple of swings in the market due to multiple reasons like demonetization, US Presidential election, Implementation of GST etc.
If you invest for the short term, there will be volatility due to the domestic or global factors.
However, for the long term, bulls become in charge if you have invested in the fundamentally right stock.
India is growing at a very decent pace and in the next 3-5 years it will turn out to be a rising star in the world. I am highly optimistic about the growth of the Indian economy and suggests the investors remain invested in the market for long term.
There is a famous quote used by Motilal Oswal Group that I would like to quote here:
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
#9 Reasons why most Indians do not invest in stocks:
Hi Investors. Today we are going to discuss why there is less participation of common people in Indian stock market. So, let’s get started!!
I was recently talking with one of my friend, Gaurav who works in a big multinational company. Gaurav didn’t know that nifty has reached its all-time high this Tuesday until I told him so.
Later same day during lunch, when I informed one of my colleagues, Ashish, that nifty has crossed 10k points, he didn’t show any sign of excitement or interest.
In reality, most Indians are like Gaurav and Ashish. They have little or next to zero knowledge/information of stock market.
When Mr. Narendra Modi became the prime minister of India in may 2014, the whole India including the stock market, seemed to roar. The NSE index nifty has given an astonishing return of over 42% since coming of PM Modi in the central government.
Although the stock market has welcomed our PM with a bullish trend, however, it didn’t seem to motivate the participation of common people in the market as much as anticipated.
In India, around 98% population has nothing invested in the stock market. Hardly 2% population of Indians invests in the market with the majority of only two states: Gujarat & Maharastra, out of 29 states.
If we compare the participation of the common people in stock market around the world, we can find that India’s participation percentage is even below the average. In China, around 10% population of the common people participates in the stock market. Further, in the USA, this percentage is as high as 18%.
Nevertheless, what really worries about the participation of the Indian investors in the market is its minimal growth. The percentage of investors participating in the market currently, is same as 2 decades earlier (in the 1990s). The governing bodies have not been able to attract more retail investors to invest in equity market.
Even in 2017, stock market investing is considered as the rich guy’s games. Most of the retailers who invest in stocks are bankers, businessmen, engineers, lawyers etc, whose average monthly income are in six figures.
Indian stock market is over 140 years old and still, people are searching for reasons that why most Indians do not invest in stocks.
In this post, I’m going to give 9 common reasons why most Indians do not invest in stocks. Make sure that none is stopping you from investing in the Indian stock market.
Further, please mention in the comment box which reason you think is mostly responsible for less participation of common people in Indian stock market.
9 Reasons why most Indians do not invest in stocks.
1. Lack of awareness:
Many of the people are unaware towards stock investing. They do not know how much returns they can get by investing in stock market.
A common villager doesn’t know how to earn from stocks and doesn’t understand the power of compounding.
A local retail shop owner does not know what is a demat and trading account.
An old small town electrician hasn’t ever met an investor or trader in his entire life.
This is all because of lack of awareness. In short, unawareness is one of the biggest reasons why most Indians do not invest in stocks.
2. Common Investing myths in India:
Since childhood, everyone hears about how his uncle/cousin/neighbor etc who has lost his entire fortune in the stock market. Stock market investing is considered as gambling in India.
Many people do not invest in the market because they follow the famous investing myths prevailing in the society.
Few of the famous stock market myths which stops a common person from investing in stocks are:
Investors who invest on their own are intelligently gifted.
Paying a profession is better than making your own investing decisions
The risk is always involved in stock market no matter how many studies you have done and how fundamentally strong the company is. Most of the conservative Indians are not willing to take a risk on their hard earned money and considers 4% return from the savings account as safe. They will only invest if they are assured that their investment is 100% risk-free, which stock market never is. The risks involved in the market stops these people from investing in stocks.
However, one always has to take some risks in order to get some reward. Remember- ‘No Risk, no reward’. Further, there is a famous quote by Warren Buffett that I would like to quote here:
‘Stock market investing is about minimising risks, not avoiding it.’
4. Lack of knowledge/guidance:
There is also a segment of people who are willing to invest in stock market but are unable to invest because of lack of knowledge or proper guidance.
They do not know where to start. There is no proper platform for these people to learn about stock market investing. Lack of knowledge stops these segments of people from investing in the Indian stock market.
5. No security in exchanges:
There are a number of past scams in the market. The Indian stock market has got a bad name due to scandals like that of Harshad Mehta and Ketan Parekh.
An Even big company like ‘SATYAM’ was involved in frauds and looting their investors.
Although after coming to SEBI (Securities exchange board of India), these scams numbers have reduced. However, there are still many fraudsters present in the Indian market who tends to make money by cheating innocent investors.
Because of the lack of proper securities in the market, many common people tend to stay away from the market. And this is one of the key reason why most Indians do not invest in stocks.
There are very few dedicated courses on the stock market. Although NSE and BSE provide few certificate courses, that’s not even close to fulfilling the requirements of the interested aspirants.
Even many MBA, BBA, or BCOM degrees don’t have proper courses on investing/trading.
In 2012, the Indian government stated that 22% of Indian population is below its official poverty limit. The latest poverty line is targeted at Rs 32 in villages, Rs 47 in cities. Read more here.
When a majority of the population are struggling to meet even the basic needs of life, there it’s logical that the percentage of people with surplus cash to invest will be low. Lack of capital is a major reason why most Indians do not invest in stocks.
8. Unwillingness:
“I don’t have time” – a common statement among the 9-to-5 working people in India, unwilling to take charge of their financial future.
A majority of the population are either too busy in their day job or are ignorant towards investing. They always delay investing in the market, considering they will do so in future. This unwillingness or laziness among the people is a big reason for less participation of Indians in the stock market.
9. Preference towards physical assets like land, gold etc:
People still have a love for gold, lands, FDs etc. Many people consider investing in Real Estate, gold etc easier in India compared to paper assets, as this has been traditionally followed.
Investing in a land in your village, or buying gold jewelry form your local jeweler shop seems simple compared to opening a trading account which will further require the access to internet, computers etc. The natural tendency of Indians towards physicals assets is a big rationale for poor participation in the stock market.
Additional Reasons:
There are many people who enter the market just to try their luck. Once these people lose money in stocks, they practically leave the market forever. These inappropriate ways of investing reduce the total number of active investors/traders in India.
Although, there are few other reasons also like lack of accessibility, low earning of people, volatility etc, however, the main points are covered in the post.
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
Fundamental vs Technical Analysis of Stocks in Indian stock market:
There are two common approaches to pick a stock. The first is fundamental analysis and the second is technical analysis. However, fundamental analysis and technical analysis follow a completely different route to pick stocks.
Both fundamental analysis and technical analysis can be used to determine if an investment in stock is attractive or not and to further forecast the future trends of stocks.
For example, if you are evaluating 10 stocks and want to determine which one you should purchase, then you can use either of fundamental vs technical analysis of stocks.
Fundamental analysis checks how healthy the company is compared to its competitors and economy. It studies everything related to the company like its financial statements (Balance sheet, profit loss statement etc), management, competitors, products, economy, industry etc.
On the other hand, technical analysis does not care about the financials or the industry. It evaluates the company based on past trends, prices & volumes. Technical analysts use stock charts to identify future trends and patterns.
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What is the Intrinsic Value of a company?
“The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.” – Investopedia
In short, the Intrinsic value is the true value of a company.
Fundamental analysts believe that the current stock price of a company may or may not be same as its intrinsic value.
They evaluate companies to find which one is trading below its true intrinsic value using different studies like financial statements analysis, stock valuation, economy analysis etc.
Once they find a company which is trading below its intrinsic value (also considered as undervalued stock), they hold this stock until it reaches its true value. A stock trading below its intrinsic value is considered a good investment opportunity.
Overall, the approach followed in fundamental analysis is to find the intrinsic value of stocks.
If you want to learn fundamental analysis from scratch, I would highly recommend you to read this best selling book- ‘The Intelligent Investor’ by Benjamin Graham. Warren Buffett considers it as the best book ever written on investing.
On the other hand, Technical analysts believe that there is no use to analyze companies intrinsic value as the stock price already reflects all relevant info.
They do not care about the financials of a stock. They predict the future performance of a stock based on its past stock price trends.
If you want to study more about the technical analysis approach, here is a great book to start- ‘A random walk down wall street’ by Burton Malkiel.
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Fundamental vs Technical Analysis of Stocks: Basic Comparisons
Now that we have little understanding of both fundamental vs technical analysis of stocks, let us discuss both there methodologies in details.
Here, we will compare fundamental vs technical analysis of stocks based on different criteria.
1. Basic Principle:
Fundamental analysis analyses all the factors that can affect the stock price of a company in the future like financials, management, industry etc. It evaluates the intrinsic value of the company to find whether the stock is under-priced or over-priced.
Technical analysis reads the past charts, patterns and trends of the stocks to predict its future price movement.
Fundamental analysis approach is used for long-term investments. Technical analysis approach is used for short-term investments.
3. Data Sources:
Fundamental analysis gathers data from financial statements of the company along with other economic news sources.
Technical analysis gathers data from the stock charts.
4. Indicators:
Fundamental analysis studies assets, liabilities, earnings, expenses etc. It also uses various fundamental indicators like PE ratio, PB ratio, debt/equity ratio, ROE etc
Technical analysis uses charts like candle sticks, price data etc. Various technical indicators that are commonly used are MACD, Simple moving average, EMA, RSI etc.
Fundamental analysis studies the financial data like balance sheet, profit and loss statements and cash flow statements. It also examines other factors while evaluating stocks like competitors, company’s management, industry, economy etc. Fundamental analysis focuses on both past performance and future potential.
Technical analysis studies the market movement and public psychology. It is mostly the analysis of the past price movements of the stock. Technical analysis focuses on the performance chart and the trends of the stock.
6. Strategy:
Fundamental analysis is used to find the intrinsic value of the company to evaluate whether the stock is over priced or under priced.
Technical analysis is used to find the right entry and exit time from the stock.
New to stock market? Check out the upcoming course on ‘How to pick winning stocks?’ here.
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Fundamental Analysis- Pros and Cons:
PROS:
Fundamental analysis invests for the long-term and their returns are quite huge. Power of compounding is applied to the long-term investments resulting in good returns to the investors.
They invest in financially sound companies which is always a good approach.
CONS:
Fundamental analysis is quite laborious and its methodology is lengthy & complex.
There is no clear time frame for long term investment.
As the future potential of the company is considered in the fundamental analysis, various assumptions are made in this approach.
As the entry & exit time is not specified in fundamental analysis, you might buy a good stock at a bad time.
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Technical Analysis- Pros and Cons:
PROS:
Technical analysis is fast and the outcomes can be seen quite early.
This approach is comparatively less laborious.
Entry and exit time for the stock can be specified.
Technical indicators readily give buy or sell indication.
CONS:
As there are a number of technical indicators, it’s tough to select a good indicator.
As technical indicators do not study the financials, you might be investing in a financial unhealthy company.
Technical analysis skill requires a lot of accuracy, reliability, and discipline.
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Can fundamental and technical analysis be used together?
Yes, fundamental analysis and technical analysis can be used together. Many investors/traders use both the approaches. It makes sense to enter in a fundamentally strong company at a right time. While fundamental analysis helps to find a healthy company to invest, technical analysis tells you the right time to enter or exit that stock.
In short, you can use both fundamental and technical analysis of a stock together.
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Conclusion:
Fundamental vs Technical analysis of stocks, both are effective yet quite different methodologies used for research of potentially strong stocks.
It’s really tough to say which one is the better way of investing. Although a number of books have been written on both fundamental and technical analysis, however this debate on the better way of investing is still going on.
My suggestion is to do your own study and make your investing strategy based on your knowledge, preference and time.
Do comment below which investment strategy you follow- Fundamental analysis or Technical analysis.
Tags: fundamental vs technical analysis of stocks, fundamental analysis vs technical analysis of stocks, technical analysis vs fundamental analysis which is better, fundamental vs technical analysis, fundamental vs technical analysis, fundamental and technical analysis of indian stocks, fundamental vs technical analysis techniques, fundamental vs technical analysis of stocks in Indian 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
