The easiest asset allocation method- 100 minus your age rule:
It’s always difficult to decide how much you should save and how much you should invest. The answer varies on the different stages of life. The investing strategy of a 22-year-old need not to be same as that of a 60-year old.
But, how much you should actually invest in different assets at the particular stage of your life?
There is no single answer to this question and there can be multiple correct answers.
However, it this post I’m going to suggest you one of the easiest asset allocation method, known as the 100 minus your age rule.
This rule is quite old and is based on the basic principle of investing which says that you should reduce the risks as you get older.
The logic is simple. When you are old, you will have lot more responsibilities and expenses compared to when you’re young. For example, if you’re at 58, you might be worrying about the retirement fund, retirement home, higher education of your kids, marriage of your daughter/son etc.
On the contrary, when you are young, you do not have much expenses or responsibility. That’s why it is said to take more risks when you are young.
100 minus your age rule is based on the same principle of minimizing risks as you grow old and simplifies the asset allocation depending on the stage of your life.
100 minus your age rule states that the percentage(%) of allocation of your wealth in equity (stocks or mutual funds) should be equal to the 100 minus your age.
The rest amount should be allocated in safe funds like savings, fixed deposits, bonds etc.
For example, if your age is 45,
Then, your percentage allocation in equity = (100- 45) = 55% of your net worth Percentage allocation in safe funds= 45% of net worth
You can notice here that as you approach an age of 100, the risks are totally zero.
Moreover, please do not argue what about those whose age is above 100. Do you really think that they will be in a position to make investment decisions at that age?
The drawback of using ‘100 minus your age rule’:
Although this ‘100 minus your age rule’ make quite a sense for the asset allocation, however, there are few drawbacks of using this rule.
For example, from the last few decades, the life expectancy of the people are increasing. This means that you can stay invested in the equity (and take more risks) for few more years now.
Further, at any time, the asset allocation by an individual depends on the person’s financial situation. For example, if you have a large family with dependants on you, then you might not be willing to take many risks, even if you’re young. The ‘100 minus your age rule’ doesn’t takes care of the financial situations of the people.
Conclusion:
100 minus your age is a simple, yet effective way to easily allocate assets depending on the particular stage of your life.
However, while deciding the asset allocation, you should also keep in mind your priorities and financial situation.
Hi, I am Kritesh, 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
How to use google alerts to monitor your portfolio?
Regularly monitoring the stocks in your portfolio is as important as picking good stocks. Many a time, the stock undergoes drastic price movement due to a sudden news or change in the company’s fundamental. And if you are not monitoring your portfolio regularly, then you might have to book heavy losses.
In one of my earlier post about how to monitor your stock portfolio, I have explained that in order to monitor your portfolio, you need to remain updated with the important news regarding the companies in your portfolio like corporate actions, announcements (example- mergers and acquisition, buyback, bonus etc), quarterly results, annual results etc
I also explained how Google alerts can be a very powerful tool for monitoring your stocks.
In this post, I’m going to explain how you can make your life as an investor very simple by using google alerts.
What is google alert?
Google Alerts is a content change detection and notification service, offered by the search engine company Google.
In simple words, if you set an alert for any company on google alerts, then Google will send you all the important news published on the web related to the company directly in your email.
Each morning when I wake up, I find mailbox filled with dozens of emails from the Google related to all the stocks which I am either holding, tracking or interested in. I’ve set alerts for all these companies so that I do not miss out any important news. Here’s how my inbox looks:
These alerts have made my life a lot easier as in order to monitor the stocks, all I need to do is to go through the mails. Moreover, even if I miss reading few emails someday because of any reason, I’m relaxed that I can read them anytime when I’m free.
What’s the best point of using google alerts is that unlike newspapers or financial websites where you have to search for all the important news related to your stocks, google alerts directly deliver the relevant news to your email. No time wasted!!
Further, if you missed any news on the financial websites or web, it’s too hard to track it back or re-read the news after few days. There are tons of news published every day and it’s really difficult to find the news that you missed long back.
Because of all these reasons, I use google alerts to monitor my stock portfolio. I will highly recommend you to set google alerts for the stocks in your portfolio to monitor them easily.
How to use google alerts to monitor your portfolio?
Here are the steps to set google alerts for the stock you want to monitor:
Log in to your google account. If you do not have one, then sign up to create a new account.
Search ‘GOOGLE ALERTS’ on google.
Select the link titled “Google Alerts – Monitor the Web for interesting new content” or simply go to this link- https://www.google.co.in/alerts
Add the list of the companies you want to track by entering it in the box.
Enjoy the alerts.
Note: No matter how many google alerts you set for the companies you are investigating or already invested, however, if you do not check your emails regularly, then there’s no point setting the alerts. In such cases, where you do not check your emails daily, stick to the traditional way of monitoring your portfolio by reading financial websites/magazines/newspapers etc.
Apart from the google alerts, I also study the financial websites and newspaper every day in order to carry out new stock research or to remain updated with the latest happenings. Google alerts are a good tool for monitoring your portfolio, however, when you’re researching the stocks, you have to put lot more efforts.
That’s all. This is how simple it is to set Google alerts and monitor your stocks.
I hope this post on “How to use google alerts to monitor your portfolio?” is useful to the readers.
If you need any help regarding setting google alerts, please comment below. I’ll be happy to help you out.
Tags: google alerts to monitor your portfolio, how to set google alerts to monitor your portfolio, google alerts for stocks, track stocks with google alerts
Hi, I am Kritesh, 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
What is the process of IPO share allotment to retail investors?
The year 2017 was a blockbuster year for the Indian IPO’s. As many as 152 IPOs hit the market last year, raising a total of $11.6 Billion. Few of the big names that offered their initial public offering last year were BSE, CDSL, Avenue Supermart (Dmart), SBI life insurance, Cochin shipyard etc.
Now, the old investors already know what is an IPO and how its allotment process works. However, for the newbie investors, many a time it looks like a mystery.
For example, here are the IPO details of Apollo Micro Systems Limited IPO (Apollo Micro Systems IPO):
Issue Detail:
»» Issue Open: Jan 10, 2018 – Jan 12, 2018 »» Type of Issue: Book Built Issue IPO »» Issue Size: Equity Shares of Rs 10 aggregating up to Rs 156.00 Cr »» Face Value: Rs 10 Per Equity Share »» Issue Price: Rs 270 – Rs 275 Per Equity Share »» Market Lot: 50 Shares »» Minimum Order Quantity: 50 Shares »» Listing At: BSE, NSE
Almost all the points mentioned above can be understood logically. However, let me explain few of the important ones in the IPO issue detail.
From the term issue date, you can understand that you have to apply for that IPO between those issue dates.
Next, the minimum order quantity is 50 shares, which is same as the market lot. This means that you cannot apply for less than 50 shares for this IPO. If you apply for 30 shares, then your application will be rejected. Further, you can buy the shares only in the lot of 50. This means that you can buy the shares in the numbers of 50, 100, 150, 200… which is basically 1 lot, 2 lot, 3 lot, 4 lot… etc
Further, from the issue price, you can understand that you have to place the bid between Rs 270 to 275, for each share. The upper level of the issue price is called the cut-off price (here Rs 275).
You can understand all these points just by reading the IPO details.
But what about the allotment? What is the process of IPO share allotment to retail investors?
Why some people receive allotment and others don’t? How exactly are the stocks allotted to the retail investors? This is what we are going to discuss in this post.
Nevertheless, before we learn the process of IPO share allotment to retail investors, there are few things that you need to understand first.
What does the over-subscription of an IPO mean?
The over-subscription of an IPO means that the demand of the IPO exceeds the total number of shares offered by the company.
For example, in the IPO of Apollo Microsystems Ltd which is discussed above, the shares offered by the company were 4.14 million. On the other hand, the IPO received the bids for 1.02 billion shares. Overall, it was over-subscribed nearly 247 times.
The IPO applications are divided into three categories:
Institutional or qualified institutional buyers (QIB)
Non- Institutional investors (NII) or High networth investors (HNI)
Retail institutional investors (RII)
Each category has a fixed division of share allocation.
For example, the issue structure for Apollo Microsystems ltd was: QIB- 50%, NII- 15% and Retail Investors- 35%.
This means that 50% of the total share was reserved for the QIB, 15% of the total share was reserved for NII and 35% of the total share was reserved for the RII.
This ISSUE STRUCTURE can change for different IPOs. However, the company has to specify the allocation in the IPO details.
For QIBs, the discretion of IPO shares allotment is done by merchant bankers. Further, in the case of over-subscription, the shares are allotted proportionately to the QIBs.
For example, if a QIB applied for 10 lakh shares and the IPO got 5 times over-subscribed, then it will get only 2 lakh shares.
2. The process of IPO Share Allotment to Retail Investors:
For the IPO application, retail investors are allowed to apply with a smaller worth between 10-15k to 2 lakhs.
For example, in the Apollo Microsystems Ltd,
Issue Price: Rs 270-275 Minimum order quantity was Rs 50.
Therefore, it a retail investor wants to apply the shares at a bid of Rs 270, then the total application amount will be= Rs 270 * 50 = Rs 13,500.
Further, he/she can apply for the maximum of Rs 2 lakhs. This means that for Apollo Microsystems, the RII can get maximum of 14 lot (Each lot of 50 shares).
Now, how the process of IPO share allotment to retails investors actually happens?
First of all, the host calculates the total number of demand. After calculating the demands, here are the two possible scenarios-
1. Demand is less than or equal to the shares offered:
If demand is less than or equal to the offered retail proportion of the IPO shares, then full allotment will be made to the RII’s for all the valid bids.
2. Demand is more than the shares offered:
If demand is greater than the allocation to the retail proportion of shares offered, then the maximum number of RII’s will be allotted a minimum bid lot.
These are called maximum RII allottees and is calculated by dividing the total number of equity share available for the allotment to RII by the minimum bid lot.
Let us understand this with the help of a simple example:
Suppose there are 10 lakh shares offered to the retail investors and the minimum lot size is 50.
Then, the maximum retail investors that will receive the minimum bid lot = 10 lakhs/50 = 20,000.
This means that this 20,000 people will receive at least 1 lot.
Note: In case of over-subscription, allocation lower than a minimum lot is not possible. If the minimum lot size is 50, you will not be allotted 30 shares. Anyone who is allotted the share will receive at least 50 shares.
In the case of over-subscription, again there are two possibilities:
A) In case of a small over-subscription, the minimum lot is distributed among all participants. Then, the rest available shares in the retail portion will be distributed proportionately to the RIIs, who have bid for more than 1 lot.
Let’s say for the above example, 18,000 people applied for the allotment. However, among all the applicants, 5000 people applied for 2 lots (1 lot consists of 50 shares).
Hence, total no of shares applied = (13,000* 1lot) + (5,000* 2lot) = (13,000* 50) + (5,000* 100) = 11.5 lakhs
Here, we have oversubscription as the total shares offered to the retail investors is 10 lakhs. In such scenarios, first 1 lot of 50 shares will be allotted to all 18,000 applicants. Then the remaining 1 lakh shares are allotted proportionately to all those who have applied for more than 1 lot.
B) In case the RII applications are greater than the maximum RII allottees (big over-subscription), then allotted bid lot shall be determined on the basis of draw of lot i.e lottery.
Let’s say for the same example discussed above, 1 lakh people applied for the allotment. In such scenario, who will get the allotment will be decided by the lottery.
Nevertheless, the draw of lots is computerized and hence, there is no provision for cheating or partiality. Everyone has the equal chance to get the allotment.
Overall, in case of oversubscription, the allotment totally depends on your luck.
3. Process of IPO Share Allotment to HNI
High net worth investors are those people who invest a large amount of money (greater than 2 lakhs) in an IPO. In case of oversubscription, HNIs are also allotted the shares proportionately. Further, many a time, the financial institutions provide funding to HNIs in order to invest it in IPOs.
That’s all. This is the process of IPO share allotment to retail investors, QIBs and HNIs.
BONUS: How to maximise the chances of getting an IPO?
Many a time, the IPO you’ll be applying will be over-subscribed. In such cases, even if you applied for a full quota of Rs 2 lakhs, still, there’s no guarantee that you’ll get even a single lot.
In the same example of Apollo Microsystem limited discussed above, it got over-subscribed 247 times.
Then what to do in such cases?
Here are two basic advise to maximise the chance of IPO share allotment to retail investors. First, fill the application correctly and second, apply at the cutoff price.
That’s all. I hope this post about the process of IPO share allotment to retail investors, QIBs and HNIs is useful to you.
If you have any questions regarding the allotment process, please comment below. I’ll be happy to help you out.
If you are new to stocks and confused where to start, here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!
Tags: retail investors Sipo rules, sebi guidelines for ipo for retail investors, process of IPO share allotment to retail investors, new ipo allotment rules sebi,what is the process of IPO share allotment to retail investors, share allotment procedure
Hi, I am Kritesh, 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
Suppose there are two people – Rohan and Rahul, who wants to buy a milk distribution business and both have several options available in their locality. However, both Rohan and Rahul, follow a different approach.
Rohan goes and visits the owner of the business. He discusses the business- how it works, how are the sells, how much profit the business generates in a year, how many vendors they have etc.
Next, Rohan studies the financial statements of the company. He analyses the assets and liabilities of the companies balance sheet. Then, he studies the year wise revenue and profit generated by the business through the Income statement. He also looks at the net cash flow of the business from the cash flow statement.
Overall, Rohan analyses the business for weeks and comes to a decision of buying that business.
On the other hand, Rahul heard from somewhere that the prices of milk are going to rise in the future. In order to not miss the opportunity, he buys some milk distribution business with expectations that the milk prices will rise soon and he will make good profits from his business.
What do you think? Who will get better and consistent returns from his investments? Rohan or Rahul?
Yes, you are right. !! Rohan!
Why? That’s what we are going to discuss in this post.
Investment vs speculation-
The difference between investment vs speculation is amazingly described by Benjamin Graham, the father of value investing, in his book “THE INTELLIGENT INVESTOR”.
Here is a quote from the book about investment vs speculation:
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” -Benjamin Graham
According to Benjamin Graham, there are three equally important elements which should mutually exist in an investment:
You must thoroughly analyze a company, and soundness of its underlying business before you buy its stock.
You must deliberately protect yourself against serious losses;
And you must expect adequate returns, not extraordinary performance.
On the other hand, speculations are those which doesn’t go through proper analysis, do not consider the safety of principle and expects inadequate returns.
Few key differences between investment vs speculation:
An investor properly analyses the worth of the stock based on the value of the business before investing. On the other hand, a speculator gambles that a stock will go up in price based on just the market price. If the market price of that stock is not available, the speculator won’t make any decisions.
For the investment, returns are stable and recurring. On the other hand, the returns of the speculators are uncertain and erratic.
Investors have a modest return expectation from their investment while speculators have an unrealistic high return expectation.
Investors buy with an intent of receiving returns along-with safety of their investments. Speculators buy assets with an intent of making profits.
Why do people speculate in the stock market?
Speculating is nothing new to the financial world. For generations, people have been speculating in casinos, horse-race or gamble among each other in expectations to make quick high returns.
People speculate in the stock market because it is exciting and sometimes can be rewarding.
Nevertheless, most of the wealth created by speculations are temporary and moreover, non-repetitive. In most of the cases, this happens only when the people get lucky. But, are you?
Why speculating the in the stock market is dangerous?
Just like casinos or horse racing bets, the share market is also not made to profit the common people.
If you take the case of any casino, it is made in such a way that the house always wins and snitches the money from the majority of the people (if you do not count few of the lucky ones).
In a similar manner, the stock market is also made in such a fashion that if you are speculating in the market, the winners are always the brokers, stock exchange or the 5% of the intelligent investors.
The most common myth in speculation: If it worked, it means that you’re ‘right’
Most people think that the best way to test of an investment technique is simply to find out whether it “worked” or not.
If it worked, then people conclude that their investment technique was ‘right’, no matter how dumb or dangerous that investing tactics was.
Nevertheless, for building a wealth over the long term, you need a reliable technique. Just because it ‘worked’ this time, doesn’t guarantee its future performance.
Being temporarily ‘right’ won’t help you much over the long term if your technique is not sustainable.
Thinking that you’re investing when you’re actually speculating: There are a number of people who don’t know how to pick a fundamentally strong company or how to invest systematically in the market. That’s why, many a time, they are convinced that they are investing, whereas in actual, they are speculating.
Speculating become more dangerous when people get seriously involved in it. Going to casinos one or two times a year, won’t hurt you much. However, if you start taking it seriously and start visiting regularly, then the rest is all up to your fate. Similarly, speculating in the stock market by getting seriously involved is quite dangerous to you, both financially and emotionally.
No strict limit to the amount of speculations: Even the best gamblers take a limited amount of money to the casino floor and keep the rest of their money safe in their locker. Not everyone can be a conservative investor. However, if you are planning to take speculative risks is expectations of amazingly high returns, be it a small part of your total portfolio. Fix a maximum permissible amount, say 10%, to put for your speculations.
Conclusion:
Both investing and speculation involve risk and reward.
However, the investors are interested in making returns with the safety of their investments and hence reaches to their decision only after a proper analysis. On the other hand, speculators care more about profits, ignoring analysis, safety, and adequate return expectations.
If you want to get consistent returns from the market then you should start investing instead of speculating.
Speculating in the stock market is the worst way of accumulating wealth.
If you are new to stocks and want to learn how to invest in Indian stock market from scratch, then here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enrol now and start your share market journey today.
Tags: Investment vs Speculation, difference between investment vs speculation, investor vs speculator
Hi, I am Kritesh, 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
Should you invest in stocks when the market is high?
The Indian stock market hit the record high yesterday (15 Jan’18) when NSE Index nifty touched 10741.55 points for the first time in the Indian history.
People who have already invested in the market are enjoying the fun ride. But what about those who haven’t entered the market or are planning to invest?
With stock market indexes at the all-time high, it’s certain that those who are new to stocks or just started to put money are confused what to do next? Here are the two common questions that might be running in their head:
Should I wait for a market crash or correction?
Or Should I enter the market? I have already missed out the last few months and what if there is no market crash and the bull market continues? I don’t want to miss this opportunity.
Overall, the main question is whether this is the right time to invest in stocks or should you wait for some correction.
Should you invest in stocks when the market is high?
If you think rationally, then it makes more sense to not invest in the market if it is going to crash tomorrow. Why invest in stocks if its price to going to come down tomorrow and then you can buy the stocks cheap. Putting your money in the market at the wrong time is one of the biggest concern for most of the investors.
But how much certain are you that the market is going to crash tomorrow or in near future?
If you know the fixed date or even the fixed month, please share it with me. I’ll sell my entire portfolio, hold my money and buy the stocks only after the crash.
Here’s a quote from the star fund manager, PETER LYNCH. He is known to deliver 29.2% annual returns for 13 consecutive years while he was managing the magellan fund at Fidelity Investments.
The quote is from Peter Lynch’s best selling book ‘ONE UP ON WALL STREET‘, which I’ll highly recommend you to read.
In the book, Peter Lynch argues that those who spend more time analyzing the economy and predicting the market crash, are simply wasting their time. They can get more benefits from the market if they spend the same time researching the stocks.
Honestly speaking, no one ever knows when will be the next big market crash. Even the greatest market experts and economists had failed to do so. Otherwise, whey would have been the richest person in the world, not Warren Buffett, the Oracle of Omaha.
Now, once you are certain that you cannot predict the future and hence, do not know if there will be a market crash tomorrow, let’s take a different approach and rule out the decision of not investing in stocks.
Let’s recap what we discussed till now. First, you do not know that when will be the next big market crash. And second, you know that market is capable of giving good returns on your investment.
Currently, the bulls are in control of the Indian share market and however, the bull run may or may not continue in the future. The bull market may end next month or might long for the next few years.
With all these uncertainties, the best approach that you can take is to invest intelligently in the market.
Do not look at just the market indexes. Even in the bull market, there are a number of companies which are at 52-week high and 52-week low.
It’s easier if you just look at the stock and ignore the market (for some time). If you find a good stock which is currently trading at a reasonable price and you believe that the company is capable of huge future growth and giving high returns to the investors, then invest in the company. There are over 5,500 listed company and not all of them can be over-priced at once.
The index nifty and Sensex comprises of the 50 and 30 large companies from NSE & BSE. Hence, they are totally capable of ignoring the performance (and valuation) of many of the large/mid/small companies listed on the market. A sample of 50 companies cannot give the exact outlook of all the 5,500 listed companies.
Find some good companies and invest in them, regardless being the market high or low. Even during the bear market of 2015-16, there were many stocks which gave multiple times returns.
There is a common saying in the western world about the stock market investment:
“TIME IN THE MARKET IS MORE IMPORTANT THAN TIMING THE MARKET.”
This means that remaining invested in the share market for the longest time is better than to wait for the perfect time and enter late.
Do not wait too long to get started. You need to remain invested longer in the Indian stock market if you want to create wealth. The Indian stock market is at record high from the last feb’2016. And if you haven’t invested since then thinking that the market is at the all-time high, you have already missed 11 months of the bull run, where may have already created huge wealth for many.
If you feel the market is at ‘high valuation’ don’t buy the market, buy stocks. Buy companies with comfortable valuation. India still has large number of small market-cap companies with significant business; keep an eye on changing profile of ‘chor companies’, you are not late?
For newbie investors, I will recommend- Rupee cost averaging. Invest a certain amount of money each month.
If you are not certain about the future price movement of a stock but are confident that it is fundamentally strong, then follow the rupee cost averaging approach.
Invest a few amount every month in the stock for the next 5-6 months and average out your buying price.
Moreover, avoid lump sum investment i.e. investing the complete amount at one go.
1. Even the worst stock market crash couldn’t destroy the wealth of the long-term investors:
I know most of the investors get panicked when they hear the word ‘CRASH’. No matter how much reasons I give to invest, however after reading this word, you might be re-thinking that I shouldn’t invest now. Maybe the market will crash soon as the market is at the record high. I will invest in the market later.
I wish making decisions to invest was that easy. No one can predict the precise date of the stock market crash. And If we can’t control or forecast something, it’s not that important to discuss.
Nevertheless what we can do, is to read the historical data.
Let’s analyze the worst stock market crash in the Indian history- 2008 Stock market Crash.
The biggest crashes were on two consecutive days- 21 Jan and 22 Jan during the 2008 recession time. On both these days, the BSE Index Sensex fell over 2,000 points. Moreover, there were 7 trading days when the Sensex fell over 1,000 points in 2008.
I wasn’t involved in the market at that time (too young), however, I can imagine the panic. The stock market experts say that every investor is destined to see at least two big stock market crashes in his/her career. I hope it counts as one 😉
The point to note here is that even the worst Indian stock market crash would not have been able to destroy the wealth of the long-term investor.
In the above chart, notice that even if you have invested at the peak of 2008 and had remained invested for 8–10 years time horizon, you would have received decent returns from the market.
Further, as I already stated above, you cannot predict when the next crash will happen. It may be within a year, or maybe after 5 years, or maybe after decades, who knows?
Moreover, what if we are at the stage of 2005 when the stock market was still at an all-time high but at the beginning of the bull run?
Those who didn’t invest in 2004/05 thinking that the market was at high, missed the bull run phase of over 3 years. And just for your information, the NSE benchmark index Nifty gave a return of 36.3% (2005), 39.8%(2006) and 54.8%(2007) in that bull run.
In 2017, nifty gave a return of 28.6% to the investors and people think its huge (The below graph is updated upto July’17).
I cannot say whether there will be a market crash or not in the future. But what I can say is that the Indian economy is going through a major boom. And if you do not invest in stocks, you might miss one of the biggest stock market rally.
2. You will never be able to find the perfect moment:
Today the market is high. And that’s why you are not investing. Tomorrow, when the stock prices will be falling and many of the companies will be making their all-time low, will you have the nerve to enter the market?
It’s really tough to buy the stock at the exact bottom and sell at the top. To be honest, those who are able to do it are often lucky. Moreover, it’s not repeatable. Even if you’re able to do it once, you definitely cannot repeat it again and again.
If you are waiting to enter the market when it’s at the bottom, then it’s really difficult. Similarly, if you are trying to exit from the market, thinking that the market is high, how can you be certain that it’s the top?
Overall, do not try to time the stocks, in spite try to stay for a long time in stocks. AS ALWAYS, TIME IN STOCKS IN BETTER THAN TIMING THE STOCKS.
What approach should the old-investors follow?
For those who have already invested in the stocks, do not move out of the market, just because the market is high or your stock is at the 52-week high.
If you are investing for long-term (8-10 years or more), then surely you will find few times when the market is at high. Are you always going to quit that time? Most of the greatest investors are known to hold the stocks for 10-15 years, and not to sell them in between even when their stocks hit new highs a couple of times in this period.
The world’s most renowned investor, Warren Buffet bought the stocks of Coca-cola in the late 1980s (around 1988-89) and is still holding that stock for over 27 years now.
The Big bull of India, Rakesh Jhunjhunwala bought the stocks of Titan Company in 2002-03 and is still holding the stock. Certainly many a time the market was at its high in the period of last 15-16 years. But being a long-term value investor, Rakesh Jhunjhunwala didn’t sell the stock, just because the market was high.
In short, do not exit from the stock just because the market is high. You might never be able to enter the stock again at the same discount price where you entered first.
Conclusion:
The stock market indexes- NIFTY & SENSEX are high, isn’t a valid reason to not invest in the share market.
While investing in share market, look at the company, not the Index. If you are able to find a good stock at a reasonable price and believe that the company has huge future growth potential, then invest in it.
You cannot predict whether there’s gonna be a crash or a long bull market ahead.
The key to success in stocks in to minimise the risks, not to avoid it. If you invest in stocks intelligently, then you can minimise the risks, even in the crash, correction or bear market. However, if you avoid the market, then you won’t be able to get any benefits; even if there is a bull run in the market.
Quick Note: According to the World Bank’s Global Economic Prospects, India is likely to regain the position of the fastest growing economy in 2018. India’s growth rate is expected to accelerate to 7.3% in the year. Still not want to invest in the growing economy of the country? Read more here.
BONUS:
What’s the golden rule for wealth creation for the new and old investors?
Invest for the long term. Find fundamentally strong stocks and hold it tight without getting influenced by the public sentiments. Do not wait for the ‘bestest’ time to enter the market. Many had failed to time the market and you will too.
You may call this a conservative approach. However, if the long-term investment has worked for most of the successful stock market investors and had created huge wealth for them, then it can definitely create decent wealth for us too.
THAT’S ALL! I hope this post is useful to the readers.
Let’s end this article with one of my favorite quotes on investing:
“THE BEST TIME TO INVEST WAS YESTERDAY. THE SECOND BEST IS TODAY. AND THE WORST IS TOMORROW.”
If you are new to stocks and confused where to start, here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. I’m confident that the course will be useful to the new investors. Happy Investing.
Tags: Should you invest in stocks when the market is high, is now a good time to invest in the stock market 2017. invest now or wait for correction, should i invest in the stock market today
Hi, I am Kritesh, 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
3 Best Stock Screeners For Indian Stocks That You Should Know:
There are over 5,500 companies listed on Indian stock market. While investigating for good companies to invest, if you start reading the financials of each and every single stock, then it might take years.
Moreover, it doesn’t make sense to read the balance sheet, profit & loss statements or cash-flow statements of all the listed companies, if you can filter them out based on just a few preliminary filters like debt or growth rate.
And that why stock screeners can be a very useful tool for the investors (and traders) to reduce lots of hassle.
In this post, we are going to discuss 3 best stock screeners that every Indian stock investors should know.
What is a Stock Screener?
A stock screener is a tool to shortlist few companies from a pool of all the listed companies on a stock exchange using filters. The investors specify the filters and the stock screener gives the results accordingly.
For example, if you want to find a list of companies whose
Market capitalization is greater than 10,000 Cr
Price to earnings is between 10 to 25.
Last 3 years average return on equity is 20%
And debt to equity ratio is less than 1
Then, you can apply all these filters in a stock screener to get the list of the companies which fulfills the above criteria.
Stock screeners are very useful as it can save you a lot of time. You do not need to go through all the listed companies to shortlist few good ones. You can just apply the basic filter to get the list of few good ones that you want to investigate further.
Overall, the stock screener will help you to find good performing stocks according to your specifications with a single click.
Here is the list of the 3 best stock screeners for Indian stocks that every Indian investor should know. Further, please read this post until the end, as there is a bonus in the last section.
3 Best Stock Screener That You Should Know
Here is the list of the 3 best stock screeners for Indian stocks that you should know and bookmark on your browser:
The screener is a very simple yet powerful website for stock screening. The query builder of Screener allows the user to apply a number of filters to shortlist stocks based on PE ratio, market capitalization, book value, ROE, profit, sales etc.
The results of the stock screener can be customised and moreover, the screen can be saved for the future use.
Investing is also a very powerful website for stock screening. You can find the list of all the companies trading on NSE and BSE here.
There are a number of filters available on INVESTING for screening the stocks like ratios, price, volume & volatility, fundamentals, dividends and technical indicators. Moreover, it’s a very useful site if you follow the top-down approach.
You can select the industry which you want to research about and then apply a number of filters like PE, P/Book value, ROCE etc for shortlisting the best stock in that industry.
For example, if you are studying the chemical industry, then simply select this industry option. You will get the list of the companies in this industry. Next, you can apply different filters for screening the best one, according to your preference.
I have explained in details how to use ‘INVESTING.COM’ and ‘SCREENER.IN’ for effective stock screening on my online video course- HOW TO PICK WINNING STOCKS? Feel free to check it out. The course is currently available at a discount.
Edelweiss is another simple stock screener which has lot more criteria to filter companies based on valuation, market performance, shareholding pattern, management effectiveness etc and to apply these filters on the same tab to find specific stocks.
The filters are easy to use and the results are customised & downloadable.
Bonus: Few other useful stock screeners
As always, I never end a post without some bonuses. Here is the list of few other useful stock screeners that you should also know.
That’s all. I hope that this list of the best stock screeners for Indian stocks is useful to you.
If I missed the name of any other useful stock screener that deserves to be on this list, feel free to comment below. I’ll add them to the bonus section above so that the readers can get more benefits.
Hi, I am Kritesh, 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
On May 18, 2009, the Bombay Stock Exchange benchmark index Sensex went up 2099.21 points or 17.24% and National Stock Exchanges index Nifty was locked 636.40 points up or 17.33%.
I intentionally choose the day when Sensex skyrocketed, just to start this post with a happy note. In the similar way, Sensex has also fell hundreds of point on a single day.
Now, moving forward to stocks, we can easily found a number of companies whose share price increase 10-20%+ in a day. For example:
The key question here is how much can a share price rise or fall in a day? Is there a limit to this change or the share price can explodingly increase or decrease to any price in a day?
Moreover, how does the stock market really works? How much can the market plunge or crash in any day?
I’m going to answer all these questions in this post. By the end of this post, you will understand how much can a share price rise or fall in a day i.e. what’s the maximum gain/loss possible in a single day?
However, to answer this question, you’ll need to understand the concept of price band and circuit breaker.
Price bands are used to control the extreme volatility in the stocks. It is a specific limit beyond which the share price of a company cannot rise or fall.
Different stocks have different price band which ranges from 2%, 5%, 10% and 20%.
This band is decided by the stock exchange based on the price movement history of the share. Further, the price band on a particular day is based on the previous day closing price.
Let’s say, there is a company ABC whose price band is 10% and the closing price of last day is Rs 100.
Here, the upper price band will be 10% greater than the last day closing price (Rs 100). Therefore, the upper price band = Rs 110.
Similarly, the lower price band will be 10% lower than the last day closing price (Rs 100). Therefore, the lower price band = Rs 90.
Overall, on that day, the share price of company ABC can move between Rs 90 to Rs 110. The share price cannot go beyond this limit.
In case, the stock hits its lower/upper circuit, then its trading is suspended for the day or until the share price comes below the circuit range.
When the stock hits the upper price band, then the investors who had already bought the stock have an advantage (as there are only buyers in this scenario). On the other hand, when the stock hits the lower price band, then the investors are in trouble as they couldn’t find buyers (only sellers in this scenario) until normal trading starts in that stock.
Here are few examples of companies with different price bands:
In addition, if the stock price keeps hitting the limit, the stock exchange may reduce its price band to decrease the volatility. You can find the list of the companies whose price band changes from the next trade date on the NSE/BSE website.
Here’s an example of the list of companies with changed price band on 9th Jan 2018.
Now that you have understood the concept of price bands, let’s move forward to another important concept- Circuit breakers.
What is a circuit breaker?
When I was doing my graduates in electrical engineering, I studied the concept of the circuit breaker in an electric circuit.
A circuit breaker is an automatic device for stopping the flow of current in an electric circuit as a safety measure in case the electric current goes beyond a specific limit.
The same concept of the circuit breaker is used in the share market to limit the movement of the market beyond a specific limit in a day.
The Indian stock exchanges have implemented the index based circuit breakers according to the guidelines of SEBI w.e.f 02 July 2001.
According to the SEBI rules:
The circuit breakers for the indexes will be applied at 3 stages, whenever the index crosses 10%, 15%, and 20% level.
The stock exchanges calculate these Index circuit breaker limits for 10%, 15% and 20% levels based on the previous day’s closing level of the index.
When these circuit breakers are triggered, it will result in a trading halt in all equity and equity derivative markets nationwide. This means that if the index crosses its first stage of 10%, the trading will halt in entire India.
Moreover, this circuit breaker can be triggered by the movement of any of the market index whichever crosses the limit level first. Let’s say Sensex fell above 10% and nifty is still at 9.7% down, in this scenario, the circuit breaker is triggered as Sensex has breached the level. The circuit breaker does not require all the indexes to breach and either one crossing the level will trip the circuit breaker.
After the first circuit filter is breached, the market will re-open with the pre-open call auction session after a specified time. The extent of market halt and the pre-open session is given below:
Let’s understand the concept of circuit better with the help of the same example discussed in the starting of this post.
On May 18, 2009, the Sensex opened at 10.73% or 1305.97 points higher at 13479.39. And The Nifty was locked at 4203.30, higher by 14.48% or 531.65 points. The trading was halted for two hours as the index touched the upper circuit one minute after trading began.
However, as soon as the market re-opened the indices hit the upper circuit again, and trading was halted for the entire day today. The S&P CNX Nifty hit the upper circuit of 20.53%, whereas the Sensex rocketed up by 2,110.79 points at 14,272.63, up 17.34 percent. Read more here.
CONCLUSION:
How much can a share price increase in a day depends on its price band. There are four price bands for stocks in India- 2%, 5%, 10% and 20%, which is decided by the stock exchange.
If the price band of a company is 10%, then it can rise or fall, only 10% on that entire day of trading.
Further, the indexes also have circuit breakers which work on 3 stages- 10%, 15%, and 20%. In case, the limit is breached by any either, the circuit breaker is tripped and all the trading on the stock exchange comes to a halt. The trading will re-open according to the specified guidelines of the SEBI.
That’s all. I hope this post is useful to the readers. Happy Investing.
Hi, I am Kritesh, 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
The Dhandho Investor- ‘Heads I win, Tails I don’t lose much’ – Book Review
Recently, I was traveling from Pune to Mumbai, a 3+ hour journey by bus. It was a beautiful journey with good scenery by the window seat and a decent road. But what made it even better was re-reading one of my favorite book on Investing- The Dhandho Investor’ by Mohnish Pabrai.
I choose to read this book because it is just 208 pages long and I was sure that I can read the book completely in one sitting. The book is very insightful and one cannot put it down once he had started reading this book.
In this post, I’m excited to give you the review of the same book- ‘The Dhandho Investor’ by Mohnish Pabrai.
About the author:
Mohnish Pabrai is an Indian-American Investor, businessman, and Philanthropist.
He is the Managing Director of Pabrai Investment funds, an investment fund based on the similar model to that of Warren Buffett’s Partnerships in the 1950s.
Since inception in 1999, this investment fund has given an annualized return of over 28% and hence has consistently beaten the S&P 500 Index.
What is ‘Dhandho’?
Dhandho is a Gujarati word, which means ‘Endeavour that creates wealth’. In simple words, a dhandho investor is a ‘wealth creator’.
“LOW RISK, HIGH RETURNS”
This is the central concept of this book.
Moreover, Mohnish Pabrai’s idea to invest in businesses with low risk and high returns makes perfect sense. Isn’t the main aim of any investment is to get the maximum returns with minimum risks?
Mohnish Pabrai explains this concept with the help of a few case studies in the first few chapters. Here, he explained different successful investor who followed this low-risk framework to get the highest returns.
The case studies include the stories of Patels (who own over $40 billion in the motel assets in the United States), Richard Branson of Virgin Company, Laxmipati Mittal of ArcelorMittal- world’s largest steelmaking company and few more. These stories presented in the book are really inspiring and broadens the reader’s eyes towards low-risk investing.
The Dhandho Framework:
In the book, Mohnish Pabrai describes 9 principles of the dhandho framework for low risk and high returns. Here are the principles:
Focus on buying an existing business
Invest in simple businesses
Invest in distressed businesses
Always invest in business with durable moats
Few bets, big bets, and infrequent bets
Fixate on arbitrage
Margin of safety – always
Invest in low-risk, high-uncertainty businesses
Invest in the copycats rather than the innovators
I won’t go into detail about these principles here, as it will kill the fun of reading the book. Nevertheless, you have already got the basic idea of this framework.
What did I like about the Dhandho Investor?
The principle that I liked the most is ‘Few bets, big bets, and infrequent bets’. Here, Mohnish Pabrai suggests that every once in a while, you’ll encounter overwhelming odds in your favor. In such times, act decisively and place a large bet. These are the adjacent scenarios of “Heads I win; tails I don’t lose much”.
The Dhandho Investor is an amazing book to deepen the basics of value investing principles. The book is quite simple to read and complex investing principles are simplified in an easy-to-understand manner. The Dhandho framework mentioned above helps in investing in low-risk businesses with high returns.
Overall, it’s a great read. I will highly recommend you to read this book to learn the principle of ‘low risk and high return’. You can buy this book on Amazon here.
That’s all. I hope this book review on ‘THE DHANDHO INVESTOR’ by Mohnish Pabrai is useful. Happy Investing.
Hi, I am Kritesh, 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
How to track your stock portfolio in Google Sheets?
There are a number of free financial websites and mobile apps where you can track your portfolio to calculate your gain/losses etc. For example- money control, ET markets, market mojo etc.
However, if you a small investor in India and aren’t involved in frequent trades, intraday, or futures and options, then all you need is a simple sheet to track your stocks and the dividends received.
In addition, these sheets can also provide more privacy and security to your portfolio compared to mobile apps.
The good news is that it’s really simple to create and track your stock portfolio in google sheets. And in this post, I’ll teach you precisely how you can use google finance functions to create such sheets step by step.
Pros and cons of using google sheets to track stock portfolio:
Pros of creating a portfolio in google sheets:
Live updation of the current share price of stocks.
Customized portfolio.
Easy tracking of dividends received.
Simple tracking of net changes in the portfolio.
Cons of creating a portfolio in google sheets:
Dividends are to be entered regularly (whenever you receive it).
In case of stock splits or bonuses, you need to make the changes manually.
How to track your stock portfolio in Google Sheets?
If you do not know, Google offers ‘GOOGLE FINANCE’ which keeps most of the important stock data (like current price, PE, market cap etc) from the stock exchanges (BSE and NSE). You can easily pull all the stock data in google sheets to track your portfolio.
To use this free facility, all you need is a google account (which I guess most of you will already have).
We are going to use few google finance functions to get the stock data like its current price, 52-week high price, 52-week low price, market capitalization etc.
As explained in the above video, you can find the symbol of a company by a simple google search. Just search, “Stock name + Share price” on google and you will get the following result. The symbol is highlighted in the below picture.
Ex: Ashok Leylands: ASHOKLEY
In case, you are not able to find the symbol using the simple google search (or it is not working), you can go to google finance and search for the company in its search bar. You will get a numerical symbol, which you can use instead.
For example, to find the current share price of TATA motors using the numerial symbol, you can use: =GOOGLEFINANCE(“BOM:500570”,“price”) on google sheets.
Quick note:
There are few companies where company symbols are not unique and a different company with the same symbol might be listed on another stock exchange.
For example, Bharat Electronics limited has a stock symbol of ‘BEL’.
In this case, another company- Belmond ltd has the same symbol “BEL” and is listed on New York stock exchange (NYSE).
In these cases, you have to add the stock exchange symbol along with the company symbol in the google sheet, before you run the query.
For example, if you want to find the current price of Bharat electronics limited on google sheets, then use this function:
=GOOGLEFINANCE(“NSE:BEL”,”price“)
In addition, you can use this script “NSE:company symbol” anytime, even if the company has a unique symbol.
Summary:
Here is the list of the important google finance functions that we used in the above video to track your stock portfolio in google sheets.
Tags: how to track your portfolio using google sheets, track portfolio using google sheets, google sheet portfolio, google finance functions on google sheets, google finance functions, google finance stock tracker, google sheets stock template
Hi, I am Kritesh, 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
The Best Ever Solution to Save Money for Salaried Employees:
Not having enough savings in the bank account is one of the biggest problems that majority of people are facing in India. Especially the youth.
Living on pay-check to pay-check and relying on the credit cards to pay even for the basic amenities of life is a common scenario nowadays.
But how can we solve this problem? How can a salaried employee save enough money to buy his dream car or dream house, without being a cheapskate or without cutting money on coffees?
The answer is simple. I’ve been implementing this solution for a long time since the pocket money’s in my college days to the paycheck that I get from my first job.
And the solution to save money for salaried employees is:
“Pay your self first.”
Now, this is not a new concept and in no way, I want to take credit for sharing this notion. I read this concept for the first time in the book ‘THE RICHEST MAN IN BABYLON’ by George Clason. Then I found the same concept of saving money in Robert Kiyosaki’s book ‘RICH DAD, POOR DAD’.
If you haven’t read the book ‘The Richest Man in Babylon‘, I highly recommend you to read this book. It is one of the best classic personal finance book that I have ever read.
The idea is simple.
Keep a fixed part of your salary for yourself. Say you keep 3/10 or 30% of your salary for yourself only.
You are not giving this to your landlord, or to the automobile company for your bike/car EMI, or to Dominos to eat a pizza or to anyone else. You keep this money only to yourself.
Nonetheless, you can spend the rest 70% of your salary in any way that you want.
I am not asking to not to go to a party or to eat in the cheap restaurants or not to renew your Gym membership. Enjoy your life. Saving few bucks by not drinking a cup of tea/coffee won’t make you a millionaire.
Just do not party with your 30% share of income that you kept for yourself. You have earned this money after a lot of hard work and you deserve to pay yourself first.
Keep this money with you only. It’s not your liberty, it’s your right.
Quick note: Saving money is just the beginning. If you want to become a millionaire, you have to start investing in the right way. Nevertheless, how to invest is a topic to discuss in another post. In this post, I just want to focus only on the first step to get rich. And this can be done by saving money. You can’t invest if you do not saved first.
(Please do not be this guy ;p)
That’s all. I hope this solution to save money for salaried employees is helpful and you can also start saving from today.
If you liked this idea, please share this post with at least one of friend who needs to learn the concept of paying yourself first 😉
Hi, I am Kritesh, 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 was a child, I used to play ‘Chess’ with my grandfather. And my favorite strategy was to mimic his moves. I enjoyed watching my grandpa taking a lot of time to decide his next move and on the other hand, I just copied what he did earlier.
Many a time, this strategy worked for a long part of the game. However, in the end, I had to come up with my own ideas, otherwise, I would have lost the games. The point was that I was always a step behind. And if you want to win, then you have to think ahead, instead of clinching to the back.
The same is applicable to the share market.
What is copycat investing?
Copycat investing is simply tracking the investments of the big players in the market and replicating their buy/sells.
These big players have already proved their expertise in the market in the past and hence, it makes sense the keep an eagle-eye on their investments.
This type of investing is also called as side-car investing or coat-tailing investing.
There are a number of ways by which a regular investor can track the buying or selling of the ace investors of the market for copycat investing. Few of the easy ways are discussed below:
Company disclosure: Each company has to disclose the names of all the investors who hold more than 1% of stakes in the company on their quarterly reports. You can read these reports to find the names of the big investors if any.
Block/bulk deal: You can find the details about the investors involved in the block deal and bulk deal on the stock exchange websites. These details are published daily. You can read more on how to find block/bulk deal details here.
Monthly portfolio disclosures of equity funds: The equity funds release their monthly portfolio. As most of these funds are managed by the ace investors, you can track their portfolio from these monthly disclosures.
Investment blog/ fansites/ News channels: There are a number of fansites and investment blogs who track the investments of their favorite investors. You can subscribe to these sites. Moreover, many a time, the news channels and financial websites also highlight the top picks of the big investors of the market.
Social media: Sharing information of the newest investment is not new to the social media. You can follow these big players social profiles like Twitter, where many a time these players release their latest picks.
A well-picked Real Estate Stocks Portfolio should give over 200% return than NIFTY in 1-2 years. I hold 3 of them… pic.twitter.com/Q6TWLWf7xs
There are a number of regular investors who claim to make huge fortunes by copycat investing.
As a matter of fact, theoretically, this type of investing should work. However, if you keep copying the portfolio’s of the big players, you won’t be able to keep winning for the long term.
We are going to discuss why copycat investing fails ‘most of the time’ in the next section.
Here are the few reasons why it’s not a good strategy to blindly invest in the shares of ace investors like Rakesh Jhunjhunwala, Dolly Khanna etc:
1. You both do not have the same financial situation.
The big investors can easily remain invested in that stock for a long period of time say 5-10 years. On the other hand, you might need to raise fund in hurry sometimes in order to buy a new home, pay for children’s school, emergency fund etc. An early exit from the stocks in such situation may lead you to book heavy losses.
2. An expert has diversified portfolio:
While trying to copy the stocks of the ace investors, you need to understand that those big investors have a diversified portfolio. For example, let’s say that Rakesh Jhunjhunwala has 20 stocks in his portfolio. His portfolio is well-diversified and the risk is mitigated.
On the other hand, if you buy just 1 stock on which Rakesh Jhunjhunwala invested recently, your risk-level won’t be same as that of Mr. Jhunjhunwala. You will have a high risk. In such scenarios, it’s better to copy the entire portfolio. Copying one stock from Rakesh Jhunjhunwala and other from Dolly Khanna, won’t help you to diversify to reduce the overall risks in your portfolio.
3. Not knowing the WHYs of Investment:
If you do not know the reason why you have invested in that stock, then you will not believe in the company for long-term. In such scenarios, if the company doesn’t perform well soon enough, you might lose faith on your investment and exit early from the stock.
One busy week and you might never know when these big investors left that stock. It’s difficult to precisely copy the actions of these investors. Most of the big players in the market are full-time investors or fund manager. A regular investor with a 9-to-5 job does not have so much flexibility to remain actively involved in the market.
5. You do not know their exit strategy:
You may copy the portfolio of the big investors but how are you going to understand their exit strategy?
Maybe they planned to remain invested for 10 years and your investment goal is just for 2-3 years. Or maybe they are planning to exit just after booking a small profit of 50-60% as they do not believe in the stock for long-term, but you bought the stock for a long-term perspective. How will you understand these? It’s foolish to enter in a stock without having an exit strategy.
6. Delayed information:
While copycat investing, it’s really important to know the entry and exit point of the ace investors. Any delay can be a great decider of the returns. You might know that the big investor has invested in that stock. But if you do not know the entry price and willing to enter at twice the price at which he/she entered, then this delayed investment can greatly affect the overall returns.
7. Ace investors can make mistakes:
The big investors are also humans and capable of making mistakes. However, they can afford the losses as they have planned everything. But can you afford the same loss?
Summary:
Overall, theoretically, it sounds good to mimic the portfolio of big investors in the share market. However, in practical, copycat investing is tough. A retail investor cannot match the resources, opportunities, and flexibilities available to these big investors.
The best you can do it to keep an eye on the investments of the ace investors and then make your own investment strategy for that stock. Tracking stocks is a good idea, however, not doing your homework before investing can definitely hurt your portfolio.
New to stocks? Want to learn how to select good stocks for consistent long-term returns? Here’s an amazing online course which is definitely worth checking out: HOW TO PICK WINNING STOCKS? The course is currently available at a discount.
I hope this post on copycat investing helps the readers. Happy Investing.
Tags: Copycat investing, is copycat investing good, copycat investing India, risks of copycat investing
Hi, I am Kritesh, 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
The Little Book That Beats the Market Book Summary:
“Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”
― Joel Greenblatt, The Little Book That Beats the Market
The little book that beats the market is a classic value investing book, which was originally written in 2005.
This book educates a magic formula, which is simple yet effective and if patiently practiced, then is guaranteed to make profits in long run.
About the Author:
Joel Greenblatt is an American investor, hedge fund manager, and a writer. He started an investment company named ‘Gowtham capital’ in 1985. This firm has given an impressive 40% annualized return for a duration of 20 years from 1985 to 2006.
Joel has dedicated the book ‘The little book that beats the market’ to his children and hence is written in a simple story-telling format, which anyone can read and easily understand.
‘The little book that beats the market’ became an instant best-seller when published and over millions of copy of this book has been sold.
Joel is a long-term investor and generally holds the stocks for more than a year in his portfolio. He believes that the market can be erratic in short term, however, for the long-term stock market is quite efficient.
In addition, Joel has also created a website for magic formula investing which you can visit here.
The Little Book That Beats the Market Book Summary:
The book focuses on a magic formula which is based on two financial ratios- Return on capital and Earnings Yield.
1. Return on capital:
ROC = EBIT/ (Net working capital + Net Fixed capital).
Here, ROC is the ratio of the pre-tax operating earnings (EBIT) to tangible capital employed (Net working capital + Net fixed capital).
Joel Greenblatt has described why he used ROC in place of the commonly used financial ratios like ROE (Return on equity) or ROA (Return on assets). This is because, first of all, EBIT avoids the distortions arising from the differences in tax rates for different companies while comparing.
Second, net working capital plus net fixed capital is used in place of fixed assets as it actually tells how much capital is needed to conduct working of the company’s business.
Return on capital tells how efficient the company is in turning your investments into profits.
2. Earning yield:
Earning yield = EBIT / Enterprise value
Here, enterprise value is the market value of equity (including preferred shares) + net interest – bearing debt.
Earning yield how much money you can expect to make per year for each rupee you invest in the share.
Overall, ROC tells how good is the company and Earning yield tells how good is the price.
Next, here are the three steps suggested by the author Joel Greenblatt in his book ‘the little book that beats the market’ to find companies for investment:
Find the earning yields and return on capitals of the stock to evaluate stocks.
Rank the companies according to the above two factors and combine them to find the best companies for investment.
Have patience and remain invested for the long term. Lack of patience is why people fail to implement the magic formula.
How to use magic formula?
Find the Return on capital (ROC) and Earning yield (EY) for all the companies.
Sort all the companies by ROC.
Sort all the companies by EY.
Invest in top 30 companies based on the combined factors.
COMPANY SYMBOL
ROC (RANK)
EY (RANK)
COMBINED (RANK)
A
1
153
154
B
2
35
37
C
3
37
40
D
4
480
484
E
5
13
18
F
6
127
133
G
7
78
85
H
8
512
520
Here, we try to find the companies with lowest combined factor rank.
For example, for company A, although it ranks 1 for the Return on capital. However, its earning yield rank is quite low and that’s why it’s combined rank is quite high.
On the other hand, for the company E, both ROC and EY rank are decent and hence its combined rank is good for investment.
Joel Greenblatt has researched on the top stock picks using this magic formula and found consistent good returns over long term.
The little book that beats the market is a nice read and an excellent place to start reading if you have never invested in stocks before.
The book is written in a very simple language and the concepts described in the book are time-tested.
You might think that why should I read the book when I have already given you the magic formula. This is because I have just explained a single chapter from the book. Think how much knowledge you can gain by reading the entire book.
Moreover, as the name of the book suggests, it’s a very little book with just 179 pages. You can easily read the book over a weekend and strengthen your financial concepts.
I highly recommend you to read this book, especially if you are a beginner. You can buy the book from Amazon. Here’s the link.
That’s all. I hope that this post on ‘The Little Book That Beats the Market Book Summary’ is useful to the readers.
Do comment below which is the best share market book that you have ever read.
Tags: The Little Book That Beats the Market Book Summary, The Little Book That Beats the Market magic formula, The Little Book That Beats the Market Book Summary and review, The Little Book That Beats the Market review, Joel Greenblatt The Little Book That Beats the Market Book Summary
Hi, I am Kritesh, 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
Shareholding pattern- Things that you need to know
While most of the newbie investors already know the importance of checking the financials, debts, management, competitive advantage etc, however, the shareholding pattern is something that most of them ignore.
Nevertheless, there are a number of important learnings that you can find out by simply reading the company’s shareholding pattern.
In this post, we are going to discuss the things that you should know about the shareholding pattern of the stocks in the Indian stock market.
Every company discloses its shareholding quarterly. You can find the shareholding pattern of the listed companies on the stock exchange websites, company’s official website or the financial websites like money control.
Shareholding distribution:
The Shareholding pattern shows how the shares of the company are distributed among its different entities.
The two main distribution of the shareholding pattern of a company is- 1) Promoter and promoter’s group 2) Public shareholdings.
Promoters Shares: They are the owners of the company. They occupy most of the seats on the board of directors and management committee. The relatives of the owners who own the shares of that company come under promoter’s group.
Public shareholding: They constitute of the Institutional shareholdings or financial bodies like mutual funds, financial institutes, insurance companies etc. FII (Foreign institutional investments) and FDI (Foreign direct investments) make a huge part of this distribution.
Lastly, general retail investors like you and me also come under the public shareholding pattern.
In addition, the individual entities who hold more than 1% of the public shareholdings are also disclosed by the company in its shareholding pattern.
Here’s an example of the Shareholding pattern of Prima Plastics:
Quick tip: When you are reading the shareholding pattern of a company, always compare the pattern of that quarter with those of the previous quarters to check how holdings have changed.
Promoter’s share and Institutional shareholdings are the ones that one should notice carefully as they make most of the bulk of the shareholding pattern.
For example, FII holds a big chunk of the free float market cap of a company. If FII exited any stock in a hurry, because of any reason, the stock price may fall (selling of such huge amount of shares by FII might create a panic among the public).
On the other hand, when FII starts investing in a small company, that stock comes to the notice of the people and generally, its price starts to rise. Here, investments by FIIs are taken positively by the public.
Further, holdings of mutual funds or insurance companies show how much the stock is favored among the big players. Few stocks are the darlings of the fund managers and can be found in the portfolio of most of the mutual funds. This is favorable for the stock as the optimism of the high qualified fund managers creates positive vibes among the investors.
1. A high stake in the shares of the promoters is a positive sign. On the other hand, low stakes of the promoters show the less confidence of the promoters towards their own company.
2. A decently high FII stake is again taken as a positive sign. Moreover, an increase in the FII share is even a better sign as FII commits only when they are optimistic about the company and its future growth.
3. Although a high stake of promoters is favorable for the company. However, a very high shareholding pattern by the promoters is not good.
A moderately high diversified holding and a good presence of the institutional investors indicates that the promoters have a little room to make and carry out random decisions which may hurt the shareholder’s interests. Therefore, a diversified holding is a good sign for the investors.
4. In case of the shareholdings of the promoters changes (increases or decreases), the investors should pay attention to the purpose and method of the shareholding pattern change.
For example, the purpose to buy/sell the stakes can be to pay off debt, new acquisition, to strengthen the balance sheet etc Similarly, the method of increase/decrease the promoter’s shareholding can be by issuing new share, offloading etc.
4. If the shareholding of the promoter’s increases, it can be taken as a positive sign. Promoters are the insiders and they have the best knowledge about the company.
If the promoters are optimistic about the company and are increasing their holdings, this means that they are confident about the company’s growth as they know best about the companies future opportunities and strategies.
6. On the other, if the shareholding of the promoter is decreasing, it cannot be always taken as a negative sign. Maybe, the promoters are planning for a new venture, new acquisition, a new company or just to buy a new house. Everyone has the right to use their asset when they need it.
No! Jeff Bezos was selling the shares to fund his Blue Origin rocket company, which aims to launch paying passengers on 11-minute space rides starting next year. Overall, the company fundamentals remained the same. Just because the promoter holdings decrease, doesn’t mean a danger sign.
7. However, if the promoters shares are continuously decreasing without any clear reason, then you might need to investigate further and take cautionary actions.
Overall, shareholding pattern of a stock gives a lot of information about the company and should be considered as an important factor to check while choosing a stock to invest.
There’s one more concept that you need to understand along with the shareholding pattern of a company. It’s the pledging of the shares.
Shares are assets and hence it can be considered as a security in the form of collateral for taking loans. Many a time, the promoters keep their shares as a collateral for raising funds. Companies disclose the promoter’s share that has been disclosed as debt collateral in their quarterly reports.
A high pledging of shares by the promoters is risky for the investors.
Why is pledging risky?
Pledging of the shares is the last option for promoters to raise fund.
In the scenario, when the share price of these companies starts to fall, the collateral amount submitted by the promoters also decreases.
For example, let’s say that the promoters pledged their 1 lakhs shares each worth Rs 60 to get the fund. Overall, his total collateral amount is Rs 60 * 1 lakh shares = Rs 60 lakhs.
Now, if the share price of the stocks falls to Rs 40, then the collateral amount will decrease to Rs 40 * 1 lakh shares = Rs 40 lakhs.
If prices of these shares fall below a threshold, promoters have to increase their pledging of shares in order to make up the difference. In the above case, the promoters may have to pledge more shares as they are missing the threshold by (60-40) = 20 lakhs.
Further, if the company continues to fail to make debt payments, then the lender might also sell the shares to recover the collateral amount. This may lead to further fall in the share price.
Therefore, huge share pledging is really dangerous from the investors perspective.
Nevertheless, pledging of the share may not always result to be bad for the company. In cases where the company has a steady cash flow and making good profits, the promoters may be able to get off the pledge soon enough with a better financial situation for the company.
However, as an intelligent investor, it’s good to stay away from companies with promoters pledging of shares.
New to stocks? Here’s an amazing online course for fundamental investment- HOW TO PICK WINNING STOCKS? The course is currently available at a discount.
That’s all. I hope this post on the shareholding patterns of the company is useful to the readers.
Further, if you have any questions, feel free to comment below.
TAGS: What is shareholding pattern, how to read shareholding pattern, shareholding pattern importance, shareholding pattern analysis
Hi, I am Kritesh, 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
“A great company is not a great investment if you pay too much for the stock.“ – Benjamin Graham, father of value investing.
Valuation is one of the most important aspects of investing in stocks. You might be able to find a good company, but if you not evaluating its price correctly, then it might turn out to be a bad investment.
There are two basic ways to do the valuation of stocks:
Absolute valuation
Relative valuation
The absolute valuation tries to determine the intrinsic value of the company based on the estimated free cash flows discounted to their present value.
The discounted cash flow model (DCF) is the most common approach for absolute valuation.
However, there are few limitations of using absolute valuation as you will require to make few assumptions and the results are only as good as inputs.
Nevertheless, this post is not focused on the absolute valuation and we’ll discuss more in another post where you will require to understand a lot of complex terms like future free cash flow projections, discount rate (weighted average cost of capital- WACC) etc to find the estimated present value.
In this post, we are going to discuss how to do the relative valuation of stocks.
Relative valuation of stocks is an alternative to the absolute valuation.
It’s an easier approach to determine whether a company is worth investing or not.
Relative valuation compares the company’s value to that of its competitors, industry average or historical performance to find the company’s financial worth.
It’s similar to comparing the different houses in the same locality to find the worth of a house. Let’s say if most of the 3BHK apartment in a locality costs around 70 lakhs and you are able to find a similar 3 BHK apartment which costs 50 lakhs, then you can consider it cheap.
Here, you do not find the true worth of the apartment but just compare its price with similar competitors.
There are a number of financial ratios that you can use to do the relative valuation of the Indian stocks. Few of the most common ones are described below:
1. Price to earnings (PE) ratio
This is one of the most famous relative valuation tool used to investors all across the world.
The concept of PE ratio is described beautifully in the Benjamin Graham’s book “THE INTELLIGENT INVESTOR”, which Warren buffet considers as one of the best book ever written on investing. I will highly recommend you to read this book.
PE ratio is calculated by:
P/E ratio = (Market Price per share/ Earnings per share)
However, PE ratio value varies from industry to industry, therefore always compare the PE of companies only in the same industry.
As a thumb rule, a company with a lower PE ratio is considered under-valued compared to another company in the same sector with higher PE ratio.
2. Price to book value (P/BV) ratio
The book value is referred to as the net asset value of a company. It is calculated as total assets minus intangible assets (patents, goodwill) and liabilities.
Therefore, Price to book value (P/B) ratio can be calculated using this formula:
P/B ratio = (Market price per share/ book value per share)
As a thumb rule, companies with lower P/B ratio is undervalued compared to the companies with higher P/B ratio. The P/BV ratio is compared only with the companies in the same industry.
3. Return on equity (ROE)
It is the amount of net income returned as a percentage of shareholders equity. ROE can be calculated as:
ROE= (Net income/ average stockholder equity)
It shows how good is the company in rewarding its shareholders. A higher ROE means that the company generates a higher profit from the money that the shareholders have invested. Always invest in companies with high ROE.
For estimating the relative value of stocks, you need to set an accurate benchmark. The companies that you are comparing should be from the same industry and it’s even better if they have a similar market capitalization (for example, a large-cap should be compared to large-cap companies).
Let’s say that there are 5 companies in an industry and the average price to earnings ratio of the industry turns out to be 20.
Now, if the price to earnings value of the company that you are validating is 15, then it can be estimated to be relatively cheaper compared to the stocks in the same industry.
Similarly, you can use multiple financial ratios to find the relative value of the stocks.
No valuation technique can be perfect. There are few limitations of relative valuations which are discussed below:
The relative valuation approach does not give an exact result (unlike discounted cash flow) as this approach is based on the comparison.
It’s assumed that the market has valued the companies correctly. If all the companies in the Industry are overvalued, then the relative valuation approach might give a misleading result for the company which you are investigating.
Where to find the relative multiples for comparing Indian stocks?
There are a number of financial websites where you can find the financial ratios of Indian stocks. For example- Money control, Investing, Screener, Screener, etc
I’ve already discussed most of these websites in my earlier posts. You can read more about them here.
In this post, I’m going to converse about a new website which I hadn’t discussed in any of my earlier articles. It’s Equity Master.
Equity master is an amazing website for stock research. While researching a company, you can get its 5-year data from the factsheets.
Similarly, if you want to compare two companies, this option is all available on the Equity master.
Just go on ‘Research it’ on the top menu bar and click on ‘Compare company’. Enter the name of the two companies and you’ll get the comparisons.
Here is the result that you will get if you compare Hindustan Unilever with Godrej Consumers:
It’s an amazing website. Just play around and get familiar with the website.
Conclusion:
Relative valuation of stocks is a good alternative to the absolute valuation. You can use this approach for a simple yet effective stock picking.
That’s all for this post. I hope it is useful for you. Please comment below if you have any questions. I’ll be happy to help.
If you want to learn how to invest in Indian stock market from scratch, feel free to check this amazing online course for beginners- “HOW TO PICK WINNING STOCKS?” The course is currently available at a discount.
Hi, I am Kritesh, 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
Porinju Veliyath stock portfolio and success story:
Porinju Veliyath is one of the most well-known investor and fund manager of the recent times in Indian stock market. He runs a portfolio management firm ‘Equity Intelligence‘.
Porinju is known to invest in lesser know companies with good business. He was named as small-cap czar by economic times.
Apart from investing, Porinju is also involved in organic farming. He holds a 10-acre farm outside Thrissur city at Chalakudy village.
Early Life:
Porinju Veliyath was born in a lower-middle-class family in Chalakudy village, near Kochi city in Kerala in 1962.
He started working at a young age of 16 because of the bad financial condition of his family. They have to even sell their house during that time to pay off their debts.
Porinju continued working along with his studies. He earned a law degree from the Government law college, Ernakulam, while working at Ernakulam telephone exchange at a salary of Rs 2,500 per month.
Later, he moved to Mumbai in 1990 when he was not able to find a good job.
Porinju’s stock market journey:
After reaching Mumbai, Porinju joined Kotak Securities as a floor trader. During the 4-years experience at Kotak, Porinju gained a lot of knowledge of share market.
In 1994, he joined Parag Parikh securities as a research analyst and fund manager. He worked there for next 5 years.
However, in the late 1990s, he because quite unhappy with Mumbai life and finally moved to Kochi is 1999.
He then started making investments on his own for the wealth creation and finally started his portfolio management firm ‘Equity Intelligence’ in 2002.
Few of the first investments of Porinju Veliyath are Geojit financial services, Shreyas shipping etc. These both stocks turned out to be multi-bagger stocks.
Some of his more recent top picks are Jubilant Industries, TCI, NIIT, Force Motors and Alpa Labs.
“I buy lesser-known, high quality businesses to derive maximum portfolio value. I don’t shy away from smaller companies like other ‘knowledgeable people’ do. And I don’t buy a lot of great companies with clean balance sheet, honest management and clear business visibility. If you invest in such companies, even bank FDs would beat your portfolio returns.” – Porinju Veliyath
Porinju Veliyath is known as a small cap investor. He believes that if the business is good, investors should not care much about the market capitalization. Most of the companies in his portfolio do not pass muster with large institutional investors, however, has given him multiple times returns.
Here is the latest Porinju Veliyath stock portfolio. Most of the stocks in his portfolio are small stocks. Therefore, do not be surprised if you haven’t heard the names of the most of these companies earlier.
Porinju Veliyath Stock Portfolio list with his latest holdings:
While the portfolio of most of the big investors is filled with common names, the Porinju Veliyath stock portfolio consists mostly of lesser-known stocks.
Nevertheless, from Porinju Veliyath stock portfolio, you can learn that every successful investor has their own strategy and there is no fixed strategy to create wealth and achieve success in the stock market.
That’s all. I hope you have found the Porinju Veliyath success story inspiring.
Want to learn how to select good stocks for long term investment? Check out our amazing online course: HOW TO PICK WINNING PICKS? The course is currently available at a discount.
If you want me to cover the portfolio or success story of any other successful stock investor, do comment below.
Hi, I am Kritesh, 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
#21 biggest Wealth Creator of 2017- Up to 1,450% return in a year
2017 has been a good year for the Indian share market investors.
The benchmark index nifty has given an astonishing return of 28.75% in 2017. Many of the investors have been able to beat the market and had multiplied their wealth in this time period.
In this post, I’m giving you the list of top 21 biggest wealth creators of 2017. Four of the shares from this list has given over 1,000% returns. HEG Ltd tops this list with giving 1,450% return to its investors in a single year.
#21 biggest Wealth Creator of 2017
Here is the list of the biggest wealth creator stocks in 2017:
S.No
Name
Last Market Price
1-Year Price Change (%)
1
HEG
2437.6
1450.49
2
Indiabulls Ventures
267.7
1190.82
3
California Software Company
87.65
1150.73
4
Soril Holdings Ventures
224.05
1020.65
5
Sanwaria Agro Oils Ltd
27.6
960.48
6
Graphite India
725
872.72
7
Bhansali Eng Polymers
197.3
740.94
8
Goa Carbon Ltd
888.8
727.03
9
Weizmann Forex Ltd
1430
723.26
10
Yuken India
3489.9
721.36
11
Aditya Consumer Marketing
151.95
700.00
12
Frontier Springs
262
687.10
13
Goldstone Infratech Ltd
209
645.32
14
Rain Industries
372.15
577.01
15
Mohota Industries
423.5
571.96
16
Aditya Vision
103.7
564.74
17
Jindal Worldwide
583.55
552.60
18
Venkys India
2799
550.11
19
Shalimar Wires Ind
22.5
525.33
20
Eldeco Housing And Ind
2499.95
496.82
21
Bombay Dyeing
285.8
487
Disclaimer: This post is just for informational purpose and should not be taken as any kind of stock recommendation. Please study the stocks before investing or take the help of your financial advisor.
Hi, I am Kritesh, 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
How to get RICH? Rich Dad’s Cashflow Quadrant Summary:
‘RICH’ always fascinates the people. The fact that the 5% of the population holds the 95% of the total wealth is really captivating. What engages the people more is why only a certain group of people are able to become rich?
There are a certain group of people who achieve financial freedom in their 30s. On the other hand, there are many people who never enjoy the rich life no matter how much hard work they do. Why does this happen?
The answer is amazingly described in Robert Kiyosaki’s book- ‘Rich Dad’s Cashflow quadrant’ which I’m going to discuss in this post.
The Cashflow Quadrant:
Our working society is broadly divided into 4 kinds of people depending upon the work they perform. They are:
Employee – They have a job i.e. they work for someone
Self-employed- They own the job
Business owners- They own a system/process
Investors- They make their money work for them
Each quadrant has their own advantages and disadvantages. Moreover, our society needs all kind of these people to work efficiently.
Let’s discuss few of the characteristics of each cashflow quadrant to understand them better.
1. Employee:
Tagline: “I need a safe and secure job with benefits.” Core-value: Security
Majority of people work in this quadrant. This is the default way of living and probably the most difficult quadrant to get rich.
The reason why most people work in employee quadrant is that they are programmed to do so from the childhood. Most of the people get the same suggestion from their Mom/Dad while growing up- “Study hard, find a high paying job and have a secured life.”
There is very few proportions of children who get advice to open their own business or to start investing, from their parents.
Moreover, our school, colleges, and university are also designed to create employees, who need security, live from pay-check to pay-check and want allowances.
For this group of people, job security is more important than the financial freedom.
Although you can become RICH working in this quadrant also, however it’s quite tough compared to the other cashflow quadrants.
2. Self-Employed:
Tagline: “If you want to do it right, you’ve to do it by yourself.” Core-value: Perfectionism
They are sometimes also referred to ‘Solo-People’. They own their job and many a time do all their work as they believe is ‘perfectionism’ and do not trust anyone else with the job.
Few examples of self-employed are doctors, lawyers, retail shop owners, small company owners etc.
They trade their time for money.
As compared to employees, who enjoy the benefits of medical allowances and paid leaves, the earnings of a self-employed are affected in case he fell sick. The self-employed people have to devote more time if they want to earn more. Their income is directly dependent on how much work they can do.
Their time is money.
In addition, for the self-employed people, their freedom is more important than the financial success.
Tagline: “I’m looking for the smartest people in my company”. Core-value: Make people work for them
This is one of the best quadrants to get RICH. This group of people owns the system or process, where people work for them.
According to Forbes, big companies are the ones with over 500 employees. However, it the recent time, this rule is not completely valid. There are a number of big companies now, which do not require 500 employees to work. For example, WhatsApp is a multi-billion company with even less than 50 employees working there.
As compared to self-employed, who can’t stop working if he wants a regular income, the business owners do not need to trade his time with money as he owns the system. Even in their absence, their employee will work for them.
4. Investor:
Tagline: “I’m looking for a good investment.” Core-value: Makes their money work
Investors are the forth and the highest level of the cashflow quadrant. You cannot jump into this quadrant without being successful in one of the three quadrants discussed above.
The investors are one of the most financially free group and they make their money work for them. They invest in businesses, stocks, real estates etc.
Most of the time, the investors do not need to get directly involved in the working of the business or assets where they invest, and hence they get plenty of time and freedom.
Which side of Cashflow Quadrant should you be?
Now that you have understood the core values of people from each of the quadrants, here is a quick difference between the people on the right side and the left side of the quadrant.
Left side of quadrant
Right side of Quadrant
Employees (E), Self-employed (S)
Business owners (B), Investors (I)
Difficult to get rich
Easy to get rich
Their core value is Security.
Their core value is FREEDOM.
This side consists of 95% of the population with less than 5% of total wealth.
This side consists of 5% of the population with more than 95% of total wealth.
They trade time with money.
Their money is not dependent on time. They make their money work.
Conclusion:
Here is the conclusion for the working class distribution in different quadrants:
If you have a job, then you are an Employee (E).
If you own a job, then you’re Self-Employed (S).
If you own a system/process where others work for you, then you’re a Business owner (B).
If your money works for you, then you’re an Investor (I).
It’s possible to become rich on all four quadrants or remain poor in any.
However, it’s comparatively easy and fast to become rich when you’re working on the right-hand side of the quadrant i.e. business owner and investor side.
Nevertheless, you do not need to shift to another quadrant entirely at once. You can keep your feet to two or more quadrants.
For example, if you are an employee, you can still jump to the right side by starting to invest. You can be
Employee + Investor
Employee + Business owner
Self-Employed + Investor
However, the best way to get rich is when you’re entirely on the right side of the cashflow quadrant i.e. you are a “BUSINESS OWNER + INVESTOR”.
In addition, when you try to jump quadrants, make sure to learn the new skills and mentality as every quadrant requires a specific skill. Depending on how long you’re in the last quadrant, it can be pretty tough to jump to next one.
Nevertheless, you can always acquire the new skill required to jump to the right side.
If you want to join the new rich and ready to start your learn to invest from scratch, feel free to check out my online course- INVESTING IN STOCKS: THE COMPLETE COURSE FOR BEGINNERS. I’m confident that it will kick-start your share market journey.
That’s all. I hope this post is useful to you.
Do comment below which quadrant you’re currently in and to which quadrant you want to see yourself in future.
Tags: Cashflow quadrant Robert Kiyosaki, cashflow quadrant review, cashflow quadrant summary, rich dad cashflow quadrant
Hi, I am Kritesh, 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
