How to do a PESTLE Analysis? (Explanation & Example)

How to do a PESTLE Analysis? (Explanation & Example)

Hello readers! We are back with another interesting article that will help to enlighten your knowledge horizon regarding the nitty-gritty of strategic management for running a prosperous business.

Are you someone who is planning to take the road of entrepreneurship and set up a new business by quitting your 9 to 5? Then, this article is most definitely for you! Well, to start off, there are a lot of factors that are needed to take into consideration for establishing a start-up business. Interestingly, it is not only the startups but also the Blue Chip Companies who need to constantly gauge strategies for sustaining their businesses and make a prominence. Today, we are going to discuss a strategic management framework known as PESTLE (Political, Economic, Social, Technological, Legal, Environmental) Analysis which has emerged to be an important apparatus for scanning the internal and external factors impacting a business.

Let us first learn the definition to understand the concept of PESTLE Analysis.

What is PESTLE Analysis?

A PESTLE Analysis is a hypothesis under the category of marketing principles ensuring business growth and profitability.

Francis J. Aguilar, a professor at Harvard Business School is considered to be the founder of the PESTLE Analysis in 1964. However, it didn’t commence as PESTLE but started as ETPS and covered four broad factors namely  Economic, Technical, Political and Social aspects.

Initially, it was known as PEST Analysis. It is anatomy and a strategic management tool that helps to scrutinize the macro-environmental factors that may have a resonating influence on an organization’s accomplishments. The acronym PESTLE is the shortened form of Political, Economic, Social, Technological, Legal factors and Environmental factors. The concept largely helps companies to acquire a transparent insight into the intramural and extramural factors affecting their organization. It also provides a general overview of the environment from multifarious points before launching a new project, new product, new service, etc.

PESTLE Analysis is contemplated as the backbone of strategic management that interprets the approach of a company and defines an organization’s strategies and intertwined futuristic goals.  The theory can be applied to different industries in divergent scenarios because of its analytical flexibility. In order to conduct the PESTLE Analysis, it is utterly important to understand each letter of the “PESTLE” in depth.

PESTLE ANALYSIS Flow

— Political Factors

Political factors usually indicate the authoritative powers that a government possesses in the economy or, in case of a certain industry. Such factors consist of policies of the government, extent of political stability, foreign trade policy, fiscal policy, trade tariffs, labor law, health regulations, education system, environmental law, infrastructure, corruption, and etcetera. All these aspects need to be taken into account when evaluating the lucrativeness of a potential market.

Example: A government may levy a new tax policy or fiscal policy or trade tariffs in a new financial year which can affect the revenue generation of organizations to a large extent. Recently, the Government Of India has reduced corporate tax rates to 22% from 30%. Consequently, this move will help the top-notch companies to revive their profitability and would be a  good catalyst for luring investment from foreign investors. The announcement also arrives at a perfect time because major American organizations are involved in a trade war with China and are finding alternative global manufacturing pedestals.

— Economic Factors

Economic factors are crucial determinants and plays an important role in the performance of an economy. Such factors generally end up becoming a key decision-maker in the success or, failure of a company. A surge in the rate of inflation of any economy can affect the pricing pattern of a companies’ products and services. In addition, it also impacts the purchasing power parity of the consumers and brings about a change in the forces of demand and supply in the economy. The economic factors include inflation rates, exchange rates, interest rates, economic growth, gross domestic product, unemployment rates, economic growth and disposable income of consumers.

EXAMPLE: In  India, in the past few weeks, vegetable prices have skyrocketed and as a result, there is a rise in the rate of inflation. Consequently, due to the hike in prices, the purchasing power of people has gone down which ultimately indicates that there will be a fall in consumer demand.

— Social Factors

Social factors pin-point the social environment in relation to the industries and constitute the demographic features, customs, norms, and values of the population within the operating periphery of the organization. Social factors consider the population trends such as age distribution, cultural barriers, income distribution, the growth rate of population, lifestyle attitudes, career inclinations, and health consciousness.

All the above-mentioned aspects are very significant for marketing strategists when earmarking the customer bases. Apart from that, the factors also reveal information about the local workforce and their compliance to work under certain conditions.

EXAMPLE: In today’s era, the demand for junk foods like Pizza and Burgers has gone up extensively, especially amongst the younger generation. Thus, companies like Dominos, Pizza Hut, Burger King and KFC are churning out huge profits because of the consumers’ behavior. On the contrary, the same doesn’t hold true for the people in rural areas. This is how social factors affect companies’ revenue structure.

— Technological Factors

Technological Factors have relevance to modernization in technology which influences the performance of an industry. Such factors include a level of innovation, research, and development (R&D) activity, amount of technological awareness, technology incentives and automation. Technological Factors highly affect the decisions regarding entry/exit in an industry, launching of a new product and outsourcing production-related activities. Possessing a sound knowledge regarding technology helps companies from spending a lump sum amount of money on obtaining a technology that would become obsolete in the near future due to the innovation of newer technologies globally.

EXAMPLE: The business space is filled with cautionary sagas of large scale companies that became failures due to their inability to keep up with the dynamic technological innovation. One such prominent example is Kodak, a technology company that used to produce camera-centric products and hegemonized the photographic film market during most of the 20th century. The breakthrough in digital photography contributed to the catastrophic misfortune of their film-based business model.

— Legal Factors

Legal factors include laws such as health and safety laws, discrimination laws, safety standards, employment laws, consumer protection laws, copyright and patent laws and antitrust laws. Every company is bound to have awareness regarding the laws for the purpose of conducting ethical business. In addition, a business owner also needs to be aware of any possible alteration in legislation which may have an impact on the business in the long term. Interestingly, the set of rules and regulations varies from country to country. Analysis of legal factors figures out strategies based on the backdrop of the legislations. However, it is always advised to have an appointed lawyer or an attorney to guide through the complexities.

EXAMPLE: Nestle had to take away the packets of Maggi from the stores’ shelves after the  Food Safety and Standards Authority of India (FSSAAI) summoned Nestle because of their negligence to adhere with the laws of food safety. Regulators found lead content beyond the permissible limit in its instant noodle product.

— Environmental Factors

Environmental factors have appeared to become a pivotal character recently. They have become utterly valuable due to carbon footprint targets, scarcity of raw materials and pollution targets fixed by governments. Environmental factors include ecological facets like climate change, weather conditions, environmental offsets which highly govern tourism, agriculture, and farming industries. Especially, large-scale campaigns regarding the burning issue of climate change are leading to the change in operation and products of the companies. Therefore, practices of Corporate Social Responsibility (CSR) and Sustainability forms an integral part of the companies and is taking new shapes with each passing day.

EXAMPLE: Due to the imposition of government rules as a measure to curb global warming, regulations on fossil fuel industries have increased considerably and as a result, this move has started threatening the thriving coal, oil, and gas industries.

PESTLE Analysis Example — SONY

sony corporation

SONY is a Japanese MNC  and has abruptly metamorphosed into one of the dominant entertainment organizations in the world. Its versatile business products consist of electronics, entertainment gaming,  and financial services. The company is the owner of the largest music entertainment business around the globe and also a chief player in the film and television entertainment industry.

Political Factors

SONY is a world-class brand and has a prominent presence in several countries around the world.  The political scenario in different countries largely impacts the SONY’s success. As we know, political Stability ignites growth and political instability, on the other hand, paralyzes the rules and regulations of an economy. In Sony’s context, its supply chain is located in China. Thus, any kind of political disturbance in China will have a heavy influence on Sony’s generation of profits.

Economic Factors

SONY products fall under the category of luxury goods. Such goods are not items of necessity but are usually purchased when people want to splurge on themselves. In a nutshell, if you living paycheck to paycheck, a SONY product would not be a priority in your list of necessities. In another instance,  economic instability and the high rate of unemployment in a country will never attract buyers for the high-end SONY products. Consequently, the profits will touch a rock bottom. Therefore, it is crystal clear that a big giant like SONY extensively depends on stable and emerging economies to merchandise their entertainment products.

Social Factors

Traditions, culture, age distribution, taste, and preferences vary from nation to nation. SONY offers entertainment products beginning with movies to music which basically acts as an escape to reality. It is to be kept in mind that not every nation has the same pattern of entertainment. Therefore, it is extremely important for SONY to keep up to date regarding the buying trends of the consumers and consequently tailor the products and services fitting the requirements of the customers.

Technological Factors

SONY is a true blue technology company because every other product is correlated with the usage of technology in some way. The company’s  Video Game  Consoles are nothing but computer devices that produces video signal or,  optical image to exhibit a video game for multiple players. On the other hand, laptops help users to stay connected to social media and other websites on the world wide web. In today’s era, the availability of the internet has removed all the possible obstacles of communication and SONY has bagged this opportunity to market their products online. It has become convenient for the company to announce any new launch of products via the medium of the internet.

Legal Factors

Since SONY is an international company and sells its products across many countries, it also has to abide by the diversified legal regulations of different countries. Any failure to adhere to the legalization like labor laws to tax policies, the company might end up in serious legal trouble or lawsuits which can further affect their prosperous business.

Environmental Factors

Sony believes that their corporate pursuits will be possible when there is a practice of sustainable development and thus they are so full of conviction regarding climate change, conservation of biodiversity, renewability of resources and other valuable measures to save the environment. SONY has taken up initiatives regarding environmental activities since the 1990s.  In April’10, a new environmental plan was introduced by SONY to set up a sustainable community by accomplishing a zero carbon footprint by the year 2050.

We will now elaborate on the major pros and cons of PESTLE Analysis.

Advantages And Disadvantages of PESTLE Analysis

— Advantages of PESTLE Analysis

  1. PESTLE Analysis has a basic framework and follows a simple process for conducting an assessment.
  2. It furnishes a mechanism that allows an organization to pinpoint and cash in on golden opportunities and utilize them to reinforce a firm’s business model.
  3. It helps to diminish the impact and consequences of possible threats to an organization.
  4. It sanctions a company to examine the process of entering untapped markets both nationally and internationally.
  5. It helps to build a custom of strategic thinking for strengthening the company’s position.
  6. It is absolutely cost-effective and the cost to do any level of the assessment isn’t exposed to oscillations.

— Disadvantages of PESTLE Analysis

  1. PESTLE analysis cannot showcase the full picture because it only focuses on six factors that are external in nature. In strategic planning, one needs to go beyond these six factors which can provide internal insights as well.
  2. The Political, Economic, Social, Technological, Legal and Environmental factors are very dynamic in nature. Any shift in any of these factors can change the result of PESTLE Analysis drastically.
  3. PESTLE Analysis is time-consuming in general and requires loads of data. Each of the factors needs to be thoroughly examined to come to a conclusion and thus, takes up a lot of time.

Summary

PESTLE Analysis provides a basic framework and follows a simple process for conducting an assessment. It is a hypothesis under the category of marketing principles ensuring business growth and profitability. In order to conduct the PESTLE Analysis, it is utterly important to understand each letter of the “PESTLE” in-depth i.e. Political Factors, Economic Factors, Social Factors, Technological Factors, Legal Factors & Environmental Factors.

November 27, 2019 Economics, Investment Basics No comments yet
what is sustainable growth rate ssr cover

What is Sustainable Growth Rate (SGR)?

While investing in a company, one of the most critical factors to look at is its growth rate. At what percentage the company is estimated to grow in the upcoming years? This is because, as the company grows & generate more profits, generally, your investment will grow along with it. Moreover, it’s not a viable strategy to invest in declining companies or the ones with no significant growth aspects.

But how to calculate the growth rate of a company?

A common approach that most investors follow is to look into the historical growth rate. Here, they try to find out the rate at which revenue, earnings, etc are historically growing, to assume a similar growth rate in the future.

Although past performance doesn’t guarantee future growth, however, it can give you a rough estimation if you expect the company to perform similarly in the future. Here, investors can use the compounded annual growth rate approach to define growth.

However, forecasting growth based on such estimations may not always be valid. Besides, the estimates can change depending on the ‘number of years’ that you’re considering. For example, past 3-years, 5-years, and 10-years historical growth rate might be totally different. Which one should the investors focus on while forecasting the future?

A better approach while studying growth is to look into the sustainable growth rate (SGR) of a company that focuses on different factors like earnings, shareholder’s equity, payout, etc to find out the growth percentage of a company. But what exactly is a sustainable growth rate? This is what we are going to discuss in this post.

Sustainable Growth Rate (SGR)

The sustainable growth rate is the maximum growth rate that a company can sustain using its own resources i.e. without financing the growth using debt or equity dilution. It is calculated as:

Sustainable Growth Rate (SGR) = ROE * Retention Rate (RR)

Where,

  • Return on Equity(ROE): ROE is the amount of net income returned as a percentage of shareholders’ equity. It can be calculated as: ROE= (Net income/ average stockholder equity). ROE 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.
  • Retention Rate (RR): This is the percentage of net income that is retained to grow the business, rather than being paid out as dividends. Retention rate is calculated as: RR= (1 — Payout ratio) = ( 1 — DPS/EPS), where DPS is the dividend per share and EPS is earnings per share.

For example, if a company ABC has a ROE of 15% and payout ratio of 40%, then its sustainable growth growth rate can be calculated as: SGR = 15 * ( 1–0.4) = 15 * 0.6 = 9%.

Also read: 19 Most Important Financial Ratios for Investors

Ideally, the growth of a company funded by its own resources is the best form of growth compared to any other leveraged growth options. The later scenario may lead to financial stress and in the worst case, bankruptcy.

Moreover, any company can grow faster if it takes a lot of debt and spends on marketing, new product development, acquisitions, etc. However, returning that debt can be a troublesome process if it’s business model is not that strong.

By looking into the SGR of a company, Investors can find out its long-term growth, current life cycle stage, cash flow projections, borrowing & dividend allocation strategies, etc.

Maximum SGR:

According to the sustainable growth rate formula, SGR = ROE * RR = ROE* (1  –  Payout Ratio)

Here, when the payout ratio is zero, the SGR becomes equal to the ROE of the company. You can maximize the sustainable growth rate by increasing ROE or decreasing payout (i.e. retaining more earnings rather than paying out as dividends).

Note: You can also analyze the root cause of ROE further using the DuPont Analysis.

Technically, a few ways to maximize SGR is by increasing sales & profit margin, managing account payable & receivables, efficient inventory management, etc. However, a point to note here is that a high SGR is always difficult to maintain. As the company matures, it cannot sustain similar high past growth rates.

Closing Thoughts:

An efficient management’s goal is to grow the company at its sustainable growth rate.  If the SGR is 15%, the company can safely grow at this percentage per annum without taking any additional financial leverage. It can be considered the ceiling growth rate of a company while using its own resources.

November 23, 2019 Valuations No comments yet
How to Buy Mutual Funds Online in India

How to Buy Mutual Funds Online in India?

In this article, we are going to discuss different ways by which you can buy mutual funds online in India. However, before we begin, let us consider a few crucial topics concerning buying online mutual funds in India.

Things to need to know before you buy mutual funds:

There is a large number of people in India who invest in mutual funds without exactly knowing how it works or how to pick the right mutual funds that can give them winning returns. However, we do not want our readers to take the same path. Therefore, before you purchase your first mutual fund online in India, here are a few important articles that you should read:

  1. What is a mutual fund? And what are its different types?
  2. Common Mutual fund terminologies
  3. Lump-sum vs SIP investment and the route you want to choose.
  4. How to pick the right mutual funds?
  5. Mistakes while investing in mutual funds

Direct vs. Regular Mutual Funds

Any mutual fund that you might be planning to invest offers two plans — either direct plan or regular plan.

Since Jan 2013, mutual funds have started offering direct plans for all their existing funds. The difference between a direct plan and a regular plan is that you can save a lot of money while choosing a direct plan investment route as there are no intermediates involved here.

In direct plans, You do not need to make your investment through distributors, and hence it can save you a lot of intermediate expenses. Therefore, you’ll be getting a higher return on your portfolio despite the same fund. The difference in returns from direct plans compared to regular plans can be as high as 1–1.5%. This can be a substantial amount if you’re planning to invest for a long time to build a considerable corpus.

Anyways, as investing in regular plans is comparatively more accessible, that’s why people go for it. Nonetheless, in the last few years, there has been a rise in a lot of trusted websites and mobile apps to make direct mutual fund investment fast and easy. We’ll look more into these later in this article.

Overall, you can select anyone — either direct or regular plan, depending on your preference. However, we’ll highly recommend you to choose the direct investment route while investing in mutual funds online in India.

Know Your Client (KYC)

As per the regulations by SEBI, you’ll need to complete your KYC before you invest in mutual funds in India. This is because KYC helps in verifying the buyers and eliminating the duplication across intermediaries. It also makes online investing easier and efficient.

But if you’ve not done your KYC, do not worry, thinking it will involve a lot of documentation and labor. In the era of fast internet, you do not need to move even an inch from your sofa to complete the KYC. All can be done online, and that too within minutes.

Now, if you have already invested in any fund earlier, either offline or online, your KYC might be already done. Therefore, you do not need to re-complete your KYC. Here, simply check your KYC status online.

For already registered users, they can check their KYC status online using their PAN card with any of the following KYC registration agency

How to get your KYC?

In order to get your KYC done, you’ll require following documents: PAN CARD, Proof of Identity (Aadhar card, Driving License, Voter Id, etc.), Address Proof and Passport size photographs

You’ll need to submit copies of all the self-attested documents while submitting them for verification. Therefore, if you do not have these documents right now, first get them.

Now, almost all mutual fund distributors and broker websites provide a link to complete your Know-Your-Client (KYC) online. You can visit the AMC website, upload your documents, and complete your KYC.

For example, if you are interested in investing in SBI mutual funds, you can visit their website. On their website, you can find the link to complete the KYC verification process.

Else, if you are planning to invest through any popular mutual fund apps, you can upload your documents inside the app, and they will help you get your KYC verification done.

How to buy mutual funds online in India?

Now that you have understood the basics of regular vs. direct funds, e-KYC, etc., let’s dive into the main topic of this article — how to buy mutual funds online in India.

Here are a few ways how you can invest online in mutual funds:

1) AMC Website

The fastest way to buy mutual funds is through AMC websites as you’ll buying directly from the AMC and eliminating all the intermediaries. Mutual funds are managed by the AMC’s, i.e., Asset Management Companies. You can buy all the funds offered by these fund houses from their websites.

Now, to buy a mutual fund from the AMC website, first, visit the site and download the application form. Here, you’ve to fill your details and submit along with the photocopy of PAN, KYC letter and initial cheque.

The first time when you invest in any mutual fund through AMC, you’ve to go to the AMC’s office to submit documents and make your investment. Anyways, once it is done, you can make all your future investments online. You will be assigned the PIN and folio number. Hence, you can perform the subsequent transactions ‘online’ using your net banking. Also, a lot of these AMC’s may send their Agents to your house/address to collect the application form, cheque, and other docs, which can save your time.

Anyways, if you are planning to invest in various funds offered by different AMCs, you have to perform the same procedure for all the mutual fund companies. However, this may not be very convenient.

For example, if you are planning to invest in five mutual funds, you have to visit their AMC websites one-by-one to register. Although the KYC verification procedure will not be repeated, still tracking and monitoring all the funds will also be a little difficult if you have invested through multiple AMC websites.

Tata Mutual Funds How to Buy Mutual Funds Online in India

Note: A few of the popular mutual funds companies in India are: Aditya Birla Sun Life Mutual Fund, DSP BlackRock Mutual Fund, HDFC Mutual Fund, HSBC Mutual Fund, ICICI Prudential Mutual Fund, IDFC Mutual Fund, IIFL Mutual Fund, Kotak Mutual Fund, L&T Mutual Fund, Mahindra Mutual Fund, PPFAS Mutual Fund, SBI Mutual Fund, Shriram Mutual Fund, TATA Mutual Fund and Union Mutual Fund.

2) Broker Platforms

If you have already opened a demat account with any of the big brokers in India, you can buy mutual funds online using your brokerage account. Most of the major brokers in India, like ICICI direct, HDFC securities, Kotak securities, Zerodha, etc. have the facility to buy mutual funds from their portal.

Now, buying funds using broker platforms is a simple way to purchase mutual funds online in India. All you need to do is to log in to your account, select the scheme you want to invest, and complete the payment. The mutual fund units will be credited directly to your existing demat account.

Also read: Compare Online Brokers in India | Best Stockbrokers List

HDFC securities How to Buy Mutual Funds Online in India

3) Independent Websites/Apps

You can also buy mutual funds online in India through independent websites or apps. A lot of Indian websites like Funds India, Groww, etc. provides the facility to their clients to invest directly in mutual funds at no commission.

A few of the popular apps for direct mutual fund investments are:

Also read: 7 Best Mutual Fund Apps for Direct Investment

Another benefit of using these apps and websites to buy mutual funds online in India is the fast account opening process and hassle-free investing. In fact, you can open your account within minutes using these platforms if you have the digital copy of all the required documents available on your phone.

Further, on these independent platforms, monitoring your funds and transacting is also very simple. These websites have a tie-up with most of the major banks in India to facilitate fast fund transfer at the time of investing.

Groww How to Buy Mutual Funds Online in India

Summary

A majority of people do not invest in mutual funds because they’re afraid of documentation work and believe that investing in mutual funds requires a lot of work. However, as discussed in this article, there are multiple ways through which you can invest in mutual funds online in India.

If we conclude the article, investing in mutual funds through the AMC website will be cheaper and includes no extra cost. However, the biggest concern with this approach to remember all the PINs and passwords at different AMC websites.

On the other hand, investing in mutual funds online in India through the independent websites/apps offers the clients a ‘single login portal’ for the consolidated view of the holdings.

Finally, purchasing mutual funds from the brokers through a demat account is a more relaxed approach compared to the above two. Here, the customers can also get added benefits like access to the research reports to make a better decision. However, they have to pay extra costs like demat account maintenance charges. Besides, not all mutual funds are available/partnered on the broker website. Therefore, for purchasing some funds, you have to visit the AMC website.

If you’re a beginner, we’ll recommend buying mutual funds online in India using independent apps like Groww, myCams, etc. And once you’re comfortable with the buying process, choose the route of investing through AMC websites.

Parting tips for investing in mutual funds

Before we end this article, here are a few of the final tips for beginners to invest their money in mutual funds:

  • Always go with the direct mutual fund plans. It will save you a lot of costs in the long run.
  • Start investing through SIPs instead of lump-sum. It will help you to avoid the risk of timing the market by averaging out.
  • Finally, diversify and add multiple funds with time. Do not spend all your money on a single mutual fund, no matter how appealing it may look.

Quick Note: If you are new to investing and want to learn how to invest in mutual funds from scratch, check out this amazing online course: Investing in Mutual Funds- A Beginner’s course. Enroll in the course now to start your journey in the requisite world of investing today.

That’s all for this post. I hope it is useful for you. Let us know if you have any queries regarding buying mutual funds online in India by simply commenting below. Happy investing.

November 23, 2019 Mutual Funds 2 comments
What is Porter’s Diamond Model of National Advantage

What is Porter’s Diamond Model of National Advantage?

Porter’s Diamond Model has been the exemplary work of Michael Porter, who first published about this economic model in his book, “The Competitive Advantage of Nations” (1990). This simple but effective model aims at explaining the cause behind the reason as to why one nation tends to be more competitive than other nations in relation to a particular industry. This book also tries to look into the matter of innovations in businesses that may be more conducive to one nation and might not be possible in others.

Porter’s Diamond Model, also known as the Theory of National Advantage, is used by different economic institutions to calculate the external competitive environment. This analysis helps in giving us an understanding of the relative strength of one business than the other. On analyzing the external environment, the causes for industrial advantages for some businesses in a particular place or region can also be deciphered. In simpler terms, the Porter’s Diamond Model attempts to answer the following basic questions:

  • How does one nation end up being the most competitive in regard to a particular industry?

In Porter’s model, this nation is referred to as evolving into a home base. Some examples that we can illustrate are that of ‘China’, being the home for the production of cellphones, Germany as being the home base for car manufacturing, etc.

  • How are companies of a particular nation or region able to sustain the advantages produced by competitive economies in a certain industry? 

Porter’s Diamond Model

The answers to the above – mentioned questions lie in the determinants identified by Porter that generates a competitive advantage as mentioned above. The four determinants enumerated in Porter’s Diamond Model are as follows:

Porters Diamond Model four determinants— Factor Conditions:

Factor conditions relate to the different types of resources that are present or absent within a nation. Resources can be typed into basic and advanced ones. The basic ones include useful natural resources and the availability of unskilled labor. Advanced or ‘created’ resources include specialization and skilled knowledge and expertise, availability of capital, infrastructure, etc.

For Porter, natural resources are of less important as compared to the created resources. Competitive advantage develops in nations and in particular industries that are able to create these advanced and specialized factors.

— Demand Conditions:

Demand conditions invariably talk about the ‘home demand’ which affects how successful a particular industry within a certain nation is. A strong home demand of industries in their own nations creates a large market for them and therefore, creates opportunities for them to grow.

More demands inevitably mean more challenges, but these challenges turn the companies toward innovation and improvement. The size of the market, the growth rate of the market, etc. are some indicators of the home demand.

— Related and Supporting Industries:

According to Porter, the level of success of one industry can be related to the success of related and supporting industries. In the present economies, the role of ‘suppliers’ is a crucial one. These suppliers help in advancing innovation processes through shared resources- technical and other types of aids.

In recent times, the booming of startups has stimulated the renovation. These startups have entered into innumerable mergers with various industrial giants leading to the creation of competitive advantage.

— Firm Strategy, Structure, and Rivalry:

The internal environment in which a firm is established determines how firms are created and structured. This structuring of the firm can be influenced by a number of factors- political, economic, and social. This structuring will form the basis of creating a strategy towards the establishment of the firm.

The level of competitiveness between firms of a particular industry in one nation is marked by domestic rivalry. The more intense the domestic rivalry, the more it will push firms toward innovations, improvement and global competitiveness. Domestic rivalry in the automobile industry between various Japanese firms such as Toyota, Nissan, Honda, etc. can be cited as a perfect example.

Also read: Porter’s Five Forces of Competitive Analysis – What You Need to Know?

Additional Determinants

Apart from the above four major determinants, two other determinants can be mentioned as having an influence on the creation of a competitive advantage in a particular nation. These two determinants are:

Porters Diamond Model six determinants

— Government:

The government plays a vital role in the success of a firm or company. It is the government that provides for technical and financial aid to companies for its growth. The government has been referred to as ‘a catalyst and challenger’.

Porter believes that the market is not meant to be in the ‘invisible hands’ but the government should regulate it in order to stimulate the creation of advanced factors and therefore, leading to the development of competitive advantage. Government policies, investment in infrastructure, funding, etc. are some ways in which governments help in intensifying home demands.

— Chance:

The role of chance has not been originally discussed by Porter but it has been included in the Diamond Model as there may emerge random events like some scientific breakthrough, natural disasters or wars that might affect the established competitive positions in the society.

Summing Up

To sum up, the above mentioned six determinants in the national context- factor conditions; demand conditions; related and supporting industries; firm strategy, structure, and rivalry; government; and chances, can accelerate or deaccelerate the rate of success of a certain firm of a particular industry in a particular nation.

This success can lead to the generation of home demand which in turn results in increasing competitiveness in the global market and therefore, creates a competitive advantage for a certain firm.

Criticisms on Porter’s Diamond Model

Discrediting Porter’s Diamond Model will not justify his contribution but we cannot ignore the criticisms his theory of competitive advantage has drawn upon.

Some critics have pointed out that the list of internal determinants is limited in nature as there can be many other factors that can be listed. In other arguments, it has been noted that the inclusion of external factors has been avoided. The main focus has been more on the domestic picture and less on the global level.

Some writers have even highlighted that this Diamond Theory is not universal in nature but rather limited as it has been based on the study of only ten developed nations. Therefore, it would not be an exaggeration to pinpoint that Porter’s Diamond Model mostly applies to the researched developed countries.

Lastly, drawbacks relating to the sole application of the model on material products and not on services have been pointed out. The model fails to examine how this model will apply to the service sector of the economy.

November 22, 2019 Economics No comments yet
What is Complexity bias? And how can you deal with it?

What is Complexity bias? And how can you deal with it?

Complexity bias means that the complex concepts in our lives are better than the ones which are more straightforward. It is a way through which our brain is hardwired to think that using the source of complexity bias in our lives, and we can have a productive ordeal. It is a logical fallacy that leads us to believe that the complex problems are better and they are happening. The whole term of complexity bias denotes that people are instead devoted to their time on these kinds of approaches rather simpler, faster, and easier to solve.

Examples of Complexity Bias

Simple things made Complicated... Here are some of the most common examples of complexity bias.

1. The use of Jargon in everyday life states the fact that complexity bias is a part of us and how we use the source of complex behavior management to get. When you are trying to talk out of something or trying to evade a type of argument that is going among you and other people, then you will tend to think that using long and big words can help you to keep out of the trouble and the mess. It can keep you safe, as well.

2. Coming to the source of mathematics, let me prone an example here. When you were a kid or let us take an example of when you were in high school, did you think that the complex mathematical problems are accurate? This means that people often tend to believe that if a problem is harder to conceive, then it can say that there is a valuable quantitative insight into that problem, and it needs to have a better approach towards the whole solving issue. This is how our brain presents us with the same.

3. Another example here is the use of the software. When it comes to the management and the use of software, then you can check to see that the complex ones are the ones that you tend to like. Do you know why? Because this is a product of complexity bias as well. If we think that software is sophisticated, then our mind races into thinking that the use of the software can be kept and put together into different means. It will yield fruitful results just because the software has a complex nature and approach.

How can complexity bias be a problem for you?

Well, if you cannot asses the problem now, then let me tell you, a complexity bias into your behavior can tend to do a lot more damage than you think. Do you know why? Because with the use and sourcing of our mind into thinking that a complex behavior will help us to change routes, we tend to do things and tend to adhere to those things which can only show and procreate as complex in front of us. It can be wrong because it can cause a lot of problems later as well.

Regularisation is a fundamental concept which happens and takes place in our mind. For example, when we see people who are taking care of their management and business and doing the things they love, then we do tend to extend our behavior with respect to do. The same happens when we set our goals in life. If we have a more straightforward nature and a way of accomplishing those goals, then we tend to overthink and realize that they are not really what we want.

For example, if you are earning right now, then you might tend to of your taxes at the same time. Well, if you have the complexity bias, then your mind will fool you into thinking that the bigger the problem, the better will be your answer. A lot of people do believe that their goal can only be achieved with the use of sophisticated means, and this entirely happens to the inner sane that we create within us. The same happens and takes place with the source of complexity bias here. With the use of this terminology, people tend to think that the complex their life problems are, the better they can thrive towards their goals.

How to stop complexity bias from protruding your life?

If complexity bias is a constant problem in your life, then don’t worry because you are not the only one here. In a famous survey, it was found that around 56% of the people tend to have complexity bias based on the behavior that they possess. They think that the complex problem will yield them more, and they tend to move towards the one which is harder to solve.

The same happens when you are a kid. If you think that severe problems should be solved first because they are more rewarding than others, then there is where you are wrong. The source of complexity bias is that it blinds our senses into thinking that everything in life, which is simple and healthy, can yield better choices and results too. We tend to feel the same because our brain is wired in that way.

Have you ever been in a situation where you have felt that the complicated situation is, and it will be easier for you to get out? What was your final solution? Did you get out eventually? Well, around 10 out of every 15 people who have the source of building complexity bias don’t actually get out of a problem. They tend to think that they will do, but then they get stuck.

Take this as an example. A Couple has borrowed money from one man, and they think that they can use the money and borrow another loan from someplace in a shorter time to pay to the man. This is when the couple starts to borrow loans from everyone, and instead of choosing to pay them off, they begin to fall into a loan loop. This is because the couple does have a source and tendency to show complexity bias.

It is better to get a bird’s eye view:

birds eye view

Have you ever thought of getting the bird’s eye view to solve your complexity bias issue? Well, if you have not, then it is your time. With the help of the bird’s eye view, you can see everything that you want. When you are doing something, then they are ‘bound to affect the people who are around you. If you are taking a loan, then your partner is bound to be affected by the same. It is essential that you get a 360 angle and view up from the sky.

As a source writer, I am often presented with a ton of complex ideas and contents to finish. But the ones which are simpler is easier to be done. When I do get the miscellaneous items, trust me, I think that they are useful because they are technical, and they can yield me more value than the others. But what I don’t asses and realize at the same time is, the complex my topics are, the harder it gets for me to understand and how to write on them. And the harder it gets for me to formulate a story in a simple language so that I can tell it to anyone or the readers who read it.

This is when I need to approach and look at the whole problem into the source of the bird-eye view and point here. With the use of the bird’s eye view, I can calculate the origin and function, which can be yield with the use of the simple articles which are collected at my place. It might be simple for me to write, but at the same time, they can yield me many more views too.

Here is how you can do the needful and get the thing I am talking about.

  1. When something is presented right in front of you, don’t procrastinate with it. You need to understand how and why you need to do it so that you can maintain the source of your work.
  2. Write it all down on a piece of paper if you want. If you want to have a good time and keep yourself away from your complexity bias, then writing down everything in a piece of paper will save you from the troubles later.
  3. And the third thing you need to do is rule out the negative that you have got. If you have negatives in your line of business, then you need to understand how you can work through it. You cannot rule out the images for you, but what you can do is, help yourself out from keeping them away from you.
  4. Get a perspective that can help you and the ones who are staying with you. You need to have a proper outlook over the items that are holding you down for the source of your complexity bias. This can only be done with the use of the full point of view that is being talked out.

Also read:

Ask yourself the right questions when you are divulging

Another type of source and problem that can be laid and help you out with your complexity bias is to ask yourself the right kind of the issues that you have. If you don’t ask and question yourself, then you are never going to get things moving in your life. You need to have a proactive session with yourself and understand that the rights and the wrongs depend on your view and the perspective. It is entirely on you.

Here are some questions you can divulge in.

  1. Ask yourself that if this is the right thing that you are doing or not?
  2. Make sure that you keep your time out on the following and understand the source of complexity bias in your life. You need to dive in deep, and this way, you can find a cause or a means through which to get out of your complexity bias-based behavior.
  3. Ask yourself that the complex problems that you intend in your life will yield you something or not?
  4. Ask yourself the general questions like the assessment of the work and how it can be managed for you? You need to look out for you, and this can only be done with the source of you questioning all the details and the intricate source of your life.
  5. Ask yourself that these complex problems that you are undertaking for yourself won’t cause you damage or not?

You need to think before you act, and this is the prime solution for getting over your complexity bias. It can help you to manage the best, and in the right way, these top questions will help you to get over the type of behavior which you generally possess.

Conclusion

Always have an excellent tactic when you are asking yourself some questions. Always remember that people, when they have complexity bias, they tend to over-complicate even the simplest of things. It is better that you ask for a piece of needed advice from your peers if they are sorted out. Or, if you want, then you can look for professional help if the simple things are not yielding much into your life. The more you indulge in these, the more the behavior will grow on you and which can later yield to something complicated to eradicate.

November 20, 2019 Investing Psychology, Personal Finance No comments yet
15 Biggest Stockbrokers in India With Highest Active Clients

15 Biggest Stockbrokers in India With Highest Active Clients

(Updated: 31st October 2019) In this article, we are going to look at the 15 Biggest Stockbrokers in India based on their total number of unique active clients.

There are over three hundred stockbrokers in India registered with SEBI and different stock exchanges. Even on National Stock Exchange (NSE), there are 287 registered stockbrokers in India as of 31st October 2019.

When you are looking for the best stock broker to open your demat and trading account, one of the most straightforward factors to look into is its total number of active clients. Although a large client base doesn’t guarantee a better service, however, being a big firm, it reduces the possibility of the brokerage firm disappearing or running out of the service soon enough. 

These days, one and all stockbrokers will argue that they are trustworthy as they are registered with SEBI. However, just because they are registered with SEBI doesn’t make them reliable for the long term. Time and again, a lot of such small brokers are either expelled out of the exchange or simply go out of the business and files bankrupt. And this leads to a lot of trouble for their current clients.

Therefore, a safer option for the customers to avoid any such kind of inconvenience is by opening their trading account with the biggest stockbrokers in the Industry.

15 Biggest Stockbrokers in India with Highest Active Clients

Several websites rank stockbrokers in India based on different factors like their brand value, trading platforms, customer services, facilities offered, complaint ratio, etc. However, in this article, we are not going to look into these factors. 

Here, we are going to look at just one factor, i.e. the total number of unique active clients for that stockbroker. In this post, the stockbroker with the highest number of clients is ranked first, followed by the subsequent stockbrokers with top active clients. 

For this approach, we are going to use the data available on the NSE India website. The national stock exchange website provides the details of the monthly total number of unique clients of the different stockbrokers registered with it. Here’s a quick link to the page. You can also download the spreadsheet available on this page to analyze the stockbrokers further. 

Here are the 15 Biggest Stockbrokers in India based on the total number of unique active clients:

S.NoName of the Stockbroker# of Active Clients% Share
1ZERODHA BROKING LIMITED90900810.35%
2ICICI SECURITIES LIMITED8439759.61%
3HDFC SECURITIES LTD.6720447.65%
4SHAREKHAN LTD.5097875.80%
5KOTAK SECURITIES LTD.4378224.99%
6AXIS SECURITIES LIMITED4194554.78%
7ANGEL BROKING LIMITED4128094.70%
8MOTILAL OSWAL FINANCIAL SERVICES LIMITED3191383.63%
9KARVY STOCK BROKING LTD.2662873.03%
10IIFL SECURITIES LIMITED2141492.44%
11SBICAP SECURITIES LIMITED2093012.38%
12GEOJIT FINANCIAL SERVICES LIMITED1627891.85%
13RELIGARE BROKING LIMITED1590301.81%
14RELIANCE SECURITIES LIMITED1202271.37%
15EDELWEISS BROKING LIMITED1201321.37%

Please note that the total number of active clients of all stockbrokers is 87,82,207 as of October 2019, mentioned on the NSE India website.

From the above table, you can quickly notice that Zerodha is the biggest stockbroker with the highest numbers of unique clients registered on the National stock exchange in India. 

As of October 2019, Zerodha constitutes around 10.35% of the total market share of the active clients registered on the National Stock Exchange. It has over 9.09 lakh active customers compared to a total of over 87.82 lakh active clients of all stockbrokers on the NSE.

What makes this list even more interesting is that Zerodha was just founded in 2010 and still has been able to outrank all the old and well-matured traditional brokers. It is the only broker with a discount brokerage business model in the top ten list. Anyways, Angel broking has also started a similar discount brokerage model recently, along with its full-service model. 

Also read: Zerodha Review –Discount Broker in India | Brokerage, Trading Platform & More

According to the above table, Zerodha is closely followed by ICICI securities, which ranks second and has over 8.43 lakhs unique clients. 

The other most prominent stockbrokers in this list are HDFC Securities (6.72 Lakh clients), Sharekhan (5.09 lakh clients), Kotak Securities (4.37 lakh clients), Axis Securities (4.19 lakh clients), Angel Broking (4.12 lakh clients) and Motilal Oswal Group (3.19 lakh clients). Together these 15 biggest stockbrokers constitute over 65% of the total share of the unique clients registered on NSE.

Also read: Compare Online broker in India – Stockbrokers list

Bonus: Additional Top Stockbrokers

Here is a list of the ‘Next’ 15 biggest stockbrokers in India with the highest active clients registered on the National stock exchange as of 31st October 2019.

S.NoName of the Stockbroker# of Active Clients% Share
15EDELWEISS BROKING LIMITED1201321.37%
165PAISA CAPITAL LIMITED1062801.21%
17SMC GLOBAL SECURITIES LTD.1059811.21%
18RKSV SECURITIES INDIA PRIVATE LIMITED995461.13%
19NIRMAL BANG SECURITIES PVT. LTD.936071.07%
20MARWADI SHARES AND FINANCE LIMITED831110.95%
21ANAND RATHI SHARE AND STOCK BROKERS LIMITED760950.87%
22VENTURA SECURITIES LTD.760880.87%
23TRADEBULLS SECURITIES (P) LTD.693620.79%
24JAINAM SHARE CONSULTANTS PRIVATE LIMITED493670.56%
25MONARCH NETWORTH CAPITAL LIMITED456200.52%
26INDIABULLS VENTURES LTD.447300.51%
27ADITYA BIRLA MONEY LIMITED442340.50%
28IDBI CAPITAL MARKETS & SECURITIES LTD.408590.47%
29MASTER CAPITAL SERVICES LIMITED397900.45%
30SAMCO SECURITIES LIMITED393160.45%

That’s all for this article. Please comment below which brokerage firm you’re using for trading in the Indian stock market and your review for the same. Happy trading!

November 20, 2019 Online Brokers 1 comment
37 All-time Best Quotes on Money trade brains

37 All-time Best Quotes on Money!

37 All-time Best Quotes on Money: Everyone wants money. No matter what the critics may say, money is the means to buy comforts and almost everything. From purchasing luxurious cars, dream house, fancy clothes to traveling to your fantasy lands, one can get all of these if they have a lot of money. Moreover, when you take care of your money, it takes care of your life too. 

In this article, we are going to share 37 of the best quotes on money that will motive you to earn, save and invest more money. So, buckle up and get ready to enter the money-land.

37 All-time Best Quotes on Money

Save Money Quotes

1) “Spend not where you may save; spare not where you must spend.” – John Ray

2) “Save a little money each month and at the end of the year you’ll be surprised at how little you have.” – Ernest Haskins

3) “If you can count your money, you don’t have a billion dollars.” – J. Paul Getty

4) “A man is usually more careful of his money than he is of his principles.” – Ralph Waldo Emerson

5) “Saving requires us to not get things now so that we can get bigger ones later.” – Jean Chatzky

6) “The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.”— T.T. Munger

7) “If you would be wealthy, think of saving as well as getting.” —Benjamin Franklin

8) “A simple fact that is hard to learn is that the time to save money is when you have some.” —Joe Moore

9) “If you’re saving, you’re succeeding.”― Steve Burkholder

10) “The safest way to double your money is to fold it over and put it in your pocket.” – Kin Hubbard. 

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

Managing Money Quotes

11) “Waste your money and you’re only out of money, but waste your time and you’ve lost a part of your life.”— Michael Leboeuf.

12)  “Every time you borrow money, you’re robbing your future self.” – Nathan W. Morris

13) “If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.” —Edmund Burke

14) “The more your money works for you, the less you have to work for money.”― Idowu Koyenikan,

15) “Money is power, freedom, a cushion, the root of all evil, the sum of blessings.”— Carl Sandburg

16) Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”Ayn Rand

17) “Money often costs too much.” – Ralph Waldo Emerson

18) “There is a gigantic difference between earning a great deal of money and being rich.”— Marlene Dietrich

19) “I don’t pay good wages because I have a lot of money; I have a lot of money because I pay good wages.”— Robert Bosch

20) “Many folks think they aren’t good at earning money when what they don’t know is how to use it.” —Frank A. Clark

21) “Never spend your money before you have earned it.” —Thomas Jefferson

Money Mindset

22) “Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.” —Johann Wolfgang von Goethe

23) “Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.” – William A. Ward

24) “The more you learn, the more you earn.” – Frank Clark

25) “Do what you love and the money will follow.”— Marsha Sinetar

26) “Money never made a man happy yet, nor will it. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.” -Benjamin Franklin

27) “Money is like love; it kills slowly and painfully the one who withholds it, and enlivens the other who turns it on his fellow human.” – Kahlil Gibran

28) “Money is a terrible master but an excellent servant.” —P.T. Barnum

29) “Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” —James W. Frick

Make Money Quotes

30) “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”— Robert Kiyosaki

31) “The money you make is a symbol of the value you create.” ― Idowu Koyenikan.

32) “Money is always eager and ready to work for anyone who is ready to employ it.”― Idowu Koyenikan

33) “We live by the Golden Rule. Those who have the gold make the rules.” ~Buzzie Bavasi. 

Invest Money Quotes:

34) “An investment in knowledge pays the best dividends.”-Benjamin Franklin

35) “In investing, what is comfortable is rarely profitable.” – Robert Arnott

36) “I would not pre-pay. I would invest instead and let the investments cover it.” – Dave Ramsey. 

37) “October: This is one of the particularly dangerous months to invest in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August, and February.” – Mark Twain.

Also read:31 Hand-Picked Best Quotes on Investing: Buffett, Munger, Graham & More.

That’s all folks. Let us know which one is your favorite quote on money in the comment section below. Cheers!

November 18, 2019 Personal Finance No comments yet
Good Debt vs Bad Debt - What You Need to Know?

Good Debt vs Bad Debt: What You Need to Know?

Good Debt vs Bad Debt: What You Need to Know?

A common misconception among most of the working population is that all debts are bad, and hence they should avoid debts at any cost. Now, it is possible that you may never take any debt/obligation throughout your lifetime. However, this is not a very smart move.

Many times, taking debts to reach your goals can be a wise action and can help people succeed in the long term. As a matter of fact, all those who run a business or have a winning mindset know that – “Not all debts are bad!”

Although buying luxury goods through debt on your credit card should definitely be considered as a bad debt, however, sometimes, it is okay to take a debt to start a business, buy your new house, for getting a higher education, etc when the possible returns in future are higher compared to the interests paid.

In this article, we are going to discuss good debt vs bad debt. By the end of this post, you’ll completely understand what good debts, bad debts, their characteristics, examples, and more are. Let us start with Good debts.

Good Debt vs Bad Debt

1) Good debts

house loan good debt example

There is a common saying in the business world– “Money makes money.” In other words, it means that you need money to make more money.

Concerning good debt vs bad debt, if you can use your debt to generate more money/value or simply increase your net worth, then it can be considered as good debt.

In general, these debts have lower interest rates than the potential returns and, therefore, treated as an investment for the future.

For example, if you’re starting a business, it is not necessary that you should have enough savings to get it off the ground. Here, if the future growth potential and expected returns from your business are high, you can take a business loan. The business loan can be considered as a good debt (on the condition that your business is fruitful).

Here are a few other common examples of good debts:

— Education loans:

“The more you learn, the more you can earn.”

If taking a degree can increase your earning potential as an employee (or an employer), it’s okay to go for that debt. You are more likely to be better paid if you have higher knowledge and degree. Always be ready to “Invest in yourself,” and hence, taking a student/college debt can be considered good debt.

Anyways, please note that an education loan may turn out to be bad debt if you do not get employment as per your developed skills after graduation. Therefore, always choose the degree/program carefully because if there’s no substantial earning potential after you have completed the education, it may not be a good debt.

— Business loan:

If taking a business loan can increase sales, earnings, and improve your company’s financial health in the future, it can be a good debt. Moreover, having a balance in the account can also reduce the financial stress of owners as they do not have to worry about running out of cash constantly. And therefore, they can make better decisions for their business.

With time, the owners can slowly pay down the debt when their business becomes profitable and moreover stable. Anyways, a business loan can also become a bad debt if the businessman is blindly taking money for a risky business idea.

— Mortgages:

Mortgages for buying a house or real estate debts for property ownership can be considered as good debt.

Generally, buying a house or property involves a massive upfront cost. If you do not have saved a lot of money to invest in a house/property, but the potential earnings that you can make from your real estate investment are way high, then taking a loan may be a good idea.

Here, you can buy the property, live in it for years, save money on rent, and also sell it in the future for making money. Else, you can buy the property and rent it out to make money as rental income. As you are taking a loan to build an asset that increases in value, mortgages can be considered as good debts in the long run.

Also read: What are Assets and Liabilities? A simple explanation.

The Risks of Good Debt:

Although good debts may sound like a viable option for a better future, however, they are always dependent on a lot of assumptions. There’s no guarantee that the future will turn out to be the same as planned. For example:

  • You can get a college degree from your education loan but may have no job offer.
  • Your business loan may be a waste if your business/startup fails
  • You may be paying high mortgages for your house and may be left with no savings for the future.

Even for good debts, there are a lot of risks involved as people are forecasting the future based on their assumptions. Therefore, before taking an obligation, carefully assess the risks and rewards.

For example, if you are planning to get an education loan, choose to take the loan for a degree/program that you’re confident to be fruitful. Know the expected salary after graduation so that you can plan to pay the money back.

Besides, considering the worst-case scenario may also help here as you can even plan for it. Overall, always act smartly as a good debt may not always be right for everyone.

2) Bad debts

car loan bad debt example

Bad debts are the money that is borrowed to purchase depreciating assets or liabilities. In other words, if the value of assets doesn’t go up or generates income in the future, you should not buy it by borrowing money as they are bad debts.

In general, bad debts have a higher interest rate, and people can prevent taking these debts by making smart use of money. Here are a few examples of bad debts:

— Debts to buy fancy cars:

Cars cost a lot. While having a vehicle can be a necessity as it saves money and time, however, taking debt to buy an expensive car is never a good idea. The value of a vehicle depreciates over time, i.e. becomes less than what you paid for in the future. And hence, borrowing money to buy fancy cars can be considered as bad debt.

— Debts to buy luxuries:

Taking consumer/personal loans to purchase luxuries like expensive watches, clothes, dining in fancy restaurants, services, etc. are again bad debts. Personal loans have incredibly high-interest rates and are usually caused by living beyond one’s means. The money spent on these goods/services could have been used somewhere else.

— Credit Card debts:

Credit card debt is the worst form of bad debt. The interest paid on credit card debts is significantly higher than the rates on consumer loans. Moreover, as the outstanding amount accumulates each month, it makes it easy for the people to fall behind and become prey to the credit card companies.

Mixed/Special Cases of Good Debt vs Bad Debt:

The world is not just ‘Black’ and ‘White’. There’s also ‘Grey’!

Similarly, a debt cannot always be classified as good debt or bad debt. Sometimes, it can be both. It depends on your financial situation and preference. Here are a few examples:

— Borrowing to invest:

If you are getting money at a lower interest rate and making more money by investing it, then it can be considered as good debt. In the trading world, this is called leveraging, and it can help the traders to make a lot of profits using other people’s money.

Anyways, if the interest rate on the borrowed money is way high and the profits earned from your investment is low, then this money can be considered as a bad debt.

Overall, there’s a risk involved in borrowing money to invest. Until and unless, you’re trained and experienced to do so, this approach can be dangerous.

— Credit card rewards:

Although relying too much on credit cards be harmful, however, they are also a lot of benefits of using credit cards. Most of these cards come with amazing rewards like free airline tickets, movie tickets, cashback, etc. If you can use the credit cards efficiently, it can be considered as good debt.

— Consolidation loan:

In finance, consolidation occurs when someone pays off several smaller loans with one more jumbo loan. Here, the individual gets this loan at a lower rate to pay off the higher interest rate loans. In general, it can be considered a good idea to get rid of high-interest debts. However, the problem arises when the individual is not able to pay off the bigger loan or when the debts pile up.

Also read: 11 Best Passive Ways to Make Money While You Sleep.

Summary

Let us quickly summarize what we discussed about Good Debt vs Bad Debt in this article.

Good debt is a debt for getting product/service that has the potential to increase its value with time. As a thumb rule, if it increases your net-worth or value, it is good debt. The right amount of good debt can increase your net worth, value, and help you get the things that you want in your life without taking unnecessary risks.

On the other hand, if you are borrowing money to spend over depreciating assets or liabilities, it is bad debt. Bad debt tries to lure people for instant gratification. However, they do not create any significant long-term value. Try to avoid getting bad debs for luxury products/services or borrowing high-interest rate money.

Finally, there’s no fixed boundary for defining good and bad debts. A good debt for one can be bad for another, depending on their financial situations.

November 13, 2019 Personal Finance No comments yet
What is Swing Trading? Definition, Pros, Cons & More

What is Swing Trading? Definition, Pros, Cons & More!

Swing trading is when investors capitalize on swings in the market by holding on to a security for an extended period of time. Day trading positions last for less than a day while swing trading can last up to a week. It is used to trade numerous securities such as forex, futures, options, and stocks.

Swing trading is beneficial as it provides more opportunities for profits than day trading and quicker rewards than long-term investments. But on the downside, you need to constantly manage trades as you might miss out on opportunities to make a profit if you don’t act quick.

So what exactly is swing trading?

In its simplest form, traders hold on to securities for an extended period of time to earn a profit. This can range from overnight to several weeks. The objective of swing trading is to identify a trend and find swings within that trend to make a profit. Technical analysis can be used to identify these swings and act on them. Both day trading and swing trading have higher risks and costs than typical investments.

Swing trading is often undertaken by individuals and not large institutions as large institutions trade in large volumes, making it harder to enter and exit the market as required. It is a great option for beginner traders as it allows them to gain experience in trading. Losses can be kept minimal with stop-loss techniques and it provides perspective on both short and long-term trading.

(Video Credit: Elearnmarkets)

Benefits of swing trading

Swing trading is beneficial to beginner investors and for those who need more time to make trading decisions. It comes with several advantages such as:

— Versatility- Swing trading is a good option for people who can’t trade during market hours but still want to remain active traders. You can decide the price at which you want to enter and exit the market and place stops so they the stock value doesn’t go below a certain level- there are some trading softwares that even let you place multiple stop-orders in a day. Additionally, swing trading can be used for numerous securities such as bitcoin and standard options.

— Identify opportunities- Swing trading is generally not adopted by large firms as the trader constantly enters and exits the market but this comes with its own benefits. It allows the investor to identify new opportunities in the market. Looking at a financial chart shows you the long-term trend of stock but this is not always protected by support and resistance. By entering and exiting the market on a regular basis, you can identify opportunities in different markets with new trades. This not only allows you to spread your risk but you also have a lot less capital tied up in a single stock.

— Lower losses- Stop losses result in lower losses than long-term trades. A stop loss on a swing trade maybe 100 pips for a 5-hour chart but a stop loss on a chart over a week can be 400 pips or higher. This allows you to take larger positions on long-term trends. You can also place multiple stop losses in a day to protect your stocks against loss.

— You can have a better understanding of the trades- Swing traders are technical traders and have certain signs and signals to show them when a stock is/will not perform well. Therefore this makes it easier for a swing trader to limit the damages before they occur. Long-term traders cannot do this as trade based on the fundamentals of the stock. A swing trader, on the other hand, needs to be patient and take fewer trades.

Disadvantages of a swing trading

Although swing trading has its benefits, it comes with its own trade-offs. Here are a few challenges of swing trading:

— Unpredictable changes- Swing trades can change dramatically overnight, so if the market changes while you are sleeping, you could be up for a surprise the next morning. In certain cases, even a stop loss won’t be able to protect your trade. Trading is risky in itself and entering and exiting the market means that you are risking the money more often. You are likely to face losses every now and then due to this.

— Expert knowledge- While this might not necessarily be a disadvantage, swing trading requires a trader to be knowledgeable in technical analysis. Looking at a chart to find the high and low points is easy but as a swing trader, you need to identify the entry and exit points as well. Learning these skills takes time and effort and a trader would need to master this before they start swing trading.

— Psychology- You need to have a different mindset when it comes to swing trading. You need to be able to think on your feet and be sure of the decisions you make. As a swing trader is more aggressive than a regular trader who only studies the charts. Swing trading does not provide you with the same leverage as day trading.

Also read: What is Derivative Trading? Futures & Options Explained

Bullish and bearish swing tactics

 Bullish traders

Stocks that are trending in the market rarely go in a straight line. A stock may go up for several days in a step formation and then gradually come back down. When the stock can be seen moving upward, it is said to be in an uptrend. Bullish traders look for the initial upward trend followed by the reversal of this, called the ‘counter-trend’. This is again followed by an upward trend. You should enter a trade only after the original upward trend has resumed.

Bearish traders

Like upward trends, downward trends also move in a step pattern. A stock could trend downward for a number of days, followed by a few days of upward movement and then back to the downward trend. Traders should enter a bearish swing trade when the stock resumes its downward trend. They can do this with a sell-stop limit order.

November 11, 2019 Market No comments yet
How to plan your passive income the right way?

How to Plan Your Passive Income The Right Way?

How to Plan Your Passive Income The Right Way?

Hello readers! Today, we at TradeBrains, are covering a topic that might stir up a lot of interest and intrigue within our community. In recent years, we have been seeing a lot of interest among our readers to generate a second source of passive income to meet their financial goals. While stock investors do manage to achieve this when their portfolio companies shell out dividends, the reality is that for most individuals passive income requires conscious planning and periodic review.

Today’s post should help answer some of your questions and perhaps guide you on your financial journey going forward. So let’s get started.

What is passive income?

In the most general sense of the phrase, passive income usually refers to consistent and periodic income you may gain without dedicating large amounts of your time. Some people would even go so far as to say that passive income is the “income you gain while you are asleep”. 

A prudent investor would, however, understand that even though the statement puts across the idea of passive income bluntly, one would have to live in a fool’s paradise to assume that passive income actually requires no work (it requires less work, not zero work). However, by making some smart moves anyone can create a source of income to add more teeth to their financial firepower.

Why do people try to create a passive income source?

In the simplest language, passive income reduces the dependence of your lifestyle on a single income source. In other words, you ensure that you do not put all your eggs in a single basket.

Again here quite a few people may argue that the real benefit of substantial passive income is realized when one does not feel pressured for working extra hours at work to earn a meager overtime pay during uncertain times. When things go haywire in life, which happens more often than not, a second income does indeed come as a relief especially when you carry a financial burden like an enormous EMI on your housing loan.

Another reason which might have some sense is that a passive income usually acts as a force multiplier in your financial journey. You could get additional fire-power for your monthly SIPs or you could buy assets that get you even more side income all the while riding on the power of compounding to grow your wealth over time.

The motivation for generating income could also differ according to a person’s age or situation in life as well. Individuals working in senior management in private sector companies that do not pay pension might actively scout for an income post-retirement than a younger person.

What are the sources of second income?

And a comparison of skill-based and investment based sources of income.

For quite a large section of the society, the main sources of passive income are either in the form of interest gained from bank deposits or rental income from a real estate asset. However, things have changed in the last decade or so, the fixed deposit interest rates are being lowered every year and the real estate prices continue to break a new ceiling in most cities. These two powerful macro trends have rendered conventional sources quite inefficient in developing a passive income source for a young person who has just started earning.

Looking at the other options available, your second income could be either skill/service-based or investment-based. You could sell your existing skills to provide services or advice as a consultant for other people or companies that might need them. Another option could be to collect royalty income from intellectual property or any other creative services. 

But, to play the devil’s advocate, even though selling skill is rewarding, it would still require some time and effort on a consistent basis to generate a steady income. Hence, an investment based income would be more ideal if you are not able to put in lots of time or effort for any reason.

Investment based ideas could include dividend investing, fixed deposits, rental/lease income from real estate, peer to peer lending, etc. In most cases, the metric used to judge an investment based income source would be the interest rate or the yield. Although seemingly easy to execute, an investment base income strategy would require portfolio adjustments based on a periodic review of risk and reward of the portfolio.

For a list of ideas you could refer to another of our articles:

passive income quotes

How to plan your passive income portfolio?

The most important thing to consider while planning your passive income portfolio is time, the time you can invest and also the time you would be willing to wait for your portfolio to build up in value. However, prudence doesn’t hurt and it would be advisable to look at qualitative factors like repeatability and consistency while deciding on your chosen method for generating a passive income. If your passive source also happens to be scalable, then who knows? Maybe one day it might lead you to new and exciting business ventures.

The lazy way to start building a portfolio for most people with significant day time commitments would be to focus on generating steady interest income every month. Although savings schemes and fixed deposit plans have been the conventional go-to strategies, in recent times the rise in web and mobile technology adoption rates have facilitated the feasibility and importance of peer to peer lending platforms as another significant source for earning interest income.

Some people may prefer to keep a mix of side hustles and investment-based income in starting their portfolio, while others may look for only investment based avenues. Although there is no single right way, keeping repeatability and consistency as a priority would really go a long way in helping anyone build a process for growing their passive income.

6 Steps to create a passive income source

Creating a passive income is going to be tough, a lot of time will have to be spent on researching new investment sources, gaining new skills and performing tasks which can be monetized. The whole journey could be a whole lot simpler if we were to follow a process-driven approach. We, at TradeBrains, have compiled a list of things anyone could start doing right away to begin their own passive income portfolio.

1. Evaluate your time

The most important asset you have is your time so it is only reasonable to find out whether a particular side hustle is worth your time or not. In case you do not have too many hours to spare it is perfectly fine to start only on investment based income strategies.

2. Save until it hurts

Be thrifty, pay your EMIs and get out of debt as soon as possible. Try to cut corners wherever possible to get extra cash. Try cooking your own food instead of ordering every time. Only buy things you need from e-commerce websites.

3. Learn about income-generating assets and focus on buying them

Dividend stocks, REITs, government bonds, savings deposits, you name it, anything that provides you income on a regular basis should be included in this list

4. Calculate how much passive income you would need

It’s important to have a figure you can aim to act as a compass else it is possible for you to get lost and even lose motivation towards achieving your goals. A good goal is to try and generate enough alternate income to cover for your rent, food and monthly running expenses

If your annual expenses are around 6lakhs then divide the number by your expected return to get the capital you may need to save up. So if you are expecting a return of 10% from your investments, then having a capital base of 60lakhs would suffice for you to cover your expenses.

5. Grow multiple streams over time, Be diversified

Given the uncertainty of the world we live in, we simply can’t underscore the importance of diversification of income streams. Capital preservation is simply underrated in our daily conversations about money that a lot of the times we even pretend like money cannot be lost in investments. 

If we were to look back into history, after the burst of the dot-com bubble it took roughly 10 years for Nasdaq investors to just break even. Your passive income portfolio should be diversified to absorb any impact in your life in case one single income source stops churning out cash for you.

6. Be patient and don’t give up

All the above steps would amount to nothing if it is not given time to grow. Compounding works and it gives astounding results over large spans of time. Sure the wait to building wealth is always slow and long but it is definitely worth the wait.

November 8, 2019 Personal Finance 1 comment
BLUE OCEAN STRATEGY meaning

What is Blue Ocean Strategy? Examples, Pros & Cons!

What is Blue Ocean Strategy? Examples, Pros & Cons!

Hello readers! It is a new day and we are back with a new topic of discussion exclusively for you all!

Almost all of us have been to beaches for a weekend getaway or long vacations! If not holidays, we have definitely come across visuals of oceans and seas on social media and televisions. Haven’t we? Well, oceans are vast, deep, massive, wide and are the most baffling natural wonders of the world. Proper explorations and researches can give way to incredible discoveries and provide us information about its scopes and untapped prospects.

In a similar fashion, a path-breaking strategy, known as Blue Ocean Strategy, was introduced by  W. Chan Kim and Renée Mauborgne. It is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. A Blue Ocean Analogy is utilized to unlock the wider, unfathomable, powerful and vast potential in the unexplored market space in terms of profitable growth. This strategic planning theory is an escape from the general notion of benchmarking the competition and focusing on lump sum figures.

What exactly is a Blue Ocean Strategy?

Blue Ocean Strategy is all about devising and acquiring the uncontested market forum by spawning a new demand.

Since the industries are in a state of non-existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd.

In other words, the strategy spurs companies to offer extremely valuable products to the consumers. Thus, it supports the company to incur large profits and surpass the competition. The price tags of the products are generally kept on the steeper side because of their monopoly. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent space.

The kind of leadership and management required to initiate a Blue Ocean Strategy differs from the management of corporations that have short-term ambitions and mainly concentrates on increasing shareholder value by pushing up the stock prices via buybacks, mergers, and acquisitions. The Blue Ocean Strategy can be applied to all the sectors or, businesses and is not limited to just one kind.

On the contrary to the concept of Blue Ocean Industries, there exists Red Ocean Industries. Let us understand the concept in brief before moving to further analysis.

Red Ocean Industries

Red Oceans are those industries that are currently in existence or, what we call the contested market forum.

In Red Oceans, there are well-defined industry perimeters that are known and out in open to all. Due to the acquaintance with the competitive rules and acceptance of the drawn boundaries, the market space gets crowded and there is a consequent reduction in growth and profitability. When the product comes under the burden of pricing pressure there is always a chance that a firm’s operations could come under notable menace.

Companies under Red oceans strive to outperform their rivals by grasping a higher proportion of existing market share at another company’s loss. In order to keep themselves afloat in the marketplace, proponents of Red Ocean Strategy concentrate on creating competitive advantages by examining the blueprints of their peers/competitors. Such a saturated market space makes way for a toxic competition which ends up as nothing but an ocean full of rivals fighting over a dwindling profit pool. Such firms mainly seek to capture and redistribute wealth instead of creating wealth.

These kinds of market forums can be correlated with the shark-infested ocean waters which remain spilled with blood. Hence, the coinage of the term Red Oceans. Thus, the business world has pulled up their socks and is striving to skip the “Red Oceans” to create their very own “Blue Oceans”.

Examples of Blue Ocean Industry

Let us learn how organizations that have followed the path of Blue Ocean Strategy has undergone outstanding growth and profitability!

1) UBER

Uber Cab is a brainchild of the Blue Ocean Strategy and has dramatically transformed the picture of the transportation industry by discarding the nuisance of booking cabs, denial of services, meter issues and unwanted arguments.

It is a ridesharing service that enables customers to book their rides with the ease of swipes and taps. It also permits users to trace a  driver’s progression towards the pickup point in real-time through the medium of a smartphone application called Uber App.

Uber devised a new market by the amalgamation advanced technology and modern devices. It tried to differentiate itself from the regular cab companies and in turn developed a low-cost business model that offers flexible payments, pricing strategies and generates good revenues for both the drivers and the company. In the initial stages, Uber was successful in capturing the uncontested market space but was eventually flooded by the competitors. In spite of that, it continues to command the market and is speedily expanding across the world. As of 2019, Uber approximately has 110 million riders worldwide and holds 69% of the market share in the United States.

2) iTunes

Apple headed into the space of digital music with its unique and eminent product ie. iTunes in 2003. In previous days, conventional mediums like compact discs (CD) were put to use to disseminate and listen to music.

When iTunes ventured into the market, it solved the basic problems which were faced by the recording industry. As a result, iTunes cut down the practice of illegally downloading music while simultaneously catering to the demand for single songs versus entire albums in a digitalized version. High-quality music at a reasonable price offered by Apple became a talk of the town. All the available Apple products have iTunes to download music and have largely ruled the market space for decades. It is also recognized for driving the growth of digital music.

These examples of the Blue Ocean Strategy can enlighten future startups regarding the execution of a  strategic planning scheme and successfully unlocking new demand.

How to find and develop/Launch them?

Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. When there is limited scope for further growth, businesses try and search for verticals for discovering new business lines where they can enjoy the advantage of uncontested market share or ‘Blue Ocean’.

In order to find and identify an attractive  Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The Four Actions Framework emulates strategic triumphs and guides towards the path of launching a Blue Ocean initiative.

The framework poses four key questions, namely:

A) Raise

It includes points that must be blossomed by industry in reference to the line of products, price tags and caliber of services. A startup must analyze the pros and cons of the existing organizations and their strategies for key aspects of differentiation.

2) Reduce

It points out the arenas of an organization’s product or, service which foreplays a crucial character in the industry but is not absolutely essential in nature. Therefore,  the proportion of the products can be curtailed without entirely eradicating them.

3) Eliminate

It points out the arenas of an organization or industry which could be eliminated absolutely for the purpose of cutting down the costs and also to fabricate a completely new market. At times, newly invented products can lead to self-assassination of the existing products and thus,  leads to an unwillingness to interfere with the current revenue source.

4) Create

It nudges the companies to shape up trailblazing products. The introduction of an entirely new product line or, service leads to the establishment of a new market and points of differentiation. Identification of the needs of the target market provides sound knowledge regarding the addition of unique measures and consequently tracking the progress for illustrating a Blue Ocean.

Now that we have discussed the Blue ocean strategy and how to find them, let us also discuss the pros and cons of this strategy.

Pros of Blue Ocean Strategy

Here are a few of the advantages of using the blue ocean strategy:

  1. Blue Ocean Strategy cooperates with organizations to find uncontested markets and avoid matured and saturated markets.
  2. It assists to move from the impediments of competing within the existing industry and cost structure and to gradually migrate towards constructive value improvement. In short, it demonstrates how to break free from the traditional strategic models and to expand profitability and demand for the industry by using the analysis.
  3. Value innovation is the backbone of a Blue Ocean Strategy. Value innovation is the alliance of innovation with price, utility, and cost positions. It eventually creates new value/demand for consumers and thereby, expands the chances of growth potential.
  4. Blue Ocean Strategy enables a fundamental transformation in mindset. It develops mental horizons and helps in recognizing the opportunities.
  5. Blue Ocean Strategy is based on “time and again” proven data rather than unproven theories. It is based on practical approaches that have proven results during live market executions.
  6. Products under the concept of the Blue Ocean Strategy doesn’t make a consumer choose between value and affordability. It is the simultaneous pursual of differentiation and low-cost theorem.
  7. Creating blue oceans is non-zero-sum with high payoff possibilities.

Cons of Blue Ocean Strategy

Let’s us also look at a few of the common cons of using this strategy:

  1. It’s quite difficult to come up with futuristic ideas and identify colossal and untapped markets.
  2. Nominating an articulate Blue Ocean Strategy is a result of a calculated and detailed research process backed by extensive analysis. It is to be kept in mind that there is no magic formula or, silver bullet.
  3. Venturing into a market in the early phase comes with baggage of risk. There is a high possibility that the customers might not understand the grass root of the products and services because of the absence of a fully developed technology.
  4. Production of a new market is never easy because an organization has to be smart and clear regarding its customer base and ways to impart education about new ideas, new products, and new solutions. It also requires clarity about the trade-offs, obstacles and the workforce.
  5. Opting for a different ocean i.e the Blue Ocean, requires a lot of patience, persistence trust, preparation, and faith. It is also extremely paramount to look at initial indicators for confirming the fact that “fishing”  is not being done in a dead sea.
  6. On finding a new ocean, other sharks from the saturated markets aka the Red Oceans and other adjacent oceans will be lured to the new market. Thus, building strategically defensive alternatives would be a wise step. Defensive alternatives majorly consist of brand power, technological advancement, and speed of execution.

Also read: What is a BCG Matrix? Explanation with Example!

Summary

Let us quickly summarise what we discussed in this article.

A path-breaking strategy known as Blue Ocean Strategy is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. It is all about devising and acquiring the uncontested market forum by spawning a new demand. Since, the industries are in a state of non- existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent.

These days, the Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. In order to find and identify an attractive  Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The framework poses four key questions, namely, Raise, Reduce, Eliminate & Create.

That’s all for this article. Let me know what you think about the blue ocean strategy in the comment section below. Cheers!

November 6, 2019 Economics No comments yet
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