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From : http://www.sharemarketbasics.com/
In finance a share is a unit of account for various financial instruments including stocks, mutual funds, limited partnerships, and REIT's. In British English, the usage of the word share alone to refer solely to stocks is so common that it almost replaces the word stock itself. In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market. By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price. A company's stock price reflects what investors think about the stock, not necessarily what the company is "worth." For example, companies that are growing quickly often trade at a higher price than the company might currently be "worth." Stock prices are also affected by all forms of company and market news. Publicly traded companies are required to report quarterly on their financial status and earnings. Market forces and general investor opinions can also affect share price. Quick Facts on Stocks and Shares • • • Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues Over the long run, stocks have historically averaged about 10% annual returns However, stocks offer no guarantee of any returns and can lose value, even in the long run Investments in stocks can generate returns through dividends, even if the price
How does one trade in shares ? Every transaction in the stock exchange is carried out through licensed members called brokers. To trade in shares, you have to approach a broker However, since most stock exchange brokers deal in very high volumes, they generally do not entertain small investors. These brokers have a network of sub-brokers who provide them with orders. The general investors should identify a sub-broker for regular trading in shares and palce his order for purchase and sale through the sub-broker. The sub/broker will transmit the order to his broker who will then execute it . What are active Shares ? Shares in which there are frequent and day-to-day dealings, as distinguished from partly active shares in which dealings are not so frequent. Most shares of leading companies would be active, particularly those which are sensitive to economic and political events and are, therefore, subject to sudden price
movements. Some market analysts would define active shares as those which are bought and sold at least three times a week. Easy to buy or sell.
These days, you can't retire without using the returns from investments. You can't count on your social security checks to cover your expenses when you retire. It's barely enough for people who are receiving it now to have food, shelter and utilities. That doesn't account for any care you may need or in the even that you need to take advantage of such funds much earlier in life. It is important to have your own financial plan. There are many kinds of investments you can make that will make your life much easier down the road. The following are brief descriptions for beginning investors to familiarize themselves with different kinds of investment options: 401K Plans The easiest and most popular kind of investment is a 401K plan. This is due to the fact that most jobs offer this savings program where the money can be automatically deducted from your payroll check and you never realize it is missing. Life Insurance Life Insurance policies are another kind of investment that is fairly popular. It is a way to ensure income for your family when you die. It allows you a sense of security and provides a valuable tax deduction. Stocks Stocks are a unique kind of investment because they allow you to take partial ownership in a company. Because of this, the returns are potentially bigger and they have a history of being a wise way to invest your money. Bonds A bond is basically a promise note from the government or a private company. You agree to give them a set amount of money as a loan and they keep it for a set number of years with a predetermined amount of interest. This is typically a safe bet and one that is a good investment for a first time investor because there is little risk of losing your money. Mutual Funds Mutual funds are a kind of investment that are based on the gains and losses of a shareholder. Basically one person manages the money of several or many investors and invests in a list of various stocks to lessen the effect of any losses that may occur. Money Market Funds A good short-term investment is a Money Market Fund. With this kind of investment you can earn interest as an independent shareholder. Annuities If you are interested in tax-deferred income, then annuities may be the right kind of investment for you. This is an agreement between you and the insurer. It works to produce income for you and protect your earning potential. Brokered Certificates of Deposit (CDs) CDs are a kind of investment where you deposit money for a set amount of time. The good thing about CDs is that you can take the money out at any time without paying a penalty fee. We all know life isn't predictable, so this is a nice feature to have in your option.
Real Estate Real Estate is a tangible kind of investment. It includes your land and anything permanently attached to your piece of property. This may include your home, rental properties, your company or empty pieces of land. Real estate is typically a smart and can make you a lot of money over time
Investing!! What's that? Judging by the fact that you've taken the trouble to navigate to this page
my guess is that you don't need much convincing about the wisdom of investing. However, I hope that your quest for knowledge/information about the art/science of investing ends here. Read on. Knowledge is power. It is common knowledge that money has to be invested wisely. If you are a novice at investing, terms such as stocks, bonds, futures, options, Open interest, yield, P/E ratio may sound Greek and Latin. Relax. It takes years to understand the art of investing. You're not alone in the quest to crack the jargon. To start with, take your investment decisions with as many facts as you can assimilate. But, understand that you can never know everything. Learning to live with the anxiety of the unknown is part of investing. Being enthusiastic about getting started is the first step, though daunting at the first instance. That's why my investment course begins with a dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make the right moves in the market. Patience and the willingness to invest your savings across a portfolio of securities tailored to suit your age and risk profile will propel your revenues and cushion you against any major losses. Investing is not about putting all your money into the "Next big thing," hoping to make a killing. Investing isn't gambling or speculation; it's about taking reasonable risks to reap steady rewards.
Investing is a method of purchasing assets in order to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and appreciation over the long term. Why should you invest? Simply put, you should invest so that your money grows and shields you against rising inflation. The rate of return on investments should be greater than the rate of inflation, leaving you with a nice surplus over a period of time. Whether your money is invested in stocks, bonds, mutual funds or certificates of deposit (CD), the end result is to create wealth for retirement, marriage, college fees, vacations, better standard of living or to just pass on the money to the next generation or maybe have some fun in your life and do things you had always dreamed of doing with a little extra cash in your pocket. Also, it's exciting to review your investment returns and to see how they are accumulating at a faster rate than your salary. When to Invest? The sooner the better. By investing into the market right away you allow your investments more time to grow, whereby the concept of compounding interest swells your income by accumulating your earnings and dividends. Considering the unpredictability of the markets, research and history indicates these three golden rules for all investors 1. Invest early
2. Invest regularly 3. Invest for long term and not short term
While it’s tempting to wait for the “best time” to invest, especially in a rising market, remember that the risk of waiting may be much greater than the potential rewards of participating. Trust in the power of compounding. Compounding is growth via reinvestment of returns earned on your savings. Compounding has a snowballing effect because you earn income not only on the original investment but also on the reinvestment of dividend/interest accumulated over the years. The power of compounding is one of the most compelling reasons for investing as soon as possible. The earlier you start investing and continue to do so consistently the more money you will make. The longer you leave your money invested and the higher the interest rates, the faster your money will grow. That's why stocks are the best long-term investment tool. The general upward momentum of the economy mitigates the stock market volatility and the risk of losses. That’s the reasoning behind investing for long term rather than short term. How much to invest? There is no statutory amount that an investor needs to invest in order to generate adequate returns from his savings. The amount that you invest will eventually depend on factors such as:
1 Your risk profile
2. Your Time horizon
3. Savings made
Remember that no amount is too small to make a beginning. Whatever amount of money you can spare to begin with is good enough. You can keep increasing the amount you invest over a period of time as you keep growing in confidence and understanding of the investment options available and So instead of just dreaming about those wads of money do something concrete about it and start investing soon as you can with whatever amount of money you can spare. Investment is a term with several closely-related meanings in finance and economics. It refers to the accumulation of some kind of asset in hopes of getting a future return from it. Assets such as equity shares or bonds held for their financial return (interest, dividends or capital appreciation), rather than for their use in the organization’s operations. Return on Investments The money you earn or lose on your investment, expressed as a percentage of your original investment.
In Simple words, It is the amount received as a result of investing in particular ventures. Collective Investments Schemes Funds which manage money for a number of investors and pool it together. This enables investors to benefit from a larger number of individual investments and cost efficiencies. Short-Term Investments Short-Term Investments are generally investments with maturities of less than one year. Capital Investments
its potential 3.Investments into the fixed capital (capital assets). This paves way for listing and trading of the issuer’s securities. A prospectus is issued to read about its risk before investing. Securities offered in an IPO are often. What is the reputation of the collaborators 4. Existing share Holders get a very liberal bonus issues as a reward for their faith in risking money when the project was new How to apply to a public issue ? When a company floats a public issue or IPO. What is the company manufacturing or providing services . expansion. it prints forms for application to be filled by the investors. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers. What are the means of financing and profitability projections ? 6. which are underwritten by all India financial institutions. Does the Company have any Technology tie-up ? if yes . equipment. DD or stock invest should be deposited before the closing date as per the instruction on the from. Just before the IPO is launched. Before applying for any IPO . Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. the offer should be kept open for a maximum of 10 days. Who has appraised the Project ? In India Projects apprised by IDBI and ICICI have more credibility than small Merchant Bankers . accompanied by cash. reconstruction and technical reequipment of the operating enterprises. issues are kept open for only 3 to 4 days. small companies seeking outside equity capital and a public market for their stock. tools. What is the Project cost.The first time the company is traded on the stock exchange. project and investigation works and other costs and expenditures. For issues. The issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers it for subscription. In a public offering. What has been the past performance of the Company offering the IPO ? 5. What are the Risk factors involved ? 7. The duly complete application from. Public issues are open for a few days only. Generally. purchase of machinery. Initial Public Offering Public issues can be classified into Initial Public offerings and further public offerings. analyse the following factors: 1. any public issue should be kept open for a minimum of 3days and a maximum of 21 days. which are underwritten by financial institutions. Initial Public Offering (IPO ) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. those of young. the offer should be kept open for a minimum of 3 days and a maximum of 21 days. but not always. accessories. IPO is A company's first sale of stock to the public. cheque.Product. IPO is New shares Offered to the public in the Primary Market . including costs for the new construction. Sometimes. For issues. the issuer makes an offer for new investors to enter its shareholding family. Who are the Promoters ? What is their credibility and track record ? 2. As per law.
the money is to be collected as under: 25 per cent on application 25 per cent on allotment 50 per cent in two or more calls The Securities and Exchange Board of India (SEBI). However. their financiers. these fictitious beneficiaries transferred these shares to their principals who in turn transferred the shares to their financiers. the company may ask for the money in calls.How to make payments for IPOs: The payment terms of any IPO or Public issue is fixed by the company keeping in view its fund requirements and the statutory regulations. Though the company is under obligation to offer the securities in both physical and demat mode. if the funds requirements is staggered. you . including Indiabulls. As per the statutory requirements. 250 crore. prima facie. In general. it added. that is. It has also directed HDFC Bank and IDBI Bank not to open new demat accounts for share transactions. Karvy Securities • Quasi-judicial proceedings against Karvy DP and Pratik DP. companies stipulate that either the entire money should be paid along with the application or 50 percent of the entire amount be paid along with the application and rest on allotment. Each of the fictitious application was of small value so as to be eligible for allotment under the retail category. Thursday cracked down on some of the top brokerage firms and banks for their alleged involvement in an initial public offering (IPO) scam. the capital market watchdog. 15 more under scrutiny. After the allotment. thereby realizing the windfall gain of the price difference between IPO price and the listing price. concerned depository participants and the depositories. banned from the market • 12 DPs can’t open fresh demat accounts. The findings of investigations. revealed violations of serious nature by several key operators. IDBI Bank. Citibank. SEBI has barred brokerage firms like Karvy Stockbroking and IndiaBulls from the market. for public issue large than Rs. Demat refers to a dematerialised account. SEBI's Order fallout: 24 entities banned from primary and secondary market. including ICICI Bank. Stanchart • 85 Financiers barred from the market. SEBI conducted investigations in respect of all the IPOs from January 2003 to December 2005. the company demands for the money after allotment as and when the cash flow demands. The financiers in turn sold most of these shares on the first day of listing. ING Vysya Bank. including HDFC Bank. In its order. SEBI said certain entities had cornered shares reserved for retail applicants in the name of fictitious entities in the initial public offerings of Yes Bank and Infrastructure Development Finance Company (IDFC). Central Bank. IL&FS and Motilal Oswal.
If you wish to have securities in demat mode. So it is just like a bank account where actual money is replaced by shares. as are many brokers. forged or stolen. Is a demat account a must? Nowadays. has allowed trades of upto 500 shares to be settled in physical form. the Securities and Exchange Board of India (SEBI). Just like a bank passbook or statement. You have to approach the DPs (remember. who buys and sells shares on his behalf and on behalf of his clients. A broker is a member of the stock exchange. nobody wants physical shares any more. All these will show in your demat account. A broker is separate from a DP. Although the market regulator. however desirable that you hold securities in demat form as physical securities carry the risk of being fake. It is. Just as you have to open an account with a bank if you want to save your money. Most banks are also DP participants. to open your demat account. the DP will provide you with periodic statements of holdings and transactions. They are all held electronically in your account. As you buy and sell the shares. they are adjusted in your account. A DP will just give you an account to hold those shares. You do not have to take the same DP that your broker takes. 200 of HLL and 100 of ACC. visit the NSDL and CDSL websites and see who the registered DPs are. You can choose your own. So a demat account is a must for trading and investing. Let's say your portfolio of shares looks like this: 150 of Infosys. You can choose your very own DP.have the choice to receive the securities in either mode. Is your DEMAT Account Frozen ? your DEMAT Account Steps to Defreeze I n v e s t S a f e l y t h r o u g h S y s t e m a t i c I n v e s t m e n t P l a n s New . they are like bank branches). you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application. make cheque payments etc. Nowadays. practically all trades have to be settled in dematerialised form. 50 of Wipro. you need to open a demat account if you want to buy or sell stocks. To get a list. So you don't have to possess any physical certificates showing that you own these shares.
exisiting companies can make a premium issue without the above restrictions.. A company’s aim is to raise money and simultaneously serve the equity capital.10 to the public at a higher price. Analysis of Stocks – How to check on what to buy?..What is Mutual Fund ?. Securities.More S t o c k M a r k e t T e r m s . the value as in a balance sheet) of Rs. American Film Maker “ Most investors don’t even stop to consider how much business a company does. Stock Market Guru.You Buy Prices Fall . All they look at are earnings per share and net assets per share.. What does the Share Market consist of? Exchanges.10 crores. As per the SEBI guidelines.The promoter takes up at least 50 per cent of the shares in the issue. As far as accounting is concerned. 2. Dividend & Types of Shares. Stop Loss.. Net Asset Value.” -Woody Allen. Short & Long). Company.Definition & Terms of commonly used financial Terms .. Investing . What is the IPO Scam all about ?.. Stock Market Myths.MORE ARTICLES on SHARE MARKET BASICS - • S h a r e M a r k e t f o r B e g i n n e r s :Check out articles . Systematic Investment Plans. Pigs get slaughtered. . Indices.A to. Shares..The promoter company has a 3 years consistent record of profitable working. Trading Options – Brokerage Houses etc • • • F a m o u s S t o c k M a r k e t Q u o t e s & S a y i n g s .90 premium per share increases its equity by only Rs. IPO.“ Bulls make money. The difference between the offer price and the face value is called the premium. Bears make money.e. most shares have a face value (i.All parties applying to the issue should be offered the same instrument at the same terms. a premium issue can increase the book value without decreasing the EPS. new companies can offer shares to the public at a premium provided : 1. Types of Mutual Funds. companies realize that it’s easy to command a high premium.” -Kenneth L Fisher. In a buoyant stock market when good shares trade at very high prices.10 though not always offered to the public at this price. Trading Terms (Limit Order. Companies can offer a share with a face value of Rs. Futures & Options. Stock Trading.The propectus should provide justification for the propose premium. “ A stock broker is one who invests other people’s money until its all gone.. Do you have a Trading Plan ? IPO .100 crores.and lots more M u t u a l F u n d B a s i c s .” Anon. premium is credited to reserves and surplus and it does not increase the equity. especially regarding the premium.Z Investments. Booking Profit & Loss. 4. Mutual Funds. Debentures. Call.100 crores by way of shares at say Rs. What is Technical Analysis Saving VS.. Therefore. Generally. which is easier to service with an investment of Rs. Thus the companies seek to make premium issues. As well shall see later. stock options. SEBI . On the other hand. Put. a company which raises Rs. 3.Initial Public Offering.
counting on that historical rise in market equity. It is characterised by being the only moment when the enterprise receives money in exchange for selling its financial assets. Employee stock options are stock options for the company's own stock that are often offered to upperlevel employees as part of the executive compensation package. because he’ll ride them out over the long haul. residential mortgage loans. 1. A stock option is a specific type of option with a stock as the underlying instrument (the security that the value of the option is based on). where previously issued securities are bought and sold.National Stock Exchange NSE. A market is primary if the proceeds of sales go to the issuer of the securities sold. as distinguished from the Secondary Market. The performance goal (revenue growth. stock-price increases…) must be reached for the options to be exercisable or for the vesting to be accelerated Many people confuse trading with investing. He’s not generally concerned about short-term fluctuations in prices. bond markets. In Secondary market share are traded between two investors. governmental guaranteed loans etc. An investor is more interested in the long-term appreciation of his assets. This is part of the financial market where enterprises issue their new shares and bonds. It is Having the Rights to purchase a corporation's stock at a specified price. at a predetermined or calculable (from a formula in the contract) price. Thus it is a contract to buy (known as a "call" contract) or sell (known as a "put" contract) shares of stock. The right to purchase or sell a stock at a specified price within a stated period. it is Trading in previously issued financial instruments. Examples are the New York Stock Exchange (NYSE).In some Companies.There are two ways for investors to get shares from the primary and secondary markets. over-the-counter markets. securities are bought by way of public issue directly from the company. SECONDARY MARKET The market where securities are traded after they are initially offered in the primary market. Performance Stock Options are Options that vest if pre-determined performance measures are achieved. They are not the same The biggest difference between them is the length of time you hold onto the assets. Bombay Stock Exchange (BSE). Stock options constitute part of remuneration. to speculate on stocks with relatively little investment. A widely used form of employee incentive and compensation. Most trading is done in the secondary market. 2. . offering an opportunity to hedge positions in other securities. To explain further. and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies. Options are a popular investment medium. In primary markets. An organized market for used securities. Infact There are two definitions of stock options. with some extra restrictions. An employee stock option is identical to a call option on the company's stock. PRIMARY MARKET Market for new issues of securities.
Active traders such as day traders tend to use Direct Access Brokers So as you can tell there a few options for a stock broker and you really need to pick which one suits you needs. and they’ll recoup their losses and achieve an overall gain. those shares are worth Rs. Traders rely on Technical Analysis.A full-service broker can provide a bunch of services such as investment research advice. I can think of three different types of stock brokers. Discount Broker – A discount broker let’s you buy and sell stocks at a low rate but doesn’t provide any investment advice.A direct access broker lets you trade directly with the electronic communication networks (ECN’s) so you can trade faster. Full Service Broker . you can make a comfortable living as an Trader. you tell them what you want to invest in and they will issue the buy or sell order. but losing Fifty Five Thousand Rupees would be a relatively big loss for me. tax planning and retirement planning. Direct-Access Broker. The amount of time an active trader holds onto an asset is very short: in many cases minutes. 3. Two years later. 65. are attempting to profit on just those short-term price fluctuations. Traders. If you can catch just two index points on an average day. It wasn’t too long ago and investing was very expensive because you had to go through a full service broker which would give you advice on what to do and would charge you a hefty fee for it. Some stock brokers also give out financial advice that you a charged for. This approach can be dangerous. a form of marketing analysis that attempts to predict short-term price fluctuations. which simply means they buy shares of some company and hold onto them for a long time. What most investors need to remember is this: investing is not about weathering storms with your “beloved” company – it’s about making money. Most investors adopt a “buy and hold” approach to assets.! I don’t know about you. in an extremely volatile market such as today’s BSE or NSE Indexs Show. Now there are a plethora of discount stock brokers such as Scottrade http://www.An investor relies mostly on Fundamental Analysis. If that investor had spent Rs. even devastating. To help make their decisions. Let’s consider someone who bought shares of XYZ Company at their peak value of around Rs. 1.scottrade. 2. Are you wondering what a stock broker is and what they do? Here’s your answer A stock broker is a person or a firm that trades on its clients behalf. his net loss would be Rs.650 per share at the beginning of the year 2000.000/-.55000/.com now you can trade stocks for a low fee such as $7 total. on the other hand. . which is the analytical method of predicting longterm prospects of a particular asset. hoping that in five or ten or fifteen years the market will rebound.100 each. Many investors suffer such losses regularly. or sometimes seconds.
Once you have setup a brokerage account you then need to choose an investment method and then research different companies and then buy stock in the ones that you feel will go up because they are good sound companies. All you need is a brokerage account. And indeed if the answer is in the positive then by all means go ahead and buy that stock regardless of what has happened in the last year. Rather you should ask yourself why has this doubled in the last year and can it do so again? There should be a solid answer to your question like the launch of a new product or reduction in the prices of raw material. Well it may have doubled in the last year but that should not be the thing you should be telling yourself.scottrade. Nothing could be farther from the truth and this will be clear from the way the market behaves in the next few months. A broker that I use is Scottrade http://www. You can buy any stock and sell any stock and it doesn’t take much to get started. The number one tip at this point would be to sell if you have stocks and not to buy them if you have cash.com/ and you can start an account with them for $500 and their commissions are only $7. .Online Stock Trading is a recent way of buying and selling stocks. Now you can buy and sell any stock over the Internet for a low price and you don’t need to call up a broker. Why? Because of peer pressure pure and simple. For instance many investors say that I will not buy stocks of X company because it has doubled in the last year. the brokerage commissions are low at Scottrade they’re only $7 and you can buy and sell your stocks from your home computer anytime that the stock market is open. Well now that you know that you can do online stock trading with a minimal investment you should get started today and then start learning about the stock market and choose the stocks you want to invest in. Another tip that would serve useful is to value a stock based on its future growth and not its past performance. The stock markets are at all time highs and just like the last time around when the market was at its previous high every one thinks that nothing can go wrong and there is just one way where the market can go which is UP. Chances are that the Promoter of the company have started buying into the stock and have spread rumors like acquisition or a big export order to fool investors and sell out to them at a later date. True that the stock has tripled in the last fifteen days but that was before people like your barber started buying the stock. Time and again investors have burnt their fingers in the markets and here are some tips to you so that you do not end up burning your fingers in this market. The golden principle in the markets is “Buy when everyone else sells and sell when everyone else buys”. So as you can see there are several benefits to online stock trading but let’s recap. so they are not expensive at all. Simple enough right? Not really. When everyone else around you seems to be having a ball at the markets you would feel like a fool if you didn’t participate now. OK so you can’t resist buying at this time then at least do yourself a favor and stay away from unknown Penny Stock and hot tips that your barber gave you. With online stock trading all you need is $500 to open a brokerage account. Here are a few tips that would hopefully save you from losing a lot of cash in the current frenzy.
such as venture capital investors or banks. which have different privileges associated with them. we need to dive into history-specifically. but these were generally what we might think of today as a public corporation owned by the government. They can do this in two ways: by issuing bonds. one or more people contribute an initial investment to get the company off the ground. the corporation now has money. Ideally a minimum horizon of one year is a good time. in a month. If the company makes a profit. and can exercise some control over it. These entrepreneurs may commit some of their own money. The more shares you own. they are not going to double their revenues and certainly not double your salary every month. it needs to get money from somewhere. but if they don't have enough. United Kingdom and western Europe as the governments of those countries started allowing anyone to create corporations.Another tip would be to remember what you are buying. and sells them to an investor for an agreed upon price. Only when you invest in fundamentally sound companies and then give the investments sufficient time to grow will you see some healthy returns on your investments. So a corporation creates some shares. and the more control you have over the company's operations. to invest in their business. Give time to your investments. The corporation can continue to issue new shares. the more of the company you own. shares in the ownership of the company. Happy Investing! In order to understand what stocks are and how stock markets work. they will need to persuade other people. Stocks A corporation is generally entitled to create as many shares as it pleases. Quite simply investors often forget that when buying a stock they are simply buying ownership in the companies. Hope these tips will prove helpful and you will make a lot more in the stock markets than you have already been making. In return. Eventually. Public Markets . as long as it can persuade people to buy them. Long ago stock owners realized that it would be convenient if there were a central place they could go to trade stock with one another. Typically. and the public stock exchange was born. don’t reduce it to a gamble. or by issuing stock. Most of you would know that nothing spectacular would happen in the company that you work for. Corporations in one form or another have been around ever since one guy convinced a few others to pool their resources for mutual benefit. Why expect the prices to double in a month or two. today's stock markets grew out of these public places. Then why expect anything different from the companies that you are investing in. which are basically a way of selling debt (or taking out a loan. Companies sometimes issue different classes of shares. or sometimes the limited liability company (LLC). the history of what has come to be known as the corporation. Each share is a small piece of ownership. that is. The first corporate charters were created in Britain as early as the sixteenth century. depending on your perspective). like the postal service. Privately owned corporations came into being gradually during the early 19th century in the United States . In order for a corporation to do business. it may decide to plow the money back into the business or use some of it to pay dividends on the shares. the investor has a degree of ownership in the corporation.
Then the price goes up to Rs." I feel sad. into your own local currency to understand the article 1. To do this you need to keep money ready. To be sure that you are not investing in loss making companies. P. you have some shares to sell And participate in the rally to make money. Going public gives the company an opportunity for a potentially huge capital infusion. Next. This has to be done only if believe in the fundamentals. since millions of investors can now easily purchase shares. Every Market expert advise to do your stock analysis before investing in the stock market. The NYSE (New York Stock Exchange) is a non-profit corporation. Most companies that go public have been around for at least a little while. Another comes with a different version "I sold "XYZ Company" at Rs. it makes an initial public offering (IPO).Then if the price further shot up. The golden Rule is to first do your own analysis of the stock before investing and buy on tips. earning money by providing trading services. . Even comparing within an industry. Then keep 50% cash aside. But you cannot compare PE’s on companies from different industries.S: If you are not Indian then replace the Rs.2200 and immediately after I bought the stock price dropped to Rs. One say's "I bought "XYZ Company" at Rs.2000 and reduce your overall buying cost. only invest with other 50%. It also exposes the corporation to stricter regulatory control by government regulators.2400. When a corporation decides to go public.2200 and 100 @ Rs. Also now if you have 200 shares of XYZ Company 100 @ Rs. The company will decide how many shares to issue on the public market and the price it wants to sell them for. as the variables those companies and industries have are different. Sell only 100 of the shares. Well in my next article I will write about how to do stock analysis using various tools such as financial ratios and by checking the track records of the companies you plan to invest in. after filing the necessary paperwork with the government and with the exchange it has chosen.whatever money you have and want to invest.400 per share Solution: You can buy more shares @ Rs. Also invest only in companies which declare dividends every year.2000 and it went up to Rs. The solution to this is never sell all the shares at one time. PE’s don’t tell you about many financial fundamentals and nothing about a stock’s value. that is why they are listed in newspapers etc. But nobody tells you how. Sell only 50% of your shares. You can tell if a Stock is cheap or expensive by the Price to Earnings Ratio. the company can use the proceeds to invest in the business.So if need to buy more of any stock when the price falls you have ready cash.How each stock market works is dependent on its internal organization and government regulation.2400 same evening" I made an imaginary loss of Rs. while the NASDAQ (National Association of Securities Dealers Automated Quotation) and the TSE (Toronto Stock Exchange) are for-profit businesses.2000.So if he price goes up later you still have the other 50% to sell and make profit. False: PE ratios are easy to calculate.split it into two parts. When all the shares in the IPO are sold. You sold the share and the price went up.2000.management and the future prospects of the company.
Bull markets are generally characterized by high trading volume. False: Tips to Lower your Risk: · Do not put more than 10% of your money into any one stock · Do not own more than 2-3 stocks in any industry · Buy your stocks over time. Young people have the time to be patient. you must assume High Risks. But on the way down. stocks) are. and the . A market in which prices are rising. A bear market is typified by falling stock prices. high economic growth. jobs are plentiful and inflation is low.. A news item is considered bullish if it is expected to result in higher prices. False: The only thing true about this is that young people have time on their side if they lose all their money. A bull market is typified by generally rising stock prices. Bear markets are the opposite--stock prices are falling. typically the result of a strong economy. Plus the cost of business goes up. Simply put. If they follow the tips above. along with the stock prices. During this time. especially if it has broken previous highs. trending higher. If the stock is fairly valued. False: When interest rates rise. To make Money in the Stock Market. A market participant who believes prices will move higher is called a "bull". 5. so that pushes prices down. 4. If a stock is rising. on average.An advancing trend in stock prices that usually occurs for a time period of months or years. Bear markets are the opposite. economic production is high. Bull markets are when the market is generally rising. it should continue to rise. You can Hedge Inflation with Stocks.g. bad economic news. Young People can afford to take High Risk. there are no unhappy owners who want to dump it. people start to pull money out of the market and into bonds. and strong investor confidence in the economy. But young people have little disposable income to risk losing. you have no idea how much further it may fall. and low investor confidence in the economy. they can make money over many years. A bull market is a financial market where prices of instruments (e.2. so corporate earnings go down. There are two classic market types used to characterize the general direction of the market. The bull market tends to be associated with rising investor confidence and expectations of further capital gains. False: People believe that a falling stock is cheap and a rising stock is too expensive. bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. not all at once · Buy stocks with consistent and predictable earnings growth · Buy stocks with growth rates greater than the total of inflation and interest rates · Use stop-loss orders to limit your risk 3. Buy Stocks on the Way Down and Sell on the Way Up.
Investors often attempt to buy securities as they demonstrate a strong and steady rise and sell them as the market begins a strong move downward. Technical Analysis supposes markets have memory. this means buying securities early. and moving averages. However. A bear market tends to be accompanied by widespread pessimism.view is that they will continue falling. unclear or belated. The economy will slow down. The analysis includes studying price movements and trading volumes to determine patterns such as Head and Shoulder Formations and W Formations. Research and examination of the market and securities as it relates to their supply and demand in the marketplace. can give an idea of the future price evolution.Speculators and risk-takers can fare relatively well in bull markets. or market in general is going to go down. It might become a source of representiveness heuristic (spotting patterns where there are none) . as simple as it sounds. or options in specific market sectors or in the overall financial markets. sector. They believe they can make profits from rising prices. coupled with a rise in unemployment and inflation. mutual funds. past prices. watching them rise in value and then selling them when they reach a high. etc. The stock market used to be filled with technical analysts deciding what to buy and sell. Now technical stock analysis is virtually non-existent. price changes. It gives some results but can be deceptive as it relies mostly on graphic signals that are often intertwined. futures and currencies they believe will gain value. Technical Analysis is a tool to detect if a trend (and thus the investor's behavior) will persist or break. Since no one knows exactly when the market will begin its climb or reach its peak. Investors who believe in watching the market will buy and sell accordingly to change their portfolios. They use their findings to predict probable. Technical Analysis is a method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume.. often short-term. commodities. Other indicators include support and resistance levels. industry. virtually no one can time the market perfectly. this practice involves timing the market. technical analysis does not consider a corporation's financial data. trading patterns in the investments that they study.The attempt to look for numerical trends in a random function. options. Technical analysts study trading histories to identify price trends in particular stocks.A bear market is slang for when stock prices have decreased for an extended period of time. Portfolios with larger percentages of stocks can work well when the market is moving upward. In contrast to fundamental analysis. For most. or the current price momentum. A stock market term . until it was decided that their success rate is no better than chance. The speed (and advocates would say the accuracy) with which the analysts do their work depends on the development of increasingly sophisticated computer programs. The technician uses charts and computer programs to identify and project price trends. If an investor is "bearish" they are referred to as a bear because they believe a particular company. to identify patterns. What is a Bear Market? The opposite of a bull market is a bear market when prices are falling in a financial market for a prolonged period of time.If so. The Readers Submitted Examples page has more on this topic. A key to successful investing during a bull market is to take advantage of the rising prices. so they buy stocks. Growth is what most bull investors seek.
the sector it's in. or the economy as a whole. without even understanding what the company does. as more and more people believe that the historical performance of a stock is a strong indication of future performance. Risks of a particular industry. most agree it is much more effective when used in combination with fundamental analysis. and until this change occurs. or even going bankrupt (Enron. However. However. although technical analysis is a terrific tool. just because a person has received a dividend payment doesn't mean that they fully appreciate where the payment is coming from and what its purpose is. It involves making both quantitative and qualitative judgements about a company. In most savings alternatives. Savings provide funds for emergencies and for making specific purchases in the relatively near future (generally within two years). Investing involves risk. or coerced you though his sales pitch to buy speculative investments. The use of past performance should come as no surprise. price levels are predictable.). Traditionally. etc. However. The primary goal is to store funds and keep them safe. People using fundamental analysis have always looked at the past performance of companies by comparing fiscal data from previous quarters and years to determine future growth. The capital value of investments can go up or down. earning guaranteed rates of interest. you might already be familiar with the concept of dividends. some financial experts suggest that savers consider slightly higher risk (but liquid) alternatives for at least part of their savings. Risks of the economy. It is the backbone of you and your family’s financial well-being. The difference lies in the technical analyst's belief that securities move according to very predictable trends and patterns. There are many instances of investors successfully trading a security using only their knowledge of the security's chart. The goal of investing is generally to increase net worth and work toward long-term goals. Risk of interest rates rising. the more financial secure and independent you will be. Saved money is insurance. If you've ever owned stocks or held certain other types of investments. Risk of your stocks losing money. In this way investors hope to build up a picture of future price movements. etc. the airlines. Saved money grants you financial security. against having a major unexpected repair bill or medical expense in the family. and then some (such as with margin calls). Risk of losing your principal. the initial amount of capital or cash remains constant. Returns are not guaranteed. saving has been viewed as quite different from investing. Because of the opportunities for earning a higher return with a relatively small pool of funds. And the more you save. creation of money market funds and deregulation of the banking industry have resulted in a variety of savings options that earn variable rates of return. however… after all. against losing your job. volume of shares traded day to day. This is done by tracking and charting the companies stock price. This is why savings are generally placed in interest-bearing accounts that are safe (such as those insured or guaranteed by the federal government) and liquid (those in the form of cash or easily changed into cash on short notice with minimal or no loss). Fundamental analysis can be contrasted with 'technical analysis’. Risk of losing it all. MCI. these generally have low yields. Fundamental Analysis Fundamental analysis looks at a share’s market price in light of the company’s underlying business proposition and financial situation. These trends continue until something happens to change the trend. Risks of your broker swindled you. It is insurance against risk.Technical analysis has become increasingly popular over the past several years. . Even those people who have made investments that paid dividends may still be a little confused as to exactly what dividends are. which seeks to make judgements about the performance of a share based solely on its historic price behavior and without reference to the underlying business. both on the company itself and also on its competitors. and bond prices falling.
and others may pay only once per year. This will increase future dividend payments (since they're based upon how much stock that you own). The more a particular company pays in dividend payments. you're receiving additional shares of the company's stock in exchange for the dividend. but the total per-share amount is usually the same. The more time there is between dividend payments can indicate financial and profit problems within a company. This means that after a particularly profitable quarter a company might set aside a lump sum to be divided up amongst all of their stockholders. as well as a way of luring other investors into purchasing stock in the company that is paying the dividends. Individuals who own large amounts of stock receive much more from the dividends than those who own only a little. Defining the Dividend Dividends are payments made by companies to their stockholders in order to share a portion of the profits from a particular quarter or year. It is calculated by subtracting liabilities from the value of a fund's securities and other items of value and dividing this by the number of outstanding shares. the more likely it is to sell additional common stock… after all. What is NET ASSET VALUE ? The Term Net Asset Value (NAV) is used by investment companies to measure net assets. When Dividends Are Paid How often dividends are paid can vary from one company to the next. The amount that any particular stockholder receives is dependent upon how many shares of stock they own and how much the total amount being divided up among the stockholders amounts to. depending upon the total number of shares issued and the total amount being divided. but in general they are paid whenever the company reports a profit. Why Dividends Are Paid Dividends are paid by companies as a method of sharing their profitable times with the stockholders that have faith in the company. and can set you up to make a lot more money than the actual dividend payment was for since increases in stock prices will affect the newly-purchased stock as well.If you have ever found yourself wondering exactly what dividends are and why they're issued. this means that most of them have the potential to pay dividends up to four times each year. Getting the Most Out of Your Dividends In order to get the most out of the dividends that you receive on your investments. however. though each individual share might be worth only a very small amount potentially fractions of a cent. but if the company simply chooses to pay all of their dividends at once it may also lead to higher per-share payments on those dividends. This can actually lead to increases in stock price and additional profit for the company which can result in even more dividend payments. . if the company is well-known for high dividend payments then more people will want to get in on the action. then the information below might just be what you've been looking for. While this may seem as though you're simply giving them their money back. Since most companies are required to report their profits or losses quarterly. it is generally recommended that you reinvest the dividends into the companies that pay them. Some companies pay dividends more often than this. Net asset value is popularly used in newspaper mutual fund tables to designate the price per share for the fund.
What should be in your trading plan? 1 .therefore my job will be one of patience and discipline. . Calculating NAVs .00.Consistent results require consistent actions .50.I also like to include reminders that I read every day I will follow a trading plan to guide my trading . public sentiment. These conditions may include technical analysis. 2 .50 lakh and there are one lakh shares of the fund.The value of a collective investment fund based on the market price of securities held in its portfolio. the reason should not be greed or fear.Your daily routine . your task becomes one of patience and discipline. you have to avoid having to make decisions during those hours.after the market closes. then the price per share (or NAV) is Rs. You also have to describe the conditions under which you will close a position. Simply take the current market value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding.Your Money management rules to keep losses small . etc. . .Maximum amount at risk for all your opened positions..consistent actions can only be achieved through a detailed plan.the goal of money management is to ensure your survival by avoiding risks that could take you out of business.Calculating mutual fund net asset values is easy. before it opens. emotions will turn smart people into idiots.. Closed ended investment trusts have a net asset value but have a separate market value. NAV per share is calculated by dividing this figure by the number of ordinary shares. With a good plan.Maximum daily and weekly amount lost before you stop trading 3 . For every action you take during trading hours. Trying to win in the stock market without a trading plan is like trying to build a house without blueprints costly mistakes are inevitable. 2 . or a combination of both. Investments trusts can trade at net asset value or their price can be at a premium or discount to NAV. They may also include market conditions. Value or purchase price of a share of stock in a mutual fund.Maximum amount at risk for each trade. 4 . 5 . Why do you need a Trading Plan? 1 . fundamental analysis. subtracting all liabilities.. Your money management rules should include the following: . Therefore.. Units in open ended funds are valued using this measure. NAV is calculated each day by taking the closing market value of all securities owned plus all other assets such as cash. So if a fund had net assets of Rs.Your strategy to enter and exit trades You have to describe the conditions that have to be met before you enter a trade. The reason should be because it is in the plan.During trading hours. etc.Activities you carry out during the weekend. then dividing the result (total net assets) by the total number of shares outstanding.
MISTAKE TWO Unrealistic Expectations Many novice traders expect to make a gazillion dollars by next Thursday.Handle trading as a serious intellectual pursuit. there is no Holy Grail.I will take actions according to my trading plan. . I will have a winning attitude.focus on trading well. We learnt the following the hard way! If any of these things applies to you. Instead I will admit the error and correct it. don't worry – there is an easy solution! MISTAKE ONE Lack of Knowledge and No Plan It amazes us that some people expect to trade the stock market successfully without any effort. done that! The truth is. just yet! .Trade to trade well and for the love of trading. they will happily take some lessons or at least read a book before heading out onto the course. The stock market can be a great way to replace your current income and for creating wealth but it does require time. But the good news is that you don't need it.Use your head and stay calm – don’t get excited or depressed. . but some.I will always keep my trading plan simple. But learning what you need is straightforward – you just need someone to show you the way. . . Or they start to write out their resignation letter before they have even placed their first trade! Now. or hope. easy to learn and low risk. not to trade often and not for the money.Don’t try to guess the future – trading is a game of probabilities.I will not deceive myself when I deviate from my trading plan. . for example.Take responsibility for all your actions – don’t blame the market or world events. Yet if they want to take up golf. not because of greed. . . .Don’t be influenced by the opinions of others. Not a lot. So don't tell your boss where to put his job. A trading plan will not guarantee you success in the stock market but not having one will pretty much guarantee failure. fear. Our trading system is highly successful..Never think that taking money from the market is easy. The stock market is not the place for the ill informed. .Don’t count how much money you have made or lost while you are in a trade . The opposite extreme of this is those traders who spend their life looking for the Holy Grail of trading! Been there. don't get us wrong. .
So they listen to all the news reports and so called "experts" and get totally confused. If you don't learn to trade "both" sides of the market. who got it from some cab driver… We will show you how you can get to know everything you need to know and so never have to listen to anyone else. And they take "tips" from their buddy. MISTAKE SIX Only Trading Market in One Direction Most new traders only learn how to trade a rising market. If you don't get this right you not only won't be successful. Lack of discipline. But more on this another time! MISTAKE FIVE Poor Money Management It never ceases to amaze us how many traders don't understand the critical nature of money management and the related area of risk management. Of course this is unrealistic. And very few traders know really good strategies for trading in a falling market. This is a critical aspect of trading. MISTAKE THREE Listening to Others When traders first start out they often feel like they know nothing and that everyone else has the answers. It is critical you understand how to control this side of trading. Fear and greed can be overwhelming. you won't survive! Fortunately. But the best thing is that with our methods you only need to get 50-60% of your trades "right" to be successful and highly profitable. . it is not complex to address and the simple steps we can show you will ensure that you don't "blow up" and that you get to keep your profits. There is also one other key that almost no one seems to talk about. ever again! MISTAKE FOUR Getting in the Way By this we mean letting your ego or your emotions get in the way of doing what you know you need to do.Other beginners think that trading can be 100% accurate all the time. When you first start to trade it is very difficult to control your emotions. lack of patience and over confidence are just some of the other problems that we all face. And this limits the amount of money you can make. you are drastically limiting the number of trades you can take.
Most open-end mutual funds continuously offer new shares to investors. In India . a mutual fund is a common pool of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. to differentiate it from a closed-end investment company. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. And how trading less can actually make you more! What is a Mutual Fund? Mutual Fund is a investment company that pools money from shareholders and invests in a variety of securities. And they see trading opportunities when they're not even there (we’ve been there too). A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. debentures. In Short. such as stocks. Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. gilts etc . The profits or losses are shared by the investors in proportion to their investments.We can show you a simple strategy that allows you to profit when stocks fall. Most open-end mutual funds stand ready to buy back (redeem) its shares at their current net asset value. an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds. professionally managed basket of securities at a relatively low cost. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. which depends on the total market value of the fund's investment portfolio at the time of redemption. MISTAKE SEVEN Overtrading Most traders new to trading feel they have to be in the market all the time to make any real money. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. Investors of mutual funds are known as unitholders. bonds and money market instruments. We can show you simple techniques that ensure you only "pull the trigger" when you should. Also known as an open-end investment company. HISTORY OF MUTUAL FUNDS IN INDIA Mutual Fund History India . For example. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net asset value: total fund assets divided by shares outstanding. In Simple Words. Mutual Fund is a suitable investment for the common man as it offers an opportunity to invest in a diversified.
They can invest in treasury bills. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. In 1995. the RBI permitted private sector institutions to set up Money Market Mutual Funds (MMMFs). Thereafter. commercial paper. SEBI notified regulations for the mutual funds in 1993.g. certificates of deposit and dated government securities having unexpired maturity upto one year. In order to provide an exit route to the investors. Types of Mutual Funds Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. These mutual funds schemes disclose NAV generally on weekly basis. Government allowed public sector banks and institutions to set up mutual funds. Open-ended Fund An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. The key feature of open-end schemes is liquidity. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. mutual funds sponsored by private sector entities were allowed to enter the capital market. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed.Unit Trust of India(UTI) was the first mutual fund set up in India in the year 1963. commercial bills accepted/coaccepted by banks. either repurchase facility or through listing on stock exchanges. 5-7 years. The regulations were fully revised in 1996 and have been amended thereafter from time to time. call and notice money. In the year 1992. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i. As far as mutual funds are concerned. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. In early 1990s. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.e. UTI has an extensive marketing network of over 40. These Funds do not have a fixed maturity period. Close-ended Fund A close-ended Mutual fund has a stipulated maturity period e. The fund is open for subscription only during a specified period at the time of launch of the scheme. Securities and exchange Board of India (SEBI) Act was passed.000 agents all over the country. Fund according to Investment Objective: .
Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. However. long term investors may not bother about these fluctuations. etc. and the investors may choose an option depending on their preferences. Returns on these schemes fluctuate much less compared to other funds. though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. NAVs of such funds are likely to be less volatile compared to pure equity funds. or balanced fund considering its investment objective. If the interest rates fall. Such schemes may be open-ended or close-ended schemes as described earlier. income fund. However. The mutual funds also allow the investors to change the options at a later date. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index. These funds are also affected because of fluctuations in share prices in the stock markets. Such funds are less risky compared to equity schemes. The investors must indicate the option in the application form. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. These schemes provide different options to the investors like dividend option. corporate debentures. capital appreciation. S&P NSE 50 index (Nifty). Government securities and money market instruments. certificates of deposit. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Such funds have comparatively high risks. Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. They generally invest 40-60% in equity and debt instruments. These funds are not affected because of fluctuations in equity markets. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long. The NAVs of such funds are affected because of change in interest rates in the country. NAVs of such funds are likely to increase in the short run and vice versa. commercial paper and inter-bank call money. government securities. etc These schemes invest in the securities in the same weightage comprising of an index. Such schemes normally invest a major part of their corpus in equities.term. etc. opportunities of capital appreciation are also limited in such funds. These are appropriate for investors looking for moderate growth. Government securities have no default risk. Such schemes generally invest in fixed income securities such as bonds. Necessary .A scheme can also be classified as growth fund. These schemes invest exclusively in safer short-term instruments such as treasury bills. However. Gilt Fund These funds invest exclusively in government securities. preservation of capital and moderate income.
That is. the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. the investors should also consider the performance track record and service standards of the mutual fund which are more important. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.10 and those who offer their units for repurchase to the mutual fund will get only Rs. Tax Saving Schemes schemes offer tax rebates to the investors under specific provisions of the Income Tax Act. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors. 1961 as the Government offers tax incentives for investment in specified avenues.10. each time one buys or sells units in the fund.g.disclosures in this regard are made in the offer document of the mutual fund scheme. Assured Return Schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme. Equity Linked Savings Schemes (ELSS). The investors should take the loads into consideration while making investment as these affect their yields/returns. A no-load fund is one that does not charge for entry or exit. This charge is used by the mutual fund for marketing and distribution expenses. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. What are Tax Saving Schemes? In India.9. Efficient Mutual funds may give higher returns in spite of loads. However. Pension schemes launched by the mutual funds also offer tax benefits. What are Load Funds / No Load Funds ? A Load Fund is one that charges a percentage of NAV for entry or exit. However. then the investors who buy would be required to pay Rs. If the entry as well as exit load charged is 1%. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. What is Assured Return Scheme? In Mutual Funds. the post offices and banks also distribute the units of mutual funds. e. Forms can be deposited with mutual funds through the agents and distributors who provide such services. These schemes are growth oriented and invest pre-dominantly in equities. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.90 per unit. How To Invest in Mutual Funds ? Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Their growth opportunities and risks associated are like any equity-oriented scheme. a charge will be payable. . A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Now a days. Suppose the NAV per unit is Rs.10.
Mutual Fund Offer Document What to Look For ? An abridged offer document. The NAVs of mutual funds are required to be published in newspapers. address. is required to be given to the prospective investor by the mutual fund. The unitholders have the right to exit the Mutual Fund at the prevailing NAV without any exit load if they do not want to continue with the scheme. Normally. SEBI has prescribed minimum disclosures in the offer document. The application form for subscription to a Mutual Fund is an integral part of the offer document. Due care must be given to portions relating to main features of the Mutual Fund. How to fill Mutual Fund Application Form An investor must mention clearly his name. The NAVs are also available on the web sites of mutual funds. pending litigations and penalties imposed.g. risk factors. Can Mutual Fund Change Schemes ? Yes. In the meantime. Non-Resident Indians (NRI) can also invest in mutual funds. On the other hand they must consider the track record of the mutual fund and should take objective decisions. etc at a later date should be informed to the mutual fund immediately.structure. initial issue expenses and recurring expenses to be charged to the Mutual Fund entry or exit loads. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. necessary details in this respect are given in the offer documents of the schemes. offer documents are required to be revised and updated at least once in two years. sponsor’s track record. etc. no change in the nature or terms of the scheme. many mutual funds send quarterly newsletters to their investors. which contains very useful information. An investor. At present. All mutual funds are also required to put their . performance of other Mutual Fund schemes launched by the mutual fund in the past. He must give his bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. etc. Any changes in the address. investment pattern. bank account number. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor. should carefully read the offer document. known as fundamental attributes of theMutual Fund e. They Can However. Apart from it. Mutual Funds Performance The performance of a Mutual Fund is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted. number of units applied for and such other information as required in the application form.Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. The mutual funds are required to inform any material changes to their unitholders. educational qualification and work experience of key personnel including fund managers. before investing in a Mutual Fund scheme.
non-performing assets ( NPAs). debentures.NAVs on the web site of Association of Mutual Funds in India (AMFI) www. and their quantity. The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year. draft offer documents filed by . half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www. 5 years and since inception of schemes.amfiindia. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index. many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Apart from these. 3 years. Investors can compare the performance of their schemes with those of other mutual funds under the same category. last six months. Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes.in and go to "Mutual Funds" section for information on SEBI regulations and guidelines. etc.amfiindia. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. Investors can log on to the web site of SEBI www. equity. On the basis of performance of the mutual funds. etc. S&P CNX Nifty.e. The scheme portfolio shows investment made in each security i. investment made in rated and unrated debt securities. money market instruments.sebi.com and thus the investors can access NAVs of all mutual funds at one place The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i. Some mutual funds send the portfolios to their unitholders. These portfolio statements also required to disclose illiquid securities in the portfolio. government securities. data on mutual funds. Where can an investor look out for information on mutual funds? Almost all the mutual funds have their own web sites. the investors should decide when to enter or exit from a mutual fund scheme Where do the Mutual Funds Invest ? How To Check it The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. market value and % to NAV. Investors can also access the NAVs. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.e.com. Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. AMFI has also published useful literature for the investors.gov. etc. 1 year.
you need to mirror what the market is doing. Your rate of return is determined 100% by when you enter the stock market. The market reaction to good or bad news in a bull market will be positive more often than not. If you want to make money in any market. 1. all the big money is made by catching large market moves ." 4. The market reaction to good or bad news in a bear market will be negative more often than not. in the annual reports of SEBI available on the web site. The longer you stay wrong with the stock market. Also. Other things being equal. As simple as this concept appears to be. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Every market or stock that goes up will go down and most markets or stocks that have gone down.sometimes months in advance. 5. If the stock market is going up and you are short. addresses of mutual funds. 3. the vast majority of investors do the exact opposite. Stock markets generally move in advance of news or supportive fundamentals . of your investments. If the market is going down and you are long. If you wait to invest until it is totally clear to you why a stock or a market is moving. . will go up. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below.not by day trading or short term stock investing. Buy low-sell high. the more extreme the movement in the opposite direction once the trend changes.mutual funds. Since we are dealing with perception of markets-not necessarily reality. will determine the success. There are many important things you need to know to trade and invest successfully in the stock market or any other market. you will probably never know for certain. 2. Stock market winners only care about direction and duration. Since the trend is the basis of all profit. you are wasting your time looking for the many reasons markets move. The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits. Your ability to consistently buy low and sell high. The more extreme the move up or down. This is also known as "the trend always changes rule.not why they are moving. Investors may approach their agents and distributors to guide them in this regard. while market losers are obsessed with the whys. The trend is your friend. the market is right and you are wrong. A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. the market is right and you are wrong. If you are looking for "reasons" that stocks or markets make large directional moves. the longer you stay right with the stock market. the more money you will lose. you have to assume that others have done the same thing and you may be too late. Contrary to the short term perspective of most investors today. To make a profit trading. The stock market is always right and price is the only reality in trading. the more money you will make. There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. You need to get positioned before the largest directional trend move takes place. 6. etc. or failure. we need long term trends to make sizeable money. it is only necessary to know that markets are moving . a lot of information on mutual funds is given.
your first trade may be a winner. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Keep in mind that Wall Street and other financial firms make money by selling you something . you have to learn how to cut your losses. but to consistently make money in the stock market you have to learn how to lose. etc. and lose much more money than they earn. Never trust the advice and/or ideas of trading software vendors. Note those that have traded successfully over very long periods of time are very few in number. Sure. 11. If you eliminate optimization. stock trading system sellers. if you buy low. . In life. creates inefficient markets.7. If you do not practice highly disciplined trading. unless they trade their own money and have traded successfully for years.. Since your starting point is critical in determining your total return.and they act on it. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist. The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others. your long term investment results are irrefutably better than someone that bought high. data mining. brokers. Market timing can help avert this much too common experience. Consistently profitable professional traders simply have better information . You should make your own trading decisions based on a rational analysis of all the facts. More to the point. you have to learn to walk before you can run. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. Most non-professionals trade strictly on emotion. and other such statistical tricks and data manipulation. The worst thing an investor can do is take a large loss on their position or portfolio. 9. most trading ideas are losers. 8. Successful market timing is possible but not with the tools of analysis that most people employ. 10. market commentators. Trading discipline is not a sufficient condition to make money in the markets. newsletter publishers. subjectivism. for the majority of us. but it is a necessary condition. In the stock market. financial analysts. you have to learn to lose before you can truly win. you will not make money over the long term. This is a stock trading “system” in itself. You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high.not instilling wisdom in you. The most successful investing methods should take most individuals no more than four or five hours per week and. 12. only one or two hours per week with little to no stress involved. trading authors. The perfect competition model is not based on anything that exists on this earth.
The price you pick will vary depending on your financial position and the particular stock being considered. You'd actually profit $700 across your entire portfolio despite the fact 60% of what you picked were duds! :) Starting with 5 positions worth $1000 each: $5000 3 losing stocks lose 10% each: -$300 2 winning stocks make 50% each: +$1000 Total = $5700 Modern trading systems have completely automated stop-loss systems. the main aim is to make a profit across your entire portfolio. you only need to make 15% on the remaining 2 stocks to break even. Until then. The Stop-Loss Before you even consider entering a trade. You may want to set a stop-loss exactly 8% under your purchase price. So what's the difference between the successful and the unsuccessful? One major difference between successful traders and unsuccessful traders is the ability to admit when one is wrong. The only trick is setting them wisely. When a company starts to be traded to the public. If you set your stop-loss too close. the primary market comes in where those who subscribe to the initial public offering (IPO) takes on the shares of stock sold from point of IPO. This makes it so easy to set stoplosses that you have no excuses for losing big in a single trade anymore! In fact. Some of the most unsuccessful people in the world also have a strong belief in themselves. good luck and keep on learning. so if the value of a single stock drops to $900 you'll sell at that price. or you may want to set it just below some clear resistance in a chart (if the stock falls below the resistance level. The most important thing is to test your system. but when you get the odd loser you better make sure you cut that baby lose before you lose some big dollars. You'll learn how to plan and time your entry and exit points on this site over the next few months. The most successful people in the world have a strong belief in themselves. its initial shareholders are able to acquire shares of stock from the point of subscription when a company is created. you'll end up losing too much money. Remember. If you set your stop-loss too far away. educated and sharp. Your stop-loss point should be set at a price that you're willing to sell your stock at should things turn bad. An unsuccessful trader will let their losses grow in the false belief (hope) that things will pick up. Even if you are wrong with 3 of the 5 picks (a $300 loss). A successful trader will cut their losses before they get out of hand.. It would be nice if every stock pick was a winner. Imagine you owned $1000 worth of 5 different stock.The majority of people who dabble in the stock market see themselves as smart. you'll never be in the game when the stock turns good. you should determine your stop-loss point. they can do so by going to the stock market. What if those remaining 2 stocks made 50% (which is very realistic if you pick your entry right). . you can be fairly sure things will continue South for a while). you're mad if you don't take advantage of stop-losses. How to trade the stock Market ? The stock market system is an avenue of how to trade stock for listed corporations.. You set a stop loss at 10% current market value. As a corporation is formed. Self-belief is great. When those who bought into a company at IPO point of view decides to sell their shares of stock to other people.
cement. office space. Fuelled largely due to off-shoring / outsourcing of BPOs.g. FDI is flooding in to take advantage of the tremendous real estate opportunities.The stock market is a secondary market for securities trading wherein original or secondary holders of a company’s shares of stock can sell their stocks to other individuals within the frame work of the stock market system. manufacture of building materials. call centres. bricks and other related industries. Indian Real Estate: Investment Opportunities . Public education over how the stock market works is one of the primary concerns of the investing public in order to promote the trading activities of the stock market to other individuals who may also benefit from doing transactions over this secondary type of equities market. eighty percent of Indian real estate has been developed for residential space. Technology has aided in providing more efficient ways of transactions. mini-townships. NRIs. Estimated to be in the region of US $12-billion. that is the undeniable verdict of a Price Waterhouse Coopers study conducted on the investment environment in terms of Indian real estate. As the stock market has developed and progressed over the years.. real estate growth in India has great investment prospectives. and others have been tracking a path to the sub-continent. this information will help the investors to become more aware of the directions of the companies where they have share of stocks on and this will also aid them in how to trade stock and where to direct their investment strategies. Indian Real Estate: Growing Potential The increasing demand for Indian real estate has not only generated employment. Ever since the Government of India gave its stamp of approval to 100% foreign direct investment (FDI) in housing and real estate. investments in infrastructure facilities e. Already. etc. constructing residential / commercial complexes. hospitals and hotels. With the abundance of relevant company information on performance of publicly listed companies. the ways of how to trade stock from one individual to another has become more complicated and more challenging to be regulated. The secondary market or the stock market allows other individuals to sell shares of the company when the initial shareholders may have realized that they want to sell their shares after gaining either significant profit or realized significant loss from point of acquiring a company from its IPO price. and 20% comprises of shopping malls. The stock market has buyers of stocks or those who wants to own a part of the company but wasn’t able to do so during the initial public offerings made by the company to the public when it has decided to list itself as a publicly listed company. Sensing the business potential for developing serviced plots. bridges. business centres / offices. Front and backend solutions are put into place that helps direct the exchange of shares of stock in timely and secure manner. high-end technology consulting and software development and programming firms. roads. Investing in Indian Real Estate by Rajinder Dogra Indian Real Estate: "Undeniably tremendous!" And. overseas real estate developers. real estate development in India is growing by as much as 30% each year. it has also been instrumental in the growth of steel. hoteliers.
All development has to be in compliance with State Government / Municipal / Local Body requirements that are prescribed under applicable rules / bye-laws / regulations. hotels. Construction-development projects. metres. early exit is permitted. street lighting. and local byelaws. Poised for rapid urbanisation. Further. internal / external / peripheral area development. factors responsible for changing the face of residential and commercial real estate in India. And. sewerage and other conveniences are not available. educational institutions. banks and housing finance companies are falling over themselves to tie-up with developers or offer project loans at competitive rates.000 sq. The investor is responsible for obtaining all necessary approvals. the funds have to be brought in within six months of commencing business. Serviced housing plots can only be sold if the investor has provided infrastructure and obtained a completion certificate from the concerned local body / service agency. payment for development and other charges. and fiscal reforms like stamp duty and property tax reductions. hospitals. including building / layout plans. setting up real estate mutual funds has turned real estate into a promising investment option. Non Resident Indians (NRIs) are allowed investment under the Automatic Route of FDI in the following Housing and Real Estate Sector: Services plot development and construction of built-up residential premises. it has approved the first Rs. planning norms. with the exception of the Reserve Bank of India (RBI). It is important that all inward remittances or issues of shares to NRIs are reported to RBI within 30-days. resorts. However. Already. recreational facilities. 100-crore FDI project in Gurgaon. drainage. It is not permissible to repatriate original investment before a period of three years from the date of minimum capital investment. increased consumerism. . standards. city and regional level infrastructure. infrastructure facilities. With urban populations expected to grow from 290-million to 600-million by 2021. housing requirements are expected to top 68-million by 2021.Tax reform measures in the last few years have ensured real estate in India is one of the most productive investment sectors. An influx of jobs due to off-shoring / outsourcing has resulted in rising disposable incomes. No undeveloped plots can be sold where roads. either of the above two conditions suffices. minimum built-up area requirement of 50. minimum requirement of 10 hectares. Further. which means India's urban housing sector could do with an investment of US $25-billion over a 5year period. and all FDI in the above areas is subject to the following conditions: Minimum area for development under each project is as under: Serviced housing plots. 3 out of 10 of the world's largest cities are in India. Indian Real Estate: Foreign Direct Investment (FDI) Recent government policies have seen to it that inbound FDI for housing. and US$5 million for joint ventures with Indian partners. Development has to be in accordance with town master plans. if the investor gets prior approval from the Government through FIPB. the Government of India by opening up 100% foreign direct investment. Wishing to take advantage of real estate investment opportunities. water supply. Fifty percent of the project is to be completed within 5-years from the date of obtaining all legal clearances. Investment is further subject to the following conditions: Minimum capital investment = US$10 million for a wholly owned subsidiary. Combination project. no longer requires prior government approval. commercial premises. with money invested in real estate offering regular returns on investment including appreciating in value.
etc. As soon as some “analyst” finds a cogent fact that can influence a stock price he will share that “secret” with a few close friends. 12 months. along commercial lines.com Forcasting the Stock Market ? Every day I see in the financial section of newspapers how to forecast what the market will do in 6 months. Various proposed reforms e. He just wants to make a commission and is probably promoting a stock his brokerage company wants to push. Are you smart enough to pick those winners? I’m not and I am considered a professional trader. Every investor wants to know the future and will send money to some “expert” who will send him news about a company that only (?) he knows. City / regional level urban infrastructure facilities. SEZ land may be leased or sub-leased to developers as per relevant guidelines for this purpose. Investment in participatory ventures in (i) to (v) above Investment in housing finance institutions. are ensuring India emerges as a favoured and profitable destination for real estate developers / investors. And I am sure your broker isn’t either. both domestic and international. . your broker will send you gobs of slick material about various companies that predict they will double or triple in the next 12 months. As you read this. Within minutes the “secret” is known by hundreds of thousands and is immediately reflected in the price of the stock. “Ten stocks that will double in the next 6 months. Investment in manufacture of building materials.g. electricity. clubs. Full freedom to allocate developed plots to approved SEZ units on commercial basis including competent authorities for provision of water. recreation centres etc. residential areas. computerization of land records. offices. Development of townships. And pigs can fly. restaurants. removal of tenancy laws.indiarealestateblog. It is almost impossible to keep a secret and everyone knows everything about other companies. markets. correction in taxation structure etc. recreation centres etc. I ck Market System Of course. 100% FDI for developing a township within the SEZ i.Real estate investment covering construction of residential / commercial premises including business centres. including roads and bridges.. On the New York Stock Exchange there will be about one half of one per cent (0.5%) of companies that will double this year.” Right! I have trouble trying to forecast what it will do tomorrow. playgrounds. a wide spectrum of changes are and have taken place in Indian real estate. Permissible FDI private / joint / state investment in construction in the export processing zones (EPZS) / special economic zones (SEZS) is as follows: 100% FDI real estate investment within Special Economic Zone (SEZ). Do not trust any who claims he knows what the future will be for the market.e. Standard Design Factory (SDF) building development in existing Special Economic Zones. One thing about the market. security. several years. This article is sponsored by: www.
Pros understand that small losses are OK. The difference between where you sold and what you spent. if you only play the long side. Win the bet and you will win big time. Since the market goes up and down. Look at it like this. Unfortunately he did not tell you that Modern Portfolio Theory is based on a 40 year time line. What you can easily learn is follow the major trend. Second. and the returns can be phenomenal because of the leveraging inherent in options. If you short ABC at 100 and it falls to 60 fantastic! You made 40 points and 40%. When the Index price is above the 200-day moving average you own equities and when it is below you are in cash or bonds. but for tonight we are going to discuss the two most basic principals. Without an exit plan you can easily lose a large amount of your “investment”. we don't know your style. Profit from a falling Stock ? There are several ways to profit from a falling stock. What nonsense! Anyone can and should use call and put options as a trading strategy. your loss is limited to how much you bet. put options win out over shorting in a scenario like that. 10 G's is your profit. That really is as easy and as basic as it gets friends. but never take a big loss. Let the market trend tell you. In this case you will spend 50. and you "Cover" you are buying it back cheaper. The trend can be found in many ways with the simplest being posted every day in Investors Business Daily newspaper under the IBD Mutual Fund Index. your bank account balance etc. Most lost 40% to 60% of their money. shorting stock versus buying "put" options.75 and they go to 10. How many of those folks kept those big winnings from 2000? Almost none. The first thought of any professional trader is ‘if I am wrong how much am I willing to lose’? Maybe 2%. . shorting is easy and its really no more risky than going long as long as you use stops to protect yourself. By using put options we can use a relatively small amount of money to be in several "plays" and each of them could return several hundred percent returns. but understand you don’t need to predict anything.If you do get sucked into one of these money traps by some smooth-talking salesman or newspaper verbiage I strongly suggest you immediately plan your exit strategy. Yes. certainly no more than 10%. 5%. But there are problems with this approach. If the market is going to run up for a few weeks and then spiral back down. From 1982 to 2000 it seemed everyone was a financial genius. Basically you are simply selling a stock now. You are in for the long haul”. it is a gamble and should be treated as such. you took in 60. all short sales are through margin. The other play is a put option. First you need a margin account to do it.00. you are placing a bet that the stock is going to fall. which way should you play? That is impossible to say. The risk is limited. it eats up a lot of your buying power because when you go short. “Hang in there. Nothing complicated. This is not an investment. Don’t try to forecast the market. Here again Wall Street has tried to buffalo the average investor into thinking options are for the big boys. Don’t forecast. Don't let all the talking heads throw you a curve ball. but for us it's an easy call. Brokers said. With a put option. You bought in 1982 and you sold out in 2000. your risk tolerance. taking in the cash for the sale. If you have been with us for any length of time you know I have written many times about how to "short" a stock. you are holding that position with margin that will tie up your money. Lose the bet and just like Vegas. But if you buy put options for 1.000 dollars. you are missing a lot of profit potential. so if you "short" ABC at 60 dollars and you sold 1000 shares. Now if ABC falls to 50.000 dollars. and "buying back" or covering the sale at a cheaper price.
Usually it can be classified according to the type of financial instruments and according to the terms of instruments’ paying-off. annual return over $4 billion. Income Stocks Income stocks are the stocks of companies with high and stable earnings that pay high dividends to the shareholders.what is the percentage there? Over 500%. The second one refers to the market of long-term promissory notes with instruments age surpasses 12 months. The shares of such companies usually use mutual funds in the plans for middle-aged and elderly people. buying puts against the Dow Jones Industrials. while the stock market’s not. They are also called the instruments with fixed return. incurred by the participants of the market. From the point of different types of instruments held the market can be divided into the one of promissory notes and the one of securities (stock market). For our money. Another classification is due to paying-off terms of instruments. 3. hence its functioning totally depends on instruments held. its part in the market and future potential shares can be divided into several groups. while the latter binds the issuer to pay a certain amount of money according to the return received after paying-off all the promissory notes and is called stock market. These companies rarely pay dividends and in case they do the dividends are minimal as compared with other companies. Blue Chips Shares of large companies with a long record of profit growth. Their weight in the process of making decisions in the company depends on the number of shares he/she possesses. Financial market comprises variety of instruments. The first one refers to the market of short-term promissory notes with assets age up to 12 months. There are also types of securities referring to both categories as. The first one contains promissory instruments with the right for its owners to get some fixed amount of money in future and is called the market of promissory notes. e. 2. forming assets prices within establishing proposition and demand and decreasing of operational expenses. its managers typically pursue the policy of reinvestment of revenue into further development and modernization of the company. preference shares and converted bonds. 1. And look at the cost.. . As it was mentioned before. This classification can be referred to the bond market only as its instruments have fixed expiry date. large capitalization and constancy in paying-off dividends are referred to as blue chips. These are: market of assets with high liquidity (money market) and market of capital. Basics of stock Market ? Financial markets provide their participants with the most favorable conditions for purchase/sale of financial instruments they have inside. Now we are turning to the stock market. Their major functions are: guaranteeing liquidity. when the time is right. Growth Stocks Shares of such company grow faster. the NASDAQ 100 and the Composite and select individual stocks that carry high P/E's will be the way to go as we feel those will be taken to the woodshed for a spanking. It's next to nothing. Due to the financial experience of the company.g. ordinary shares’ purchasers typically invest their funds into the companyissuer and become its owners. to get such a shot at big returns.
They perform perfect when the market turns sour and are in requisition during economic boom. While calculating acceptable share price. with the possibility of being higher as well as lower. There are periods when companies do not pay dividends at all. how you can take a loss effectively and use it towards the greater good of your trading world. The higher cash flow the higher share prices and versus. dividends are the key factor. Defensive Stocks These are the stocks whose prices stay stable when the market declines. financial state of the company.com Stock Trading Psychology ? Stock Trading Psychology by Tim Renolds Many of today's highly successful traders will tell you that the general key to success in trading is to be able to comfortably take a loss. These categories are widely spread in mutual funds. Each ADR signals of one or more shares possession. aside of risks and dividends analysis. it is absolutely important to examine company carefully as for its profit/loss accounting. In the world of trading. even those who are highly skilled traders know that it is inevitable. let us have a look at things you as a trader should be aware of. They depend on: type of share. Dividends differ from each other as they are to be paid in a different period of time. In case a company wants to issue its shares abroad it can use American Depositary Receipts (ADRs). ADRs are usually issued by the American banks and point at shareholders’ right to possess the shares of a foreign company under the asset management of a bank. Dividends of a company depend on its profitability and spare cash. . shares category etc. Shares can be issued both within the country and abroad.financegaes. dividends growth rate and discount rate. aside of purchase/sale ratio profits. The company with the high risks level is expected to have high required income rate. If you are not confident of the information. It is general knowledge among experts in the trading psychology field and among traders that the market is not predictable and it is safe to say that it never will be. When operating with shares. it is expected to take a loss. Only when you are sure of all the ins and outs of a company. do well during recessions and are able to minimize risks. Below we will touch upon the division of share prices estimating in three possible cases with regard to dividends. you can also quarterly receive dividends. distribution of profits between its shareholders. Goldfinger http://www. This interdependence determines assets value. Dr.4. thus for better understanding investment process it is useful to keep in mind this division. managers’ and executives’ wages etc. With that said. While purchasing shares. cash flows. it is more advisable not to hold shares for a long time (especially before financial accounting published). mostly when a company is in a financial distress or in case executives decide to reinvest income into the development of the business. The latter is also called a required income rate. Price of ordinary share is determined by three main factors: annual dividends rate. balance. you can easily buy or sell shares. Ordinary shares do not guarantee paying-off dividends.
Realistic traders understand the unpredictability of the market and taking a loss is simply part of the art. If you have no achieved your desired profit within that time limit. look at what you do you have ability to control. Return on Investments (ROI). Perfectionist traders. These strategies are: * Price Based * Time Based * Indicator Based Stops that are priced based are generally used when the other two have not functioned. You are able to control this factor by extensively researching the strategies you implement within your trading experiences. when a trader has mastered the art of accepting losses and working through them with a well thought out plan then good days will become profitable in time. Trading psychology experts tells us this is not true. volume. and have followed through to the entire extent of the plan. growth prospects and cash flows. The main key you must remember in trading psychology to be able to effectively limit your losses. The fundamentals tell you about a company. Many traders think that in trading. experts in trading psychology believe that it is important that you concentrate on what you can control. focusing only upon it. Experts in trading psychology say that setting stops and rehearsing them mentally is a good psychological tool to use and will help ensure that you follow through. instead of becoming obsessed with them. relate a loss with failure. Trading psychology experts tell us that it is important to become realistic in trading instead of becoming a perfectionist. Look at indicators such as. You can say a . Yes. a good day will always be one that is profitable. and new highs and lows. If effectively used you should stop even if the price stop limit has not been achieved. Looking into the short-term you cannot expect to be able to control the profits of your trading. measured in terms of revenues. you should stop the trade. you should be aware of these indicators and utilize them extensively within your trading experiences. thus making sure that losses will not be overly excessive if the hypothesis fails. which is the ultimate goal of every trader. By learning to research your chosen strategies. declines. liabilities. thus losing in the end. Designate a holding period you allow to capture a certain number of points. A trader should define a good day as one where they have extensively researched and planned with discipline and focus. You do have the ability to control the difference between good and bad days. Then you will set your trade entries near your points. and will become obsessed with the failure. thus controlling the amount of good and bad trading days you experience. As a trader. What is Fundamental Analysis ? by Joel Arberman Fundamentals are associated with the economic health of a company. advances. A common thing seen within the trading psychology world is that traders who are obsessed with their losses often have a hard time bouncing back from them. Experts in trading psychology have organized three basic strategies you can use to effectively stop losses. you will. The Indicator based stop makes use of market indicators. With that said. in the long-term begin to generate profits. Because the art of trading in an unpredictable market fluctuates so greatly from one day to the next. Time Based stops constitutes making use of your time.Trading psychology tells us that when a trader loses he begins to become somewhat of a perfectionist in his dealing. To make this work you will need to make hypothesis's about the trade and identify a low point in that particular market. Return on Assets (ROA). assets. Return on Equity (ROE). instead of things that are beyond your control. earnings. etc.
Return on Assets (ROA): ROA is an Indicator of a company's profitability. then the stock is overvalued. interest expenses. Equity researchers normally do fundamental analysis in order to calculate the intrinsic value of a company's stock. The analysis of a company's fundamentals involves getting deep into its financials. However. Revenues are one of the most important barometers of the growth of a company as it indicates whether there is demand for their products and services. A company's long-term growth is driven primarily by fundamentals. which is also called the 'bottom line'. However. which reflects its assets and liabilities. A company's fundamentals are said to be robust if its assets are significantly higher than the liabilities. If a company's stock is trading above the intrinsic value or fair value. If a company's stock is trading below the intrinsic value. Net income: Net income. all of the company's costs. if you watch the stock markets very closely. day traders and investors who would prefer short term investment options invest in those stocks. rather than day-to-day movement in its share price. has limited debts and abundant cash. which is calculated by dividing the net income for the past 12 months by total average assets of the company. while a company's share price can be driven by short-term news and investor sentiment. the share price of most companies never matches the fair value. then the stock is undervalued. one must pay particular attention to the operating cash flows. Although long-term investors and institutional investors consider a company's fundamentals before investing. is calculated by subtracting from revenue. Balance Sheet: Balance sheet is the company's financial statement. Every investor must consider a company's fundamentals before investing into its stock if you want to gain stable returns over the long term. such as operating costs. However. Cash flows: Cash flows are calculated by deducting a company's cash payments from cash receipts over a particular period of time. which can be extremely volatile. This is one of the important indicators. Your Best Stock Market Investment By Brian Hunter . Cash flows indicate the liquidity position of a company. regardless of the companies' long term growth prospects. generating a profit. since the health of the business can be most clearly seen there. depreciation. one must carefully analyze companies who are reporting large intangible assets as they may have questionable liquidation value to offset any real liabilities. which long-term investors consider before investing into a particular stock. Often.company is having robust fundamentals if it is growing at a nice pace. the share price of a company often does not correspond to the fundamentals . However. long term investors generally prefer to invest in companies with robust fundamentals and ignore near-term share price movements. The following are various components that constitute a company's fundamentals: Revenues: Revenues (sales) are the total amount of money received by a company through the sales of its goods and services during a specific period of time. taxes and other expenses associated with running the business.which can present enormous investment opportunities.
It has also facilitated the task of research which is an important part of any stock market investment especially as your money will be riding on all stocks selected for purchase. modern information technology has make stock market investment much easier to access by people from anywhere in the world.better to lose a little rather than a lot. the following advice may prove to be helpful. Today. to then know at which point to sell for a profit. 3. take a few instruction courses (which are readily available) and you will find that your best stock market investment can become a reality. However. of course. since the invention of the computer. This involves 'riding' their stocks high whilst maintaining an exit strategy should things begin to deteriorate.It has long been said. I get a response of "that's like trading stocks. this is quite true. Investing in the stock market carries inherent risk It is generally believed that there is nothing difficult about buying stocks and. Read all you can about stocks and shares. This is good stock market investment strategy. it is quite easy to get carried away should a stock market investment look like a really good buy. for those who would like to get the very best out of their stock market investments. If you sell too soon you will miss some extra profit but if you wait too long then you may lose out completely should a downturn fall to below your purchase price. 1.that stock market investment is not for the faint hearted and when you take into account the fact that many investors over the years have lost everything it is not difficult to see why. the best advice is to always approach each investment with caution. If you heed this advice you will avoid falling into the 'gambling' state of mind which can happen all to easily and which has bankrupted many in the past. If you wish to make a profit then you have to wait until the value of the stock begins to rise and.What is the Difference? ByRichard Ratchford Are you new to trading? Perhaps you wonder what the difference is between trading Stocks and trading Futures. This is where liquidity plays a vital role in their investment as this liquidity can be easily converted to cash should the need arise. In this way your best stock market investment will not turn out to be a catastrophe. once this happens. stock market investments seem to be enjoying an all time high but it is as well to remember that fortunes can be lost easier than won. and not without justification. isn't it?" . The 'trailing stop strategy' The most experienced investors incorporate this when getting stocks. To sum up. more than ever. Stocks and Futures . do the groundwork with regard to research and company background and use an amount of purchasing capital that you are comfortable with and which you can afford to lose. Often when I meet someone new who inquires as to what I do. With the economy seemingly in a constant volatile state it might seem that investing in the right stocks and shares would be an impossible task to do accurately. However it is wise to always remember that there is always the risk of losing ones money so enthusiasm should always be tempered with judgment and restraint. So. . But just buying is not dealing and so the next part of the operation is to sell your stock at a profit and this is where the problems actually start. In the early days and until you have more experience it is best to be restrained with your outlay . 2. Never invest more than you can comfortably afford This really just boils down to common sense.
The order is facilitated through an 'exchange'. such as the Chicago Merchatile Exchange for example. As a speculator simply trading to make a profit from trading itself and with no interest in actually taking delivery of product. you only need enough money in your account to purchase the stock outright plus commissions. if Live Cattle futures requires a minimum margin of $800 to . This is called a 'margin call'.In some ways they are similar. the broker will require a certain amount of margin (good faith deposit to cover any possible losses) in what is called a 'margin account'. noted by the contract. The broker has the right (and likely will) liquidate your position if you are getting too close to not having enough to cover the losses in order to protect themselves. When you buy a Futures contract. Stock exchanges and commodity exchanges are both membership organizations established to act as middlemen between the buys and sells of all types of traders. since you are not actually purchasing anything but simply entering a contract to do so at a later time (which you will exit prior to avoid delivery). Once you make the purchase. Buying and selling Futures is similar in this respect. When you buy a stock. They facilitate the transfer of property rights (ownership in the various companies offering stock). For example. Most individuals have likely traded stocks at one time or another. you simply are entering a contract. you are part owner of a company. If the value of the commodity were to decrease and you are on the buy side of the contract. This helps transfer the price risk associated with ownership of various commodities. from producers. For example. then your contract has lost value and your broker will notify you if your unrealized losses exceeds have gone beyond your minimum margin requirement. there is no potential for a margin call. regardless of what the price of Wheat at market happens to be come May. Usually. The major answer is: LEVERAGE. Naturally you would want to have more capital than simply the margin amount when trading futures to avoid these broker calls. With trading futures. So perhaps you may be wondering why anyone would bother buying futures contracts rather than stocks. you will simply sell your contract prior to delivery at the going market price and the difference between your buy price and sell price is either your profit or loss. such as Soybeans. buying a Futures contract does not give you ownership of a commodity or product. Rather. from business entities to the individual small trader. With buying stocks outright. the money is removed immediately to make the purchase. buying one May Wheat at 3. They pick up a phone to call a broker or go online to purchase or sell. but only minutely so. So let's consider some of the major differences between the two.The commodity exchange act to bring people willing to assume risk for the opportunity to make a substantial amount of money for taking such risk. you will pay for the stock at the time of your purchase plus broker commissions. Yet while buying a stock gives you part ownership in a company or portfolio of companies (as in a fund). The order is then facilitated througha commodity exchange. When buying a futures contract. To buy stocks. Each commodity has a different minimum margin requirement depending on several factors. you are simply entering the buy side of a contract and no monies is paid other than commissions to your broker. Your broker may use the exchange calculated margin or require a different margin of their own. You can call a broker or go online to buy or sell Futures contracts.00 simply creates a contract between you and the seller (whom you need not know as this is taken care of via the exchange) that come May you will take delivery of 5000 bushels of Wheat at $3 per bushel. The stock exchange act to bring capital from investors to the businesses that need that capital. You simply own the stock outright. you are simply entering into a contract to purchase the underlying commodity at a certain price at a future time. or a service. With stocks. like interest rates. it is to buy in order to 'own' a percentage of a particular company or to liquidate such partial ownership. such as the New York Stock Exchange for example. Leverage gives the trader the ability to control a large amount of money (or commodity worth a lot of money) with very little money.
The leverage is 2:1. the bottom line comes to MARGIN and LEVERAGE. This will not affect the current value the share currently holds on the market. Of course by purchasing stock with margin you can lose more than you have due to the leverage. But trading stocks comes no where close to the kind of leverage you get trading Futures. it can work against you at the very same ratio. neither will you. The way this works is if the company makes a profit. And in this case you can end up getting a 'margin call' from your broker if your stock losses too much value.000 worth for a leverage of over 35:1. Typically. What is that risk? Just as leverage can work in your favor. you will only benefit from it. if the company has experienced growth. additionally you will obtain occasional accounts and reports from the chosen company. you should understand how the investments work. If a company does extremely well their value increases. you would be controlling $30. Choosing a Stock Market Analyst . For example. Some people are not even aware of their investments. Within the United Kingdom. as a shareholder. Known as a 'two-edged sword'. If you should decide to sell your share.trade a single contract. shares or other things like government bonds. for example.000 lbs at the current market price of say 75. The stock market is an avenue for investors who want to sell or buy stocks. The company invests this money in efforts to increase your retirement funds. you will receive your profit in the form of a dividend. How this works is that the broker is actually 'lending' you the other 50%. An index will be compromised of a special list of certain companies. So for every dollar you have you can purchase $2 worth of stock. Once you purchase a share of a company you will receive something called a share certificate. The Financial Times Stock Exchange dictates the average overall performance of 100 of the largest companies with in the UK that are listed on the stock market. which means the value of the share you own will as well. the FTSE 100 is the most popular index. Understanding The Stock Market By Jeff Lakie Many people look to the stock market to enhance their hard-earned money more and more each year. these are paid on a twice per year basis. and a single contract represents 40. When you look at these two trading vehicles. You can increase the leverage of trading stocks if you trade with a margin account. Every day a list is produced that includes indexes or companies and how they are performing on the market. owning one of these shares will give you many rights. This is appealing to many traders and justifies the risk. Another exciting feature of owning a share of a company is the fact that you are given the right to vote in various aspects of what happens with the company. this will likely not be the price that is listed upon the exchange and is specifically for reasons of a legal matter. In order to fully understand what is happening with your money. This certificate will contain the total value of the share. This usually allows you to purchase stocks on margin at the usual rate of 50%. you will as well and on the opposite end of this spectrum if they do not make a profit. the major stock market in this area is LSE (London Stock Exchange. you will gain a portion of the profits and growth that the company experiences. because they can come in the form of pensions with their place of employment. A share is a small portion of a PIC (public limited company). within the UK. this will be your proof of ownership.
Check References Taking the time to check references and to see if your potential analyst has any major complaints against them can help you to avoid having to repeat your search in a short period of time. then the information below should help you begin your search. Once you've found the analysts that are closest to your area. You should take the time to see how much the various analysts in your area charge. you want to make sure that the person that you hire will be able to do the job that you're hiring them for. go ahead and hire them… if not. take a little time to ask around and see if you can uncover any good or bad experiences that others have had with them in the past. Some market analysts might have several different packages at different prices. or simply don't have the time that you'd need to keep track of all of the different stocks so as to know when it's time to buy or sell. it's time to make your decision. sometimes as a part of an investment firm. You might also try searching the internet for information about financial analysts in your area. you'll find that businesses such as stock market analysts will have customers who are more than willing to allow the analyst to use them as a reference because of good experiences that they've had. In most cases. If they don't have any references that you can use. Compare Prices and Services Obviously. it can be difficult to keep track of which ones are good investments and which ones will cause you to lose money. A stock market analyst is an individual. . it's time to begin investigating the services that they offer and finding the one that's best for your investments. and find out exactly what services that price covers. whose job it is to watch the changes in the market and keep track of which stocks and bonds are performing well and which ones aren't. If you think that you might be interested in hiring a stock market analyst but aren't sure how you would go about doing so. Though it may seem like a lot of work. Find Local Analysts The first step in hiring a stock market analyst is finding one to hire. offering different services for different amounts so as to cover a variety of different service needs and financial limits. you should continue your search until you can find the one that will. you might want to consider hiring a stock market analyst. and many analysts are likely to advertise in the financial section of local newspapers and other financial publications. Take some time to compare the prices that each analyst charges and the packages that they offer. it's how they make a living. You can often find listings for market analysts or investment services in your local phone directory. If you aren't sure how to tell the good stocks from those that aren't so great. and when you've decided upon the one that offers the most services that you desire for the best price begin checking to see how good they are at their job. If it seems as though they'll do a good job in advising you on your stock choices.by: John Mussi With so many different companies offering such a wide variety of stocks and bonds. Making Your Decision After you've done some checking around and gone over the information that the analyst has given you again. stock market analysts are going to charge for their services… after all.
High-Risk Stocks by: John Mussi The classic image of the stock market is that of a place where fortunes are made and lost throughout the course of the day. however… those individuals who choose to deal in high-risk stocks can make a lot of money if they handle the risks correctly. and where those who take the biggest risks are rewarded by a hefty payout when all is said and done. How to Trade High-Risk Stocks When trading high-risk stocks. or in person if you don't use an online brokerage firm. via the telephone. then there's a good chance that they could lose their entire investment. even with hold orders or a dedicated broker you can still end up losing money when dealing with high-risk stocks… that's how they earned their name. . Fortunes have been both made and lost (sometimes in the same day) with high-risk trading. they'll never compete with the images of the stock market that have been created for the silver screen. refers to the money that could potentially be made by buying stocks early on in the increase in price. Guarding Against Loss Of course. The yield of the investment. the key is knowing exactly when to start buying or selling. and then selling just before the value starts to plummet. There is a small grain of truth to those images from the movies.” The risk of the investment is usually due to the very fickle nature of that particular stock… though it may be growing in value rather quickly. this is the movie version of the market… no matter how thrilling the day-to-day dramas of investment trading become. causing an increase in other stocks in your portfolio. Defining High-Risk Investments The first thing that needs to be covered when talking about investing in high-yield. on the other hand.A Guide to High-Yield. Below you'll find more information on the world of high-risk (and high-yield) investments. The fall of the higher-risk stocks might even stimulate some other portions of the market. If they don't. Many online brokers allow these types of hold orders. If your high-risk investments begin to fall in price too quickly and you end up losing money by the time the shares have been sold. In order to minimize this potential for loss it's important to have a well-diversified stock portfolio to fall back on. This will help take some of the sting out of your loss. the relatively stable value of some of your core portfolio stocks and indexes will help to even out your losses. and they can allow you to go about your regular day without having to watch the market ticker the entire time. and may end up giving you a greater long-term gain than you might have had from your short-term investment that went sour. it's obvious that the growth is going to stop soon and a very rapid and severe descent is going to begin. This can be done online. You can also usually set up hold orders which will start buying the stock when the price reaches a certain level (up to the amount that you've specified) and that will begin selling shares as soon as the price drops below a certain point. including ways to help insure yourself against major losses when dealing with higher levels of investment risk. high-risk stocks is exactly what is meant by the terms “high-risk” and “high-yield. however. it's almost essential that you have access to your brokerage account and that you'll be able to buy or sell shares as soon as the price begins to fluctuate in one direction or the other. Of course.
The employee benefits when the value of the company stock appreciates over and above the predetermined purchase price following the granting of the stock options. potentially as high as 35%. a maximum rate of 15%. there is no income tax consequence when an employee exercisers the option to buy the employer stock. enabling the holder to purchase the company stock at a discount. In other words. If the employee wishes to acquire the employer stock then he or she will exercise the option and purchase the employer stock at the predetermined (exercise) price. the employee must hold the stock for at least two years from the date the ISO was granted and for at least one year from the date the option was exercised. it remains important to work with your financial advisor and tax professional when evaluating the strategies to take full advantage of the opportunities and benefits of stock options. These “options” are referred to as stock options and they provide a unique opportunity for an employee to potentially increase his or her wealth along side company shareholders. The Logic Behind Technical Analysis by: Geoff Gannon . essentially converting the ISO to a non-qualified stock option. There are two types of stock options: non-qualified stock options and incentive stock options. a gain is only recognized when the employer stock is sold and not when the option is exercised. For example. to qualify for the favorable long-term capital gain taxation. all the gains recognized may qualify for long-term capital gains treatment.The ABCs Of Stock Options by: Ken Morris As a performance incentive many companies are starting to offer employees the “option” to buy company stock as a part of their compensation packages. The other type of stock option is the Incentive Stock Option (ISO). NQSOs afford the employee the right to purchase a set number of employer shares at a specific. Non-qualified stock options (NQSO) are more frequently offered to employees than Incentive Stock Options because of their flexibility and minimal requirements. Being able to take part in an ISO program allows an employee to receive a number of tax saving benefits. gain on the stock is taxed as ordinary income in the year of the sale. The difference between the exercise price and the market value (bargain element) is only taxable upon the ultimate sale of the employer stock. The employee receiving company stock options should have a good understanding of the characteristics of the different types of stock options in order to maximize their potential benefits. An additional complexity of an ISO that should be kept in mind by the employee is the potential for an alternative minimum tax (AMT) consequence upon exercise of an ISO. In direct contrast to a nonqualified stock option. But with these tax benefits comes added complexity to keep track of and to understand. The difference between the exercise price and the market value (commonly referred to as the bargain element) will be taxable income to the employee as ordinary income. predetermined price. If the stock’s value has appreciated over and above the predetermined price the employee has received the benefit of acquiring the stock at a discount. This is commonly referred to as the “2 year / 1 year rule”. If the stock is held the appropriate time period before being sold. If the employee sells the stock before these requirements are met. A stock option is a right granted by a company to an employee to purchase one or more shares of the company’s stock at a set time and predetermined purchase price. For this and other reasons.
In fact. much broader than say someone like Buffett. In other words. The Efficient Market Hypothesis does not recognize the true importance of interpretation. Yet. when we talk about the market we like to use inappropriate metaphors. It is based upon the (unwritten) premise that data determines market prices. Instead he chose to describe the stock market in a way that should have been of great interest to economists as well as investors. in the long run. Graham could have said what many have since interpreted him as saying: in the short run. There is also empirical evidence that questions the utility of technical analysis. The same is true of technical analysis. At several points in Security Analysis (and to a lesser extent in his other works). I do not claim technical analysis has no predictive value. empirical evidence alone is not sufficient to prove technical analysis has no predictive power. but that does not mean the reflection is an accurate representation of the original data. without bothering to notice what’s really being said. We rarely use the active “an object reflects in a mirror”. stock prices often get out of whack. Saying that data (publicly available information) acts on market prices omits the key step. We talk about wealth being destroyed when prices fall. However. In fact. If it is. they are governed by the intrinsic value of the underlying business. we talk about “the market” not as a mere aggregation of trades. the same data is available to every blackjack player. whereon countless individuals register choices which are the product partly of reason and partly of emotion. the market is not a weighing machine. Graham can not help but explore an interesting topic more deeply than is strictly necessary for his primary purpose. The Efficient Market Hypothesis is flawed. Graham had a very broad mind. and indirect. because it acts through the intermediary of people’s sentiments and decisions. the most appropriate definition for random would have to be “having no discernible pattern”. In this case. the Efficient Market Hypothesis is based on the idea that the original image acts on the mirror to create the reflection. on which the value of each issue is recorded by an exact and impersonal mechanism. Above all else. After all. that is often how we interpret the process. That’s both a blessing and a curse. as if there wasn’t a seller on the other side of the trade. To take this metaphor a step further. I do not believe doing so would be a productive use of my time. There’s a great introduction to economics written by Carl Menger which begins: . The resulting reflection is caused in part by the original data. When the market rises. Graham didn’t say that. If most knuckleball pitchers had limited success. For some reason. but as some sort of object all its own. Casinos just don’t like the way a card counter interprets that data. we will take too high a view of science and statistics. Rather should we say that the market is a voting machine. As Graham so clearly put it in “Security Analysis”: “…the influence of what we call analytical factors over the market price is both partial and indirect – partial. I suspect it does have some predictive value. One could say it is the mirror that acts on the original image to create the reflection. Of course. The Efficient Market Hypothesis is not the only argument against technical analysis.” I’ve seen a lot of people cite this quote. have I ever engaged in technical analysis. in accordance with its specific qualities. nor. because it frequently competes with purely speculative factors which influence the price in the opposite direction. or there might be a better way to throw it. Data affects prices indirectly. The market is a lot like a fun house mirror. we talk about buyers. The word discernible can not be omitted. the knuckleball might be an inherently ineffective pitch. Although it is rarely the definition given. Having said that. We say an object is reflected in a mirror. no one talks of wealth being destroyed when the price of some product falls.Let me first say that I do not now engage in technical analysis. The adjective “random” is a very strange word. It does not recognize the unpleasant truth that one can interpret the same process in a very different way.
and we would search in vain in the realm of experience for an example to the contrary. but practically. Furthermore. I pretend there isn’t. why don’t I use technical analysis? I believe fundamental analysis is a far more powerful too. I also believe there is sufficient empirical evidence to support the idea that fundamental analysis is a far more powerful tool than technical analysis. In most circumstances. he shouldn’t devote any time to technical analysis. each of our own internal mental experiences suggests that our purposeful actions have very definite causes. Copyright 2006 Geoff Gannon . the mental model of investing which I have constructed does not allow for such a form of technical analysis. So. you were taught that zero is a number. Technical analysis is logically valid. It isn’t a number. Even if one argued there is such a thing as an uncaused event. even though I know some form of it must work. I would argue it necessarily follows from the above assumptions that some form of technical analysis must have predictive power. In other words: logically. So. You should recognize the logical validity of technical analysis. A model with random events is useful. you would have to put aside the principles of arithmetic. therefore. so. I’m willing to pretend there are random events. Why? Because I believe that’s the most useful model. Even though I believe there must be some form of technical analysis that does have predictive power. Not only is it possible that some form of technical analysis might have predictive power. there is no reason why this argument should hold any weight with you. Human progress has no tendency to cast it in doubt. but create a mental model of investing in which technical analysis has no utility whatsoever. Several sciences study the causes of purposeful human action. The model with random events is simpler and more workable. I’m willing to pretend technical analysis does not work. but that there are certain things you must never do with zero.” All things are subject to the law of cause and effect. so. Many investors will admit as much. In math. In school. One should adopt the most useful model not the most honest model. but rather the effect of confirming it and of always further widening knowledge of the scope of its validity. But. workable model. They may be lying. I feel I am much better suited to fundamental analysis than I am to technical analysis. I also believe there is more than enough fundamental analysis to keep an investor occupied. In fact. We also know that the actions of some market participants are based in part on price movements. Of course. The situation is much the same with zero. Really. You accepted that. In science. who would argue that stock price movements are uncaused? We know that they are caused by buying and selling. even though I know it must not be a number. there must be an effective form of technical analysis. and past price movements are a partial cause of the actions of investors. a refusal to allow for random events would be harmful rather than helpful. nothing is truly random. then past price movements must partially cause future price movements. it would be hard to argue any human action is uncaused. Personally. If the actions of investors cause price movements. A caused event must have a pattern – though that pattern needn’t be discernible.“All things are subject to the law of cause and effect. because it was a simple. even though I know there must not be random events. I believe fundamental analysis is so much more powerful that one ought not to spend any time on technical analysis that could instead be spent on fundamental analysis. To include zero as a number. I propose you do much the same in the case of technical analysis. I’m willing to pretend zero is a number. we don’t do that. there is plenty of evidence to suggest they aren’t. This great principle knows no exception. Stock prices are the effects of purposeful human actions. this isn’t all that strange.