What is the TOWS Matrix? And how it is used?

What is the TOWS Matrix? And how it is used?

What is the TOWS Matrix? And how it is used?

Apple, Amazon, and Google — we all have heard the renowned names of these gigantic companies and are quite familiar with their products. They have been sustaining through the zig-zags of an economy and have successfully created a brand value since their establishment.  All three companies must have done something right which helped them to stay in the game for the long run, unlike other companies that couldn’t sustain or, have fizzled out. In order to find out the answers to such statements, analysts take the help of marketing strategies.  Today, we will discuss one such theory called TOWS Matrix to find out the awaited answers. Well, without further adieu, put on your reading glasses and jump in!

TOWS Matrix can be interpreted as a framework to assess, create, compare, and finally decide upon the business strategies. It is a modified version of a SWOT analysis and is an abbreviation that stands for Threats, Opportunities, Weaknesses, Strength. It was invented by an American business professor called Heinz Weirich in 1982 to examine businesses from a practical approach in reference to administration and marketing. The evaluation is done by amalgamating the external opportunities and threats with a company’s internal strengths and weaknesses.

What is the TOWS Matrix?

TOWS Matrix begins with an audit of external threats and opportunities. Such scrutiny gives a clear insight and helps to adopt long term strategies. Thereafter, the internal strengths and weaknesses of a company are taken into consideration. In the next stage, the internal analysis gets intertwined with external analysis to devise a strategy.

TOWS Analysis goes way beyond the conventional SWOT Analysis and aids organizations to remain one step ahead in the ever-changing competitive landscape. The TOWS Matrix can also help in the generation of amazing ideas in relation to fruitful marketing strategies, decision-making, protection against threats, opportunities, diminishing threats, overcoming weaknesses and awareness regarding potential shortcomings.

tows matrix analysis

Although internal and external factors are incompatible features, there still exists a balance between them. Strengths and Weaknesses fall under internal factors and consist of HR policies, manufacturing processes, goals and objectives, attributes of the products and services offered to the target market, core values, work culture, staff, and fundamentals of the company.

On the contrary, Opportunities, and Threats fall under external factors and consists of government policies, dynamic nature of the market, evolving tastes and preferences of the customers, competition in the market, fluctuation rates of the raw materials required for the production and etcetera.

Now, we will move on to the discussion where we will discuss the four potential strategies of the TOWS Matrix. The four TOWS strategies are :

  • Strength/Opportunity (SO)
  • Weakness/Opportunity (WO)
  • Strength/Threat (ST)
  • Weakness/Threat (WT)

Strengths and Opportunities (SO) / Maxi-Maxi Strategy

The aim of a Maxi-Maxi Strategy is to utilize internal strengths to make optimum use of the external opportunities available to the company. In other words, the company has to utilize the strengths by using its resources to cash in on potential opportunities.

For example, if a  company has reasonably established a brand name in the market and has won the hearts of the consumers, there lies a golden opportunity to explore the new market locations or introducing a new line of products and services for the same target market. Such a step can turn out to be the best for the upliftment of the firm.

TOWS Matrix internal external

(Image Credits: B2U)

Strengths and Threats (ST) / Maxi-Mini Strategy

The aim of a Maxi-Mini strategy is to maximize the strengths of a company while minimizing the threats with the support of these strengths. Thus, a company should take advantage of the internal strengths to avoid massive external threats. This strategy indicates that the management of the organization can employ all the internal strengths to counter any of the possible threats that can come in the way of the business as obstacles.

Example: In the market, there is always a cut-throat competition amongst peers or, between new and old entrants. In such a scenario, to beat the competition, the lagging company needs to take advantage of the internal strengths such as quality, manufacturing techniques, legacy and customer service.

Weakness and Opportunities (WO) / Mini-Maxi Strategy

The Mini-Maxi strategy attempts to minimize the weaknesses and to maximize the opportunities. The aim is to revamp internal weaknesses by making use of external opportunities. The management of the company will detect various alternatives to look past the weaknesses and take control of the opportunities that come up in the course. It is always a wise decision to decline or correct the weaknesses and untap the opportunities.

Example: If the company doesn’t possess any expertise in any of the business domains which is necessary for the growth and is gifted an opportunity to ally with another company that has the needed expertise, it works as a fairly convenient situation for both the companies.

Weakness and Threats (WT) / Mini-Mini Strategy

The aim of the Mini-Mini strategy is to minimize weaknesses and minimize threats. This is definitely the most defensive spot in the TOWS Matrix. It is mostly utilized when a company is in a  deplorable position. In such a scenario, the company operates in an aggressive environment and has little or no development opportunities. The mini-mini strategy is nothing but a pessimistic style of liquidation of a company.

EXAMPLE: A company has lost its shine and glory and has lost the faith of the stakeholders. Thus, there exists a threat of losing out on funding and investment by investors. In this case. it might close down poor-selling products, cut down underperforming employees and build a hostile technique of selling. If optimistic, the company might look for merging with another suitable company to leverage its expertise and resources for hanging on to funding.

TOWS Matrix – Apple INC

apple steve jobs

Let us now apply these four strategies of TOWS Analysis to a famous company called Apple.

Apple Inc. is an American multinational organization specialized in technology and has its headquarters in Cupertino, California. Apple fabricates, builds and sells computer software, electronic products, and online services. The tech giant was established by Steve Jobs,  Ronald Wayne, and Steve Wozniak in April 1976. It is considered as the world’s largest technology company by means of revenue and is also one of the world’s most valuable companies.

According to statistics, it is the world’s third-largest mobile phone manufacturer after Samsung and Huawei. Apple’s renowned products consist of the iPad tablet computers, HomePod smart speaker, iPod portable media player, iPhone smartphone, Mac personal computer, Apple Watch smartwatch, AirPods wireless earbuds, and Apple TV digital media player. The online services provided by Apple are iTunes Store, Mac App Store, Apple TV+, iCloud, Apple Music, the iOS App Store, and  Apple TV+. In Fiscal YEAR 2018, the worldwide revenue of Apple totaled to $265 billion.

The strengths, weaknesses, opportunities, and threats of Apple are mentioned below. After glancing through them, we will begin performing our TOWS Matrix according to the rule.

— Strengths

  1. Apple is known as a Market leader and thus, maintains a high standard across several products and services. It is the most trusted brand in the entire marketplace.
  2. It has a strong brand image and thus helps the audience to differentiate Apple from other competitors and positively influences the purchasing decisions.
  3. It possesses extensive financial strength and thus has higher profitability and liquidity.
  4. Apple has also a highly innovative and highly sophisticated supply chain which helps in maintaining efficiency.
  5. It also has High-profit margins because of the consistent sales of its popular products.
  6. The premium quality of its products allows Apple to enjoy a large and loyal customer base.

— Weakness

  1. Apple Products are not priced by keeping the competition in mind and can be afforded by a certain section or class.
  2. There is an availability of a narrow product range compared to its competitors.
  3. The products and services are only compatible with Apple products and are incompatible with the products of other brands.

— Opportunities

  1. There is a constant rise in demand and craze for mobile devices irrespective of the quoted price.

— Threats

  1. In spite of being market leaders, there has been an emergence of competitors.
  2. The cost of manufacturing has been constantly on the rise.
  3. There has been also a decline in the market share of Apple due to the falling demand of Laptops and Personal Computers.

— Strengths and Opportunities (SO) of Apple:

Since there has been an increase in demand for mobile devices, the company should increase its focus by concentrating on manufacturing and marketing to generate profit. Apple should also leverage its brand value and financial strength to enter into new products and consequently increase their sales and profit. Such a step will aid Apple benefit from its existing customer base and customer loyalty. Further, if it partners with other brands to mass-produce compatible products and create mutually advantageous relationships, it will highly assist Apple in hack into the customer base of other brands.

— Strengths and Threats (ST) of Apple:

Apple should build a diversified range of products to fabricate its customer base and diminish the pressure of competitiveness. Another most important point is to consider the cultural variance to retain the competitive advantage created by  Steve Jobs.

— Weakness and Opportunities (WO) of Apple

Since Apple has only high-end products, it should release a cluster of products at an affordable price to make it feasible for middle-class consumers. Creating a larger product sets and thereby, entering into a new product arena will also help Apple to serve new customer segments.

— Weaknesses and Threats (WT) of Apple

Releasing a range of competitively priced products to attract middle-class customers can change the scenario altogether to reduce the pressure from competitors. It should also widen the product sets and try to cash in on the capability of the existing supply chain to decrease the manufacturing costs.

Also read:

Advantages & Disadvantages of TOWS Analysis

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

Advantages of TOWS Matrix

  1. TOWS Analysis helps to stumble upon strategic ideas by interconnecting the internal and external factors for the organizations.
  2. It is cost-effective in nature.
  3. It’s user-friendly and can be performed by any layman after learning a few parameters.
  4. TOWS Analysis can be applied to any company irrespective of the industries and economies.
  5. It helps organizations to upgrade their strategies with changing dynamics.

Disadvantages of TOWS Matrix

  1. TOWS analysis becomes tough to handle if we are overloaded with information.
  2. On many occasions, TWOS Matrix doesn’t take the ever-changing competitive environment into consideration and can affect the main agenda of finding out strategies for business in attaining elevated profits, higher sales, creation of brand value and etcetera.

Summary

TOWS Matrix is a framework to assess, create, compare, and finally decide upon the business strategies. It is a modified version of a SWOT analysis. The TOWS Matrix helps in the generation of amazing ideas in relation to fruitful marketing strategies, decision-making, protection against threats, opportunities, diminishing threats, overcoming weaknesses and awareness regarding potential shortcomings.

The four TOWS strategies are Strength/Opportunity (SO), Weakness/Opportunity (WO), Strength/Threat (ST), and Weakness/Threat (WT).

TOWS Analysis can be applied to any company irrespective of the industries and economies. It is user-friendly and can be performed by any layman after learning a few parameters. However, the TOWS analysis becomes tough to handle if we are overloaded with information.

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

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

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

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

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

What is PESTLE Analysis?

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

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

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

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

PESTLE ANALYSIS Flow

— Political Factors

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

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

— Economic Factors

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

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

— Social Factors

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

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

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

— Technological Factors

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

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

— Legal Factors

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

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

— Environmental Factors

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

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

PESTLE Analysis Example — SONY

sony corporation

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

Political Factors

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

Economic Factors

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

Social Factors

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

Technological Factors

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

Legal Factors

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

Environmental Factors

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

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

Advantages And Disadvantages of PESTLE Analysis

— Advantages of PESTLE Analysis

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

— Disadvantages of PESTLE Analysis

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

Summary

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

What is Corporate Governance? Principles, Examples & More

What is Corporate Governance? Principles, Examples & More

Hello readers! Today we are back with another intriguing topic from the core world of finance – Corporate Governance! Put your reading glasses on and stay glued!

In this era of globalization where information is just a tap away, we all are pretty much familiar with the names of top-notch companies like Coca-Cola, Starbucks, Asian Paints, ITC, Unilever, and etcetera! Over the years, they have continued to grow in manifolds in spite of the emergence of various substitutes. Have you ever wondered what could be the secrets behind the success and sustainability of these companies apart from their brand value and consistent sales? Well, let’s dive in without further delay!

In order to flag off the session on a lighter note, we will put forward an example on a micro-level.

In schools and colleges, the fests are held annually with pomp and glory! The responsibilities and tasks are carried out in a chained way. Preparations begin prior to one to two months and require proper governance!  The absence of a good governing committee would have led them to a path of big failure. Similarly, every company require sound corporate governance to grow and augment in the long run.

What is Corporate Governance?

Corporate Governance is the procedure by means of which a  corporation guidelines itself. In a nutshell, it is a process of administering a company like a monarchial state which installs its own customs, laws, and policies from the highest to the lowest levels.

In financial terms, Corporate Governance is the collaboration of well -defined rules, processes and laws by which functions and regulations of business take place. Most companies leave no stone unturned to achieve a high degree of corporate governance. It is the responsibility of the board of directors to build a  framework for corporate governance that syncs with the objectives and mission of the business.

In the last decade, corporate governance has gained immense and serious attention because of high-profile scams and criminal activity by corporate officers in power. Poor corporate governance can have an adverse effect on a company’s financial health and level of trustworthiness.

The structure and frame of the Corporate Governance comprise of the Board Of Directors, Management and Shareholders! Let us first understand each of their key roles in-depth.

The Structure of Corporate Governance

— Board of Directors

The Board Of Directors plays a pivotal character in commanding the company’s management and business blueprints to accomplish long-term value creation. The most important functions of the board are:

  • Determine the company’s vision and mission to guide and set the pace for its current operations and future development.
  • Monitoring/examining the CEO’s performance and overseeing the procedure regarding CEO succession.
  • Understand and take into account the interests of shareholders and relevant stakeholders.
  • Avoiding conflicts of Interest

— Management:

Chief Executive Officer (CEO) leads the management of the company. Important aspects like strategic planning, risk alleviation, and financial reporting falls under the umbrella of the management. An efficient team of management escorts the company with the determination of achieving the business strategies over a considerable time horizon and avoids focusing on short-term metrics.

— Shareholders:

Shareholders invest in a public company by purchasing its stock from the exchange via brokers and earn capital gains with a rise in the price of the stocks. However,  Shareholders are not embroiled in the day-to-day management of business affairs but enjoy the right to elect representatives i.e. Directors. They also receive a Quarterly/Annual Report which consists of information regarding investments and voting decisions.

Competent Corporate Governance needs crystal clear generosity and interaction between Board Of Directors, Management and Shareholders in accelerating a company’s performance. Efficient corporate governance shapes up a transparent bunch of rules and regulations in which directors, management and shareholders have aligned ambitions. The framework allows the board of directors to affirm fairness, accountability, and transparency in a company’s relationship with all stakeholders (management, financiers, customers employees, government, and the community).

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

Principles of Corporate Governance 

A company that follows the hardcore core fundamentals of good corporate governance will generally surpass other companies in terms of financial advancement. The core principles of sound corporate governance include Fairness, Accountability, Responsibility & Transparency. Let us discuss all these principles one by one.

corporate governance pillars

— Fairness

Fairness touches on the points of uniform and equal treatment of all the shareholders in reference to receival of considerations regarding shareholdings. The fairer the company appears to stakeholders, the more likely it is that it can endure in the league.

— Accountability

Corporate accountability is an act of responsibility and obligation to provide an explanation for the company’s actions and activities. Corporate Accountability includes the  followings:

  • Presentation of a balanced and simple analysis of the company’s orientation and prospects.
  • Responsibility for determining the character and extent of the adopted risks by the company.
  • Maintenance of  adequate risk management and internal control structure.
  • Setting up formal and unclouded arrangements for corporate reports and a suitable relationship with the company’s auditor.
  • Proper communication with shareholders regarding diversification, progress and financial reports at frequent

— Responsibility:

The CEO and Board of Directors are accountable to the shareholders on behalf of the company regarding the execution of responsibilities. Thus, they should exercise their authority with full responsibility. The Board of Directors is responsible for conducting the management of the business, appointing the suitable CEO, overseeing the affairs of the company and keeping an eye on the performance of the company.

— Transparency:

Transparency means a company should reveal an informative piece of data about their activities to shareholders and other stakeholders. It also includes the open-mindedness and willingness to divulge financial figures which are genuine and correct in reality. The unveiling of reports regarding the organization’s accomplishments and activities should be on time and strive for accuracy. Such steps ensure the investors’  access to transparent and factual data which finely mirrors the financial, environmental and social position of the organization.

Benefits of Corporate Governance

Here are a few of the major benefits of having good corporate governance in a company:

— A good corporate governance practice gives rise to a strict compliance culture. It is advantageous in multiple ways and is directly related to improved performances. Due to the existence of such a strict environment, all the members are bound to adhere to the work culture, establish proper lines of communication with the rest of the organization and are promptly responsive to any evidence when there is any signal of non-compliance.

— Marvelous Corporate Governance has instant access to information and excellent communication. Rapid access to information and good communication among the members of a company leads to the formulation of robust strategies. Such strategies include efficient allocation of resources, leveraging technology and etcetera.

— Good Corporate Governance can lift up a company’s influence and reputation. Strong schemes like strict fiscal policies and internal controls help to gain trust and reliability among stakeholders.  Such genuine practices also help the company to borrow funds at a lower rate than those with weak corporate governance because lenders will be able to have faith in an organization that is seen to be stable, reliable and able to mitigate potential risks In today’s volatile environment.

— Increasing cognizance and consensus about the importance of good corporate governance among investors results in more number of investments in companies that have a prosperous track record. It also shields investors from possible scandals and aids to raise capital efficiently by gaining investors’ confidence. Thus, there is a positive influence on the share price and helps in brand formation and development.

— In this age of globalization and liberalization, there is a positive correlation between an excellent Corporate Governance and inflow of Foreign Investment. According to statistics, studies imply that Foreign Institutional Investors (FII) take notice of well- managed companies and respond positively by infusing capital for investment in the capital market. In order to reap the full benefits of the global capital markets and attract long-term capital, it is extremely important to implement basic principles of good corporate governance which can be well understood across borders. The huge influx  of foreign investment will immensely  churn up the economic growth and will prove to be a priceless step in enabling the organization to stand against tough economic storms and back a company’s

— Demonstration of good corporate governance also enables corporate social responsibilities like environmental awareness, health, education, sanitation, and other social aspects.

— At times, good corporate governance can help ensure that officials of a company do not take unwarranted advantage at the expense of their shareholders. For example- of Insider Trading.

Insider Trading refers to trading inequities of a company by internal members (directors, managers,em­ployees) of the company based on the sensitive information which is unknown to outsiders. It is a scandalous activity that is committed by the officials of the company and is critically connected to the arenas of Corporate Governance. The wisest way of handling this problem is by pushing the companies to imbibe self- regulation and adopting preventive measures. Such prophylactic action sends off a signal regarding the exercise of self-regulatory practices and assurance of safety to invest in the company’s securities. Hence, Good corporate governance also reduces corruption.

— Good corporate governance also provides the elasticity to apply customized practices that fits the companies’ requirements and to alter those practices in light of ever-changing conditions, benchmarks, and standards.

Examples of Corporate Governance

Now, after the elongated discussion and explanation, let us understand the concept with two examples!

HDFC Bank

(Industry – Private Banking and Financial Services)

HDFC Bank identifies the significance of good corporate governance, which takes care of the long-term interests of shareowners and helps to win the public trust in the Company. Therefore, the Corporate Governance scheme is introduced to proffer a course and structure for managing and regulating the bank in accordance with the principles of superlative corporate governance policies.

HDFC  Bank was amongst the first four companies which earned a Corporate Governance and Value Creation (GVC) rating by The Credit Rating Information Services of India Limited (CRISIL). The bank has been successful in achieving a ‘CRISIL GVC Level 1’ rating for the last two consecutive years. This symbolizes that the bank has the potential to create wealth for all its stakeholders while preaching the highest degree of corporate governance practices. The Bank truly believes in transparent disclosures and the empowerment of shareholders for weaving value.

The chart shows the past 17 years of data from the year 2000. Going by the chart,  HDFC bank has generated huge wealth over the years and is known for its laurel worthy Corporate Governance.

hdfc bank share price

On the contrary, in recent times, there are several specimens that have grabbed headlines regarding massive failures of corporate governance. One such is the Punjab National Bank ( PNB) Scandal.

— Punjab National Bank (PNB)

(Industry: Public Sector Bank)

Punjab National Bank (PNB) scam was put up across all news channels for a scam size of size 12,000 crores. The fact that the main accused i.e.  Nirav Modi was able to siphon off funds without being suspected by investigating committees or, the income tax department points out to the mammoth loopholes in the governance. The existence of proper corporate governance in  Punjab National Bank (PNB) could have singled out the large scale scandal of this level.

PNB Share price

In the chart, it is clearly evident how te share prices started falling just prior to the announcement of the scam and went on a downhill journey since then.

Also read: 3 Past Biggest Scams That Shook Indian Stock Market

Summary

Let us quickly summarize what we discussed in this article. Corporate Governance is the procedure by means of which a corporation guidelines itself. In a nutshell, it is a process of administering a company like a monarchial state which installs its own customs, laws, and policies from the highest to the lowest levels.

In financial terms, Corporate Governance is the collaboration of well -defined rules, processes and laws by which functions and regulations of business take place. Most companies leave no stone unturned to achieve a high degree of corporate governance. The structure and frame of the Corporate Governance comprise of the Board Of Directors, Management and Shareholders!

A company that follows the hardcore core fundamentals of good corporate governance will generally surpass other companies in terms of financial  The core principles of sound corporate governance include Fairness, Accountability Responsibility, and Transparency. There is a multitude of benefits arising out of good governance which helps a company to ride on the waves of growth.

Boston Consulting Group Analysis - BCG Matrix Explained cover

What is a BCG Matrix? Explanation with Example!

Hey fellow readers! Today’s topic of concentration is how do analysts perform the Boston Consulting Group – BCG Matrix Analysis on companies! Initially, it might seem like a big deal but the truth is, with a little knowledge and awareness, any layman can execute the BCG analysis to get an apparent outlook about the company. Applying this Analysis on a company can also help an individual to gain an edge if they are particularly looking to invest in the company! Well, without much adieu, let’s dive in!

Boston Consulting Group Analysis

The Boston Consulting Group is a management consulting firm that was founded in 1963. It helps organizations to improve their performance by working on the key areas like the right implementation of technology, development of strategies and improvement in operational services.

As a result of their exposure and relationships with top-notch organizations, they are supremely aware of the industry’s best practices. In Fortune Magazine‘s 2007 Survey of “100 Best US Companies to Work For”, Boston Consulting Group (BCG) has received the 8th rank amongst all for their immense contribution.

In the year 1970, BCG shaped up a Product Portfolio Matrix to assess long term growth opportunities in the business by analyzing the product lines and thereafter untap their real capabilities. Even after 49 years of its establishment, the BCG matrix still remains a priceless apparatus for assisting companies in reaping the visions.

The tool is employed in reference to the distribution of resources in appropriate segments and utilizes them in the marketing of brands, product administration, strategic management, and portfolio perceptivity. However, the method is also referred to as the Growth-Share Matrix.

BCG Matrix Dimensions

Let us now understand the Boston Consulting Group (BCG) matrix in a subjective way.

Growth-Share Matrix is a graphical planning tool for corporate and businesses where the company’s products and services are plotted on axes and conclude major business verdicts.

Two prominent dimensions like Competitive Position (Relative Market Share) and Industry Attractiveness (Growth Rate Of That Industry) are taken help to estimate the true capacity of a business brand portfolio and advice further investment programs. These two dimensions determine the likely profitability of the business portfolio in terms of required cash to back the unit and cash generated by it. The conventional agenda of the inquiry is to understand the areas of investment, divestment, and development.

It is one of the most accepted methods of Portfolio Analysis and segregates a firm’s product and services into a 2/2 Matrix or, into four quadrants. Each quadrant is labeled as low or, high according to their performance which is again further based on the Relative Market Share and Growth Rate Of The Market.

  1. The Horizontal Axis i.e. x-axis indicates the extent of the market share of a product and its consecutive firmness in the particular market. It also helps to quantify a company’s competitiveness.
  2. On the other hand, the vertical axis ie. y-axis indicates the growth rate of a product and its ability to grow in a particular market.

1. Relative Market Share

  1. A higher market share generally means higher cash return and the logic behind the allotment of this dimension is dependent on its relationship with the experience curve.
  2. The usual notion is that when the company generates more number of products, it enjoys the advantage of low input costs and leads to increased profits.
  3. The market share of a company is always taken into consideration in relation to the marker share its major peer.
  4. It reveals the brand’s position amongst its competitors and is a subtle indication of its future prospects.

2. Market Growth Rate

  1. A high growth rate in the market is an indication of higher earnings and higher profits.
  2. It also refers to a higher level of investment in the product lines. This is a positive sign of consistent growth and an expectation to get a handsome return on investment.
  3. The market growth rate gives us significant data about the position of the brand other than the cash flow.
  4. It is also a reliable parameter of the stability of the market and attractiveness of the industry.

In addition, the four quadrants in the Growth-Share Matrix are as follows: Stars, Question marks, Cash cows, Dogs

bcg matrix analysis boston consulting group

The postulation of the Growth-Share Matrix is that an increment in the relative market share will lead to higher cash flow.

Firms acquire an upper hand from using economies of scale and yields a cost advantage in relation to its competitors. The growth rate of the market differs from industry to industry where growth rates more than 10% are seen as high while growth rates less than 10% are seen as low.

Also read: SWOT Analysis for Stocks: A Simple Yet Effective Study Tool.

BCG Matrix Breakdown

1. The BCG Matrix: Stars

Stars are business entities that have a mammoth market share in a fast-pacing industry. These product lines have a crystal clear niche and need sound investment to maintain their market position, push growth, and carry out a competitive advantage. Stars absorb a considerable amount of cash and also spawn huge cash flows.

Investments in the Stars can be a wise decision since they are the primary units and are awaited to become Cash Cows. Generation of positive cash flow takes place as the market reaches its mature stage and the products successfully retain their dominant position. Stars are the prized possession of a company and are placed in the top categories in a firm’s product portfolio.

Anyways, not all Stars end up as Cash Flows because random new products can soon be outjumped by innovative technological advancements in the course of rapidly dynamic industries. The strategic choices which can be incorporated are Vertical integration, market penetration, horizontal integration, product development, and market development.

2. The BCG Matrix: Question Marks

Question Marks are those business entities that have low market shares in a fast pacing market. Question marks are the most managerially radical products and need pervasive investment and resources to escalate their market share. They also need extensive monitoring because investments in question marks are broadly funded by cash flows.

Question marks do not always see the lights of success and even after the colossal amounts of investments they toil hard to gain market share and gradually transform into dogs. The natural or, typical cycle for most products in that they flag off their journey as Question Marks and eventually become stars with the clarification in their position.

When there is a slowdown in market growth, they metamorphose into Cash Cows and finally, the Cash Cow turns into  Dogs. The strategic choices which can be incorporated are Market Development, Market Penetration, Product Development, and divestiture.

3. The BCG Matrix: Cash Cows

The product lines under the Cash Cows Quadrant has an enormous share of the market in a sluggish -growing industry. In this case, the generation of the revenue outpasses the initial investments which are necessary to preserve their business. Products in the cash cows quadrant are looked up to as products that are the leadmen in the market. These products already have an important chunk of investments and do not demand more investments to withhold their position.

Cash cows are termed as the most prosperous brands and should be “milked” to generate consistent cash flow as much as possible. These Cash flows are generally utilized to finance Stars and Question Marks to nurture their future growth. It is advised by different Financial Analysts that corporates should invest less in Cash Cows and reap the generated profits from the existing products.

However, this point always doesn’t hold true as Cash Cows are usually big corporations that are proficient in creating new products that might become Stars in the long run. The strategic choices which can be incorporated are product development, diversification, divestiture, retrenchment.

3. The BCG Matrix: Dogs

Dogs are those business entities that have a scanty market share in a ripened and slow-growing market. Products falling under the dogs quadrant are somehow able to protract themselves by initiating cash flows and sustain the market share.

Usually, this unit is mainly valueless to the company in terms of earning capability. However, it might give rise to other small scale benefits such as the production of jobs and mutualism that help other business units. Firms sell off products belonging to the Dogs Quadrant unless the products are complementary to existing products or are used to act as a shield to oppose the moves of the competitors.

According to financial analysts, corporate should avoid investing in such product lines because they lead to negative cash returns. Dogs can massively affect the investors’ sentiments and their personal views about the management of a company. The strategic choices which can be incorporated are retrenchment, Divestiture, and  Liquidation.

According to the Boston Consulting Group, a branched out company with an equitable portfolio is in the standardized gallery to utilize its strengths to capitalize on the opportunities of expansion and multiplication. However, an equitable portfolio is one which has

  1. Stars to embolden future success.
  2. Question marks that have a probability to turn into Stars with some consideration, management, and investment.
  3. Cash cows to generate funds for future growth.

BCG Matrix Analysis

Now that we have gained an insight into the basics of BCG Matrix, let us now learn the steps for its application.

1. Choose the unit:

Strategic Business Units(SBU), Independent  Brands, Product Lines or the Firm as a unit can be researched using the BCG matrix. The selected unit steers the whole analysis and crucial definitions. As the market, industry, competitors, and position will all be driven based on the chosen unit, it is extremely important to define the unit demarcated for analysis.

2. Define the market

The most momentous stage for the entire matrix is the key definition of the market. An erroneously defined market will make way for an erroneous classification of the unit. Suppose, if we would do the analysis for the Gucci dresses in the regular clothing market it would end up as a Dog but it would be a Cash Cow in the luxury clothing sector. Therefore, It is a major task to transparently explain the market in order to get a solid grip on a firm’s portfolio position.

3. Calculation of Relative Market Share

Relative Market Share can be enumerated in terms of revenues or, market share. It is calculated by dividing the brand’s market share by the market share of the market leader/supreme competitor in an industry.

For example, if the competitor’s market share in the automobile industry is  37% and a firm’s brand market share is  13% in a year, the relative market share would amount to 0.35.

4. Calculation of Market Growth Rate

The growth rate of an industry can be found from the industry reports released every year and are put up on official websites. It can also be calculated by considering the average revenue growth of the leading industrial enterprises. However, it is to be kept in mind that the growth rate of a Market is expressed in terms of percentage.

5. Draw the circles on a matrix

After calculating all the parameters, one can easily plot the brands on the matrix. The plotter should draw a circle for each brand within a unit, or for all the brands in a company. The size of the circle should be in proportion to the generated revenue of the brand.

Let’s apply these steps to analyze an India Company!

amul products

For ease of understanding the concept, we are taking ‘Amul’ a well-known company in India as our example.

Amul brand is a prominent and popular name in the dairy industry in India. It produces milk, butter, and other dairy-related products and successfully caters to the Indian population.

The exercise of BCG Matrix on the brand can furnish critical information about the products and the product lines that are a pivotal source of revenue for the organization. The BCG matrix for Amul is as follows:

1. Stars

The products which are considered as Stars of Amul are Amul Ice cream and Amul Ghee.  These two products have a high market share and have adequate possibilities to grow in the near future. Amul Ghee has also been a Star for the company as the brand has been able to acquire a 30% hike in its sales while the market share clinged by the product is around 18% along with a yearly turnover of more than Rs 1,700 Crores.

2. Question Mark

Amul Lassi is diagnosed as a Question Mark as their capability as a major derivation of profitability remains quite bleak. Amul lassi has been brought about in the market with the agenda to magnify the market share and give a tough competition with the other beverages available in the market. The healthy milk from Amul possesses a huge potential to swell in the future considering the expansion of interest and demand for healthy products, refreshments, and beverages.

3. Cash Cows

There are three products under the umbrella of Amul that come under the Cash Cow category and they are  Amul Milk, Amul Butter, and Amul Cheese. The market share of these products is not likely to undergo colossal gains but their current spot makes them a high revenue contributor.

4. Dogs

Amul has two products that have not been able to generate sales and revenues as per the estimation. One of the noteworthy examples in this regard is Amul Chocolates and Amul Pizza. The competitors make it tough to amplify the market shares to a notable degree which can turn this product to become an outstanding source of sustainable revenues. However, if the sales figures do not proceed towards betterment, a probable measure would be to take the path of divestment of the above-mentioned brands.

Benefits of BCG Matrix Analysis

Every theory and model exiting in the books have their pros and cons. Similarly, Boston Consulting Group( BCG) has its own set. Here are a few of the benefits of BCG Matrix:

  1. The BCG Matrix is beneficent for managers to assure a  balance in the companies’ current portfolio consisting of Stars, Cash Cows, Question Marks, and Dogs.
  2. BCG-Matrix is befitting to large-cap companies that usually look for volume and experience effects.
  3. The model is coherent and easy to apply and also provides a base for management to take decisions and jack up for future activities.

Limitations of BCG Matrix Analysis

Here are a few of the common limitations of using BCG matrix for analyzing companies:

  1. Growth-share analysis has been highly disapproved of for its simple calculations and absence of a fruitful application.
  2. Market share and Industry Growth are not the sole factors of profitability. Besides, high market share always does not mean high profits.
  3. This matrix does not take into consideration any other factors that may have an effect on both competitive advantage & industry attractiveness.
  4. It denies the correlation between different existing units. In reality, products under  Dogs may be assisting another unit to gain a competitive advantage.
  5. The definition of a market is taken from a broader perspective and often neglects smaller aspects.

Summary

Let us quickly summarise what we discussed in this article. The Boston Consulting Group (BCG) is a management consulting firm that helps organizations to make informed decisions from the business point of view.

They introduced the Growth-Share Matrix which is a designing and a planning tool that prepares graphical representations on the basis of a company’s products and services. The Growth-Share Matrix categorizes a firm’s products into four divisions namely Dogs, Cash Cows, Stars, and Question Marks. The four divisions are based on the Relative Market Share and Growth Rate Of The Market. This Matrix immensely helps the company to make decisions regarding investment,  divestment, liquidity, and retrenchments.

What is derivative trading

What is Derivative Trading? Futures & Options Explained

Hello readers. One of the most frequently asked questions by Trade Brains’ readers is what is futures and options trading. In this article, we are going to cover this topic and discuss what is derivative trading along with explaining futures and options. Let’s get started.

What are Derivatives?

A derivative is a device whose monetary value is extracted from the value of one or more primary variables called bases. Here, the bases mainly indicate underlying assets, interest rate or indexes. These underlying assets further comprise equity, foreign exchange, commodity, or any other asset.

As the value of these underlying assets keeps fluctuating, these changes in value can help traders to earn profits from derivative trading. The most common types of derivatives are futures, options, forwards and swaps.

This evolution of the market for derivative products like Forwards, Futures, and Options dates back to the compliance of risk hesitant economic advocates to shield themselves against volatilities emerging out of ups and downs in asset prices. In other words, it acts as a hedging apparatus against oscillation in commodity prices.

Post-1970, financial derivatives majorly came under the limelight due to thriving fluctuations in the markets. Ever since they seeped into the picture, these products have gained quite a popularity and have reckoned for about two-thirds of total transactions in derivative products by 1990.

In the class of equity derivatives, Future and Options have acquired more eminence than individual stocks. The trend is especially prominent among institutional investors who are frequent partakers of index-linked derivatives. Financial markets are marked by an escalated amplitude of volatility but with the utilization of derivative products, it is viable to partially or fully shift the price risks by remanding the asset prices.

As equipment of risk management, these generally do not determine the inconstancy in the underlying asset prices. However, by tapping in asset prices, derivative products reduce the influence of fluctuations in asset prices on the profitability and cash flow scenario of risk-afraid investors.

Factors driving the Growth of Derivatives

In the last thirty years, the derivatives market has seen an exemplary advancement. A huge variety of derivative contracts have been introduced at exchanges across the globe. Some of the factors which are surging the cultivation of financial derivatives are:

  1. Elevated synthesis of national financial markets with the global markets.
  2. Considerable development in communication amenities and acute declination in their costs.
  3. Growth of more sophisticated risk management devices, providing economic agents with a variety of choices.

Derivative Products

Derivative contracts have diversified variants. The most basic variants are Forwards, Futures & Options. 

1. Forward Contract :

A forward contract is a customized contract between two individuals, where settlement takes place on a definite date in the future at the current pre-compiled price. Other contract details like delivery date, price, and quantity are negotiated bilaterally by the parties. The forward contracts are generally traded outside the exchanges.

On the expiration date, the contract has to be settled by the delivery of the asset. If the party wishes to counterpole the contract, it has to imperatively go to the same counter-party, which often results in charging higher prices. In certain markets, Forward Contracts have become standardized like in the case of foreign exchanges. Such standardization reduces transaction costs and increases transaction volumes.

For example, let us consider an exporter who expects to receive payment in dollars three months later. He is exposed to the risk of exchange rate fluctuations. Thus, utilizing the currency forward market to sell dollars forward, he can clinch on to a rate today and diminish his uncertainty.

2. Futures Contract:

A futures contract is an alliance between two parties to purchase or sell an asset at a stipulated time in the future at a specific price. Futures contracts are special types of forward contracts that are traded on exchanges. Future Contracts also facilitate the elimination of risk and provide more liquidity to a market participant. The terminology of the Futures Contract consists of Spot Price, Futures Price, Contract Cycle, Expiry Date & Contract Size.

For example, if you buy/sell a crude oil futures contract, you are agreeing to buy/sell a set amount of crude oil at a specific price (the price you place an order at) at some future date. You don’t actually need to take delivery of the crude oil, rather you make or lose money based on whether the contract you bought/sold goes up or down in value relative to where you bought/sold it. You can then close out the trade at any time before it expires to lock in your profit or loss.

3. Options  Contract:

Options are of two types namely, Calls & Puts. Calls give the buyer the authority but not the obligation to purchase a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the authority, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. Unlike, Futures Contract, the purchase of an Option requires up-front payment. 

Also read: What Drives Stock Returns? (Divergence Analysis)

Participants in the Derivative markets

There are four broad categories of participants namely Hedgers, Speculators, Margin Traders, and Arbitrageurs. Let’s discuss each of them now:

1. Hedgers: Traders who aspire to secure themselves from the risk involved price actions generally participate in the derivatives market. They have been called hedgers because they try to hedge the price of their assets by undertaking an exact opposite trade in the derivatives market. 

2. Speculators: Unlike hedgers, Speculators look for opportunities to take on risk in the hope of making returns. These stark contrast in risk figuration and market views sets apart hedgers from speculators.

3. Margin Traders: Dealing with derivative products doesn’t require payment of the total value of the upfront position. Instead,  depositing only a fraction of the total sum does the work and is known as Margin Trading. Margin Trading results in a high leverage factor in derivative trade because, with a small deposit, one is able to keep a large outstanding position.

4. Arbitrageurs: Derivative instruments are valued on the basis of the underlying asset’s value in the spot market. However, there are times when the price level of stock in the cash market is lower or higher in comparison to its price in the derivatives market. Arbitrageurs tap the opportunities and exploit these blemishes and disorganization to their favor.

Arbitrage trade is a low-risk trade, where a parallel deal in securities is done in one market and a corresponding sale is executed in another market. Such a trade is carried out when the same securities are being quoted at different prices in two different markets.

For example, in the cash market, let us consider the price is quoting at Rs. 1000 per share. On the other hand, it is at Rs. 1010 in the futures market. An arbitrageur would purchase 100 shares at Rs. 1000 in the cash market and sell 100 shares at Rs. 1010 per share in the futures market, thereby making a profit of Rs. 10 per share.

Also read: The Stock Market Cycle: 4 Stages That Every Trader Should Know!

Summary: Derivative Trading

A derivative is a device whose monetary value is extracted from the value of one or more primary variables called bases. Here, the bases mainly indicate underlying assets, interest rate or indexes. Further, the asset can be anything from stocks, commodities, currency to interest rates.

The most common types of derivatives are futures, options, forwards and swaps. In derivative trading, the traders take advantage of the fluctuating value of underlying assets to make profits.

7 Best Stock Market Discussion Forums in India cover

7 Best Stock Market Discussion Forums in India

One of the easiest ways to learn anything new is by participating in the discussions. And the same rule applies when you are trying to learn trading or investing. If you are new to stocks and looking for the best stock market discussion forums in India to start participating, then you’ve entered the right page.

In this article, we are going to share the list of seven best stock market discussion forums in India where you can ask your most troublesome questions or share your ideas/knowledge with fellow investors and traders. On all these forums, you can find active discussions on stock market investing, trading, investing strategies, stock picks, IPOs, mutual funds, taxation, personal finance and more.

Besides, all these forums are FREE to join and hence, it doesn’t cost you anything to signup and start participating in interesting topics on these Indian stock market discussion forums.

7 Best Stock Market Discussion Forums in India

Here are seven of the best forums in India for healthy discussions on stock market investing and trading:

1. Traderji

traderji forum

Started in 2004, Traderji is one of the oldest and most popular stock market discussion forum for investors and traders in India.

This platform has over 1.8 lakhs members participating in different threads on the stock market, derivates, Commodity and Forex trading of India. As per the statistics on this website, there are over 59,300 threads and 1,202,464 messages on this forum.

A few popular categories on the Traderji forum are Beginner’s guide, General trading and investing chat, technical analysis, mutual fund discussion forum, tools, and resources.

Here’s a quick link to join the Traderji Stock Market discussion forum.

2. Trading Q&A

trading qna forum

Trading Q&A is a famous online discussion platform for traders and investors which is managed by Zerodha, the biggest discount broker in India. With thousands of active participants on this forum, you can get all your trading queries answered here, along with sharing your own knowledge with fellow traders.

On Trading Q&A, you can ask questions about Intraday Trading, Derivatives, Commodity, Investing Strategies, Broker Review, Algo-Trading, Zerodha & its products, Taxation, IPOs and much more.

Here’s a quick link to join the Trading Q&A forum.

3. Trade Brains Discussion Forum

trade brains discussion forum

Trade Brains discussion forum is an online forum for the community of enthusiastic stock market investors and traders who are willing to learn, ask, and share their skills, thoughts, and knowledge. This forum has been listed among the top 9 Online Forums To Discuss Personal Finance and Trading in Asia by Fintech Singapore News.

On Trade Brains’ forum, you can find discussions on categories belonging to Share market investing and trading, fundamental analysis, mutual funds, IPO’s, personal finance and money management.

Here, you can participate in the forum for free by reading/writing the answers on the existing queries or asking your own questions by simply signing up for the forum.

Here’s the quick link to join Trade Brains’ forum.

4. ValuePickr Forum

valuepickr forum

One of the most active forum for stock market discussion in India. ValuePickr’s tagline is “Separating the Wheat from the Chaff” and focuses on discussions regarding the company’s Business Quality, Management Quality, Business Execution & Performance.

Here, you can find topics on stock opportunities (hidden gems, Untested but worth a good look category, top 5 picks), Investing strategies, Questions & Answers, Investor Toolkit, Investment Learning, Books and more. You can get a lot of knowledge about the Indian stock market by simply hovering over the topics and queries.

Here’s a quick link to join the forum.

5. Stock Adda

stockadda forum

Stock Adda is an Indian stock investor community where along with the stock market discussions, you can also get information like stock ideas, investing strategies, news, market movements, books, etc.

Besides, on StockAdda, you can also create a stock portfolio or view the ranking of member portfolios based on Daily and overall gains(%). Overall, it is an amazing platform for social traders/investors.

Here’s a quick link to join the forum.

6. Rakesh Jhunjhunwala Forum

rakesh jhunjhunwala stock talk forum

Stocks Talk Forum by Rakesh Jhunjhunwala is yet another popular stock market discussion forums in India.

First of all, I should mention that this site is Inspired, Not Endorsed, By Rakesh Jhunjhunwala, one of the most successful Indian stock market investors.

On this discussion forum, you can find topics on categories like stock investment queries, stock picks of wizards, portfolio of famous investors, stock advisory services, must-read interviews, articles and more. You can find over 3,250 discussions on this forum.

Here’s a quick link to join the Rakesh Jhunjhunwala forum.

7. Bse2Nse

bse2nse forum

Bse2Nse is another popular Indian Stock forum discussion for Equity, FnO, and commodity trading. Here you can find discussions on stock trading, investing strategies, broker reviews, IPOs, mutual funds and more. They also have a separate section on Chart Analysis which can be very helpful for technical traders.

Here’s a quick link to join this stock market discussion forum.

Closing Thoughts:

In this article, we discussed the seven best stock market discussion forums in India. However, before ending this article, let me give you a piece of final advice.

All these forums are built by active members who are willing to share useful ideas and answers. Please keep your posts relevant to the forum category and do not ‘SPAM’! Else, you will be thrown out of the forum by the admins and moderators. Be respectful to others and don’t sweat the small stuff.

Also read: 7 Best Indian Stock Market Blogs to Follow.

That’s all for this post. Comment below if you are part of any of the above-mentioned discussion forum or are willing to join soon. Else, if I missed any awesome Indian stock market discussion forum worth adding to this list, mention below in the comment box. Cheers and have a great day!

What is the Difference between BSE and NSE cover

What is the Difference between BSE and NSE?

In this article, we are going to discuss the difference between BSE and NSE, the two biggest stock exchanges in India. However, in order to study the Bombay stock exchange (NSE) and the National Stock Exchange (NSE), first, we need to understand what is a stock exchange and its importance. Let’s get started.

What is a Stock Exchange?

According to the Indian Securities Contracts (Regulation) Act of 1956, defines Stock Exchange as, “an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.

The stock exchange is a very important component of the capital market for the sale and purchase of financial and industrial securities and bonds. It is a place that is well organized and systematic as it is regulated under strict conditions and rules. The stock exchange performs various functions and offers services to a wide range of investors and other borrowers. 

The main features of any stock exchange market can be summed up as follows:

  1. The stock market serves as a market for securities where bodies from the corporate sector, governmental, non-governmental or semi-governmental come together to sell and buy these securities.
  2. It also serves as a secondary market where old and existing second-hand securities, shares and bonds are dealt with.
  3. Stock exchange functions as the regulator of securities. It tries to ensure free and fair trading.
  4. In order to serve as a safe haven for investors and companies, the Stock Exchange involves in trading of only official and listed securities. The securities which are not listed called the unlisted securities are not allowed to be traded on the exchange but may trade through Over the trade (OTC) counters.
  5. The way only listed securities are allowed, in the same manner, only the authorized investors are allowed. Investors can only participate in buying or selling the securities at the Stock Market through official or authorized brokers only.
  6. It works as a recognized indicator of the development of the economy of the country. It is also the best reflector of industrial growth and corporate stability.

Now that you understand the basics of stock exchanges, let’s discuss the difference between BSE and NSE.

In India, there are two main stock exchange markets, namely the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Let’s start with BSE.

Bombay Stock Exchange (BSE)

The Bombay Stock Exchange or BSE is the oldest which was established in 1875 in Dalal Street of Bombay (now Mumbai). It was earlier known as ‘the native share and stock brokers association but got recognized as the only important stock market of India under the Securities Contract Regulation Act of 1956.

The BSE is the first and oldest stock exchange market of Asia which offered such a huge variety of services. It has about six thousand companies listed as of the year 2018. As of April 2018, BSE is the world’s 10th largest stock exchange with an overall market capitalization of more than $2.29 trillion dollars.

National Stock Exchange (NSE)

The National Stock Exchange or NSE is the country’s leading stock exchange marketplace. It was India’s first digitalized stock exchange in the country. NSE was established in the year 1992 to decrease the monopoly of BSE in the Indian stock market. With NSE’s coming into existence, it brought about an electronic exchange system that did away with the practice of the paper-based exchange system.

As of April 2018, National Stock Exchange has a total market capitalization of more than US$2.27 trillion, making it the world’s 11th-largest stock exchange.

Also read: 10 Largest Stock Exchanges in the World 

The Difference between BSE and NSE

Although both of the stock exchange markets are very important in India, there are some ground differences which we need to take into account:

  1. Both the Bombay Stock Exchange and the National Stock Exchange are the top exchange marketplaces in India. However, the oldest one is the Bombay Stock Exchange established in 1875 and the National Stock Exchange is a younger exchange established in 1992.
  2. Both the National Stock Exchange and the Bombay Stock Exchange were recognized by the Securities and Exchange Board of India (SEBI) in the year 1993 and 1957 respectively.
  3. The number of listed companies on the National Stock Exchange is around 1700 and around 6000 for the Bombay Stock Exchange.
  4. The electronic system of exchange was first introduced under the National Stock Exchange in the year 1992 and later in Bombay Stock Exchange in 1995 under BOLT i.e. BSE On-Line Trading.
  5. The official index used by the National Stock Exchange is the NIFTY 50 while for the Bombay Stock Exchange, it is the SENSEX.
  6. The National Stock Exchange’s index — Nifty 50, computes the top fifty stocks listed on the NSE. And on the other, the Bombay Stock Index, SENSEX accounts for the top thirty stocks on BSE.
  7. Another major difference between the two relates to the volume of trading of individual stocks which is higher in the National Stock Exchange than in the Bombay Stock Exchange. 

sensex last 30 years

(Sensex Last +30 Years Chart – Source: TradingEconomics)

Apart from the differences, we can say that both the stock exchange markets are nationally and globally well renowned. The trading mechanisms, settlements and trading hours of both the stock exchange marketplace are almost similar.

On top of it, both of them are designated as the premium stock exchange markets recognized by the Securities and Exchange Board of India (SEBI). The Bombay Stock Exchange and the National Stock Exchange are under very tight control and regulation by the SEBI implying that both are under the same provisions.

Also read: What is SEBI? And What is its role in Financial Market?

By way of conclusion, we can add that the choice of any investor to participate in the trading of security is subjected to personal choice and therefore, can be different from one investor to another.

However, it is said that the National Stock Exchange is for those investors who want to involve in high volume day trade and derivatives trading. It has better software as compared to its rival, the Bombay Stock Exchange for any high-risk transactions made online. The Bombay Stock Exchange is an ideal marketplace for those investors who are a little conservative in nature who choose to invest and wait for their investments to grow gradually.

Anyways, you can trade or invest in equities through any of the stock exchanges, NSE or BSE, and may not find noticiable difference. According to your choice and activity, you may decide on where to sign up and participate.

Primary and Secondary market

Primary Market and Secondary Market – How do they work?

Stock markets are an important component of the financial system. It is a powerful tool that works like an auction for the exchange of capital/credit and has two autonomous and indivisible segments: Primary Market and Secondary Market.

In financial words, Stock Markets can also be defined as a procedure that permits people to trade in stocks and bonds, commodities, etc. which facilitates: 

  • Issue of new shares ( IPO)
  • Raising of capital ( IPO, Bonds)
  • Transfer of risk (Derivative market)
  • Transfer of liquidity (Money markets) 
  • International trade (Currency markets)

In this article, we are going to discuss the primary and secondary market in order to under how stock market exactly works. Let’s get started.

1. Primary Market

The primary market is a market for new issues i.e. Market for fresh capital. It provides a sale for new securities. The primary market provides an opportunity to issuers of securities like government and corporations to raise resources to meet requirements of investment or, discharge some obligation.

The corporate entities mainly issue debt and equity instruments (shares, debentures) while the governments issue debt securities (treasury bills). The issues might be released at face value or, at a discount/ premium which later molds into various forms such as equity, debt, etc. However, these issues can be released in both domestic or, international markets.

The primary market issuance is either done through public issues or, private placement. When an insurance of securities is made to new investors for becoming part of shareholders’ family, it is called a public issue. The public issue can be further classified into:

Public Issue:

Initial Public Offering (IPO):

IPO takes place when an unlisted company makes either a fresh issue of securities. This flags off an avenue for listing and trading of the securities issued in the stock exchanges.

— Follow-on Public Offering (FPO):

An FPO takes place when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document.

Also Read: What is Nifty and Sensex? Stock Market Basics (For Beginners).

Private Placement

When an issuer makes an issue of securities to a specific group of persons where the number of members should not be more than  49, it is called a private placement. However, it is neither a rights issue nor a public issue. Private Placement of shares by a listed issuer can be of two types:

— Preferential Allotment

When a listed issuer issues shares or convertible securities, to a selected group of persons in terms of provisions by a regulatory body, it is called a preferential allotment. The issuer is needed to adhere with diversified provisions which include disclosures, pricing, lock-in, etc. 

— Qualified Institutional Placement (QIP)

When a listed issuer issues equity shares or, securities convertible into equity shares to Qualified Institutions Buyers only in terms of provisions of the regulatory body, it is known as Qualified Institutions Placement.

2. Secondary Market

The secondary market allows participants who clasp securities to acclimatize their holdings according to the changes in their evaluation of risks and returns. Once the new securities are issued in the primary market, they are traded in the stock ( secondary ) market up and onwards from the listing day. The listing of stock enables liquidity and earning of reputation.

The secondary market operates through two channels and they are Over-The-Counter (OTC) Market and the Exchange-Traded market.

OTC markets are informal in nature where the execution of trades has a negotiable option. Most of the government securities are in the OTC Market. In addition, all the spot trades where securities are traded for immediate delivery and payment also take place in the OTC market.

The other option is to trade using the infrastructure provided by the Stock Exchanges where financial instruments are dealt with in money transactions. The four important participants of the securities market are the investors, issuers, intermediaries, and regulators. 

  1. Investors can be broadly classified into retail investors (HNI, minuscule investors) and institutional investors (banks, insurance, mutual funds, FII, etc).
  2. Issuers include governments,corporate,financial institutions, etcetera.
  3. Intermediaries include stock exchanges, stockbrokers, depository, custodians, merchant bankers, FII, mutual fund houses, debenture trustees, etc.
  4. Regulators include Central Banks.

The top two stock exchanges of India are Bombay Stock Exchange and National Stock Exchange.

Components of the Secondary Market:

The securities market is classified into the following markets and further different types of instruments are traded in these markets.

1. Cash /Equity Markets:

The equity segment allows dealing in shares, debentures, warrants, mutual funds, ETFs. 

2. Equity Derivatives Market:

The derivatives segment allows trading in derivative instruments. It is a product whose value is derived from the value of one or more basic variables and is called bases ( underlying asset, index). The underlying asset can be equity, forex, commodity or, any other asset. There are two types of derivatives instruments (futures & options).

3. Debt Market:

The debt market consists of bond markets that provide financing through the issuance of bonds.

4. Corporate Bond Market:

Bonds issued by firms are Corporate bonds and are issued to meet needs for expansion, modernization, restructuring operations, mergers, and acquisitions.

5. Forex Market:

The foreign exchange market( currency, forex, or FX) is where currency trading takes place. Currently, the Forex market is one of the largest and most liquid financial markets in the world and includes trading between large banks, central banks, currency, speculators, corporations, governments, and other financial institutions.

6. Commodity Derivatives Market:

Commodity markets enable the exchange of raw or, primary products. Raw commodities are traded on standardized commodities exchange in which they are purchased and sold in well –defined contracts. The trading in gold, silver and agricultural goods are also facilitated under this market.

Bottom line:

By now you must have got the idea of the primary market and secondary market. Let’s conclude what we discussed in this article.

The primary market, also known as New Issue Market (NIM), is the market place where new shares are issued and the public buys shares directly from the company, usually through an IPO or FPO.

On the other hand, the Secondary Market is the place where formerly issued securities are traded. The second market involves indirect purchasing and selling of shares among investors. Brokers are Intermediary and the investors/traders get the amount on the sale of shares.

That’s all for this post. I hope it was useful for you. Happy Investing.

Catching a falling knife stock - Is it worth it cover

Catching a falling knife stock - Is it worth it?

The stock market is filled with all kind of people. Some prefer investing in fast-growing companies while there are others who prefer investing in high dividend-paying stocks. There are also value investor who favors investing in discounted companies. And then comes the daredevil bargain hunters who are eager to invest in falling knife stocks.

In this post, we are going to discuss what exactly are falling knife stocks and why it is dangerous to invest in these type of stocks. We’ll also look into a few strategies that investors can use while trying to catch a falling knife stock.

What are falling knife stocks?

The falling knife is that category of stocks which has undergone a rapid decline in share price in a short amount of time. Here, the term ‘falling knife’ is used as a metaphor for the rapidly declining share price of the company.

Now, by definition, there is so specific ‘magnitude of drop’ or ‘duration’ to define these falling knife stock category. The stock which may fall +50% in a month or +80% in six months, both can be considered in the category of falling knife stocks.

In the investing world, it is always suggested that “Do not try to catch a falling knife!”, especially if you’re a beginner. Anyways, the investors should proceed with great caution if they are interested to invest in these kinds of stocks. In general, these stocks are extremely dangerous and may result in a severe loss if the investor enters at the wrong time.

Note: Even in real-world, trying to catch a falling knife is extremely dangerous and can easily hurt your hand. A thumb rule here is to wait for the knife to fall on the ground and then pick it up. Similarly, if you are planning to invest in a falling knife stock, wait until the prices drop at a significantly lower price with a huge margin of safety.

falling knife example

A few recent examples of falling knife stocks in the Indian market

— Yes Bank: The stocks of Yes Bank has declined over 85% in the time duration between August 2018 to September 2019.

manpasand beverages share price sept 2019

— Manpasan Beverages: The stocks of Manpasand Beverages has declined over 95% in the time duration between May 2018 to September 2019.

yes bank share price sept 2019

— DHFL: The stocks of Deewan Housing Finance Corporate Limited has fallen over 90% in the time duration between September 2018 to September 2019.

dhfl share price sept 2019

If you have already tried catching these falling knives stocks during their downward journey, your portfolio would have been severely hurt by now. However, can these stock rebound and give massive returns to the investor who are planning to enter at this price? The answer to this question requires a lot more comprehensive study than just looking at their share price.

How falling knife stocks work?

The journey of falling knife category stocks is pretty straightforward. Initially, the negative news regarding a company can result in the decline of the share price. However, when the situation continues to degrade, it results in a market panic and subsequent fall in the prices. During such cases, there are two possible outcomes:

  • In a few cases, the share prices may rebound if there is positive news or the company is able to control the damage in the near future. Such scenarios can be extremely profitable for the investors who bought the stock at the discounted price before they bounced back.
  • However, in most cases, the investors may face severe loss even if they bought the stock at a discounted price if the company’s performance continued to weaken. In the worst-case scenario, if the company goes for bankruptcy, the investors may have to lose most of their investments.

Overall, picking such stocks at the near bottom can result in a massive gain. However, entering these companies at the wrong time may lead to a disaster. There are cases when these stocks never rebounded to the original price for decades since they started falling.

Reasons for the Company’s Price to fall:

There can multiple reasons for the company’s share price to decline. Here are a few of the top reasons:

  • A significant decline in revenue and profits for a continued time period.
  • Negative reports and the company continuously missing the market estimates/targets.
  • Deterioration of the company’s fundamentals
  • Discovery of malpractice by the company, fraud charges by SEBI or lawsuits
  • Changes in the management like the resignation of top managers, promoters, etc

Here, if the decline in the price is due to temporary reasons, the long term investor should continue to hold the stock or even buy more. However, if the reason is because of the change in the company’s fundamentals, it’s time to exit, even if you have to book a loss.

Also read: Why is a VALUE TRAP? The Bargain Hunter Dilemma!

Why investors are so much interested in catching falling knife stocks?

Many people find investing in falling knife stocks fascinating because of the following reasons:

  • As the share price of these companies has fallen significantly, they appear to be undervalued. Most investors consider these stocks as an excellent opportunity to purchase the stock before it rebounds to make handsome capital appreciation.
  • People anchor the current price of the company with its original price before it started falling and hence believe them as cheap. However, while anchoring the price, they do not give enough importance to recent events which resulted in the decline of prices.

Anyways, an investor should only buy these stocks if they have fundamental reasons backing the company, not just because the price has fallen significantly.

Also read: 11 Must-Know Catalysts That Can Move The Share Price.

A few points to consider which catching a falling knife stock:

If you are planning to invest in a falling knife stock category, here are a few points that may help you to analyze the situation better and avoid loss:

— Start with analyzing your own behavior: Are you planning to enter that stock because you’re anchoring its current price with its past prices, based on some predictions, or just to gamble.

— Say ‘no’ more often: In most of the falling knife cases, the stock is not profitable to the investors for sustained longer period of time. Although such stocks may seem like a great opportunity, try to say ‘no’ to the stock as much as possible. The more frequently you say ‘no’, the more time you’ll get to study the company and evaluate it better.

— Understand the situation: Read about the recent and past happenings and analyze whether the problem is temporary or structural.

— Do not buy stock on the first decline: There’s a famous Cockroach theory which says that if you find one cockroach in your kitchen, there are more cockroaches likely to be discovered. Similarly, if there’s a piece of bad news related to the company, more is yet to be revealed. Usually, after the first decline, there are more troubles ahead for the company. Therefore, as a thumb rule, do not jump into the stock on the first decline.

— Know the worst-case: Knowing the worst-case scenario can make you prepare for it. Before entering the stock, know how much risk can you handle. Will you be comfortable if your investment value in that stock falls below 70%? What is the risk vs reward for your investment?

— Be pessimistic: While calculating the intrinsic value of the stock, always be pessimistic and take conservative values while estimating the growth rate and estimating the future cash-flows.

— Always have a margin of safety: As these stocks have a higher risk, always have a bigger margin of safety while investing in these companies. For example, if the fair calculated intrinsic value turns out Rs 100, then give yourself a margin of safety of 40% and invest only when the price goes below Rs 60. The higher the margin of safety, the lower will be the risk.

— Diversify — Yes, you want to make big returns and the falling knife stocks seem to have the potential to give higher capital appreciation. However, if because of any reason, let’s say that your study is wrong or the stock didn’t perform the way you supposed it is going to, then you will face critical damage. Therefore, do not put all your money in a single stock, but diversify.

Also read: 5 Psychology Traps that Investors Need to Avoid

Closing Thoughts:

A falling knife stock category may represent a high opportunity, but they also have a higher potential to hurt the investor’s portfolio.

For newbie’s, it’s difficult to judge whether the stock is a value stock or value trap. If you are a beginner and not experienced in judging companies, I would suggest to simply ignore these stocks and try to find fundamentally strong companies.

For experienced investors, if you are planning to purchase them, then know what you’re getting into. Analyze the reward that you may receive by investing in these stocks, but also have the heart to see your investments going down and not making any gains for a long time. You should not expect the stock to bounce bank the very next day or even a month or so when you enter.

What are the Different Career Options in the Stock Market in India cover

What are the Different Career Options in Indian Stock Market?

The equity market has opened a lot of career opportunities in recent years. This market is getting bigger day by day and the opportunities for employment in the Stock Market are growing every day. People from all background whether science, commerce or humanities, are showing more and more interests to pursue their career in Stock Market today.

At one hand, many people are opting to become a financial market participant and work independently. On the other, a significant number of Startups are establishing innovative ideas to create disruption in the Indian Securities Market.

In this post, we are going to discuss a few excellent share market career opportunities in India. Let’s get started.

Different Career Options in Indian Stock Market-

Stock Broker

As you might already know, if you want to trade or invest in the Stock Market, you must open a trading and Demat Account. These two accounts are offered by stockbrokers. So, given the largely growing investing population of India, you can easily guess how prospective the career as a Stock Broker could be.

For example, If we take of Mr. Nithin Kamath, the founder of Zerodha (discount broker), he started off his career as an Engineer and subsequently started taking interest in the Stock Market. Later, he found the financial market so fascinating that he switched his profession as an engineer to a Stock Broker. In the year 2018, Zerodha, his stockbroking company was awarded the best discount broker entity in India by NSE.

zerodha kamath

Further, in order to become a Stock Broker or open a stockbroking entity, you don’t require a strict eligibility criterion in terms of academics. Nonetheless, you need to clear NISM exams and get your license from the SEBI. Anyways, if you plan to be a Stock Broker, it is important to gain a practical understanding of the Market. So, it is better to work with a Securities Broker for at least 5 years to gain requisite experience if you are willing to start your own venture.

Next, if you want to get employed in a Stock Broking Firm, you will need to clear 12th standard at the minimum. Graduating in Accounting, Economics or Finance will help you start your career from a decent level. Qualifying Post Graduation is not necessary but it might help in fast promotion in the industry. In case you have qualified professional courses like CFA, CA or FRM, no doubt your career path would become really smooth.

(Note: You can read detailed information regarding making a career as a Stock Market Broker here.)

Financial or Investment Advisor

If you want to start your own consultancy business in the Financial Market, becoming a Financial Advisor or an Investment Advisor is a perspective option.

In recent years, AMFI has been trying hard to bring the income earners in our country to invest in the Mutual Fund industry through their campaign “Mutual fund Sahi hai!”. However, just AMFI is not big enough to educate and convince billions of people in our nation to invest their money in the financial market. As an Investment Advisor, you can reach a plethora of prospective clients.

Preparing customized financial plans, providing consultancy services on wealth management and educating people on financial products can assuredly help you to build a career and make good money in this industry.

To become a Registered Investment Advisor, you will require an education and certification criterion. If you have a graduate degree in Finance/commerce or at least 5 years of work experience with a financial company, you meet the educational criteria. Note that if you are an engineer with just a B.Tech degree, you do not meet the educational criteria by SEBI. Here, you need work experience in the finance field for at least 5 years or a post-graduate degree in finance.

Anyways, if you are a Post Graduate degree in finance, you won’t require any work experience to apply for your license from SEBI. Further, whether you are a Graduate or a Post Graduate, you mandatorily need to clear the NISM Investment Advisory Certification exam to apply for the SEBI registered Investment advisor. Once you meet all the educational and certification criteria, you can apply to SEBI and get your license. (Note: You can read this post to learn further on how to become an Investment advisor in India.)

Besides, completing CA, CFA or CFP will also help you get the required knowledge you need to render professional services to your clients.

Also read: What is SEBI? And What is its role in Financial Market?

investment advisor

Research Analyst

Apart from becoming an investment advisor, Equity Research Analyst is also a lucrative career option nowadays. Let us have a brief understanding of this.

Equity Research includes Buy-Side Research and Sell-Side Research. In the case of the former, the researcher work with a financial service organization which directly invests people’s money in the Stock Market. Here, you need to research the stocks to help the Fund Managers make decisions with respect to managing the available financial assets. In the case of Sell-Side Research, the researchers analyze equities and equity derivatives for the clients who are retail traders and investors.

If you want to start your own business as an independent Research Analyst, the eligibility criteria are similar to Investment Advisory option. Further, if you want to take a job as a Research Analyst, the top financial service entities in India look for candidates who are MBA graduates from Tier 1 institutes. Nonetheless, you can also make a career as a Research Analyst if you have completed CFA or CA. (Note: You can read further regarding Equity Research Analyst profession here.)

Portfolio Management Services (PMS)

If you are a Mutual Fund investor, you might know that your investments are managed by the experienced and skilled Portfolio Managers. The Wealth Management firms operating in India handle clients’ money via professionally qualified Fund Managers. Portfolio Management could be an extremely rewarding career if you are good with managing money and have a strong understanding of the Financial Market.

In order to enter this field, you will require professional qualifications like CA, CFA or MBA (Finance). Moreover, if you are a fresher, it is extremely hard to get into this field. Here, you may need experience of at least a decade of working in the Finance domain as you need to grasp the level of maturity of handling assets which amount in crores. Therefore, if you are considering to become a Portfolio Manager, you may first start working in the marketing and research for 5 to 10 years. (Note: Here is a blog that can answer your additional questions on the career as a Portfolio Manager)

Conclusion

In this article, we tried to cover different career options in Indian stock market. Parting advises- if you are planning to make a living from the Stock Market, you need to have an in-depth understanding of the financial world.

Although possessing academics and professional qualifications are necessary but having practical exposure to how the market exactly works is more important. Besides, whichever stock market career option you choose, having strong communication and analytical skills are always add-on advantages.

no time to invest problem

Excusing ‘No time to invest’ has become a National Problem!

It’s a known fact that the majority of the Indian population do not invest their money. Apart from little allocation in a few traditional investment options like gold, savings, fixed deposits or LICs, the involvement of Indians in the higher-rewarding investment opportunities like Stocks, mutual funds, ETFs is quite minimal. If we look into the equity market, hardly 2.5% of Indians are actively involved.

Now, according to the non-investing population, the two biggest reasons that stop them from investing are ‘lack of education’ and ‘lack of time’.

For the first part i.e. the lack of education, it might be a little fault of our education system, somewhat of the parents but mostly of the individuals. Investing is not a rocket-science that only people with high-IQ can pursue. Anyone can learn and start investing. People should not always blame others if they are not ready to learn. There are a lot of free resources available online and offline, which is enough to get adequate investing knowledge.

Anyways, the other common excuse that most people make for not investing is that they don’t have enough time to invest. “No time to research where to invest!”. A few may even argue that setting up a trading account and making investments takes a lot of time which prevents them from investing.

However, all these are just excuses. In this online era, setting up demat and trading account is very fast, paperless and hassle-free. In fact, you can set up your trading account with online brokers like Zerodha, within 10 minutes. The problem is that you never researched where to open your trading account or how to get started.

It all depends on your priority…

“It takes too long to invest” — This is just another myth among beginners. However, it does not take as much time as every newbie assumes and investing habit can be easily adjusted in your day to day life.

If you can make time to go to the gym everyday, dining out every other day, partying on weekends, or going on vacations every three months, then stop saying you don’t have time. As a matter of fact, if you are ready to spend 2–4 hours every week, it is good enough to start and monitor your investments.

Further, even if you have a very hectic routine, you can steal a few minutes here and there. Like while traveling in your cab/metro, during your lunchtime, or even while having your coffee. At these time, instead of scrolling on facebook, you can do your investment research using mobile apps, which are super easy, fast and provides with all the facilities that you need.

Moreover, even if you are not ready to put a lot of efforts or time, there are still many easier routes to start investing. For example– investing in mutual funds or investing through Robo-advisors. If you believe that you won’t even be able to spend 2–4 hours per week for your investments, then pick a fund and start a monthly SIP. All these investment options do not take a lot of time.

Having no time to invest in a lame excuse for non-investors. The thing is these people never prioritize investing. They always keep procrastinating to invest for later, arguing that they do not have enough income/savings. Here, people are not investing because of the lack of priority, not the lack of time!

priority no time

You are losing ‘Time’…

“Start investing early” — this is the best advice that anyone can give you.

When you begin investing early, time is in your favor and so is the power of compounding. You will be way ahead of your peers towards building your investment corpus if you start investing even just a few years prior to them.

When you are excusing not enough time to invest, you are losing time that could have been your biggest ally. Remember, time can help or hurt you.

Also read: Bunty and Babli: A financial story of how Bunty lost Rs 1,29,94,044!

Sometimes later becomes never…

Every week, I receive dozens of emails from people in their 50s or 60s who have never invested in the equity market and now planning to enter.

Now, by no means, I am saying that people in their 50s or 60s cannot invest. As a matter of fact, it’s never too late to get started. However, these people kept excusing ‘no time to invest’ during their adulthood, which later resulted in them not to invest at all.

If you are young, you have a great advantage. Instead of throwing it away by making a lame excuse, take the best out of it.

Besides, you do not need to have a high paying job or large savings to start investing. Even people with medium to low salary range can invest smartly to reach their goals. If you are not sure how much, then a monthly SIP of Rs 5,000 is good enough to begin. That doesn’t sound too much to invest, does it?

No one cares about your financial goals except you…

Your friends will encourage you to party harder. You relatives will emotionally charge you to buy a fancy car/house to impress them. Your neighbors will challenge you to live above your standards to match them. But no one will motivate you to save more or to invest more.

No one cares whether your net worth or total asset is growing overtime or not. Everyone is dealing with their own financials/hardships and they don’t have any time for you.

The only one who cares about your financial situation is yourself. If you do not take charge of your investments, no one else is going to do it for you. The only way to secure your future and have enough money in your bank account is by becoming proactive and responsible for your financials.

Closing Thoughts

Stop excusing that you do have spare time to invest, instead start acting. Everyone has the same 24 hours in a day. If you are not investing, it’s not because you don’t have time. It’s because you do not understand the importance of investing.

And five years from now, you’ll regret why didn’t you start investing early.

Finally, as a bonus, if you are ready to take your first steps in the world of investment, here’s a free guide that can help you to get started. Good luck!

first mover advantage

Is First Mover a competitive advantage for a firm?

Zerodha was the first mover in the discount broking industry. Unlike the traditional brokers like Sharekhan, ICICI Direct, HDFC sec, etc. who charge large brokerages for their trading services, Zerodha offers a low brokerage charge. And as of 2019, Zerodha has outranked all these big players to become the biggest broking firm in India.

While reading this incredible success of Zerodha, one obvious question among people is whether being the first mover in the discount business model, the biggest reason for the Zerodha’s success? How big is the actual competitive advantage for the first movers? In this post, we are going to discuss the same.

Who are First Movers?

First movers are those companies who are the ‘first’ in line to offer their products or services in the market. They are the ones to innovate and develop a product/service which was not available previously in the market. Further, they do not face similar competition like the ones in the established markets.

In many cases, such companies can build great brand recognition and loyal customers for their products/services during the time gap, i.e. before the competitors enter.

An important point to note is that first-mover advantage is here referred only to those companies who are able to scale and make establish a big market, not the ones who just started the idea but didn’t make it large.

I mean, Amazon might not be the first company in the online bookselling industry. A lot of small businesses might be selling books or their products online before its establishment. However, Amazon was the one who was able to capture a significant market, make an impact and hence, can be considered as an actual first mover in this industry.

A few other examples of the first movers in their respective industry can be Kindle (ebook selling), eBay (online auction), Apple (iPhone & iPads), Uber (taxi booking & ride-sharing), etc.

In India, companies like Flipkart, Oyo, Olx, Ola etc. are the ‘Regional’ first movers. Although they copied the concept from their global rivals, however, being the first mover in the Indian subcontinent region gave them an advantage.

Advantages of First Movers:

Being the first mover, a company can enjoy a lot of benefits compared to the later entrants. Here are a few of the best advantages of first movers:

  • Brand recognition: First movers can create a strong impression which can help them build a passionate customer fan-base and create a big brand recognition even before any competitors enter.
  • Price & Benchmarking: The first movers enjoy the advantage of setting up their prices for the newly offered products/services and creating their own industry standards/benchmark.
  • Technological advantages: Being the first mover and having no competition allows a company to give sufficient time to build a perfect product and get a head start. Further, they can also file proprietary or patent rights to continue enjoying technological advantages.
  • Control of resources: First movers can control the resources by doing a strategic partnership (or exclusive agreements) with vendors, supplier; renting the best locations, hiring most talented employees in their industry, etc. The later entrants may face difficulty to find similar resources.
  • Switching cost: If the customer has to cost a lot of money, time, efforts, or resources to switch from one product to another, it is considered as the switching cost. First movers can enjoy the benefits of switching cost by launching their products earlier. Here, even if a better product/service is available, the customer may stick with the old company, if the switching cost is high.

Also read: SWOT Analysis for Stocks: A Simple Yet Effective Study Tool.

Disadvantages of First movers:

Although being a first-mover looks a lot advantageous for a firm, however, it has its downsides too. Here are a few cons of being a first mover.

  • In most cases, the later entrants or competitors can reverse-engineer, copy, or even improve upon the product/services offered by the first movers.
  • The first movers might take a lot of time to learn and innovate. On the other hand, the following entrants generally have a lower learning curve and can build the product faster.
  • The first movers might find it challenging to persuade people to try new product/services. However, later entrants can reduce this education cost.
  • The first movers can also face a lot of competition from the free riders. As the Imitation cost < Innovation cost, a lot of copy-cats can join the expanding industry to enjoy the upwards ride and reduce the profitability of the first movers.
  • The second movers or the competitors can avoid the failed steps made by the first movers and hence reduce their cost/expenses.

Is First mover a competitive advantage for a firm?

In the investing world, the competitive advantages are the ones which are sustainable for the long term, not for a few years.

Admittedly, being the first mover is advantageous and have a lot of perks. However, over time, the later entrants can destroy this advantage through reverse-engineering, workforce mobility, technical advancement, or even by merely copying the products/service offered by the first mover.

Also read: Pat Dorsey’s Four Moats for Picking Quality Companies

Closing Thoughts:

There’s one thing sure in this competitive world. First movers will not always be the only player in any industry. As they grow, a lot of new companies will enter that industry and try to eat their profits.

Further, a lot of big successful global giants were not the first movers. For example, Google was not the first search engine. It followed the model of Yahoo or Infoseek. Similarly, Facebook was a later entrant in the social media world after Friendster and Orkut. Even Starbucks or Cafe Coffee Day (CCD) is a copied business model of the famous local coffee chains. Still, these companies were able to dominate the market and establish a big brand and customer network.

Anyways, in a few cases, if the first movers can dominate a big market and establish a loyal customer base, they may retain a healthy growth level and profitability, despite new entrants.

10 Questions to Ask Before Purchasing a Stock - Investment Checklist cover

10 Questions to Ask Before Purchasing a Stock - Investment Checklist!

Picking a winning stock that can give consistent returns for many years requires a lot of analysis and research. However, you can simplify the research process if you have an investment checklist.

Having a reliable checklist for picking stocks can reduce the chances of missing an important detail that you should have studied before investing in the stock. As Charlie Munger, Vice-Chairman of Berkshire Hathaway has famously quoted:

“No wise pilot, no matter how great his talent and experience, fails to use a checklist.” — Charlie Munger

In this post, we are going to discuss ten key questions to ask before purchasing a stock by every stock investor. Let’s get started.

Quick Note: Although there are hundreds of points to check while picking a stock to invest, however, most of them can be categorized among the ten questions listed below. Anyways, by no means, I claim that this is the best checklist for picking stocks. My suggestion would be to study the investment checklist given below, improvise and make your own list of questions. Further, for simplicity, I’ve not included financial ratios.

10 Questions to ask before purchasing a stock.

Here are the ten key questions that every investor should ask before investing in a stock.

1. What does the company do?

What are the products/services that the company offer? Do you understand the company’s business model? How does the company actually make money? What are the top/best-selling products of the company?

2. Who runs the company?

Who are the promoters/owners of the company? It the company a family owned or professionally managed one? Who is managing the company? What are the credentials/background of CEO, MD, Board of directors and the management team? What is the shareholding pattern of the company?

3. Is the company profitable?

How much profits did the company generated in the last few years? How are the company’s gross, operating and net profit and what is the profit margin at each level? Is the profit of the company growing over time or stagnant/declining?

4. Does the company have a sustainable competitive advantage?

Does the company have a moat like intangible assets, customer switching cost, network effect, cost advantages or any other sustainable competitive advantage that can keep the competitors away from eating their profits?

5. How was the past performance of the company?

How is the company’s financials in the past few years? What’s the trend in the company’s income statement and cash flow statement? How are the sales, EBITDA, Cash from operating activities, free cash flow and other financial metrics over the past few years?

6. How strong is the company’s balance sheet?

Are the assets of the company growing over time? How much is the liability of the company? Is the company’s shareholder equity increasing? How much cash do the company have on the asset side? How much is the company’s Intangible assets, Inventories, Receivables, Payables and more? Does the company invest in its Research & Development, especially in a few sectors like Technology, Pharmaceutical etc?

7. Was the management involved in past fraud or scams?

Was the company’s promoters or management involved in any past scam? Does the company has any history of cheating the shareholders or any past penalty by SEBI?

8. Who are the key competitors?

Who are the direct and indirect competitors of the company? What is the market share of the company vs the competitors in the industry? What this company is doing differently compared to its competitors? Are there any global competitors or the possibility of global leaders entering the same market anytime soon?

9. How much debt the company has?

How much short-term and long-term debt the company has? Does the company generate enough profits or Free cash flow to cover the debt in the upcoming years? Have the promoters pledged any of their shares?

10. How is the stock valued?

What is the true intrinsic value of the company? Is the company currently over-valued, under-valued or decently valued? Is the company relatively undervalued compared to the competitors and industry? What is the calculated intrinsic value by different valuation method? How much is the margin of safety? Will you be overpaying if you buy the stock right now?

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Closing Thoughts:

Although getting a recommendation or investing where friend/colleague suggested may land you into a few profitable deals. But if you want to make consistent returns from the market (and not just being lucky), you need to build your own trustable investing strategy.

It’s true that picking a winning stock required a tremendous amount of research. However, having an investment checklist of questions to ask before investing in stock significantly reduce the chances of investing in fundamentally weak stocks. Moreover, you can easily eliminate over 90% of the companies who don’t meet your checklist.

I hope the questions discussed in this post is helpful to you. If I missed any additional important to ask before purchasing stock in this investment checklist, feel free to mention below in the comment box.

That’s all. Have a great day and Happy Investing!

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What is Return on Capital Employed (ROCE)?

Hello Readers! In today’ post, we will be exploring the formula and the concept behind the Return on Capital Employed or ROCE.

The topics we shall cover in the post are as follows,

  1. Formula and calculation
  2. How to calculate NOPAT?
  3. How to calculate Capital Employed?
  4. The conceptual and interpretation of the formula and closing thought

1. Formula and calculation

Return on Capital Employed, as the name states, is the profit generated by the total capital used by the company for its operations for a period. It is widely used as a measure of profitability in the financial and the investment community. Although not commonly used around three decades ago, it has traveled a long way to even occupy center stage in the decision making of some portfolio managers and retail investors.

ROCE is computed as the percentage of Net Operating Profit after Taxes (NOPAT) upon the total long-term capital employed.

Return on Capital Employed = NOPAT / Total Capital Employed

Since the NOPAT is generated over the financial period which the Capital Employed is a balance sheet item and is normally represented at a period in time, some investors argue that the use of ROCE based on average Capital Employed during a period is a better metric.

The calculation for that is as given below

Return on Capital Employed = NOPAT / Average Capital Employed

Where, Average Capital Employed = (Opening Capital Employed + Ending Capital Employed)/2

The denominator of the above expressions implies that ROCE can also be defined as the return earned by the business as a whole or alternatively as the return generated by the capital contributed by both the creditors and the equity holders of the firm together.

In the case where the debt-financed component of capital is very low, the ROCE should give a value closer to ROE for similar earnings than a company which operates with a highly leveraged position.

2. How to calculate NOPAT?

The NOPAT or the Net Operating Profit After Taxes are calculated on the basis of two key inputs, EBIT and the TAX rate. In India, we have a corporate tax rate of approximately 30% for companies with revenues greater than ₹250Cr and around 20% for companies with revenues less than ₹250Cr.

The NOPAT calculation is pretty straightforward and can be done as per the equation below,

NOPAT = Earnings Before Interests and Taxes (1-Corporate Tax Rate)

NOPAT = (Profit before Taxes + interest payments + one time adjustments) (1-Corporate Tax Rate)

The black box here in this equation is the one-time adjustments, this includes earnings and expenses which are not regularly generated through operating activities of the company. These may include litigation expenses, loss/gains from the sale of assets, gain/loss due to asset revaluation of inventory, etc.

(However, if a company makes these kinds of expenses or gain regularly, it would require deeper inquiry on the side of the investor)

3. How to calculate Capital Employed?

The calculation of the denominator part of the equation is fairly simple and can be done from the line items reported on the balance sheet of a company.

Since the Capital Employed as mentioned before refers to the total capital raised from both the debt holders of the firm and also the equity holders, the formula should reflect contributions of both the capital provides to the assets of the company.

Capital Employed = Total assets – Total current liabilities.

This could also be shown as,

Capital Employed = Shareholders Equity + Non-current liabilities

Also read:

4. The conceptual and interpretation of the formula

Most investors in the financial world like to see that the company they are about to invest in has a ROCE value greater than the Weighted Average Cost of Capital or WACC. WACC best defined as the minimum return a company should get subject to its unique capital structure.

If the ROCE of a company is greater than the WACC then the company is said to generating value for its shareholders and it is advised that the shareholders continue to hold the company in their portfolio. If the company’s ROCE is less than WACC then it is said to be destroying shareholder value and since equity holders are the last paid in the preference order of payments it is advised that equity holders stay out of such a company.

The calculation of WACC or the minimum return to be achieved the company is slightly complicated however a non-finance retail investor who could instead compare ROCE by arriving at his own required rate of return.

Since most retail investors may not be familiar with the computation and the vagaries of WACC, we feel it would be beneficial to use the following thumb rule to come up with your own required rate of return.

Required Rate of Return (%) =  (Risk free bond rate + inflation rate + market risk premium) margin of safety

Where the market risk premium refers to the additional premium an investor would expect for investing in markets for most cases it would be better to take a value between 3%-5%.

Assuming an interest rate on a 10-year Indian Government bond is 8.2 percent, inflation rate of around 8 percent, a market risk premium of 3% and a margin of safety of 20 percent,

Required Rate of Return (%) =  (8.1+8 +3) 1.20= 19.1 * 1.20 =  22.9%

Now if a company generates a ROCE greater than 22.9% then the company is creating value at a rate greater than the rate of return we calculated above and could be a target for shortlisting for investments.

Although not entirely foolproof, ROCE provides a lot of insight into the working business model of a company. Furthermore, an investor could gain better insights if he/she were to compare the evolution of the ROCE value for the last 5 to 6 years of company to form an opinion.

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How To Evaluate The Cash Of A Business?

You might have heard the phrase ‘Cash is the king’.

A cash-rich business means that the company has enough cash left after paying all its expenses and debts. For the company with high cash, it simply means more liquidity and opportunities for the business.

However, very high cash is also not good for a company as it means that the company is leaving potential investment opportunities. Overall, low cash can affect business stability and high cash can reduce its efficiency.

And therefore, it is really crucial to understand the cash position of business before investing. In this post, we are going to discuss how to evaluate the cash-rich businesses to understand whether the company has low, sufficient or excess cash.

Cash and cash equivalents

When it comes to evaluating the cash position of a company, the investors look into the cash and cash equivalents (CCE) section of the balance sheet.

These are the company’s assets that are cash or can be converted into cash fast. Here, cash equivalents can be defined as the assets that can be converted into cash within 3 months like Money market funds, Short-term Government bonds, Treasury bills, Marketable securities etc.

All cash and cash equivalents are recorded in current assets segment of the balance sheet and are the most liquid asset of a company. Now, let’s understand the two common scenarios with respect to the cash level of a business.

Case 1: Low cash

When a business has low cash, it can be little worrisome for the company as it may have or will face some problems to pay short-term obligations.

In case of sufficient cash, companies can easily settle short-term debts (obligations), make an in-time purchase of new inventories/equipment, buy into lucrative investments/new technology, grab mergers and acquisition opportunities, increase dividends etc.

However, lack of adequate cash may push the company towards potential short-term problems. As a thumb rule, avoid investing in companies with low cash balance.

too much cash

Case 2: High Cash

Although high cash helps a company in staying out of trouble of short-term obligations, supporting regular business operations in tough times, funding in its growth, superior performance etc. However, many times, excess cash be a little unfavorable.

Too much cash in company’s balance sheet simply means that the company is leaving potential investment opportunities to invest in the growth of its business operations or investments in other higher return instruments.

As Warren Buffett used to say- “Cash is the king. But it’s not much help if the king just sits there and does nothing.”

Too much cash reflects the inefficiency of the management to utilize it properly.

How to evaluate the cash of a business?

The cash position of a company can be evaluated using cash to current assets ratio. This ratio reflects the percentage of the total assets by cash and cash equivalents

Cash to current assets ratio = (Cash and cash equivalents)/(Current assets)

Although ideal cash and cash equivalents depend highly on the industry, however, as a thumb rule, cash to assets ratio of more than 40% can be considered to be excessive cash for the company.

Now, let us calculate the cash to current assets ratio of Hindustan Unilever (HUL) from its balance sheet.

HUL Balance sheet

(Source: Yahoo finance)

From the above statement, you can find the cash and cash equivalents (CCE) and total current assets of HUL over the years. For the year ending March 2018, the cash to current assets ratio turns out to be equal to 5.57%, which can be considered decent. (Quick note: You need to check this ratio over the past few years and compare with the competitors to better understand the cash position of HUL).

Also read:

A word of caution:

Although having high cash is good for businesses, but it is equally important to understand the source of that cash i.e. where that cash is coming from?

There are different ways for a company to pile up cash. Apart from the profitability of the business operations, a few other ways to build cash is by taking debt or selling its assets. And both of the later two ways to generate cash is not favorable for a company as a high debt means greater interest obligations. Further, selling the assets to pile up cash may affect the future profitability of the company.

Therefore, you should always check the source of cash for the cash-rich businesses. You can find out this by looking at the cash-flow statement of a company.

In the cash flow statement, check the cash from operating activities. If this is consistently increasing, it’s a positive sign and means that the company is able to generate profits from its core businesses operations. Further, also check the cash from investing activities to find out purchase or sale of assets. Finally, also look into the debt obligations of the company for the long-term and find out its trend over years.

Note: If you are new to the financial world and want to learn how to effectively read the financial statements of companiesfeel free to check out this awesome online course on Introduction to Financial Statements & Ratio Analysis.

Bottom line

The cash of a business can be roughly evaluated by navigating the cash and cash equivalent section in the company’s balance sheet. Here, cash to current assets ratio is used to check the cash level of a company.

A company should have sufficient cash to effectively run its short-term operations. However, huge cash can also be little troublesome for a company as it reflects the management’s inefficiency to use the cash productively.

That’s all. I hope this post is useful to you. Happy Investing!!

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What is Working Capital? Definition, Importance & More.

What is Working Capital? Definition, Importance & More.

Hello Readers. One of the most important factors to check while analyzing a company before making an investment decision is its working capital.

In simple words, working capital can be defined as the funds available to a firm to finance its regular operations like day to day business activities. Nonetheless, the noteworthiness of working capital is way more than what most people think. 

In today’s article, we will be focusing on the importance of working capital management and how it could be studied to get a deeper insight into the companies we are researching for potential investments. 

Here are the topics that we’ll cover in this post.

  1. What is working capital?
  2. Why is working capital important?
  3. What factors affect the working capital of a company?
  4. When Negative net working capital is actually positive.
  5. Conclusions

Overall, it’s going to a very educational post. Therefore, please read this article till the very end. Let’s get started.

1. What is working capital?

To define the term in the simplest words, working capital is essentially the funds that have been allocated for day to day operations of the firm for the current financial year. These funds need not entirely be held in cash but could also include any asset or liability from which a cash transaction could be expected. This could include account tradables, cash in hand, account payables and short-term borrowing and loans.

The most commonly used formula for working capital is given by the following,

Net Working Capital = Current Assets – Current Liabilities

When an investor wants to look only at the operating level of a company he may prefer to use the following formula for working capital.

Operating Working Capital = Cash + Inventory + Accounts Receivables – Accounts Payables

Please note that the operating working capital excludes the short-term interest and loan payments a company may have to incur in a financial year.

2. Why is working capital important?

Conventionally, the working capital is used as a measure of a company’s liquidity. Since it is calculated on the basis of accounts receivable/payable, cash, borrowing and payments, the working capital of a company could tell us a ton about the management’s approach and commitment to inventory management, debt management, revenue collection, and payments to suppliers.

A positive working capital would imply that a company has got a good control over its transactions and is able to collect and make payments with a large degree of freedom.

A negative working capital, on the other hand, would normally imply the opposite.

3. What factors affect the working capital of a company?

Although working capital is studied to get an understanding of the management and the general thumb rule that positive working capital is always better than negative working capital works most of the times in investing. We, at Trade Brains, believe that investors could get access to more opportunities if they were to take a more holistic approach to study working capital.

Since a company is always involved in a particular business, it is, therefore, logical to assume that all the short/long term factors affecting the industry will determine how managers conduct their operations and hence the working capital. In some industries, managers can offset the risk in operations by choosing a favorable business model. Depending on the kind of model they choose to operate could also determine the working capital of the company.

On a broad level, the list of factors that can affect the working capital of a company are as below (note that this is not exhaustive but may be used as a guide)

  • Nature and type of business
  • Type of Industry
  • Factors of production and their availability
  • Competition
  • Price levels and inflation
  • Production Cycle Time
  • Credit Policy and agreements with suppliers and customers
  • Growth and Expansion strategies
  • Working capital cycle

A more quantitative approach to analyzing working capital would be through a basic ratio analysis. Below are the most useful metrics used by fundamental investors.

4. When Negative net working capital is not so negative!

Imagine a newspaper printing and distribution company with around 2,000 customers in a city. When a customer signs up for a subscription for 1 year, he/she may have to pay the amount up front for the period for which the service is provided. Assume that the subscription cost for one year is ₹1,000, this implies that the company will receive ₹20,00,000 in advance payment. This amount is recorded under accounts payables portion of the balance sheet. Assume that the company holds another ₹8,00,000 in cash and an inventory worth ₹2,00,000.  The net working capital of the company can then be computed to be -₹10,00,000.

In the above example, it can be noticed that even though the working capital happens to be negative the business model of the company allows the company to receive its cash well in advance. This cash could then be ploughed back into the business as investments into new equipment or into marketing to expand its client base.

In general, companies that have high inventory turns and perform a lot of business on a cash basis, such as grocery stores or discount retailers, require very little working capital. These types of businesses raise money every time they open their doors. Because of their advantages, these company can also enter into contracts with vendors and suppliers to lend their products for free for a specified period of time. These partnerships allow the retailers/discounters to keep their cash in hand and employ them elsewhere which trying to sell the products they got through credit. If they are unable to sell them they could just return it back to the vendors before the end of their negotiated period without any cost.

The following sectors are normally observed to operate with a negative working capital.

  • Retail: Due to supplier agreements and high inventory turnover
  • FMCG: Able to leverage their wide brand appeal and customer demand to get retailers to book their products in advance
  • Automobiles: Companies employ “just in time” manufacturing policies to keep efficiency high and inventory at low levels. Also, they normally charge a decent sum as an advance from customers as booking charges.
  • Media: Services are provided only after an upfront subscription fee

5. Conclusions

Although analyzing the working capital and its various components form an essential part of investment research. An investor should always keep in mind to view the company as a business and try to understand the root causes within the business model or the industry which drive the numbers.

Sticking to an individual’s circle of competence may help greatly in this regard which investing in stock markets. Happy Investing!

Why Nobody Talks About VALUE TRAP

What is a VALUE TRAP? The Bargain Hunter Dilemma!

Have you ever bought a cheap stock, which later got cheaper and cheaper? If yes, then you might already have met with- Value traps.

Value traps are those stocks which may seem like a value stock because of their cheap valuation. However, in actual, they are garbage stocks. Unlike value stocks, these value traps do not have true potential to give good returns to their investors and that’s why their price keeps on declining for a continued period of time.

Why do investors fall in value trap?

There are some stocks which may appear cheap because they are trading at a low valuation metrics such as PE, price to book value ratio, cash flow ratio etc.

The bargain hunters keep an eagle eye on these stocks as they appear cheaper compared to their historical valuation or relative to the market.

These investors buy these stocks at a low price considering them as a value stock. However, the problem arises when the price keeps on dropping for an extended duration of time.

Here, instead of purchasing a value stock, the investor has fallen for a value trap.

Also read: #9 Things I Wish I had Avoided During my Initial Days in Stock Market.

VALUE TRAP 4

What actually is a ‘value trap’?

The value traps are those stocks which are ‘not’ cheap because the market has not realized their true potential or because of some temporary setbacks. These stocks are trading at a cheap valuation because the company has either lost its fire or else its fire is fading away.

A value trap is that stock which is not able to generate any significant profit growth or revenue. A few of the general reasons for the underperformance may be rising production/operational cost, declining market share, lack of new product/services, change in competitive dynamics or inefficient management.

The investors who buy such stocks just by evaluating its low valuation (without giving any regard to the reason why the valuation is low) falls in the value trap.

Also read: Why Warren Buffet Suggests- ‘Price Is What You Pay, Value Is What You Get’?

Real value stock vs value traps

The real value stocks are those stocks which are trading below their intrinsic value. The reason for their cheap valuation may be either temporary factors or because the market has not yet realized their true potential.

Few common characteristics of value stocks are consistency, strategic advantage, strong business plan, growing cash flow and high-quality financials. Further, these stocks can be considered value stocks only if they are bought at a significant margin of safety by the value investors.

On the other hand, value traps are those stocks that are trading at a low valuation because of long-term or permanent setbacks (factors).

These stocks are not actually trading below their intrinsic factor. They are just trading at a low valuation compared to their historical valuation or relative to the market (which might be even above its true intrinsic value).

Value trap stocks lack catalysts or momentum to retrace its original growth track.

Also read: SWOT Analysis for Stocks: A Simple Yet Effective Study Tool.

Common traits of value traps:

Although these value trap stocks might be trading at a low valuation compared to its past valuation or market, however, the chances of these stocks bouncing back to their historical valuation are quite low.

Most of the value trap stocks suffer from lack of innovation, degrading competitive advantages, high debt, low-interest coverage potential, poor management, declining profitability and no future growth prospects. Proper research is required while investing in these cheap stocks to understand the reason behind their low valuation.

For example- if the average PE of an industry is 18x and stock is trading at 5x, then considering the PE valuation, it might look like a value stock. However, whether its actually a value stock or a value trap can only be found after proper investigation.

Similarly, if a banking company is trading at a price to book value of 4x compared to the industry average of 9x, then again the bargain hunters first need to investigate the reason behind the low valuation of that stock before concluding it as a value stock.

Also read: Why You Should Invest Inside Your- Circle of Competence?

VALUE TRAP 3

Here are a few common signs that the cheap stock is actually a ‘Value Trap’:

1. Declining earnings:

If the earnings and cash flow of a company are consistently declining for past few couples of years, then the stock might be a value trap. The low valuations of these stocks are because of their dull future prospects. The market works on future expectations and if investors cannot see any future growth potential in the company, then the stock might even degrade further, no matter how low is the valuation.

2. Business plan:

A company with outdated technology or a non-profitable business cannot be a value stock. Take the examples of the 2G/3G technology based telecommunication companies. Most of such companies ran out of business just because of outdated technology.

3. Poor Management:

A poor and inefficient management of a company is a sure sign of a value trap. If the management lacks the driving force and their strategic vision is cloudy, then the investors of that company might suffer from value traps.

4. High Debt:

Huge debt and leverages are never favorable for a business. A big debt is an actual trigger for the most deadly value traps.

5. No change in management compensation structures:

If the earnings have declined and still the management keeps on giving huge bonuses to their top management structures, then definitely they have not adapted to address the problem. During declined earnings or troubled times, a company needs to change their fundamental behavior in order to get back in the race.

6. Poor financials and accounting principles:

The financial accounts should be clear and transparent enough to give the true snap regarding the company. If the accounting of a company is not credible, they might be hiding some financial difficulty or even solvency.

7. No change in capital allocation method:

With the shift in the scenarios, the company needs to change its capital allocation method like how much capital they want to allocate in their growth, dividends, capital expenditure or to get rid of a big debt.

8. Strategic disadvantages:

Declining market share, declining competitive advantage, and company not being able to contain its costs are again a few big signs of a value trap.

9. No growth catalysts:

When the company starts moving in the wrong direction, it might need some kind of catalysts to move back to the growth track. These catalysts can be new innovations, products/services or even earning growth. If the company is lacking any sign of growth catalyst, then again that cheap stock might be a value trap.

Also read: 11 Must-Know Catalysts That Can Move The Share Price.

Although, there can be a number of other signs that a company is a value trap, however, these nine are the top signs.

Quick Note: New to stocks? Want to learn how to select good stocks for long-term investment? Check out this amazing online course: HOW TO PICK WINNING PICKS? Enroll now and start your investing journey today.

Summary:

The actual goal of a value investor is to avoid value traps. Therefore, my first suggestion to every value investor would be to research the stock properly before investing.

However, even seasoned investors sometimes fall into the value trap and buy garbage stocks considering them undervalued.

In such a situation, the best you can do is to understand the problem and cut off the stock as soon as possible. Do not purchase more stocks in order to average down or hold the stock long enough with an expectation to break even. The faster you can get rid of that stock, the better it is for you.

In the end, let me tell you the law of holes: “If you find yourself in a hole, stop digging”.

10 Best Youtube Channels to Learn Indian Stock Market cover

10 Best Youtube Channels to Learn Indian Stock Market

With the boom of the internet, self-education has never been easier. Now, you can learn any skill that you crave by sitting on your couch and watching youtube videos. And that too for FREE. There are tons of information and resources available on youtube to learn whatever you want. And if you want to acquire financial literacy without spending a dime, Youtube is definitely one of the best places where you should be.

Anyways, if you are a newbie to investing world, you might not know the best youtube channels to learn Indian stock market. After all, there are thousands of youtube channels which discuss stocks. But which ones give the best information? We’ll answer this question today. In this post, we are going to discuss ten Best Youtube Channels to learn Indian stock market.

Quick Note: There may be a few more good channels that we might miss in this post. This may be because we never watched their videos or the channel is launched recently. If we miss any of your favorite youtube channel feel free to mention in the comment box. We’ll be glad to add it our list of best youtube channel for Indian Stock Market. 

Nonetheless, you might not synergize with all the channels as they may cover different core areas like fundamentals, technicals or future/options trading strategies. Only subscribe to the channels that suit you the best and whose ideology you would like to follow. So, let’s get started with our list of 10 Best Youtube Channels to Learn Indian Stock Market. Here it goes.

10 Best Youtube Channels to Learn Indian Stock Market

— FinnovationZ

This channel uploads animated financial education videos on stock market tutorials, mutual fund basics, book summaries, case-studies, etc. FinnovationZ has uploaded over 320 videos on their channel and had got +41 million views on their videos with +670k subscribers. The videos on this channel are mostly in Hindi language and very simple to understand. If you are a complete newbie to the stock market, this is a definite channel to subscribe.

— Pranjal Kamra

Also known as Finology, Pranjal Kamra runs this channel and teaches the philosophy of value investing. On his channel, you can find over 130 videos on investing, stock analysis, mutual funds, and behavioral finance. Along with educational videos, Finology also offers courses, workshops, Excel tools, Advisory & research services etc on their website.

— Trade Brains

This channel is hosted by Kritesh Abhishek and is focused to teach stock market investing and personal finance to the do-it-yourself (DIY) Investors. On Trade brains youtube channel, you can find simplified investing videos on stock market basics, valuations, mutual funds, investing strategies and much more. You can subscribe to the channel using this link.

— Sunil Miglani

Sunil Minglani is an expert on behavioral aspects of Stock Market and has rich experience in analyzing stock chart patterns which he has co-related with human psychological patterns at a deeper level. He has uploaded over 250 videos on his channel and got over +410k subscriber. On Sunil Miglani’s channel, you can find videos on stock market basics, human psychology, Q&A with Sunil Miglani, etc.

— Nitin Bhatia

Nitin Bhatia is a Youtuber and founder of the blog nitinbhatia.in. On his youtube channel with over +549k subscribers, Nitin Bhatia uploads videos about stock trading & investing, Real Estate and Personal Finance to provide ‘Smart Ideas for Your Money’. He’s very consistent in making videos and has uploaded over 690 videos on his channel.

— Yadnya Investment Academy

This channel uploads simple investing videos in Hindi & English on the stock market, mutual funds, taxes and other investment options in India. The videos are extremely simple to understand. They have uploaded over +720 videos on their youtube channel and received over +190k subscribers. Invest Yadnya also offers different services like financial planning on their website.

— Ghanshyam Tech

This channel is run by Ghanshyam Yadav, a trader and trainer in stock market from Mumbai. This channel focuses on stock market trading and technical analysis. Ghanshyam has uploaded over 1,400 videos on his channel and here you can find videos on Nifty Trading, Technical analysis, Candlestick patterns, charting software and more.

— ProCapital.MohdFaiz

This channel is run by Mohd Faiz and the objective of this channel is to help the subscribers create wealth. Mr. Faiz has uploaded over +4,700 videos on this channel which has received over +95 million views. This channel upload videos on current news, technical analysis, stock charts, patterns and more.

— Market Gurukul

The marketGurukul channel is managed by Mr. Edward and is one of the best technical analysis youtube channels in Hindi. He uploads videos on Indian Stocks, Commodity or Forex Trading including Trading Psychology, Money Management along with hardcore Technical Analysis. You can find over +170 videos on this channel teaching technical analysis, Strategies, and Indicators to know the markets better, demo trading platform and more.

— Varun Malhotra

The host of this channel, Varun Malhotra, Director EIFS, started investing at an age of 17. He dropped out of his Campus placements at IIM-A to continue his journey in the investment world. Since 2010, Varun Malhotra has trained over 500,000 Investors including the entire 250,000 strong force of Border Security Force. On his youtube channel, he uploads videos on stock market investments & mutual funds. Varun Malhotra has uploaded over +45 videos on youtube and earned+225k subscribers.

Also read: 7 Must know websites for Indian stock investors

Closing Thoughts:

If you are not from a finance, commerce, business background or from a family of stock market enthusiasts, the chances are that you do not know the stock market lingo or even the frequently used terms like dividends, market cap, etc. Moreover, if you are in the learning stage, it’s a little difficult to master everything by yourself. Enters Youtube.

With the help of youtube channels, you can find online mentors who can help you to make your investing journey a lot easier. Further, interacting with Youtubers is also not very difficult. You can simply leave a comment on the videos and if the Youtuber is active, most likely, you’ll get the reply.

Final advice, watch the videos but do not copy their entire investment strategy or stock picks of the Youtubers. Ideally, Copycat investing doesn’t work. Be original and create your own investment style.

That’s all for this post. I hope it was useful for you. Have a great day and comment below which is your favorite YouTube channel to learn Indian stock market.

How To Make Money From Dividends -The Right Way

How To Make Money From Dividends -The Right Way?

Everyone who enters the stock market wants to make money from their investments. And in order to do that, first, they need to understand how people really make money from stocks. Basically, there are two ways to make money from the stock market – Capital appreciation and making money from dividends. 

When it comes to capital appreciation, most of the people know this method to make money from stocks. Buy low and sell high. Purchase a good stock at a low valuation and wait until the price goes up. The difference in the purchase and selling price is the profit (capital appreciation).

This is the core principle of value investing. Find an amazing stock at a cheap valuation and hold it for a long time until the market realizes its true/real value.

However, there is also a second method to make money from the stock market which is (generally) ignored by most newbie investors. It is called dividends. In this post, we are going to discuss how to make money from dividends -the right way.

Important terms to learn regarding dividends:

buy low and sell high

Before we dig deeper, first you need to learn few important terms regarding dividends-

Dividends: Dividends are the profits that a company shares with its shareholders as decided by the board of directors.

Dividend yield: Dividend yield is the ratio of annual dividend per share divided by the price per share. The formula for dividend yield is given below:

             Dividend yield = (Dividend per share/ price per share)

For example, if a company gives an annual dividend of Rs 10 and its current market price is Rs 200, the dividend yield of the company will be 10/200 = 5%.

Also read: Dividend Dates Explained – Must Know Dates for Investors

Here are the annual dividends of a few famous companies in India (2017).

  • Hdfc bank – Rs 11 per share
  • Coal India – rs 19.90 per share
  • Hindustan Unilever – Rs 17.00 per share
  • Reliance Industries- Rs 11 Per share
  • Ongc- Rs 6.05 per share

dividends

Now, if you calculate the dividend yield given by the above companies, you may find it very small.

If a company gives a dividend yield of 2% per year, it’s really difficult to build a livelihood using this income, right? For example, if you want an annual income of Rs 2 lakhs in dividends, then you have to invest Rs 1 Crore in that stock. This is not feasible for most of the average Indian investors.

However, there’s an important lesson that you need to learn here—

Dividends increase over time…

This means that a good fundamentally strong company will increase its dividends with time.

For example, if a healthy company gives a dividend of Rs 10 this year and makes more profit in upcoming years, then it will increase its dividends in future.

Another important lesson to learn here is that– your dividends are going to increase. But your purchase price is going to remain constant throughout your holding time frame.

Therefore, if you look at the dividend yield, the numerator (dividends) is going to increase with time. But the denominator (purchase price of the stock) is going to remain constant for you. In short, the dividend yield for that stock is going to increase in future.

Also read: How to Earn Rs 13,08,672 From Just One Stock?

Let us understand this better with the help of an example.

How To Make Money From Dividends?

Suppose you purchased 100 stocks of a company at Rs 200. The annual dividend for that year was Rs 10. So, for the first year, the dividend yield will be 5%. This yield is small here compared to the returns from most of the debt investments. 

Nevertheless, let us assume that the company is fundamentally healthy and going to give a consistent (increasing) dividends in the upcoming years. Here is a table describing the annual dividends in the upcoming years.

Dividend Purchase Price Dividend Yield Total Annual Dividends
YEAR1 Rs 10 Rs 200 5% Rs 1,000
YEAR2 Rs 12 Rs 200 6% Rs 1,200
YEAR3 Rs 15 Rs 200 7.5% Rs 1,500
YEAR4 Rs 18 Rs 200 9% Rs 1,800
YEAR5 Rs 21 Rs 200 10.5% Rs 2,100

Moreover, along with the dividends, your capital will also appreciate in value as you are holding the stock for a long time. In the next 5 years, maybe the purchase price of Rs 200 has now appreciated to Rs 400, 500 or whatever high price.

For the investors, who buy that stock directly in the fifth year (at an appreciated price- let’s say Rs 500), the dividend yield for them might be low. However, as you have purchased that stock long ago at a decent price, the dividend yield will be quite high (even higher than the fixed deposits). From the above table, you can notice the increase in the dividend yield as the dividend increases.

In short, here dividends are allowing you to receive a healthy income without selling your original assets.

Also read: New to stocks? Confused where to begin?  Here’s an amazing online course for beginners: ‘HOW TO PICK WINNING STOCKS?‘ This course is currently available at a discount. 

A few points of concerns regarding dividends:

The biggest point of concern regarding dividend stocks is that dividends are not obligations. This means that the company may reduce or discontinue the dividends in future.

For example, if a company suffers a heavy loss in a year or if the company is planning to invest its profit in some new project/plant, then it might reduce the dividends or do not give any dividends to its shareholders.

Therefore, if you are investing in any dividend stock, then first make sure to look at the dividend history of that company. A consistently increasing dividend for the last 10-12 years can be considered a healthy sign.

Also read:  10 Best Dividend Stocks in India That Will Make Your Portfolio Rich.

Conclusion:

Buy low and sell high is not the only way to make money from the stocks. There are many long-term investors who are generating big wealth through their annual dividends. If you want a good consistent return on your stocks without selling it, then investing in a healthy dividend stock can be a good strategy.

That’s for this post on how to make money from dividends. I hope it was helpful to you. Have a great day and happy investing.

How to Develop a Stock Investor Mindset cover

How to Develop a Stock Investor Mindset?

If you want to make a significant amount of money from the stock market, it is crucial to develop a healthy stock investor mindset. However, the problem is that most people never learn this skill set as neither it is taught in schools nor colleges. Even the best degrees in finance or MBA do not honestly explain how to invest in stocks and make money from it smartly.

Only a minority population is fortunate enough is born in the family of the investors or whose close ones have been investing efficiently in stocks or mutual funds. For the rest, they always have to start from the ground zero level, without any proper guidance or mentorship.

Therefore, when it comes to developing a successful stock investor mindset, it is the responsibility of the individual to learn this skill-set themselves. If you are one of those who has never invested in the stock market and struggling to build an investor mindset, this post can be useful to you.

In this article, we are going to discuss how a beginner can develop a successful stock investor mindset.

Stock market gives us all an amazing opportunity…

There are thousands of companies publicly listed in stock exchanges. And hence, the stock market allows everyday investors like us to buy the shares of those company and get a piece of ownership.

From big Indian companies like Tata, Reliance, Wipro, ITC, etc. to Global giants like Apple, Google, Facebook, Samsung, etc. You can invest in any public company that you like through a stock exchange. All these companies are professionally managed and give employment to hundreds of people. And by investing in these companies through the market, you can become a part-owner and shareholder.

The first step of building a successful stock investor mindset is by appreciating the fact that we are given a fantastic opportunity as an investor. And if you are not investing in stocks, you are missing an excellent opportunity to become one of the owners of the best of best companies and also be a part of the growing economy.

The majority of the investing population never appreciate this fact, and hence they end up just trading stocks entire day and never owning the stock of an amazing company that they believe in.

How to develop a stock investor mindset?

My first advice for you to develop a stock investor mindset would be to read books.

However, this is a bit of obvious advice, right? And you are not reading this post for getting an obvious answer. Therefore, I won’t write an article of 1,000 words on the best investing books to read today. Anyways, if you are interested in reading a few good investing books, you can check out this list of 10 must-read books for stock investors.

My second advice would start watching investing videos on Youtube. This is again a piece of obvious advice. However, a great benefit of watching videos on Youtube (which people forget) is that they’re FREE. And therefore, I thought to mention this point in this post.

A few great Youtube Channels to follow to learn stock investing in Indian are FinnovationZ, Pranjal Kamra, Nitin Bhatia, Varun Malhotra, Sunil Minglani and of course Trade Brains’ Youtube Channel.

Now that we have discussed the apparent answers, let’s move forward to a few fun and easy tips to help you build an investor mindset.

Here are a few essential tips to help you build a stock investor mindset:

1. Keep investing apps on your phone:

Now and then during your day, you get some time off your work. Maybe during lunch, coffee break or while traveling to and fro from your work through metro or cab. You can use this time to develop your investor mindset.

Keep a few good investing and news app in your phone to remain updated with the investing world. A few useful apps that I recommend to stay updated with the market for beginners will be Moneycontrol or Economic times market. A quick tip- do not fill your phone will dozens of stock market app as it will burn you out to check them all. Instead, have one or two good apps which you can get comfortable with.

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

2. Join online forums/Whatsapp/Telegram Group

Joining active online forums will keep you in the loop regarding what’s happening in the market and what other’s are saying. Needless to mention that you should never invest based on a post in these forums/groups without researching. However, there are a lot of genuine contributors to these forums who are willing to share their knowledge and findings with the group members.

Find a few good forums/groups that suits you and join them. A few active online forums for the Indian stock market is ValuePkr, TradingQ&A, Rakesh Jhunjhunwala forum, Traderji & Trade Brains’ forum.

3. Enroll in courses

A lot of people envy online courses and want to learn to invest for free. But if you can spend lakhs of rupees in college tuition fee, thousands of rupees in buying books, then why not also spend some money for enrolling in investing courses that can help you get financial literacy.

How is spending money for enrolling in courses different from spending money on buying books? Both give you the knowledge, right? One of the vital step to enhance your stock investor mindset is by enrolling in a few right courses to learn the investing skills.

4. Mastermind

Although joining forums/WhatsApp groups etc. will help you in masterminding. However, it is equally important to surround yourself with people interested in similar activities as of you. This will encourage and help you keep motivated towards your goal. Find a few people with whom you can hang out and discuss your investment queries.

5. Attend local investing workshops/Conferences

If you are living in a big city, the chances are that you can easily find a few good investing workshops/conferences happening in your locality. Just by doing a simple google search, you can find a list of such events. On the other hand, if you live in a tier-2 or 3 cities, then you might have to plan a visit to your nearest big city to attend such conferences.

Attending investing workshops and conferences is another fantastic way to learn new skills, keep yourself surrounded by like-minded people and ask your most troubling questions with the experts. And if you can regularly attend a few investing workshops/conferences in a year, it will help you build a winning investor mindset.

Closing Thoughts:

No matter how common a skill might look like cooking, driving or swimming, it takes time and practice to become an expert in that skill. Just think about how many swimming lessons you took before diving in the 8-ft deep water.

Similarly, you cannot develop an excellent investor mindset in a day or week. You need to put time and efforts. Moreover, consistency is key here. Always remember, he who wants the most wins. If you’re going to become a successful investor, be consistent and keep learning.

That’s all for this post. I hope it is useful for you. Cheers!