Anand Mahindra's Success Story cover

Anand Mahindra’s Success Story: An Inspiring Journey of Mahindra’s Boss!

The Success Story of Anand Mahindra: We currently have fallen in love with his tweets on Twitter. Anand Mahindra keeps sharing advice, extending help, and also dog posts. Apart from making Twitter India fall in love with him, what are his business achievements? In this article, we cover Anand Mahindra’s success story. Keep Reading!

The Mahindra History

Anand Gopal Mahindra was born into the third generation of the industrialist family to Harish and Indira Mahindra. He is the grandson of the co-founder of Mahindra & Mahindra (M&M), Jagdish Chandra Mahindra.

Initially known as Muhammad & Mahindra, the company was founded for steel trading in 1945. Unfortunately due to the partition their partner M. G. Muhammad decided to emigrate to Pakistan and later even went on to become its first finance minister.

This prompted the brothers Harikrishnan and Jayakrishnan to change the name of the company to Mahindra & Mahindra. The brothers saw an opportunity in manufacturing Jeep and partnered with Willys Overland who had also produced the vehicle for WW2. The company came to be well known as a jeep and truck producer. 

But how did M&M go from producing jeeps to operating in aerospace, finance, insurance, agribusiness, components, defense, energy, construction equipment, farm equipment, leisure, hospitality, industrial equipment, information technology, logistics, real estate, and retail? Phew! That was a long list! 

The answer to this question is Anand Mahindra.

Anand Mahindra joins Mahindra & Mahindra

Anand Mahindra and Bill Gates during a meeting

After receiving a degree in architecture and an MBA from the Harvard Business School, Anand Mahindra decided to return to India to work for M&M. A fun fact not known to many he and Bill Gates were classmates at Harvard. The company was then run by his uncle Keshub Mahindra.

As a Harvard graduate and part of the Mahindra family, Anand found an easy way into the company but everything was uphill from here. He joined Mahindra Ugine Steel Company (MUSCO) in 1981 as an Executive Assistant.

Here Anand played an important role in the MUSCO’s expansion into the real estate and hospitality sector. Anand Mahindra worked his way up the ladder and was appointed as the President and Deputy Managing Director in 1989. 

Challenges Faced By Anand Mahindra 

Bharat Doshi recalls that his boss probably faced one of his biggest challenges when the 36-year-old Anand Mahindra was sent to work at M&Ms Kandivali factory in 1991. Mahindra met with striking workers who had surrounded his office and wouldn’t stop at anything. His response may surprise you as he made it clear to the mob which could turn violent that unless the workers got back to work and increased productivity there would be no Diwali bonus.

This was necessary for the company as 1991 stood for liberalization or in other words increased opportunity and competition. Doshi the Group Chief Financial Officer noticed that post this the productivity gains of the company rose from 50 to 150%.

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Anand Mahindra Facing Setbacks   

Building a car from scratch in India was a challenge as the Mahindra Group lacked the technology and the management expertise. To achieve this they decided to enter into a joint venture with Ford but sadly the Escort car failed once it hit the market. 

Although the car flopped what came next would define M&M’s legacy in the Indian markets. Anand Mahindra, now the Managing Director, decided to lead the company into once again producing a vehicle but this time without a joint venture. This would seem like a suicide mission for a company whose product had just failed even after working with Ford.

Using the same team of 300 that had worked on the Escort and hiring talents like Pawan Goenka, Mahindra decided to build the vehicle from scratch.

Scorpio by Mahindra & Mahindra

The result of this gamble is what we today know as the Scorpio. The SUV took the markets by storm and what is even more surprising is that it was created with a project cost of Rs. 550 crore. This was a tenth of the cost it would take any other large manufacturer to create it.

Scorpio was a hit and was even exported to western Europe and Africa in the years to come. The SUV was so successful that it even captured a 36% Market share in the utility vehicle segment. In comparison, Tata only had a 4.9% market share. The SUV also set the stage for other MUVs and SUVs launched by the company like the Xylo and XUV5OO.

Anand Mahindra’s Success Story – Rebranding Mahindra

By 2009 M&M was part of the top business names in India. It was during this period that Anand Mahindra met with Scott Goodson. Goodson’s observation found that even though the managers at Mahindra felt that they were working for a higher purpose this aim was still not crystal clear among them. 

Mahindra Rise - Anand Mahindra's Success Story

Mahindra’s core purpose at the time was to prove that Indians are second to none. But after several acquisitions in Germany, Korea, and China this purpose would not relate to everyone within the company. Instead of sitting on their laurels, Mahindra understood that it was time to adapt. After months of research, the slogan “Rise” was adopted.

Acquisitions

If one takes a look at the history of M&M it would be easy to point out that the company has relied to some extent upon growing inorganically. These include successful acquisitions like Swaraj Tractors, Reva Electric Car Company, Satyam Computer Services, Peugeot Motorcycles, Ssangyong Motors, and Pininfarina S.P.A.

Anand Mahindra Philanthropy 

Anand Mahindra Portrait Photograph

What could be possibly Anand Mahindra’s biggest achievement is the Nanhi Kali project which he started in 2009. The NGO supports education for underprivileged girls in India.

Over the last 2 decades, the project has happily reached out to over 3,30,000 underprivileged girls.

Closing Thoughts 

Anand Mahindra stepped down as the executive chairman and became non-executive chairman of Mahindra & Mahindra in April 2020. His legacy with Mahindra still grows as the company is now one of the biggest names in India. Under his leadership, the revenues of the company grew over 60 times from Rs. 1,520 crores in 1991 to Rs. 96,241 crores in 2020. What more proof does one need? 

That’s it for this article! Let us know what you think of Anand Mahindra’s Success story in the comments below.

Tata-Mistry Case Explained Cover

Tata-Mistry Case Explained: What was the Feud all About?

Tata-Mistry Case Explained: The Supreme Court last month ruled in favor of the Tata Sons board and upheld their decision to remove then chairman, Cyrus Mistry from 2016. The Tata vs Mistry feud has been one of the most high-profile cases in the country. But what was it all about? Despite having a decades-long relationship that spanned two generations of the billionaire families, they are ending it in a messy divorce. Keep Reading to find out!

The Tata, Mistry, and Wadia History

Ratan Tata and Cyrus Mistry together during an event

The three remarkable families belong to the Parsi Zoroastrian community. Their ancestors are said to have fled persecution from Persia over a century ago finally making their way and finding refuge in western India. 

All 3 of them over the years have contributed massively to the country and currently hold billionaire status, making them one of the richest in the world. 

Deepening Ties between the Families 

The business ties between the families deepened during the 1970s. Charitable institutions like the Sir Dorab Tata and the Sir Ratan Tata currently own up to 66% of Tata Sons. Tata Sons were the holding company that managed the underlying Tata companies like Tata Motors, Tata Chemicals, Tata Steel, etc. But in 1969 these underlying companies were managed by a managing agency which was controlled by Tata Sons.

Wadia helps Tata retain control

Unfortunately for the Tata family the Monopolies and Restrictive Trade Practices (MRTP) Act was introduced in 1969. This made sure that the management agency system was abolished in India. According to this act, the charitable trusts could no longer cast a direct vote in corporate matters. They were to be represented by a neutral nominee who was appointed by the government.

This was an added blow in addition to Section 153A of the Companies Act, 1963, which allowed the government to add a public trustee on behalf of private trusts. This meant that the Tata companies were now independent of the parent board which in turn put the conglomerate at risk of hostile takeovers and coups.

Ratan Tata with JRD Tata

For a while, the Tata companies stood firm together thanks to their visionary leader JRD Tata. But it still seemed that the group companies would fall apart and become independent in the long run or once JRD Tata retired. It was during this difficult period that Wadia a descendant of Muhammed Ali Jinnah and two other elite Parsi families, Petit’s and the Tata’s came to the rescue of the group. Nusli Wadia was also the godson of JRD Tata.

Wadia used his close relationship with BJP leaders PM Atal Bihari Vajpayee and L K Advani to lobby on behalf of Tata. Finally, in 2002 the Companies Act was amended. Several sections like Section 153A were even specifically amended. This allowed the Tata trusts to vote directly on the Tata Sons board which controlled all the group companies. 

Other Favors among the Tata and Wadia Families

These favors were common between the families as JRD had first helped Wadia to keep his inheritance. Young Wadia has just returned after completing his education only to find that his father was ready to sell Bombay Dyeing & Manufacturing Co. Ltd to R.P. Goenka with the support of Shapoorji Pallonji Mistry.

Thanks to the support given by JRD Tata their ties deepened. For a period of time, it was also rumored that Wadia was the possible heir to Tata and Sons.

Ratan Tata with Ness Wadia during a conference

Wadia also further deepened his ties with Ratan Tata. To everyone’s surprise, Ratan Tata was appointed as the chairman of Tata and Sons. Wadia stood by Ratan Tata and deal with the uprising within the group companies. 

How did the Mistry family enter the picture?

The Mistry family started holding a significant stake in Tata and Sons in the 1960s. This was made possible as several members of the Tata family decided to sell their stake. The first purchase for a 5.9% stake was made in 1965 when JRD Tata’s widowed sister sold her stake.

Mistry further increased his stake in Tata Sons when Naval Tata chairman to the Sir Ratan Tata Trust tried to raise funds. This was done by selling off a 4.81% stake. They sold their stakes on the approval of JRD Tata. The third sale however was done without JRD Tata’s consent in 1974 when his younger brother Darab Tata sold his stake to Mistry. This further created a rift between Mistry and JRD Tata

JRD and Wadia vs. Mistry and Naval

Ratan Tata, Pallonji Mistry and Ness Wadia from left to right

Rifts within the 3 families were common as family members would often take opposing sides. Thanks to their good relations JRD Tata even went on to invite Wadia to join the Tata board. This move however was opposed by Ratan Tata’s father and Pallonji Mistry. The two even sought help from Indira Gandhi who already was wary of Wadia because of his connections with the opposing parties.

Wadia however backed out as it was evident that he would be met with hostility on the board. The relationship between Naval and Pallonji further was further carried on when Ratan entered the picture. When Ratan Tata was appointed as the chairman in 1991 in addition to Wadia’s support Pallonji Mistry also helped strengthen Ratan Tata’s position within the group.

Just a few days after becoming chairman Ratan Tata wrote to Pallonji Mistry. The letter stated “Our common agreement and mutual faith will foster a true and lasting relationship. Our standing together will be a matter of strength”. This was followed by “Let me reiterate that I will never do anything to hurt you or your family.” Sadly for the Mistry’s this line no longer holds true in the current circumstances.

Tata-Mistry Case: Cyrus becomes CEO of Tata

When Ratan Tata finally decided it was time for him to step down as the chairman his possible heirs included the likes of John Thain (who was an American investment banker and the former CEO of Merill Lynch) and Cyrus Mistry.

Cyrus Mistry who was already a member of the board since 2006 was selected on the basis of a letter he had circulated among the board which outlined how Tata Sons must be managed. It was after he was appointed as Chairman that the cracks began to develop between the Tata and Mistry relationship.

When Cyrus was appointed as the chairman to Tata Sons he was the only one to holds that position and not be appointed as the chairperson for  Sir Dorab Tata Trust. This position was retained by Ratan Tata. Nusli Wadia is reported to have stated in response,” All you have done is move the power center from the board to the trusts.’’. This meant that Cyrus now had lesser power in comparison to other chairmen before him. You can already see the friction forming among the families. 

Mistry’s Identity Crisis

The main reason why Ratan Tata had not considered John Thain as his replacement despite having a stellar resume was because Ratan felt that Tata should be managed by an Indian to retain its Indian identity. This moved the post in favor of Cyrus Mistry. There however was one problem, Cyrus held Irish citizenship. Despite receiving repeated requests from Tata, Mistry never renounced his Irish citizenship.

Several Conflict of Interests

During Mistry’s time as Chairman of Tata, there arose several conflicts of interest between his personal life and the company. The most consequential of these was when Tata paid Rs 2,926.35 crore to Shapoorji Paloonji & Co. Although the payment was made for several constructions made by the company for Tata, Cyrus benefited from the contracts as he was part of the Mistry family which owned Shapoorji Paloonji. 

Another conflict of interest arose when a multi-million dollar endowment fund created for Yale. The conflict of interest once again arose here as Cyrus Mistry’s son joined Yale the same year. 

Cyrus Questions Tata Trusts

As we have seen earlier Tata has always battled questions of their Trusts playing a role in the running of the companies. The trusts had received special treatment where even laws had favored them in addition to the tax exemption. This time the questions came from within the company. Mistry questioned why an entity set up for philanthropic causes was being used to ruin and control the conglomerate.  

Mistry already did not have the same powers the chairmen had before him. So he did the next best thing to attain this. He set up the Group Executive Council (GEC) which was meant to supervise the CEOs of the group companies. In addition to this, the individual underlying companies of Tata Sons were now being also asked to set up their own philanthropic foundation. Despite institutions like Sir Dorab Tata and the Sir Ratan Tata Trust already existing.

Another instance that further dented Mistry’s relationship with Tata was during the acquisition of Welspun Renewables Energy. Although the talks had begun back in November 2015 this was only disclosed to the board in May 2016. Although it was Tata Power that was acquiring Welspun there was no mention of the acquisition during their March 2016 meeting for talks on energy issues. Finally, when they were informed in May the email was only meant to inform and not seek approval from the directors.

Another factor that played a major role in Mistry’s removal was his motivation to sell several loss-making entities of Tata instead of helping them turn their fortunes. These included the Nano project and Tata Steel Europe among others. This ultimately would have undone Ratan Tata’s legacy within the conglomerate.

Removal of Cyrus Mistry 

On 24th October 2016, Ratan Tata along with Nitin Nohria met with Cyrus asking him to step down as the chairman of Tata. They also made it clear that they were otherwise going to move a resolution for this matter before the board if he refused. They also made it clear that his term would anyways run out in March 2017.

Mistry however refused to step down. A board meeting was held 15 minutes later which eventually resulted in Mistry being sacked. Tata then went onto appoint N Chandrashekaran as Chairman. N Chandrashekaran was also Tata’s first non-Parsi chairman. 

Mistry’s removal also saw Wadia who was once known as Ratan’s corporate samurai turn against Tata. Following this even Wadia was voted out of the boards of Tata Steel, Tata Chemicals, and Tata Motors. 

Mistry Sues Tata

Mistry went on to file a suit against Tata Sons alleging oppression and mismanagement. The NCLT ruled in favor of Tata dismissing Mistry’s allegations. The NCLAT however ruled in favor of Mistry in December 2019 citing the removal as illegal.

Ratan Tata and Tata Sons challenged the NCLAT before the supreme court. The Supreme Court bench which included Chief Justice SA Bobde and Justices AS Bopanna and V Ramasubramanian on March 26, 2021, set aside the ruling given by the NCLAT hence ruling in favor of Tata.

Ratan Tata's tweet after Supreme Court judgement on Tata-Mistry case

 Ratan Tata stated in a Twitter post.

In Closing

The ruling by the Supreme Court saw shares of Tata Motors and Tata Steel Rally. On the other hand, the shares of SP Group companies saw a sharp single-day decline. The ruling however did not mean an end to the drama. The court has left it to the two parties to discuss the terms of their separation. The SP Group has valued its stake in Tata at $24 billion.

Tata on the other hand responded by valuing their stake only at $11 billion. What is certain now is all three families have fought hard to arrive at their wealthy position. Wadia fought for his company only when he was 26, Ratan Tata managed to retain control when he was just appointed chairman and the Mistry family has always been strategic in their options. 

What do you think about the future of the three parties and the Tata-Mistry case judgment? This could finally be the part where Tata finally begins to focus on their growth prospects or this could also take a turn for the worse. Let us know what you think in the comments. Happy reading!

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ITC Diversification: Why is ITC diversifying into the FMCG Industry?

ITC Diversification’s Reasons Explained: The Ambani’s, Tata’s, Wadia’s all seem to have taken a keen interest in the Indian FMCG sector. In this article, we take a look at why India’s most famous tobacco company entered the FMCG sector. Keep Reading to find out the reasons for ITC diversification into the FMCG industry.

What is the History of ITC?

ITC Logo | Trade Brains

The ITC we know today was founded by the British-owned company Imperial Tobacco Company (ITC) in 1910. As the name suggested the company was set up to expand its tobacco business in India. It was set up in Calcutta. For many years ITC was known to be a white company employing British-Cambridge graduates into their management roles. 

It was only after 1969 when Ajit Narain Haksar became its first chairman that its name was changed to an Indian Tobacco Company. It was finally changed to ITC in 1974. But Indian shareholding within the company began increasing way back in 1954 and it was the government and its related entities investing in the company over the years which made it Indian in nature. 

Today, various state-owned insurance companies coupled with other government banks hold a 28.5% stake. The British company Imperial Tobacco Company whose name was later changed to British-American Tobacco Company still holds a 29.4% stake in the company.

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Why did ITC diversify into the FMCG Industry?

It may come as a surprise to some today when they find out that ITC is primarily in the cigarette business. This is because ITC has diversified into products like noodles, atta, juice, biscuits, chips, books, hotels, etc. This diversification however is not an attempt for a  sudden escape from the cigarette industry but began way back in 1970.

Today ITC is an umbrella group that offers services and products in multiple industries. The major being cigarettes and FMCG. 

Key Players in Indian Cigarette Industry | ITC Diversification

But one may ask when one out of four Indians uses tobacco products then what was the need for ITC to diversify?

Among the various industries present in India where survival has become the toughest, the tobacco industry definitely tops the list. All with good intentions too. When ITC was first set up in India tobacco could be seen as a ‘need’ available for everyone. 

But research over the years has brought to light the harmful effects of smoking. This in turn prompted the government to take action. The restrictions that have been put in place to minimize the harmful effects of smoking have been ever increasing since the revelation was made. 

These started out as increasing awareness among Indians to increasing taxes. Then to banning advertisements and currently using the product itself to advertise its harmful effects.

Countries like the US, China, Japan, and those in the Middle East and Europe still do not have the stringent laws that are in place in India against the sale of tobacco products.

Speaking about companies diversifying Mr. Sunil Alagh, former Managing Director of Britannia Industries says that “Companies think of diversifying into new categories and products typically because growth in the core business is slowing down or with the intention of leveraging their existing brand equity. Diversification into new products and categories could be one of the ways to generate growth.”

Added troubled for ITC

Similarly for ITC, seeing the government place roadblocks on the growth of its product would force the company to finds a way out. This way out was FMCG. In addition to this, the roadblocks placed by the government have evolved to become competition for the company.

According to Sanjiv Puri, the Chairman and MD of ITC the impact of excise duties on the product had gone up 118% since 2012-13. Despite the efforts being successful in discouraging local cigarettes. It unfortunately has boosted illegal foreign cigarettes coming into the country through the border. This is done in order to avoid taxes. These activities further affect the legal cigarette industry.

However, ITC is not the only player in the tobacco industry diversifying into FMCG. Even the DS Group has recently entered into a joint venture with Lotte Company Ltd. of Japan. The Joint venture will now be manufacturing confectionery, gum, candy, and ice creams. 

Sanjiv Puri however states that the government introducing stringent laws is not the main reason for ITC diversifying into FMCG. “ Diversification reasons are beyond that. ITC’s core proposition is to invest in areas that contribute to nation-building. We are able to make a meaningful contribution to society in all sectors that we are present.”

ITC Diversification – How successful has ITC been?

For the first quarter ending June 30th of 2020 ITC still owed 74% of its profits to the sale of cigarettes. The year before that ITC owed 80% of its profits to the sale of cigarettes. This is despite FMCG still making over 50% of ITC’s revenue. This shows that despite ITC effectively reducing the revenue dependence on its tobacco arm it still has a long long way to go increase its profit share. 

Closing Thoughts 

In this article, we discussed ITC diversification into the FMCG industry. Although it may not seem so the company has had an internal tussle for power which almost destroyed the company in the 90s. The government entities have stopped BAT from turning the company into a purely tobacco-based company.

BAT has in the past tried to increase its holdings within the company. These however were countered by the state-owned entities. Their efforts however were foiled forever since 2010, when the government banned all FDI’s into Indian tobacco companies. 

This move by the government was seen as going out of its way to back ITC and keep the company in Indian hands. The government also faced added criticism in 2019 when it banned the safer alternative to smoking. All the while holding a stake in ITC. 

This however raises the question of whether these moves by the ITC management of diversification and nationalism are in the best interest of the shareholders. Will the company perform better if the two arms are split to focus on their separate markets. ITC into tobacco and the demerged company focussing only on FMCG.

Let us know what you think of ITC as shareholders in the comments section. Happy Investing!

Greatest Traders of All Time Cover

Greatest Traders of All Time: Top 5 Most Famous Traders in Stock Market!

List of the Most Famous Traders of All Time: Being a successful part of the world of trading already sets you apart from the rest. But have you ever wondered what it would be like to be one of the very best traders in the world? Don’t worry we have come up with a list of the greatest traders of all time that you’d probably have to take on to even contend for the title. 

Top 5 Greatest Traders of All Time

1. George Soros

George Soros in his office | Greatest Traders of All Time

Billionaire George Soros aka “the king of Forex trading” or the “The Man Who Broke the Bank of England” is, without doubt, the greatest trader. But growing up a Jew in the midst of WW2 and due to the struggles he went through no one would have predicted his rise. 

Born Gyorgy Schwartz, his family had their names changed to survive the way and fly under the Nazi radar. Making to England Soros worked jobs as a waiter or railway porter before he graduated from the London School of Economics. This finally paved the way for him into the world of banking when he got a job at Singer and Friedlander as a merchant banker. 

Thanks to his father’s help he moved to the US to work at a Wall Street Brokerage firm. After several successful stints helping him move up the ladder at various firms he decided to establish his own hedge fund in 1970 called “Quantum”. 

It is here where Soros rose to fame. His most important trade came in 1990 when he decided to short the British Pound. A couple of years before the trade took place Quantum kept buying the British Pound and accumulated 3.9 billion pounds. In addition to this Soros borrowed to bring the total pound holdings of the fund to 5.5 billion pounds.

 On September 9 the pound began to fall. This prompted Soros to short all 5.5 billion pounds against the German Mark on September 16 – the day we now know as Black Wednesday. Soror managed to make $1 billion in a single day due to this trade. This caught the Bank of England in a corner forcing them to withdraw from the European Exchange Rate Mechanism.

This earned him the title of “The Man who Broke the Bank of England”. 

Soros used a similar strategy during the ASEAN financial crisis of 1997. Here Soros targeted the Indonesian, Philippines, and Singaporean currency. The crisis financially put the countries back 15 years.  

Apart from his trading success, Soros is known for his philanthropy. Although he is currently worth $8.6 billion Soros has donated over 80% of his wealth.

2. Jesse Livermore

Jesse Livermore Portrait Image

If there’s another movie ever made on a trader it should be based on the story of Jesse Livermore. Born in 1877, Livermore ran away from home to escape the life of farming which he was otherwise destined for. 

Once he made it to Boston he began posting quotes for a stockbroker as a 15-year-old. It was here that Livermore bought his first share and earned a profit of $3.12 with a capital of just $5. He soon started making more money trading stocks than what he was paid. This prompted him to leave his job and begin placing leveraged bets at stock prices. Jesse Livermore was soo good at his trades that he was eventually banned from Bucket Shops where he placed his bets. 

He then began trading at Wall Street but faced huge losses. These however were not due to any mistake of his own but because the ticker tape was not updated fast enough. He finally got a break at the age of 24 when he converted $10,000 into $500,000. By the age of 30 Livermore was making a million a day during the Panic of 1907.

Livermore was now at the top of his game which made him a well-known elite but despite this, he went bankrupt twice by 1915.

Following WW1 Livermore began buying cotton in order to gain control of the market. He had to be stopped by the then US President Woodrow Wilson. It was on Woodrow’s request that Livermore refrained from further acting on cotton.

 “To see if I could, Mr. President.”

This famous quote came into being when President Woodrow inquired Livermore on why he was trying to corner the cotton market. What set him truly apart was during the crash of 1929. It was here when market crashes were not even known about, Livermore took huge short positions taking his fortunes to $100 million. This would have made him a billionaire today. This earned him the title “The Great Bear of Wall Street.”

What truly set him apart was his ability to bounce back to great fortunes despite facing bankruptcies 3 times in his life. Jesse Livermore however didn’t survive his third bankruptcy and died after committing suicide.

3. Paul Tudor Jones

Paul Tudor Jones during a conference | Greatest Traders of All Time

Paul Tudor Jones was one of the world’s leading hedge fund managers. Jones began his trading career as a clerk working for the biggest cotton merchants – Eli Tullis in the 1970s. Unknown to many Jones was fired by Tullis after he fell asleep at his desk after a night of partying. 

Jones found his own hedge fund in 1980 named Tudor Futures Fund. What’s astonishing to this day is that the fund managed to earn 100% returns during its first 5 years. What set him apart was when he shorted a couple of stocks before the 1987 stock market crash. This earned him around $100 million. This also earned him the nickname Black Monday Prophet.

Five years post this Jones went onto become the chairman of the New York Stock Exchange (NYSE). Today Jones is worth over $5 billion and is also known for his philanthropic works through the Robin Hood Foundation.

4. Jim Simons

Jim Simons giving lecture to students

Known as the “World smartest billionaire” or “Quant King”, Jim Simons is clearly a class apart on Wall Street. Simons, a well-regarded mathematician for his Chern-Simons theory also broke Russian codes during the Cold War.

Simons didn’t enter the stock market until his late thirties. What set him apart from the rest as he was one of the pioneers to trade based on quant, data analysis, and pattern recognition. After setting up the hedge fund Renaissance Technologies, Simons made it his mission to avoid Wall Street brains at all cost hiring only scientists and mathematicians. From 1994 to 2014 Renaissance Technologies Medallion fund gave a whopping 71.8% return. You must be wondering why you haven’t heard of the Medallion fund. This is probably because Simons closed the fund to all outsiders except employees of the company in 2005. 

Simons is today worth $24.6 billion making him one of the most successful and greatest traders of all time. 

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5. Steve Cohen

Steve Cohen during a conference conversation | Greatest Traders of All Time

Billionaire Steve Cohen came from an economics and poker background. He entered the stock market in 1978 after securing a job at investment banking firm Gruntal. Cohen started off by making $8,000 on his first day and eventually moved on to make $100,000 per day for the firm. 

Cohen left Gruntal in 1992 and opened his own hedge fund – SAC Capital Partners. It was here where Cohen became known for his ability to make money under any market condition. By 2011 Cohen was the 35th richest person in the US according to Forbes. Despite having a net worth of $14 billion, Cohen still works at his firm. It is reported that almost 15% of his company’s profits are due to operations performed by him. 

In Closing 

What do you think about our list of the greatest traders of all time? Let us know in the comments the names you feel should be on this list. You might also be interested to know about the world’s greatest fund. Happy Trading!

Investing in an Equity Mutual Fund Here are the things to Consider!

Investing in an Equity Mutual Fund? Here are the things to Consider!

List of things to consider before investing in an Equity Mutual Fund: In the last decade, Mutual Funds have become one of the most popular investment alternatives. The idea of having your funds taken care of by a legit expert in the field for a nominal fee while you can sit back and relax is attractive. But how do you further select the best fund available?

In this article, we cover some factors that a prospective investor must look into before investing in an equity mutual fund. By the end of this post, you’ll have a good idea of important factors while investing in equity mutual funds. Let’s get started.

What is an Equity Mutual Fund?

An Equity Fund is one that mainly invests in the shares of various companies. To be classified as an equity fund the scheme will have to have at least 60% of its total assets in the shares of companies. The remaining amount can be invested in other securities available like Debt securities, money market instruments, etc. as per the objectives of the fund.

Funds are further classified in the equity fund category based on the type of equity shares held. They are done on the basis of market cap i.e. large-cap, mid-cap or small-cap funds. Equity funds can also be sectoral or thematic. 

According to AMFI, the Assets Under Management (AUM) have been increased from Rs. 34,000 crores in March 2000 to Rs. 650,000 crores in March 2020. In addition to that equity funds have offered a CAGR of 16% for 2 decades ending March 2020. It is important to note that equity funds are considered to be riskier than debt alternatives available in the markets. 

Factors To Consider Before Investing In An Equity Mutual Fund

What to Consider Before Investing In An Equity Mutual Fund cover

The factors to consider before investing in an equity fund can be divided into two categories. The first includes drawing your own financial roadmap. The second list of factors helps you select the best funds to meet your needs.    

A) Drawing your own Financial Roadmap

1. What is Your Investment GOAL?

The very first factor to consider when investing in equity funds is understanding what you want to get out of this investment. And then creating a strategy or selecting investment alternatives accordingly. These goals could vary from simply looking for a good savings scheme, tax reduction, saving for a daughter’s marriage, saving for retirement, etc. Once this aim is set it becomes clear about how much time you have in your hands and the returns to expect to meet these goals.

If you have never considered this before it is best to spend a few hours setting your goals and then looking at where you stand financially. Here you can actually calculate your expenses and then arrive at what you can afford to invest. 

2.  Time Availability

Once your financial goals are set the next step is to set a timeline by which you want these goals to be achieved. This is important as this further will help you select a fund that meets your needs. Say for example you are trying to save up for a vacation down the line.

In this case, investment options like liquid or short-duration funds would best suit your goals. On the other hand Equity, Linked Savings Scheme funds would best suit you if you are saving for your long-term goals as they already have a 3-year lock-in period. 

Perfect time to invest?

When investing in funds investors often get carried away by trying to find the most optimal investment price. Although this holds true when investing in stocks. But what’s the point of going for a mutual fund when you also have to compute the optimal period as well.

The whole point of investing in mutual funds is to have someone else take the trouble of ensuring you get the best returns. The answer to this problem is Rupee Cost Averaging (RCA) and Systematic Investment Plan (SIP). 

RCA suggests that buying a fixed amount of a particular investment consistently on a regular schedule over a long period of time, regardless of price produces better results. This means that simply by using SIP regardless of the bullish or bearish markets one can still come out on top.

3. What is your Risk Appetite?

The risk appetite varies greatly from individual to individual. Hence there is no single formula that will work for everyone. The risk appetite depends greatly on an individual’s financial condition, age, needs, attitude, etc.

Take for example it wouldn’t be ideal for some in their late 40’s saving for their retirement to put all their savings in a Small Cap Fund which comes with increased risk. On the other hand, it also wouldn’t be optimal for a 20-year-old to put all his savings in a debt fund. Hence it is very important to be realistic and invest in options that suit your goals.

Here is a list of the available fund types and the risk involved in them.

Comparison of different types of investment in Mutual Funds

(Source: Paisa Bazaar)

B) Find Funds that Match Your Goals

4. Performance of the Fund

At the end of the day, the performance of the fund holds the most leverage when making investing decisions. The performance of the fund gives you an idea of how well your money will be managed in the years to come. If you take a look at the returns offered by the fund you may observe returns of 7%, 8%, 15%, etc.

But how do you determine based on these numbers you are investing in the best fund to meet your goals. The following standards will help you assess this:

a. Comparison with the benchmark

 Every fund sets a benchmark index to track and compare their fund. These benchmark indexes track the performance of a collection of top securities in the market. The basis of grouping these securities is done mostly on Mcap. Say for eg. if you consider investing in a large-cap fund. The fund managers will have set a benchmark since the inception of the fund. In this case, the benchmark would most likely be the Nifty50 or the Sensex 30 index. 

The logic behind this is the benchmark represents a collection of securities in the market. A comparison with the benchmark would show us if the manager of an actively managed fund is at least able to beat the returns offered by passively investing in the market. If the investment manager is not able to beat this benchmark then it is better to invest in a fund that simply tracks the Nifty 50 and invests in the same securities that exist in the benchmark.

b. Comparison with its peers

The next comparison that an investor can look into before investing is with the other funds in that category. Say you are investing in Large Cap there are many fund houses that provide similar funds. Here one can observe if the fund an investor is considering performing well enough or the best among its peers.

c. Consistency of these performances

Finally, the fund is worth investing in only if it has maintained its results consistently for a period of time. Hence the above comparisons must be done also for 3, 5,10 year periods. The fund consistently beating the benchmark set and performing well among its competitors is a healthy sign of a good fund. 

ALSO READ

How to Buy Mutual Funds Online in India?

5. Size and Type of the Fund

By size of the fund, we refer to the total assets under management (AUM). The assets under management refer to the subscriptions that the respective fund has received from investors. A fund with a huge AUM shows that it is highly in demand and increased investor trust in the fund. A larger AUM is also seen to be beneficial when it comes to liquidity. Smaller AUM’s are generally seen in newly set up funds. 

However, having a large AuM is not always favorable as funds with huge AUM will find it harder to move around in the market. 

There are many different types of Equity Funds. Looking into this is important as these funds hold different levels of risk. They may be classified based on the 

  • Market Capitalization: Large Cap, Medium Cap, Small Cap, Multi-Cap Funds, etc.
  • Region: Domestic or Global based on whether the fund invests only in domestic securities or in global markets as well.
  • Sectoral: these funds only invest in specific sectors like IT, Pharmaceutical, etc.
  • Focused: These funds invest in a maximum of 30 securities.

6. Expense Ratio

Another factor that equity investors must closely look at are the Expense Ratios of funds. The expense ratio includes the administration, management, promotion, and distribution expenses of a mutual fund.

Funds that are actively managed by the fund managers have a higher expense ratio than funds that are passively managed. Also, funds that generate high returns consistently charge higher fees than their counterparts. These expenses however have been capped at 2.25% by the SEBI (Securities and Exchange Board of India)

Generally, the management fee is charged as a percentage of the total AUM. But funds also levy performance fees which are variable depending upon the performance. Since these come out of the returns your capital makes it is best to keep track of them. 2% charged over the long-term compounds to huge amounts!

It is also important to consider the means available for you to invest in an equity fund. Directly investing through the equity fund offers the lowest expenses in comparison to using other intermediaries.

7. Tax Benefits

Different funds have their own unique set of features. ELSS (Equity Linked Savings Scheme) a type of equity fund that offers tax exemption up to Rs. 150,000 from your annual income each financial year under Section 80C of the Income Tax Act, 1961. Hence it is best to look into the tax benefits while investing in a fund. 

Taxes also play a role while moving out of a fund. Mutual funds in India levy capital gain taxes at the following rates:

LTCG: 10% (No tax if the amount invested is below Rs.1 lakh and held for more than one year)

STCG: 15% (Applicable on funds invested for less than one year)

8. Experience of the fund manager

Before making any investment decision it is also important to look into the background of the fund manager. An experienced fund manager who has previously also delivered results is more preferred in comparison to other alternatives available. Because at the end of the day it is the managers’ expertise and experience that will help navigate the markets to produce the best returns.

9. AMC’s Background 

The Asset Management Company (AMC) or the Fund House is a company that manages these funds. It is important to check how well AMC’s funds have performed in the past and managed its schemes. Examples in India include SBI Mutual Fund, HDFC Mutual Fund, Nippon Mutual Fund, Axis Mutual Fund, Mirae Asset Mutual Fund, ICICI Prudential Mutual Fund, etc.

10. Exit Load and Lock-In

Finding out about the Lock-in period of the Equity funds goes a long way in your financial planning. The Lock-in refers to the period for which the investor is restricted from making redemption of his units from the fund. One example we have seen earlier is ELSSs that have a lock period of 3 years.

Although a part of expenses the Exit Load charges are often overlooked at the time of investing. Exit Loads are charged at the time you exit your fund before a given period. 

ALSO READ

A Beginner’s Guide to Debt Mutual Funds

Closing Thoughts

Looking into the above factors will go a long way before investing in an equity mutual fund. But it is also important to remember your investments in a mutuals fund will be subject to market risks. You should also keep in mind the common mistakes people make while investing.

Let us know what other factors you look into and feel are important to consider before investing in an equity fund below. Happy Investing!

Face Value of a Share Cover

What is Face Value of Share? And Why is it Important?

Understand the Face Value of a Share: Some of the biggest challenges while entering the world of investing involves dealing with multiple jargons. In this article, we explain a very common confusion in the understanding of Face Value and other related terms.  

What is the Face Value of a Share?

The Face Value of a share in simple terms is the value of the share on paper i.e. the original cost of the share. The face value of the shares is also known as the nominal or par value of a share. When it comes to stocks the face value of a share will be mentioned in the share/bond certificate issued. If you already hold shares or know someone who does you can view the face value of the shares in the Demat Account. 

The face value for most shares in the Indian stock markets is set at INR 10. For example, here is the face value, market cap, and important value for ITC Ltd. (Source – TradeBrains Portal).

 

Face value from TradeBrains Portal

Who sets the Face Value?

The shares of Reliance have a face value of Rs. 10 whereas ITC has a face value of Rs. 1. If we take a look at the global markets Apple has a face value of $0.00001. So who sets this amount or through what computation do we arrive at this figure? 

First of all, it is important to understand that there is no fixed method or regulation for setting up the face value. These values are assigned arbitrarily by the company when the company gets listed on a stock exchange through an Initial Public Offer (IPO). 

The value however may affect the volatility of the shares in the market post the IPO. Take for example two companies ABC Ltd. and XYZ Ltd opt for an IPO to raise Rs. 1,00.000. ABC Ltd sets its share price at Rs. 10 and XYZ set its price at Rs. 1. This means that post the IPO ABC Ltd. will have 10,000 shares available in the market and XYZ Ltd. 1,00,000 shares. This means that there are more individual shares of XYZ Ltd. for purchase.

ALSO READ

Stock Market Basics for Dummies – What Beginner Need to Know?

What is the difference – Face Value vs Market Value?

Face value document

Another very important point to note is the difference between the face value and the market value of a share. These two have no relation and do not affect each other except in some special circumstances.

Let’s take again the example of the 3 companies mentioned above. The shares of Reliance, ITC, and Apple have a market value of Rs. 2005.35, Rs. 213.25 and $127.90 respectively. These values vary greatly from the face values we observed earlier. 

The Market Value is arrived at due to the factors of demand and supply for the particular share in the market. A greater demand oversupply would show an increase in the market value and vice versa the price will fall.

The shares we saw above have a high market price because they are highly demanded as long as they maintain good growth and give good return prospects. Their market value may fall too if the company begins performing poorly affecting the demand for the shares. The factors of demand and supply will have no impact on the face value of the shares.

Why is the Face Value Important? 

Multiple Dollar Notes

Being a prospective investor you must be wondering if the face value is not the price at which you eventually buy/sell the shares then why is it even important. The Face Value is used in the internal accounting for the company’s stock. One can find the face value used in the balance sheet to arrive at the total equity capital.

In addition to this, face-value also plays a very important role in corporate action. These include corporate actions like dividends, stock splits, reverse stock splits, etc. When it comes to dividends the face value sets a standard for the calculation of return rates or yield. Stock Splits on the other hand are one of the special occasions where both the face value and the market price are affected. 

Closing Thoughts

That’s all for this article. Let us know if the article helped in clearing doubts related Face Value of a stock.

You can read the difference between Face Value, Market Value & Book Value to get more insights. Also, comment on which other jargon you would like us to cover in our next post. Welcome to the world of investing. All the best!

What is IPO in Share Market And Is it Worth Investing in IPOs cover

What is IPO in Share Market? And Is it Worth Investing in IPOs?

Understanding what is IPO in Share Market: Everyone gets excited about new things. The new clothes, new bike, new car, new job, etc always attract the public. Investors are also like ordinary people and hence they are also tempted by the word ‘NEW’. Be it new technology, a new industry or a new company. And hence, listing on new companies in stock market always excites investors.

In this post, we are going to discuss what is IPO in share market and whether it’s worth investing in these new companies which enter the market for the first time.

What is IPO – Initial Public Offering?

When a privately held company offers its shares for the first time to the public, then it is called Initial public offering (IPO). It is a way for companies to enter the stock market. Until a company offers IPO, the public is not able to buy the company’s share.

Before the IPO of a company, its shareholders include limited people like founders, co-founders, relatives, friends and initial investors (like an angel investor, venture capitalist etc). However, after the company offers its IPO, anyone (public, institutional investors, mutual funds etc) can buy the shares of the company.

A few of the popular IPOs listed in the Indian share market in 2021 are Kalyan Jewellers, Craftsman Automation, Ease my trip, Indigo Paints, IRFC, etc.  You can get more details about the latest IPOs in India here.

what is IPO and how do ipo works

What does ‘Going public’ mean?

Going public means that a ‘privately owned company’ is conducting an initial public offer (IPO) to the public in order to enter the stock market as a ‘public company’. In short, when a company is offering an IPO, it is said that the company is going public.

Also read: #27 Key terms in share market that you should know

Why do companies conduct IPOs?

The basic reason why companies issue their shares or go for an IPO is to raise capital or funds.

Stock exchanges facilitate the exchange of shares for capital. The process involves shares being offered, shares being allotted to investors, and finally the shares being listed on an exchange where they can be bought and sold. By doing so companies can get access to a wider pool of investors which includes retail and domestic/foreign institutional investors.

There can be a number of reasons why any company offer an IPO. Here are a few of the top ones:

  1. For a new project or expansion plan of the company
  2. To raise capital (financial benefit)
  3. For carrying out new research and development works
  4. To fund capital expenditures
  5. To pay off the existing debts or reduce the debt burden
  6. For a new acquisition
  7. To create public awareness of the company
  8. For the group of initial investors desiring to exit the company by selling their stakes to the public.

In addition, IPOs generate lots of publicity for the company and hence helps in creating market exposure, indirect exposure, and brand equity.

Why are the Disadvantages of Conducting IPOs?

Here are the few disadvantages for the companies who offer their IPOs:

  1. Public disclosure: When a privately held company offers its IPO, it has to disclose a number of documents to the public like its financials, promoters list, debts etc.
  2. Entering a regulated market: Indian stock market is highly regulated by Securities and exchange board of India (SEBI) and hence the newly public company has to play by the rules of SEBI. There has been a number of cases of companies getting delisted by SEBI as they do not follow the norms of the market.
  3. Market pressure: The companies performance are closely scrutinized by the public and investors. Hence, the company’s management is consistently is pressure. Sometimes the companies focus more on short-term performance over long-term due to market pressure.
  4. Loss of control: As the shares are distributed among the investors, the decision making power is now in the hands of the shareholders.
  5. Failing of IPO: Many companies fail to attract investors during its IPO and the offered shares might remain under-subscribed. In such a scenario, the company is not able to raise enough capital that is expected to achieve the goal of IPO.

Why do most IPOs come in the bull market?

bull market ipo

The promoters of the company sell their stakes only when they are confident of getting a good price. This generally happens only in a bull market. During a bull market, the owners of the company can raise enough fund for their cause as the public is optimistic. People are willing to pay good prices to buy shares of the company.

Why do not many IPOs come in bear market?During bear market, people are pessimistic and are not willing to pay a good price for the shares of a newly public company. The owners feel that they won’t be getting the right price for their shares and hence most owners do not introduce their IPO during a bear market

Also read: What is Bull and Bear market? Stock Market Basics

Who gets MOST Benefits from IPOs?

There is a common myth that the company’s shares are undervalued during its IPO and hence the early subscribers of the IPO feel that they have made a very good deal.

However, IPOs are the by-products of a bull market and they are generally over-priced.

The owner and the initial investors of the company (like angel investors, venture capitalist etc) are the ones who get maximum profits during an IPO as they are able to sell the shares at a good price.

Why are people excited about IPOs?

There are a few common reasons why people are excited about IPOs. They are:

  1. Under-pricing myth: When a company announces its IPO, it’s presumed that the offered price is less than its true value. People are excited about the fact that they are the first one to buy the stock and will be rewarded handsomely when the company’s true price will be realized by the market. However, it’s very rare that the owners will be willingly underpricing the shares.
  2. Herd-mentality: As everyone they know will be applying for the IPO, people do not want to be missed out.
  3. Overhype by media/ underwriters: Media gets a high advertisement fee for the promotion of the IPO. Moreover, IPOs are intentionally overhyped by the investment banker and the underwriters. They make sure that these IPO’s get enough attention as this is their job to promote and sell the shares.
  4. ‘The Next …’ strategy: People compare the upcoming IPO with the Winners in the same industry and conclude that it will perform the same. ‘The next Eicher motors’, ‘The next symphony’, ‘The next Infosys’ etc. This ‘Next’ philosophy makes a lot of people excited about the upcoming IPO.

Is it worth investing in IPOs?

A lot of investors have made huge wealth by investing in IPOs. Had you invested in ‘INFOSYS’ when it got listed, you might have been sitting at a huge pile of wealth today.

Also read:

However, the performance of the majority of the IPOs in the Indian stock market is under-satisfactory. The number of IPOs underperforming in long-term are comparatively quite larger than the number of IPOs that performs well in the market.

Further, IPOs are never priced in the benefits of the public. In the case where few IPOs are fairly priced, it gets a lot of demand from the public during its offerings and gets over-subscribed. Moreover, it soon becomes over-priced once it starts trading in the market. A few IPOs might give you a good return in the one or two months of its listing as they are introduced in the bull market, however, in the long run, their performance is quite poor.

If you are willing to invest in the long-term, then be cautious about investing in IPOs. Focus on the quality of the company, not the hype generated by media or underwriters.

Nevertheless, you can always pick these companies from the secondary market once the hype is over and the price is attractive. There are over 5,000 companies listed in Indian stock market. It’s better if you pick a good one among them than picking the upcoming hyped company.

Greatest investor cover

The World’s Greatest Fund – Jim Simons’ Medallion fund!

Who do you think runs the World’s Greatest Fund? Hold onto this answer. If you ask anyone in the world of investing about Renaissance’s Medallion fund you’ll find answers filled with awe due to the results they have managed to achieve – 60 to 70 percent returns for over 3 decades!!!! 

To put things in perspective at this rate you’d be a multi-billionaire over three decades just by having invested $1,000 (But it doesn’t work on a growth model). You might have to rethink your answer. Even Warren Buffet has managed an annual average of 23% in the long run. Because obviously a fund being given the title of the greatest of all time obviously will be headed by one of the greatest minds on Wall Street.

In this article, we cover the greatest fund in the world run by Rennaisance, its inception, how it works, the men behind it, and its performance amidst Covid-19. Keep Reading to find out.

How did the Rennaisance start?

The founder of Rennaisance technologies, Jim Simons is a legendary figure in the mathematics and investing community. After graduating from MIT and receiving a Ph.D. in mathematics at the age of 23, Jim Simons went on to work as a professor at MIT and Harward.

Over the years his research earned him the Geometry equivalent of the Nobel prize- the Oswald Veblen Prize in Geometry. He along with his partner professor Shiing-Shen Chern produced the breakthrough mathematical theory known as the Chern-Simons theory.

Jim Simmons - greatest investor - World's Greatest Fund

What many people do not know about Simons is that he also worked for the Pentagon’s Institute for Defense Analyses as a code breaker. The cold war had pushed both the US and Russia to try and outsmart each other. This also required some of the greatest minds to crack each other’s secret codes. Sadly Simons was fired from the IDA for voicing his opposition to the Vietnam War.  

Simons finally decided to focus on the big bucks. His initial days in trading commodities weren’t as successful. Simons had based his bets on the fundamentals of demand and supply which did not get him far.

Simons used this for much of the Renaissance’s early years when it was called Monemetrics. It however never occurred to him in his early years to apply maths to investing

The Working behind the World’s Greatest fund?

— Headhunting the Rennaisance team

Simons then tried applying statistics and maths to make trades. His experience at the IDA had helped acquaint him with several great cryptographers and other mathematicians. He began hiring them at Renaissance and they began their quest to decode the financial markets.

Among them were Elwyn Berlekamp and Leonard Baum who were his colleagues at IDA along with professor Henry Laufer and James Ax. They began looking for patterns in the market which they could exploit.

One such example of a loophole they recognized was that S&P’s options and futures closing times were 15 minutes apart which they exploited to make profits for a while. The markets were filled with many similar loopholes which they took advantage of. 

Greatest investor Jim Simmons during a lecture

They began building models which used both trend following and mean reversion while focussing exclusively on trading. Their results weren’t anything great, making 8.8% and 4.1% in 1988-89 respectively. Renaissance finally received a break in 1990 when its Medallion fund gave a 56% return. 

The Medallion was now going through heaps of data and using advanced maths and building systems that were ahead of their time into investing. On the other hand, his other counterparts were using the same old techniques which relied on the fund manager’s instinct to predict which direction the market would move in. 

— Ahead of its time – World’s Greatest Investor

The team in Renaissance included super nerds from their respective fields using some of the world’s most powerful computers to find signals to make predictions.

The scientists would keep looking for signals which they could exploit in the markets. They also teamed up with linguists and focussed on speech recognition and machine translation. Much of their work also set the scene for the creation of Google Translate and Siri. 

— Signals and Systems

The signals they identified worked on slim margins. One such signal was identified by analyzing cloud cover data. The team had found a correlation between sunny days and the market trending upwards on those days. This was observed from New York to Tokyo. The team of scientists worked day and night to identify such signals.

The Medallion fund maintains a library of over 8,000 signals. The fund then uses these signals thousands of times daily. The difference between the win and loss percentage is only 2% i.e. 51% win vs 49% loss probability. But as this edge is applied thousands of times per day their odds increase. The funds’ team keeps looking for such signals on a regular basis. 

Another example of how far ahead of their systems were was found out when Rennaisance tried to file for a Patent in 2016 for executing synchronized trades in multiple exchanges. In order to achieve this, they had to use one of the most precise time instruments on earth i.e. atomic clocks. These clocks are accurate down to a billionth of a second.

Medallion funds’ Results and Comparison

The unique strategies have helped the Medallion fund achieve 60 to 70% annual returns for over 30 years. According to Bloomberg, the fund has produced more than $US74.5 billion over a period of 28 years. This meant that the Medallion fund generated $10 billion more in profit than those run by legendary investors Ray Dalio and George Soros.

$1 invested in the fund would have earned you $20,000 after fees. Despite assessing the fund on the basis of net returns it still beats the S&P index where your investment for the same period would only result in $20. Let’s make the comparison harder and pit the returns against Warren Buffett’s Berkshire Hathaway. A dollar invested for the same period would have resulted in $100.

What Simons and his team have achieved at Medallion is nothing short of a miracle. The fund beats one of the greatest wealth creators the S&P500 index by 1,000 times and the greatest investor of all time by 200 times.

The fund has been soo profitable and consistent that Renaissance started charging its investors 5% in management fees and 44% in performance fees. This meant that in 10 years the fund itself would make more money than its investors.

Despite this, the fund received loads of interest once the word got out. However prospective investors were met by the unhelpful customer service which included the company’s legal department. 

Why is the Medallion fund only worth $10 billion?

Even the Medallion funds size is intentionally limited to only $10 billion. Simons has always believed that the funds’ size could hamper its performance. Due to this, the assets of Medallion are currently capped at $10 billion.

As the profits from Medallion are reliable the firm is able to leverage up to ten times its capital. This means that even though the fund asset is worth only $10 billion dollars they have a trading footprint of $100 billion. 

Having a fund that is too big also limits the investment alternatives. This also limits their ability to use the same Ghost Signals. The Signals used by Medallion also cannot handle a huge size. In order to maintain this size, the fund ensures that the profits are distributed every 6 months.

Employees of the Fund – ( no to wall street and riches and Simons as a manager)

Medallion fund in the midst of a crisis?

The ultimate test however comes in the face of crisis. The Medallion fund suffered a $1 billion loss in a few days during the 2008 financial crisis. But still made up for the losses and posted an 85.9% gain as the market began rebounding. In the midst of Covid when most funds were struggling to service Medallion flourished by posting a 116% gain before fund fees. 

Closing Thoughts

Most of you will be looking for the means to invest in this fund ASAP. Possibly some apps may assist you to invest in the US markets. Sadly for all of us, the Medallion fund stopped accepting money from external investors in 1993. By 2005 the firm had bought out all of the external investors.

Today access to the fund is only limited to the 300 employees working in Renaissance. Thanks to Medallion at least 100 of them are worth more than $5 million. The remaining at least worth $1 million. Despite being employees they aren’t free from the exorbitant fund charges.

From what we’ve seen so far it is clear that competing with Medallion is next to impossible. Primarily because it is a herculean task to assemble a team of the world’s greatest minds and get them to work in the stock markets and ensuring they have the best systems in place. 

Book on Jim Simons - greatest investor

That’s all for this post on the World’s Greatest Fund by Jim Simons. Find out here! If you found this interesting be sure to check out the book “The Man Who Solved the Market” by Greg Zuckerman. We think now you can answer who is the greatest investor of all time. Let us know what you think about Medallion. Are quant funds the future of trading? Let us know if you think such a fund will work in the Indian markets. Happy Investing!

What is Short Selling in Stock Market cover

Short Selling Explained – What is Short Selling in Stock Market?

Understand What is Short Selling & Its Implications: The terminology ‘Short Selling’ is frequently used in the capital market. It has also been a lot more talked-about on news in recent days because of the SEBI vs Mukesh Ambani Case. SEBI has imposed a penalty of Rs 25 Cr on Reliance Industries and Rs 15 Cr on Mukesh Ambani for manipulating the settlement price of Reliance Petroleum Ltd on 29th November 2007, by shorting nearly 2.7 crore shares, 10 minutes before the closing of the day. This led to a sharp decline in the share price of RPL and investors losing money in the market.

In this article, we are going to discuss exactly what is Short Selling, how market participants make money by short selling, its pros, cons, and more. Let’s get started.

What is Short Selling?

As the name might suggest, Short Selling must have got to do something with the selling of underlying security. In the stock market parlance, short selling would simply mean the selling of shares of the company before buying them i.e. selling shares of the company without having their ownership. Retail and Institutional investors are permitted to short sell.

In other words, the investors or traders are selling equity shares that are not owned by them (i.e. not available in demat account) lent by their brokers with a promise that they will be delivered back to the broker at the time of settlement.

As traders are selling before buying, the short selling concept is entirely opposite of regular investing (where we first buy and sell). And hence, Short sellers make money when they buy back the stock at a lower price. The difference in the selling price and the buying price is the profit for the short-sellers.

Short Selling Explained

Let us try and understand the concept of short selling with the help of a case-based scenario. Say, Mr. X is a regular trader in the market and he has got a bearish (pessimistic) stance on the share price of State Bank of India (SBI), and his view is supported by the following factors:

  • There is a bearish candle formation in the market (say, Bearish Marubuzo). 
  • The high of the previous day is intact and the market is trading below it.
  • There is a significant increase in the selling activity in the market as compared to previous days.
  • And there are other news-driven factors that could have a negative impact on the share price of SBI.

Owing to the reasons mentioned above, Mr. X believes that the price of SBI may fall. He is expecting the immediate support levels to be tested in the market (4% below the current price levels). Therefore, to take advantage of this expected bearishness in the market, Mr. X decides to short the shares of SBI. Let us understand this trade:

Share or StockState Bank of India
Type of tradeShorting or Short Selling
DurationIntraday
Shorting priceRs. 300
Quantity of Shares500
Profit Target (4%)Rs. 288
Stop LossRs. 305
Total Risk in the trade (500*5)Rs. 2500
Total Reward in the Trade (500*12)Rs. 6000
Risk – Reward Ratio (2500:6000)5:12

If the share price of SBI falls in accordance with the views of Mr. X, then he stands to make a gain of Rs. 6,000 on his trade. On the other hand, if the market goes against his views, he loses Rs. 2500 on his trade.

Why do Traders Short Sell in the Market?

Here are a few of the key reasons for traders to Short sell stocks in the market:

— To Speculate: This is one of the primary reasons why does one takes a short position in the market. If one is of the view that the strength in the market is about the fizzle out and we could see some correction or weakness in the market, they will short sell.

— To Hedge: Hedging as a strategy is of prominence in the capital market. If one is having a bullish view on the market over the long term but is expecting a small correction in the market on its way up, they might short sell. Here, traders short sell to play that short-term weakness in the market, one takes a short position in the market.

— To improve the entry point: This is one interesting rationale behind short selling used by experienced traders. Say, if Mr. A is willing to buy 1,000 shares of ICICI bank at Rs. 250. The current share price of ICICI Bank is Rs. 270. Now, he ends up buying the shares of ICICI Bank at Rs. 270 each. Now to improve the entry point for shares of ICICI Bank, Mr. A shorts (sells) the shares of ICICI bank whenever he sees weakness in the market and books a small amount of profit and improves the entry point of the initial purchase of ICIC bank shares.

ALSO READ

How to do Intraday Trading for Beginners In India?

Rules Regarding Short-Selling in Stocks

Shorting in the cash market comes with its own set of rules and regulations. It has to be strictly done on an intraday basis i.e. the position cannot be carried over to the next day. Therefore, whenever we sell before buying in the spot market, the position has to be bought back before the end of the day.

The short position cannot be carried over to the next day. Nevertheless, position carrying is permitted in the F&O market and to facilitate this, the exchange already keep margins in the Demat or trading account to account for Mark to Market (M2M) losses. 

Advantages of Short Selling

Despite being a subject of controversy, short selling is a very important phenomenon to maintain balance in the capital market. The following are some of the advantages of short selling:

  • Short selling helps in correcting the irrational overpricing of the stocks
  • It provides liquidity in the capital market.
  • Short selling prevents the sudden rise in the price of the stocks which are fundamentally weak/

Drawbacks of short selling

Here are a few major drawbacks of short selling in the stock market

  • Short sellers might be exposed to higher risks compared to regular buying and selling.
  • Manipulators often use Short selling as a method to hurt the price of certain stocks which has a direct bearing on the market sentiment.
  • It can sometimes also be used to benefit the counter position taken in the F&O market.

Closing Thoughts

In this article, we discussed what is Short selling along with its advantages and disadvantages. Short selling simply means selling shares of the company that one does not own. By doing so one is exposed to higher risks in the market but it has the potential of earning high returns. In recent COVID-19 pandemic times, the ability and the understanding of the concept of short selling went a long way in earning handsome returns for the traders and investors. 

That’s all for today’s Market Forensics. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!

Stock Market Basics - A Complete Guide to Share Market for Beginners!

Stock Market Basics for Dummies – What Beginner Need to Know?

Understanding the Stock Market Basics for Beginners: Are you feeling caught up in the stock market frenzy where literally everyone you know has begun speaking in market jargon? This is a position I too found myself in a few years back.

Don’t worry as we have decided to cover some basics in order to get your foot in the door. This article covers the stock market basic topics like What are shares, why are they issued, why are they bought by us, and more. Keep Reading!

What are Shares?

One could say that Shares are the most popular financial instruments available for investments. A Share, also known as equity or stock, represents a unit of ownership of a particular company. The total capital of a company is divided into smaller equal units and each unit is known as a share.

The owner of the share will have a right to vote and benefit from the profits of the company and suffer the losses that the company makes. Investors who hold shares of a company are known as shareholders. The influence a shareholder will have on a vote or his profits/losses will depend on the total number of shares held.

Take for eg. ABC Ltd. has a market capitalization of Rs. 10 Lakh. Each share has a face value of Rs. 100, meaning that there are a total of 10,000 shares. A shareholder owning 1,000 shares will own 10% of the company. His vote will carry the same weight and will be entitled to the same portion of profits passed on to the shareholders as dividends. 

Let us take another example of stock from the Indian Share Market. For example, Tata Consultancy Services (TCS) has a total of 375.24 Crores of outstanding shares in the market. Out of all these shares, 72.05% are held by the promoters i.e. the Tata Group as of Jan 2021. The remaining shares are held by the Public, Domestic Institutional Investors (DII), Foreign Institutional Investors (FII), etc. If you’ve got 1,000 shares of TCS, then you own approximately (1,000/375.24 Cr)th part of the company.

As you own more shares of that company, your ownership in that company will increase and you’ll be entitled to more benefits like voting dividends, voting rights, etc. However, if the company doesn’t perform well, you’ll also be entitled to losses made by the firm as you’re also the partial owner of the company.

How many shares can be issued by a company?

There is no upper limit on the number of shares that a company can issue. They depend on the capital a company raises and the denomination it sets.

For Example, if ABC Ltd. had issued shares at a face value of Rs.10 for a total valuation of Rs 10 Lakhs, then ABC Ltd. would have a total of 100,000 shares at the same capital. However, the minimum number of shares however is 1. 

Stock market basics – How much is a share worth?

The face value or the intrinsic value of a share is set at the time when capital is raised by a company. Generally, it could be at Rs. 5, Rs. 10, Rs. 100 etc. The value of the total shares held here out of the total capital would show one’s ownership within a company. 

The market value of a share however is different. This is the value at which an investor like you and me can buy a share.

The market value of a share is dependent on the forces of demand and supply. These factors affect the price of shares just like commodities. Say the demand exceeds the supply of shares or availability of shares in the secondary market (stock exchanges) then the prices will shoot up. Vice versa and the shares will fall down.  

Once a company enters the share market, there is a share price associated with all the public companies at which investors and traders can buy and sell its stock. For example, 1 Share of TCS is currently trading at Rs 3,266.50. You can find the share price of all the public companies at any financial research websites like Trade Brains Portal.

Different Types of Shares

There however are many different types of shares. When considered on the basis of ownership:

— Preferential Shares 

These shares are preferential in nature. Investors who hold preferential shares are entitled to receive preferential treatment when it comes to profits of the company, in the event of the company winding up over equity shares. Preferential shareholders however do not have any voting rights.

— Equity Shares

In simpler terms, these are the regular shares that are available in the market. They make up most of the shares of a company. Equity Shareholders do have voting rights but are paid after preferential shareholders or in the case of the company winding up.

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Why do companies issue shares or Why do companies go for IPO?

ipo stock market

The first time when a private company enters the stock market and offers its shares to the public, it is called an Initial Public Offering or IPO or Going Public. The basic reason why companies issue their shares or go for an IPO is to raise capital or funds. 

Stock exchanges facilitate the exchange of shares for capital. The process involves shares being offered, shares being allotted to investors, and finally the shares being listed on an exchange where they can be bought and sold. By doing so companies can get access to a wider pool of investors which includes retail and domestic/foreign institutional investors.

Take the example of Tesla. Once Elon Musk sold PayPal he invested his fortunes in SpaceX, Tesla, and SolarCity. The $70 million which he invested in Tesla wouldn’t even get it close to where the company is today. For Tesla to truly grow in order to compete globally it required loads of funds. This was initially met through venture capitalists, but this too isn’t enough. The company opted for an IPO in 2010 raising $226 million. This could however only be possible if Musk was willing to let go of his ownership in the form of shares issued.

Similarly in India, there are a lot of private companies like Zomato, Paytm, Flipkart, Patanjali, etc whose shares are owned only the promoters currently, If they want to raise big money, they can offer their shares to the public via an IPO and enter the Indian stock market.

Now let’s take a look at why investors buy these shares?

Stock market basics – How do people make money from the Stock Market?

The main purpose of investors buying shares of a company is to make money. In the stock market investors make money in two ways. 

— Long Term Investing

The initial investment made by an investor in a company has the potential to grow at rates exceeding interest offered by savings accounts by multi-folds. Hence it is always advisable to stay invested in a stock for the long term.

Take the example of Bajaj Finance whose shares were worth Rs. 70.36 on 31 December 2010 is worth over Rs. 5200 today in April 2021. If you would have bought 100 shares of Bajaj Finance in 2010 at an initial investment value of Rs 7,036, your current investment value would be Rs 5.2 lakhs. Anyways, these investments must only be made after careful analysis of the company’s financials and if the shares are available at a cheaper price than their actual worth.

One of the best examples of long-term investors holding stocks for many years is Warren Buffet, whose net worth briefly exceeded $100 billion this year. 

Companies also reward those who stay invested through means dividends, bonus shares, right issues, etc. A portion of the profits of a company is distributed as dividends for each share held.

— Stock Trading 

Trading basically refers to the buying and selling of shares on a regular basis in the short term to make profits. These traders set strategies to take advantage of both rising and falling markets by buying and selling shares in a short time frame. Their profits however are infrequent and smaller per trade.  

How to Start Investing in Share Market?

Step 1: Learn the Basics

Step 2: Set up your brokerage account

Step 3: Research stocks & start investing

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How to Invest in Share Market in India? An Ultimate Beginner’s Guide!

Closing Thoughts

Now that you have understood the stock market’s basic terms like shares and why they are issued it is time to keep taking these baby steps as the world of investing is vast. Check out our article on How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Hope you have liked this small guide on some stock market basics. Let us know what other topics you would like us to cover. Welcome to the world of investing. All the best!

Lodha Developers IPO review cover

Lodha Developers IPO Review 2021 – IPO Price, Offer Dates & Details!

Macrotech Developers (Lodha Developers) IPO Review 2021: The Macrotech Developers IPO opens on 7th April and closes on 9th April 2021. In this article, we cover the Macrotech Developers (Lodha Developers) IPO review and look into important IPO information and find out the possible prospects of the company.

 

Lodha Developers logo

 

Lodha Developers IPO Review – About the Company

The Lodha Group was founded in 1980 and incorporated in 1995 by Mangal Prabhat Lodha as a real estate developer based in Mumbai. The company mainly focused on developing residential projects for affordable and mid-income. Its projects however were mainly concentrated in the Mumbai Metropolitan Area (MMA).

As the company kept growing they also took up projects in Pune and Hyderabad. The company also ventured into luxury housing and was well known for providing world-class standards. Their luxury projects include the Trump Towers in Mumbai.

In 2010, they set a record for India’s biggest land deal when they bought a plot from the  Mumbai Metropolitan Region Development Authority for Rs. 4,053 crores. The area is currently being developed as New Cuffe Parade.

They also went global when they entered the UK market in 2013 with an investment of 400 million pounds. They have developed the Lincoln Square project and the Grosvenor Square located in Mayfair.

Lodha – India’s largest Real Estate Developer

Lodha Developers Total Assets over the years

By 2014 they were already India’s largest real estate developer by residential sales value. They continue to be at the top to date. The flats offered by them are priced in the range of 35 Lacs to 59 Cr.

Their properties are sold under various brands. These include CASA, Crown – Lodha Quality Homes for affordable and mid-income housing projects. Lodha Luxury for luxury housing projects. However, it is the affordable and mid-income housing projects which accounted for 57.77% of their revenue in 2020. 

Much of their success is owed to their strong sales network. They are spread out across India and also in GCC countries, UK, Singapore, and the US. This is done to gain access to the NRI customers. 

Profit over the years | Lodha Developers IPO review

The company is currently implementing its plans to enter the development of logistics, industrial parks, and commercial real estate. Its logistics and industrial parks are currently being developed in Pallava over 800 acres of land.

Its commercial real estate projects include corporate offices, IT campuses, and boutique office spaces. These are sold under their brand names ‘iThink’, ‘Lodha Excelus’ and ‘Lodha Supremus’.

Lodha Developers IPO Review – Key IPO Information

The promoters of the company are Mangal Prabhat Lodha, Abhishek Mangal Prabhat Lodha, Rajendra Narpatmal Lodha, Sambhavnath Infrabuild, and the Sambhavnath Trust. Its founder Mr. Mangal Prabhat Lodha has played an important role in Lodha’s success so far. He has also served as the Member of the Legislative Assembly in Mumbai for five consecutive terms.

They have appointed Axis Capital, JP Morgan India, Kotak Mahindra Capital Company, ICICI Securities, Edelweiss Financial Services, IIFL Securities, JM Financial, YES Securities (India), SBI Capital Markets, and BOB Capital Markets as the book running lead managers to the issue. 

Link Intime India Pvt. Ltd. has been appointed as the registrar to the issue. 

ParticularDetails
IPO Size₹2,500.00 Cr
Fresh Issue₹2,500.00 Cr
Offer For Sale(OFS)---
Opening DateApr 7, 2021
Closing DateApr 9, 2021
Face Value ₹10 per equity share
Price Band₹483 to ₹486
Lot Size30 Shares
Minimum Lot1
Maximum Lots13
Listing DateApr 22, 2021

It is also important to note that this is the third time Macrotech has attempted to float its IPO. Lodha Group earlier tried to list in 2009 and 2018 but backed out citing unfavorable market conditions for the realty sector. 

Purpose of the Lodha Developers IPO

The real estate firm plans to raise money for the following purposes;

  1. Reduce outstanding borrowings of the company on a consolidated basis. Rs 1500 cr.
  2. Acquire land or land development rights. Rs 375 cr.
  3. Meet general corporate purposes

Lodha Developers IPO Review – Grey Market Information 

The shares of Macrotech Developers traded at Rs 506-511 as of 4th April 2021. This shows a premium of Rs 20-25 i.e. 4-5% over their IPO price band. 

Macrotech Developers (Lodha Developers) IPO Review – Competitors 

Their competitors include real estate developers such as:

  • Godrej Properties Limited
  • Oberoi Realty Private Limited
  • DLF Limited
  • Prestige Estates Projects Limited
  • Wadhwa Group Holdings Private Limited
  • Dosti Realty Limited
  • K Raheja Corp Private Limited
  • Hiranandani Developers Private Limited
  • Indiabulls Real Estate Limited
  • L&T Realty Limited
  • Rustomjee Builders Private Limited
  • Kalpatru Limited
  • Tata Housing Development Company Limited.

In Closing

The IPO opens on 7th April and closes on 9th April 2021. For retail investors, it can be a good opportunity to look into the company’s future prospects and apply for the IPO if they believe in the products and growth prospects of Macrotech Developers.

That’s all for this post. Do let us know what you think of the Macrotech Developers (Lodha Developers) IPO review. Are you planning to apply for this IPO or not? Comment below. Cheers!

Free Float Market Capitalization Cover

What is Free Float Market Capitalization? MCap Methodology Explained!

FREE Float Market Capitalization: As a novice investor have you ever come across terms like Market Cap (MCpap) or the free float factor. In this article, we cover what is Market cap, how the MCap is computed, What is free-float market capitalization, and why it is necessary. Keep reading to find out.

What is Market Cap or MCap?

Stock Market Chart - Free Float Market Capitalization

Market Capitalisation (Mcap) gives investors the public perception of what a company is worth and is also used to further classify companies. It is calculated by multiplying all the company’s shares by the price of each stock in the market. Doing this gives us the total value of all the shares being traded in the market.

This figure gives investors an idea as to what the company is worth including its future prospects and what other investors are willing to pay for it in the present. Based on the MCap companies are further classified into

  • Large-cap companies – Rs 28,500 crore or more.
  • Mid-cap companies – above Rs 8,500 crore but less than Rs 28,500 crore.
  • Small-cap companies – less than Rs 8,500 crore

There are multiple ways to measure the market capitalization of a company. The two of the most commonly used methods are the total market capitalization method and free-float market capitalization. You can use TradeBrains’ portal to see the market capitalization of all the major Indian companies.

Let us have a look at how MCap is calculated in each of these methods along with examples. 

Free Float Market Capitalization Method

The shares can be further classified based on their ownership. Say shares may be held by retail investors or institutional investors, promoters, government, etc. What Free-float MCap does is it only includes shares that are readily available for trading in the secondary market.

Certain shares like those held by promoters are not freely traded in the market. The aim of this method is to distinguish between shares held for strategic control and others who invest based on the stock price.

According to the BSE, the following shares are to be excluded when computing MCap under free float:

  • Shares held by founders/directors/acquirers which have a control element
  • Shares held by persons/ bodies with “Controlling Interest”
  • The Shares held by the Government(s) as promoters/acquirers
  • Holdings through the FDI route
  • Strategic stakes by private corporate bodies/ individuals
  • Equity held by associate/group companies (cross-holdings)
  • Equity held by Employee Welfare Trusts
  • Locked-in shares and shares which would not be sold in the open market in the normal course

Therefore Free Float Mcap = (OUTSTANDING SHARES – Restricted Shares) * Price of shares in the market

For eg. ABC Ltd. has a total of 100,000 outstanding shares. Out of these 30,000 are held by the promoters. Apart from this, no other shares are restricted i.e. 70,000 shares are available to be freely traded in the market. If the shares are traded in the market at Rs. 50 it would mean that the MCap for the company under Free Float is Rs. 35,00,000. ( Rs. 50 * 70,000 shares)

Full Market Capitalization Method

Now let us understand the full market capitalization method which will help us better understand the difference between the two.

Under this method, the capitalization is computed using the total number of shares which include both the publicly available and the shares that are privately available. So under this method, the MCap of ABC Ltd. will be Rs. 50,00,000 ( Rs. 50 *100,000 shares).

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What is the Free Float Factor and How is calculated?

The free float factor gives us an idea of how many shares are freely available for trading in comparison to those total which also includes the privately held shares in the company. This gives traders and investors an idea of the number of shares that are available for trading.

Take once again the example of ABC ltd. the free float factor for the company will be 0.70. We arrive at this by dividing the shares available for trading to the public by the total shares outstanding i.e. 70,000 shares/ 100,000 shares. 

Why is Free Float MCap preferred over Total MCap?

The Free Float Market Capitalization is preferred mainly because it presents a valuation that shows the total number of shares that actually affect traders and investors who are participating in the market. Rather than include shares that are privately owned and cannot be accessed by anyone.

In addition, these restricted shares don’t play a role among the demand and supply factors for setting the price in the market. This allows the free float MCap to represent the sentiments of the market more accurately. This would not be possible in the case of Total MCap where a promoter or government holding a majority can have any influence.

Free Float is considered the best method globally in all stock exchanges. In India, both the NSE and the BSE use free float for their indexes i.e. Nifty and Sensex.

Does the Free Float Market Capitalization Matter?

The Free Float Market Capitalization allows investors to differentiate companies with the smaller free-float size and those with medium and large. It is important to note that the free float MCap is inversely proportional to the volatility of the shares in the market.

Companies with a lower free float factor would mean that it is easier for traders to influence the price. Companies having a higher free float factor would show a more stable stock as it is harder for a few large trades to influence the price.

The free float factor helps investors weed out the stocks to include only those that help meet their goals. Some investors may only prefer stocks with a large free float factor as they represent less volatile stocks.  

Closing Thoughts

The MCap and the free float factor are important criteria to look at while investing. In addition to this, they also have become exceptional instruments to ensure balance in investors’ portfolios and to weed out stocks. One must however carefully evaluate these factors before investing in a company.

Let us know your views about the post in the comments section below. If you are looking for a beginner’s guide on how to invest in the share market in India, you should check the article on our website. Happy Investing!

Top 7 Must Read Books for Trading in Stock Markets Cover

Top 7 Must Read Books for Trading in Stock Markets

List of Best Books For Trading: As one decides to take up trading there are several alternatives available. The best among all these alternatives being books. These would save novice traders a lot of time and money by helping them avoid several of these mistakes. Here is a list of some books which we feel are masterpieces when it comes to the world of trading.

Top 7 Books for Trading in the Stock Market

1. How to make Money in Stocks by William O’Neil

How to make millions in Stocks by William O’Neil

 The book is written by William a stockbroker and founder of the stock brokerage firm William O’Neil & Co. Inc in 1963. The book includes the CAN SLIM strategy which was invented by O’Neil and helped him become one of the top-performing brokers. Today this method is celebrated throughout the trading community worldwide.

Another fact which sets this book apart is that it is written based on research of over 100 years of stock price movements. The topics in the book include charts and notes along with a wide range of strategies and tips. 

2.  Getting Started in Technical Analysis by Jack Schwager – Best Books for Trading

Getting Started in Technical Analysis by Jack Schwager - Best Books for Trading

This is one of the best books available for any person looking to start out trading. Jack D. Schwager is a widely acclaimed trader and author.

He is also one of the founders of Fund Seeder where trading talents are discovered throughout the world and connected. The book comes with many examples and covers almost every basic topic.

However, the book is not only focused on the basics but also covers several chart patterns, technical indicators, and also explains how to identify entry and exit points. This book is one of the best starting points to set up a good foundation for trading.

3. Reminiscences of a Stock Operator by Edwin Lefèvre 

Reminiscences of a Stock Operator by Edwin Lefèvre

Just like every other genre trading too has its own set of classic books. Published in 1923, Reminiscences of a Stock Operator being one of them. The book is written by Edwin Lefèvre but is based on the legendary trader Jesse Livermore.

The book does not follow the same monotonous format by includes stories or better put the journey which provides a better insight into trading and the life of a trader. These stories also include instances that made successful trades and instances that could destroy a trader. 

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4. Technical Analysis of the Financial Markets by John J. Murphy – Best Books for Trading

Technical Analysis of the Financial Markets by John J. Murphy - Best Books for Trading

This book provides a great comprehensive introduction to technical analysis. The book is written by John J. Murphy who has worked as a technical analyst for CNBC for over 4 decades.

Although this is another important book for those entering the world of technical analysis what sets it apart is Murphy’s ability to convey complex topics in an easy-to-understand manner. You can find the book on Amazon here.

5. Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies by Andreas Clenow

Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies by Andreas Clenow

Stocks on the move is one of the most famous trading books that also gives an insight into trading strategies used by Hedge Funds. The author, Andreas Clenow has a stellar resume having worked for Reuters, founding and managing multiple hedge funds.

The book includes a detailed step-by-step explanation for his momentum trading strategy. The book also includes statistical evidence and backtested results. However, the book may be overwhelming to someone who has no base in statistics.

6. Market Wizards book series by Jack Schwager – Best Books for Trading

Market Wizards book series by Jack Schwager - Best Books for Trading

The market wizards book series is one of the most important trading books as it includes interviews with several top traders. This is the second time Jack Schwager appears on this list.

The series includes Market Wizards (1989), The New Market Wizards (1992), Stock Market Wizards (2001), and Unknown Market Wizards: The best traders you’ve never heard of (2020). These allow you to analyze the perspectives of several successful traders and also the challenges they faced.  

7. Japanese Candlestick Charting Techniques by Steve Nison

Japanese Candlestick Charting Techniques by Steve Nison

Candlestick charting technique is one of the most important tools used to analyze the market. Prior to Steve Nison’s work on this book, Candlestick charting was relatively unknown even in the west.

Thanks to this book the technique is one of the most widely used. The book gives a detailed explanation on the subject still making it easy to understand along with examples.

Bonus:  The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires

The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires

Another bonus book if you’ve made it so far into the list. The book covers the true story where 23 random stranger were included in a  2-week crash course on trading. Post the crash course the strangers were left to trade on their own. The book covers the strategies used by the 23 individuals which helped them make millions.

In Closing 

That’s all for this post. Let us know what you think about the books on the list in the comments section below. And also let us about the books you felt made the most difference in your trading journey. You may read ‘The Intelligent Investor by Benjamin Graham’ book review on our website as well. Happy Trading!