How is the opening price of a share determined

How is the opening price of a share determined?

How is the opening price of a share determined?

The Indian stock market works for 5 days from Monday to Friday. The normal trading session is between 9:15 AM to 3:30 PM in both the major stock exchanges of India- BSE, and NSE.

However, before the normal trading session, there is a small pre-opening session from 9:00 AM to 9:15 AM every day. This is the period when the opening price of the shares is decided.

But what happens during this period? And how is the opening price of a share determined?

This is what we are going to discuss in this post. How is the opening price of a share determined? But before we discuss it, there are few basics that you need to know first.

Also read: Stock Market Timings in India.

Types of order:

There are two types of order that you can place for a buying/selling of shares in the share market:

Market Order: It is the order when the stocks are bought/sold at the market price and is executed instantaneously.

For example, assume that you want to buy 10 stocks of a company is currently trading at the market price of Rs 90. When you place the market order, you will buy the stocks at market price i.e. Rs 90.

Limit Order: This order refers to buying or selling the stocks at a limit price.

For the same example stated above, let’s assume that now you want to buy the stocks at Rs 88. Then you can place a limit order and once the market price of the stock falls to Rs 88, the order is executed.

Market order is instantaneous whereas limit orders occur depending on the fulfilment of supply and demand.

Pre-Opening session in a market:

The pre-opening session is divided into three segments- Order collection period, order matching period and buffer period.

Let us understand each one of them in details now.

9:00 AM to 9:08 AM – This session is called Order Collection period. You can place, modify and cancel your order during this time period. However, no execution occurs during this period.

9:08 AM to 9:12 AM – This is called order matching period or trade confirmation order. You cannot place, modify or cancel your order during this interval.

Placed orders are executed during this period based on the price identification method. This is also called equilibrium price determination or Call auction.

9:12 AM to 9:15 AM – This period is called buffer period and is used for easy transition from pre-opening session to normal market session.

Also read: 10 Must Read Books For Stock Market Investors.

How is the opening price of a share determined?

The opening price of the share is determined during the call auction. As soon as the order collection period is over, order matching period starts.

The order matching happens in the following sequence:

  • Eligible ‘limit’ orders are matched with eligible ‘limit’ orders.
  • Residual eligible ‘limit’ orders are matched with ‘market’ orders.
  • ‘Market’ orders are matched with ‘market’ orders.

Now, let us understand how the opening price is decided with the help of an example.

Assume that during the order collection period, following demand (buy orders) & supply (sell orders) were available for different stock prices for a company named ‘ABC’. I had customised a simple table for easy explanation.

Here, you can notice that there are different quantities of demand and supply of stock for different share prices (based on the buy and sell order placed).

Share Price Demand Supply Maximum Tradable Quantity
100 1100 900 900
101 800 1100 800
102 1000 1200 1000
103 500 600 500
104 400 700 400

The opening price is determined based on the principle of demand and supply mechanism. It occurs at the equilibrium price, where the maximum volume (tradable quantity) is executable.

If the above example, the maximum tradable quality was possible at a share price of Rs 102.

Hence, Rs 102 will act as the opening price for the share.

All the outstanding orders, which are not executed in the pre-opening session, will move to the normal market session.

Note: The above table is created in a simple way to let you understand the basics. However, in real time scenarios, there will be tons of volume of  buy and sell orders, making it quite complicated.

Summary:

The equilibrium price determined in pre-open session is determined as the opening price for the share.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all. I hope this post on ‘How is the opening price of a share determined?’ is useful to the readers.

If you have any doubts, feel free to comment below.

Tags: How is the opening price of a share determined, opening price of a stock, opening price determination, how is stock open price determined, how is the open price of a share determined
Why do stock prices fluctuate?

Why do stock prices fluctuate?

Why do stock prices fluctuate?

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.

supply and demand- why stock prices fluctuate

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.

Also read: #9 Reasons Why Most Indians do not Invest in stocks.

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.

Also read: 10 Must Read Books For Stock Market Investors.

Why demand increases?

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.

Also read: How to Invest in Share Market? A Beginner’s guide

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
Full service brokers vs discount brokers

Full service brokers vs discount brokers: Which one to choose?

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:

  1. Full-service brokers (Traditional Broker)
  2. 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 BROKERSDISCOUNT BROKERS
BrokerageThey charge commission in percentage terms of each trade executed.They offer a flat fee on each trade executed.
Brokerage ratesTypically between 0.3 to 0.7%Generally Rs 20 per trade.
Primary ServiceThey provide trading platform along with advisory for investment.They only provide a trading platform (no investment advisory provided).
Suitable forFull 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 DepartmentThey have their own research departments for advisory.No such department.
NetworkThey have a large number of branches in different cities.They do not have many branches.
Customer serviceFace to face customer service available.Online services for customers.
Other FacilitiesBesides stocks, commodities & currencies, other facilities offered are forex, mutual funds, IPOs, FDs, bonds, insurance, etcOnly stock, commodities & current trading available
Add on servicesResearch reports, recommendations, funding, extended margin etcFocuses mainly on trading
3-in-1 Account (Saving+demat +trading)AvailableNot available
Examples/ Top BrokersICICI Direct, HDFC sec, Kotak securities, Sharekhan, Motilal Oswal, Angel Broking, Axis direct, Edelweiss, Aditya Birla money etcZerodha, Prostocks, RKSV, Trade smart online, Tradejini, SAS online etc.

Also read: Where to open your Demat & Trading account?

Which one should you choose?

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).

Also read: Different Charges on Share Trading Explained- Brokerage, STT & More

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.

Related Post: How to Open a Demat and Trading Account at Zerodha?

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.

If you are new to stock market and want to learn the basics from scratch, here is the best selling book that I highly recommend you to read: How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul

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.

How Many Stocks Should you own for a Diversified Portfolio?

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).

Also read: How to create your Stock Portfolio?

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.

Read more here: How To Invest Rs 10,000 In India for High Returns?

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.

Also read: How to follow Stock Market?

Conclusion:

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.

ow to monitor your stock portfolio COVER

How to Monitor Your Stock Portfolio?

How to monitor your stock portfolio?

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.

Learn how to set google alerts here.

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.

Also read: 7 Best Stock Market Apps that Makes Stock Research 10x Easier.

2. Check the quarterly results of 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.

Also read: How to do Fundamental Analysis on Stocks?

4. Keep an eye on Corporate announcements:

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.

Related post: 7 Must Know Websites for Indian Stock Market Investors.

6. Check the promoter’s pledge of shares:

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.

If you are new to investing and want to learn stock market from scratch, here’s an amazing course for the beginners: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS.

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
3 Amazing Books to Read for a Successful Investing Mindset

3 Amazing Books to Read for a Successful Investing Mindset.

3 Amazing Books to Read for a Successful Investing Mindset:

Hi Investors! Today we are going to discuss something different from my usual posts.

In the past few years, since I started investing, I met a number of people who asked me why I am investing in stocks on my own. Why don’t I just choose a SIP or mutual fund? Why do I put so much efforts and time when someone else (like an investment advisor) can do the same?

While I try to demonstrate the importance of managing our own financials, I find it a little difficult to explain to a few people. This is not because of lack of education or their academic background in different industry/sector. Many of my friends with similar qualifications like me are ignorant of their own financial situation.

The main reason for these people having such struggles is an unhealthy or unwilling mindset towards investing. Their mind is not trained towards the importance of investing and the wonders it can do in wealth creation.

Therefore, today I am going to suggest 3 amazing books to read for a successful investing mindset. These books will guide you, motivate you and open your eyes for a healthy mindset for investing. Here are the 3 books that we are going to discuss in this post.

  1. Think and grow rich by Napoleon Hill
  2. The Richest man in Babylon by George Clason
  3. Rich Dad Poor Dad by Robert Kiyosaki

I personally recommend you to read all of these books as the principles & lesson described in these books can help you a lot to tackle financial problems throughout your lifetime.

3 Amazing Books to Read for a Successful Investing Mindset

1. Think and Grow Rich

think and grow rich by napoleon hill

Think and grow rich is a 1930’s classic that is still the best selling in 2017. The lessons from this book proved out to be time-tested i.e. applicable all the time. This book was written by Napoleon Hill on the suggestion of Andrew Carnegie. The first edition of this book was originally published in 1937.

Andrew Carnegie proposed Napoleon Hill to interview 500 greatest men in the 20th century who were rich and successful in their industry. Carnegie offered to provide the fund for traveling and meeting these personalities in exchange for Hill’s time. He wanted Napoleon to study the common traits among all these rich and successful peoples.

It took Napoleon Hill almost 20 years to interview all the 500 people. He interviewed Henry Ford, JP Morgan, Alexander graham bell, Thomas Edison, Theodore Roosevelt, and many other famous personalities. He finally summarised his studies from the interview in the book- ‘Think and grow rich’.

In this book, the author Napolean Hill educates 13 principles required in a person in order to become RICH.

Thirteen Principles: The Power of thought, Desire, Faith, Auto-suggestion, Specialized knowledge, Imagination, Organized planning, Decision, Persistence, the Power of the mastermind, the Mystery of sex transmutation, the Subconscious mind, and the Sixth sense.

Let me cover the two principles described in the book here. I won’t be covering all as it will kill the fun of reading it:

A) The Power of Thought:

power of thought

In this section, Napoleon Hill describes how your thought can help you achieve what so ever you want in your life.

To explain this, he gave an example of Edwin Barnes, who wanted to do a partnership with Thomas Edition. Let me be clear here. He wanted to do partnership- not ‘work for’ Thomas edition.

When the thought originally generated in his mind, he didn’t know Edison. He lived miles away from where Edison lived. He didn’t have money or resource to meet Edison. However, the thought was so persistent that even after facing a number of obstacles, several years later, he became partners with Thomas Edison. He did a partnership in Edison’s dictating machine as a distributor.

In short, Barnes’s thoughts provoked his desires to achieve what he truly wanted in his life.

B) Burning Desire:

burning desireNapoleon Hill considers this trait as the most important of all to become rich and successful.

A burning desire is not about wishing, it is about wanting. A wish might not get fulfilled, however, if you want something passionately, you will find a way to get it.

In this section, Hill conveys the readers to ensure that the ‘want’ becomes ‘desire’.

Further, Hill proposes to develop a clear and concise statement of desire – What do you want and when you want it. If you want money, then be specific about the amount that you want and time frame when you want it. For example, if you want to become a millionaire, be specific that you want to earn one million by 1st January 2025.

You need to revisit the desire often to imprint it in your mind. Read the statement twice daily, in the morning and in the evening.

In addition, you need to create a specific plan to reach your goal and you need to start taking steps immediately. Besides, if you want to meet your desire, you have to sacrifice something. This might be your time, money, fun with friends or anything worthy.

TEMPLATE:
I want to earn ____________ by ______________ and for that I am will to _________________.

Overall, create a burning desire for what you want if you want to become successful.

These are the two out of thirteen principles taught in the ‘Think & Grow Rich’. Apart, there are many important lessons in the book that will help you to develop your mindset for a successful life ahead.

2. The Richest Man in Babylon

The Richest Man in Babylon is one of the best classic personal finance books that I have ever read. The lessons in this book are pretty simple and effective.

The book consists of different stories from the Babylonian days. A few of stories for the collection are- The richest man in Babylon, Goddess of good luck, The gold lender of Babylon, The camel trader of Babylon etc.

The one story that I particularly liked was the story of a Babylonian slave who was extremely poor with lots of debt. He later learned the rules of gold and with the newly acquired wisdom, he turned out to be one of the richest men in Babylon.

Here are three of my favorite lessons learned from this book:

1- Pay yourself first.

gold

Save at least 10% of what you earn. You have earned the money from your hard work and it’s your right to keep it for your self.

Pay yourself first, and then you give the remaining to anyone you want to, like your landlord, your maid, restaurant owner, laundry guy etc. This is the rule no one of money.

Here is an abstract from the book about this rule:

“’I found the road to wealth when I decided that a part of all I earned was mine to keep.’ – The teacher said.

‘But all I earn is mine to keep, is it not?’, I demanded.

‘Far from it,’ the teacher replied.  ‘Do you not pay the garment-maker?  Do you not pay the sandal-maker?  And Do you not pay for the things you eat?  Can you live in Babylon without spending?  What have you to show for your earnings of the past month?  What for the past year?  Fool!  You pay to everyone but yourself.  Dullard, you labor for others.  As well be a slave and work for what your master gives you to eat and wear.  If you did keep for yourself one-tenth of all you earn, how much would you have in ten years?’ “

2- Only seek advice from those that are wise and knowledgeable in the subject.

Take the counsel of the better men and learn from their mistakes. Here is an abstract about this rule from the book:

“Counsel with wise men.  Seek the advice of men whose daily work is handling money.  Let them save you from such an error as I myself made in entrusting my money in the judgment of Azmur, the brickmaker.  A small return and a safe one is far more desirable than risk.”

3- “Better a Little Caution Than a Great Regret.”

A little caution with the money can stop you from lots of trouble in the future. This rule advocates the readers to invest intelligently as it’s no good regretting later.

Books to read:The Intelligent Investor by Benjamin Graham Summary & Book Review

In addition, the book also describes the laws of gold, which like the law of gravity is applicable everywhere and in every time period. Here are the seven simple rules of money:
  1. Start thy purse to fattening: Save money.
  2. Control thy expenditures: Live under your means. Do not overspend.
  3. Make thy gold multiply: Invest intelligently.
  4. Guard thy treasures from loss: Avoid bad investments.
  5. Make of thy dwelling a profitable investment: Own the property/house you live in.
  6. Ensure a future income: Have insurances.
  7. Improve thy ability to earn: Keep developing. Become wiser and knowledgable

Also read: 10 Must Read Books For Stock Market Investors.

All the lessons learned in this book are effective an easily implementable. I have read this book a number of times and is my personal favorite personal finance book. I definitely recommend you to read this book. You can check out more about ‘The Richest Man In Babylon’ by George S. Clason on Amazon here.

3. RICH DAD POOR DAD

This is the first mind-opening book that I read during my freshmen year in college. The book is a life changer. It made me realize the importance of financial education and how I have been ignoring this all my life.

The book describes the lack of financial education given to the kids. The problem with financial education is that it isn’t taught in school. Hence, the family/parents have the responsibility to teach it. However, the trouble is that unless your parents are in the top 1% (income-wise), they are going to teach you to be poor. This is not because the poor don’t love their kids. It’s because they don’t know how to be rich and what exactly to teach.

In the book, the author has two fathers. First, his original father, who was a highly educated government officer yet poor. And the other was his friend’s father, who was not much academically educated but rich. Kiyosaki describes how the lessons given by both his fathers were completely contrasting.

rich people

At a very young age, Robert Kiyosaki decided to listen to his RICH dad instead of his profoundly educated POOR dad. A few of the important lessons learned by Kiyosaki from his rich dad were:

1. Always invest in assets: You should increase your assets and reduce liabilities. According to Robert Kiyosaki

  • An asset is anything that puts money in your pocket.
  • A liability is anything that takes money out from your pocket.

Assets can be a business, real estate, paper assets like stocks, bonds, etc. Whereas liabilities can be your expensive car, the big house bought on the mortgage, iPhone, etc.

2. Poor work for money and Rich make their money work for them.

3. Poor only have expenses, middle-class people buy liabilities and rich invests in assets.

Related Post: Rich Dad Poor Dad Summary- Lessons by Robert Kiyosaki

Apart, there are many important lessons in this book which will teach you why Rich are getting richer, and poor will remain poor.

Conclusion:

All the three books mentioned in this post is classic and time-tested. They will open your eye towards personal finance and help you to create a successful investing mindset. I highly recommend you to grab a copy of each one of them and start reading.

That’s all for today. I hope this post on “3 Amazing Books to Read for a Successful Investing Mindset” is useful to the readers. Do comment below which one is your favorite personal finance/ self-help book?

SENSEX IN LAST 30 YEARS

75x Returns by Sensex in last 30 Years of Performance.

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.

Sensex in last 30 years of performance

Chart Source: https://tradingeconomics.com/india/stock-market

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.

Also read: SIP or Lump sum – Which one is better?

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.

Also read: 10 Must Read Books For Stock Market Investors.

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:

Buy Right, Sit Tight.

Also read: How To Invest Rs 10,000 In India for High Returns?

That’s all for this post about past performance of Sensex in last 30 years. I hope this insight is helpful to the investors.

Do comment below what are your expectations from Sensex in the upcoming year of 2018?

Why Most Indians do not Invest in stocks

#9 Reasons Why Most Indians do not Invest in stocks.

#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.

Related post: Majority of states have very few stock market investors 

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:

unawareness

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:

MYTHS VS FACTS

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
  • Investing on your own is very risky etc.

Related post: 7 Most Common Stock Investing Myths.

These myths are the biggest barrier to common people and stock market and a reason why most Indians do not invest in stocks.

New to stock market? Here is an amazing book on Indian stock market for beginners which I highly recommend to read: How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul.

3. Not willing to take the risk:

risks stock market

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.

Also read: Is Indian stock market Risky to Invest?

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:

lack of knowledge

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.

Also read: 3 Most Common Scams in Indian Stock Market That You Should be Aware of.

6. No proper courses:

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.

Ready to start your stock market journey? Check out our amazing course for newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS

7. Lack of capital:

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.

Also read: 6 Reasons Why Most People Lose Money in Stock Market

That’s all. I hope this post on ‘#9 Reasons why most Indians do not invest in stocks’ is useful to the readers.

Further, if there is any other reason which is stopping you from investing in Indian stock market, do comment below.

Invest smart, Invest long.

Fundamental vs Technical Analysis of Stocks cover

Fundamental vs Technical Analysis of Stocks

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.

Related Post: How to do Fundamental Analysis on Stocks?

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.

technical analysis

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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.

If you want to study value investing for Indian stock market, here is an amazing book which I personally recommend you to read: Value investing and behaviourial finance- Insights into Indian stock market realities by Parag Parikh.

2. Time Frame:

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.

Also read: The Fundamentals of Stock Market- Must Know Terms

5. Methodology Used:

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.

fundamental vs technical analysis of stocks

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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.

Also read: How To Invest Rs 10,000 In India for High Returns?

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