investing myths

7 Most Common Stock Investing Myths

7 most common stock investing myths- Nowadays, everyone is interested in investing. No one wants to have a single source of income. An investment seems to be a great source to get good returns from your hard earned income. From youngsters to retirees, everyone wants to achieve financial freedom through these investments.

Stock Market, which has given the best returns and beaten all other investments available like bonds, commodities, gold etc, is definitely one of the favorite choices of the people.

Although everyone has thought of investing on their own but stopped because of some common misconceptions heard from friends, family or media. So, today let’s take control of our freedom of investing by overcoming few common barriers – the investing myths.

7 Most Common Stock Investing Myths:

1. Investing in Stock Market is like GAMBLING.

This is one of the most commonly heard myth when it comes to stock market investing. And it is so popular that this investing myth has become one of the theories is few places.

So let’s compare the stock market and gambling so that we can have some clear vision about them. First of all, both involve money and element of chance. Second, Risk is involved in both gambling and stock investing. Third, both involves uncertainty of winning or losing.  Most people after considering these three points and comes to the conclusion that both stocks investing and gambling is same.

Now, let’s see the things from another point of view and note the differences. Although blindly investing in stocks is similar to rolling a dice, but successful investing is never a game of chances. The art of investing is based on risk and reward. Gambling doesn’t allow anyone to change the probability. There is always a 50% chances of getting a ‘head’ or ‘tail’ while gambling on a coin toss.

However, through knowledge and skills, Investors can change the probability of winning. Investors can reliably predict the outcome which follows trends, patterns and fundamental studies like balance sheet, profit loss statement, cash flow statement etc. Although, no one knows the future investors have been able to put the odds in their favor by thorough analysis, proper studies & training.

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Considering the above points, we can say that stock investing is nothing like gambling and a much much better way of utilizing your hard earned money.

If you are new to investing and want to stay away from common myths and mistakes in stock market, I will highly recommend you to read this book: One Up On Wall Street: How To Use What You Already Know To Make Money In the Market. It is one of my favourite books on stock market.

2. You need money to make money.

This is the second most common investing myth. People easily presume that you can’t start investing until you have a whole lot of money. And this makes investing ‘rich people’s game’.

But this isn’t true. You don’t need millions to start investing. A good thorough study about the company and just a few bucks in the bank is enough for start investing. Even the greatest investor of all time, Warren Buffett, started his first investment with only a few dollars at an age of eleven. He didn’t need a million dollars to make him a billionaire. So, why should you?

Everyone can start investing with even the little amount that they have.

3. Investing on your own takes too much time.

This third investing myth states that you need to give a lot of time to invest on your own. But this is also not true in today’s world. Technology has completely changed the way information is transmitted now. This has allowed an average investor to access information quickly and easily to make smarter and faster decisions.

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Now, you don’t need to give too much time to financial newspapers or magazines before you invest on your own. Just giving a couple of hours in a week, you can read all the company’s fundamentals which are easily available on the financial websites on the internet. Even, you can check these financials while traveling on a train or during breaks in office routine using the friendly financial mobile apps. Life is simple now!

4. Paying a professional is better than making your own investing decisions.

Today people pay a lot to professional managers just because they believe in this investing myth that hiring a professional is better than making your own investing decisions.

But in reality, it differs. It’s a proven fact that many professionals fail to beat the benchmark over a long time. Still they, they continue to charge a huge fee. There are also a couple of disadvantages of a large money manager.

First, they can’t move money easily as you can during any market swing. Second, these managers are slow to change models with models, but a retail investor isn’t. For example, a mutual fund investing in large-cap companies has to continue investing in large caps, and it doesn’t matter what brilliant opportunities are present in mid-cap or small cap.

But a retail investor is not obliged to do so. He can easily buy a stock if he sees the great opportunity there. Lastly, market managers need to answers to a lot of board of directors and can’t take independent decisions. They care more about the shareholders and their bosses than the public.

In the end, let me ask you a general question. Who do you think cares more about your money, you or anyone else? If your answer is first, then you definitely need to get over this investing myth.

5. Investing on your own is very risky.

In general, risk comes from not knowing what you are doing. Definitely, without proper education stock market is risky. But with proper training and knowledge, anyone can increase reward and reduce risk.

6. Investing is simple. Just buy low and sell high.

This is one of the most common investing myth among the non-investors. They think investing is simple. You just have to buy low and sell high. What they don’t understand is that it takes a successful investors years to learn what’s high and what’s low. Even, if you get a good start and bought the stock at a low price, it’s not easy to find an exit point.

7. Investors who invest on their own are intellectually gifted.

This last investing myth takes investing to a next level. It states that investing is not for everyone but only those who are intellectually gifted can succeed in investing. Now, although everyone knows that there is no connection between IQ and performance, let me quote the statements of two of the investing icons on IQ:

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” – Warren Buffett

“Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” – Peter Lynch

Let me end this investing myth with a quick link which may change how you think about IQ and performance on investing: Isaac Newton was a genius, but even he lost millions in the stock market

So, these are the 7 most common stock market investing myths. I hope the readers will get over these investing myths if they have any. If you need any further help or explanation, please comment below. I will be happy to help you. #HappyInvesting.

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Tags: Investing myth, stock investing myths, top investing myths, common investing myths, value investing myths, myth about investing
10 Common Stocks that gave more than 100% return last year

10 Common Stocks that Gave More Than 100% Return Last Year -2017

10 Common Stocks that gave more than 100% return last year. Peter lynch, the legendary investor and fund manager, used to say ‘‘Invest in what you know’’ in his best-selling book “One up on the Wall Street”. By this he means –‘there are a number of common stocks which anyone can find easily around them if they are looking’. You do not need to find a rare petroleum stock which no over has ever heard.  You just have to look around and find some decent companies in your surroundings to invest in.

“Know what you own, and know why you own it.”

“The simpler it is, the better I like it.”

“The worst thing you can do is invest in companies you know nothing about. Unfortunately, buying stocks on ignorance is still a popular American pastime.”

– Peter Lynch

So, toady I have compiled a list of 10 such common stocks which a common people could have found easily while walking in their city or during travelling in the city-bus.

Here is the list of the 10 Common Stocks that gave more than 100 percent return last year. I hope few of them are in your portfolio for over a year.

10 Common Stocks that gave more than 100% return last year.

STOCK 8-May-17 9-May-16 % Change
SENSEX 29926.15 25688.86 16.49
NIFTY 9314.05 7866.05 18.40
INDIAN BANK 352 92.9 278.90
RURAL ELECTRIFICATION 216.6 84.82 155.36
FEDERAL BANK 118.9 49.15 141.91
BAJAJ FINSERV 4409.05 1875 135.14
SUN TV 851 364.5 133.47
PUNJAB NATIONAL BANK 176 82.8 112.56
BANK OF INDIA 185.4 89.35 107.49
INDIAN IOL CORP (IOC) 428.55 209.9 104.16
JAYPEE INFRATECH 14 6.95 101.43
MRF 67501 33650 100.59

Here is the list of other six common stocks that has given more than 50 percent return for the last year.

Best book to learn investing mindset: Rich Dad Poor Dad: What the Rich Teach their Kids About Money that the Poor and Middle Class Do Not! I highly recommend you to read this book.

10 Common Stocks that gave more than 50% return last year.

STOCK 8-May-17 9-May-16 % Change
GITANJALI  GEMS 68.75 35.65 92.84
HPCL 531.5 278.5 90.84
MARUTI SUZUKI 6626 3846.5 72.26
YES BANK 1616.25 945.05 71.02
APOLLO TYRES 240.45 157.2 52.95
TATA COMM 652.05 429.08 51.96


Tags: 10 Common Stocks that gave more than 100% return last year, List of 10 Common Stocks that gave more than 100% return last year 2016-17

8 Financial Ratio Analysis that Every Stock Investor Should Know cover

8 Financial Ratio Analysis that Every Stock Investor Should Know

8 Financial Ratio Analysis that Every Stock Investor Should Know. The valuation of a company is a very tedious job. It’s not easy to evaluate the true worth of a company as the process takes the reading of company’s several years’ financial statements like balance sheet, profit and loss statements, cash-flow statement, Income statement etc.

Although it really tough to go through all these information, however, there are various financial ratios available which can make the life of a stock investor really simple. Using these ratios they can choose right companies to invest in or to compare the financials of two companies to find out which one is better.

This post about ‘8 Financial Ratio Analysis that Every Stock Investor Should Know’ is divided into two parts. In the first part, I will give you the definitions and examples of these 8 financial ratios. In the second part, after financial ratio analysis, I will tell you how and where to find these ratios. So, be with me for the next 8-10 minutes to enhance your financial knowledge.

So, let’s start the first part of this post with the financial ratio analysis.

If you are a beginner and want to learn stock market, I will highly recommend you to read this book first: Everything You Wanted to Know About Stock Market Investing

Quick note: You don’t need to worry about how to calculate these ratios or remember the formulas by-heart, as it will be already given in the financial websites. However, I will recommend you to go through this financial ratio analysis as it’s always beneficial to have good financial knowledge.

financial ratio analysis trade brains

Financial Ratio Analysis that Every Stock Investor Should Know:

  1. Earnings Per Share (EPS):

    This is one of the key ratios and is really important to understand Earnings per share (EPS) before we study other ratios. EPS is basically the profit that a company has made over the last year divided by how many shares are on the market. Preferred shares are not included while calculating EPS.

    Earnings Per Share (EPS) = (Net income – dividends from preferred stock)/(Average outstanding shares)

    From the perspective of an investor, it’s always better to invest in a company with higher EPS as it means that the company is generating greater profits. Also, before investing in a company, you should check it’s EPS for the last 5 years. If the EPS is growing for these years, it’s a good sign and if the EPS is regularly falling or is erratic, then you should start searching another company.

  2. Price to Earnings Ratio (P/E)

    The Price to Earnings ratio is one of the most widely used financial ratio analysis among the investors for a very long time. A high P/E ratio generally shows that the investor is paying more for the share. As a thumb rule, a low P/E ratio is preferred while buying a stock, but the definition of ‘low’ varies from industries to industries. So, different sectors (Ex Automobile, Banks etc) have different P/E ratios for the companies in their sector, and comparing the P/E ratio of the company of one sector with P/E ratio of the company of another sector will be insignificant. However, you can use P/E ratio to compare the companies in the same sector, preferring one with low P/E. The P/E ratio is calculated using this formula:

    Price to Earnings Ratio= (Price Per Share)/( Earnings Per Share)

    It’s easier to find the find the price of the share as you can find it at the current closing stock price. For the earning per share, we can have either trailing EPS (earnings per share based on the past 12 months) or Forward EPS (Estimated basic earnings per share based on a forward 12-month projection. It’s easier to find the trailing EPS as we already have the result of the past 12 month’s performance of the company.

  3. Price to Book Ratio (P/B)

    Price to Book Ratio (P/B) is calculated by dividing the current price of the stock by the latest quarter’s book value per share. P/B ratio is an indication of how much shareholders are paying for the net assets of a company. Generally, a lower P/B ratio could mean that the stock is undervalued, but again the definition of lower varies from sector to sector.

    Price to Book Ratio = (Price per Share)/( Book Value per Share)

  4. Debt to Equity Ratio

    The debt-to-equity ratio measures the relationship between the amount of capital that has been borrowed (i.e. debt) and the amount of capital contributed by shareholders (i.e. equity). Generally, as a firm’s debt-to-equity ratio increases, it becomes riskier A lower debt-to-equity number means that a company is using less leverage and has a stronger equity position.

    Debt to Equity Ratio =(Total Liabilities)/(Total Shareholder Equity)

    As a thumb of rule, companies with a debt-to-equity ratio more than 1 are risky and should be considered carefully before investing.

  5. Return on Equity (ROE)

    Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders has invested. In other words, ROE tells you how good a company is at rewarding its shareholders for their investment.

    Return on Equity = (Net Income)/(Average Stockholder Equity)

    As a thumb rule, always invest in a company with ROE greater than 20% for at least last 3 years. A yearly increase in ROE is also a good sign.

  6. Price to Sales Ratio (P/S)

    The stock’s price/sales ratio (P/S) ratio measures the price of a company’s stock against its annual sales. P/S ratio is another stock valuation indicator similar to the P/E ratio.

    Price to Sales Ratio = (Price per Share)/(Annual Sales Per Share)

    The P/S ratio is a great tool because sales figures are considered to be relatively reliable while other income statement items, like earnings, can be easily manipulated by using different accounting rules.

  7. Current Ratio

    The current ratio is a key financial ratio for evaluating a company’s liquidity. It measures the proportion of current assets available to cover current liabilities. It is a company’s ability to pay its short-term liabilities with its short-term assets. If the ratio is over 1.0, the firm has more short-term assets than short-term debts. But if the current ratio is less than 1.0, the opposite is true and the company could be vulnerable

    Current Ratio = (Current Assets)/(Current Liabilities)

    As a thumb rule, always invest in a company with a current ratio greater than 1.

  8. Dividend Yield

    A stock’s dividend yield is calculated as the company’s annual cash dividend per share divided by the current price of the stock and is expressed in annual percentage.

    Dividend Yield = (Dividend per Share)/(Price per Share)*100

    For Example, If the share price of a company is Rs 100 and it is giving a dividend of Rs 10, then the dividend yield will be 10%. It totally depends on the investor whether he wants to invest in a high or a low dividend yielding company.

    Also Read: 4 Must-Know Dates for a Dividend Stock Investor

If you want to read further in details, I will recommend you to read this book: Everything You Wanted to Know About Stock Market Investing -Best selling book for stock market beginners. 

Now that we have completed the key financial ratio analysis, we should move towards where and how to find these financial ratios.

For an Indian Investor, you these are 3 big financial websites where you can find all the key ratios mentioned above along with other important financial information:

I, generally use money control to find the key financial ratio analysis. The mobile app for Money control is also very efficient and friendly and I will recommend you to use the mobile app.

Now, let me show you how to find these key ratios in Money Control. Let’s take a company, Say ‘Tata Motors’. Now, we will dig deep to find all the above-mentioned rations.

Financial ratio analysis -Steps to find the Key Ratios in Money Control:

  • Open and search for ‘Tata Motors’.
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  • This will take you to the Tata Motor’s stock quote page.
    Scroll down to find the P/E, P/B, and Dividend Yield.
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  • Now go to the ‘Financials’ tab and select ‘Ratio’ option [i.e. Financial  Ratio]
    Scroll down to find all the remaining financial ratios.
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That’s all! These are the steps to do the key financial ratio analysis. Now, let me give you a quick summary of all the key financial ratios mentioned in the post.


8 Financial Ratio Analysis that Every Stock Investor Should Know:

  1. Earnings Per Share (EPS) – Increasing for last 5 years
  2. Price to Earnings Ratio (P/E) – Low compared to companies in the same sector
  3. Price to Book Ratio (P/B) – Low compared companies in the same sector
  4. Debt to Equity Ratio – Should be less than 1
  5. Return on Equity (ROE) – Should be greater than 20% 
  6. Price to Sales Ratio (P/S) – Smaller ratio (less than 1) is preferred
  7. Current Ratio – Should be greater than 1
  8. Dividend Yield – Depends on Investor/ Increasing preferred

In addition, here is a checklist (that you should download) which can help you to select a fundamentally strong company based on the financial ratios.

Feel free to share this image with ones whom you think can get benefit from the checklist.

5 simple financial ratios for stock picking

I hope this post on ‘8 Financial Ratio Analysis that Every Stock Investor Should Know’ is useful for the readers. If you have any doubt or need any further clarification, feel free to comment below. I will be happy to help you.

BSE initial public offering in the market on 23 January at Rs 805- 806

BSE Initial public offering (IPO) is set to enter the market on 23 January. The bidding will be open until 25 January. The analysts are expecting a huge demand for the issue of the oldest stock exchange in asia.

The issue price for the Bombay stock exchange initial public offering will be Rs 805 – 806 per share. The minimum order quantity will be 18 shares.

Here are the details about the BSE Initial public offering:

Issue Open: Jan 23, 2017 – Jan 25, 2017

Issue Price: Rs. 805 – Rs. 806 Per Equity Share
Minimum Order Quantity: 18 Shares
Market Lot: 18 Shares

Face Value: Rs 2 Per Equity Share

Issue Type: Book Built Issue IPO
Issue Size: 15,427,197 Equity Shares of Rs 2 aggregating up to Rs 1,243.43 Cr

Know more here.

What are stocks? And what is a Stock Market?

What are stocks?

What is a stock market?

What is Bombay stock exchange (BSE)?

What is National stock exchange (NSE)?

What is Sensex?

What is Nifty?

What is meant be Sensex/Nifty is up or down?

How does upward or downward movement of Sensex/Nifty affect the growth of the country?

What is bull and bear market?

 These are the major questions that are repeatedly asked by the common people of India whenever they hear the financial news of the television or the newspapers or magazines. Although a simple definition of all the above terms can be found easily in a book or internet, it would be simpler and more interesting if we explain the whole scenario in the story form. Later, we will give the standard definition for all the above terms for your better understanding.

It all starts with a company. Let’s say there is a company X. It is a manufacturing company and is doing well in its sector. Now it wants to expand by doing some project or research and development(R&D) in his field. For this company requires capital (money).


At first, the company will try to get the capital from all the owners to expand the company. Further, when the owners aren’t able to meet the capital needs, it will go the biggest money source, the banks. But this will only increase his debts along with the interests. So, what options the company X has now? Where can the company X get such a large capital from?


The answer is public. The company can collect a large sum of money by giving a little ownership of the company to the public.


And here begins the journey of the company in the stock market. A stock market (ex BSE, NSE) is a place where the company will be able to present his ownership (in the form of the stocks) to the public. And why will the people buy the stocks of the company X? It totally depends on how positive the people is about the growth of the company in terms of sales, earnings, revenue etc. If the people think that the company will be able to grow to new heights, or if the people believe in the visions of the company X, then, they will buy the stocks to trade their money with the ownership of the company.


Thus by giving the portion of the ownership, the company is able to pool a great amount of money for its growth and development.


Generally, the company does not offer its complete shares to the public. Almost all of the times the owners (promoters) keep a portion of the stock with them to keep the ownership in their hands.


For example, let’s say the company X decided to provide 10,00,000 shares. Out of the total, it decides to offer 7,00,000 shares to the public and remaining 3,00,000 shares with them. Here, the promoters share will be 30%.


 (Here, we would also like to define the term free-float market capitalization here. It is the product of the total shares offered to the public and the price of per equity share. Let’s say the company X each share price costs Rs 50 and it offers 7,00,000 public shares. Then, the free float market capitalization here will be equal to 50*7,00,000. The total market capitalization (not-free float) will be 50*10,00,000).


Now that the company X has decided to enter the stock market. When, the first time the company enters the market, it has to provide an offering price for the shares. This is called initial public offering i.e. IPO (we will discuss IPO in details in later sections). The IPO is offered in the primary market, where the seller is the company and the buyer is the public.


After the IPO, the stock goes to the secondary market, where the buyer and sellers both are the public. Here, the public generally exchanges the ownership of the company.

That’s the story of the stock and the company X. In the next section, we will discuss the two stock markets in India i.e. Bombay stock exchange (BSE) and National stock exchange (NSE) and their indexes (Sensex/Nifty).

If you want to learn Indian Stock market from scratch, I will highly recommend you to read this book: Bulls, Bears and Other Beasts: A Story of the Indian Stock Market by Santosh Nair

What are stocks? What is the stock market? -Summary

Stock:  A stock is a general term used to describe the ownership of any company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Shares, equity, or stock, all basically mean the same thing.

Stock Market: The stock market is the market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter markets. It is a place where shares of publicly listed companies are traded.

The stock market can be split into two main sections: the primary market and the secondary market.

  1. Primary Market: It’s where new issues are first sold through initial public offerings. Retail Investors, mutual funds, domestical, and foreign institutional investors buy the share from the promoters. Institutional investors typically purchase most of these shares during this first-time issue by the company.
  2. Secondary Market: All subsequent trading goes on in the secondary market where participants include both institutional and individual investors.

Initial Public Offering (IPO): An IPO is the first time that the stock of a private company is offered to the public. It is a source of collecting money from the public for the first time in the market to fund its projects. In return, the company gives the share to the investors in the company. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately-owned companies looking to become publicly traded.

Market Capitalization: Market Cap or Market capitalization refers to the total market value of a company’s outstanding shares. It is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to using sales or total asset figures.