The capital market is market for securities, where companies and Governments can raise long-term funds

. It is a market in which money is lent for periods longer than a year. The capital market includes the stock market and the bond market. Capital market is the group of interrelated markets, in which capital in financial form is, lend or borrowed for medium and long term and, in cases such as equities, for unspecified periods.

Capital market in Bangladesh
Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) and an over-the counter exchange operated by CSE. It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capital It consists of Central Depository Bangladesh Limited (CDBL), the only Central Depository in Bangladesh that provides facilities for the settlement of transactions of dematerialized securities in CSE market and DSE.

The History of Stock Exchange
Dhaka Stock Exchange was set up on 28April, 1954 that started formal trading on early 1956. Post–independence government did not promote a capital market during the first five years, and it was activated again in 1976 with 9 issues on board. In 1995, a second bourse, the Chittagong Stock Exchange, was set up with sophisticated logistic support and modern management.

While making investment decision in the Capital Market, INVESTORS should not rely on any information obtained from unauthorized sources such as facebook etc. Dhaka Stock Exchange date: 06/07/2012.

CAPITAL MARKET SIZE
One of the important indicators of the capital market is the number of listed companies. The rationale of including this measure is that as the number of listed company increases, available securities and trading volume also increases. In basis of the properties of the companies, the companies are divided into five groups; A, B, G, N and Z. The properties of these companies are shown in the table below. Table 1: Capital Market Company Category and Characteristics

Category “A” Category

Characteristics Companies which are regular in holding the Annual General Meetings (AGM) and have declared dividend at the rate of 10 percent or more in a calendar year. (Mutual fund, debentures and bonds are being traded in this category). Companies which are regular in holding the AGM but have failed to declare dividend at least at the rate of 10 percent in a calendar year. Greenfield companies All newly listed companies except Greenfield companies will be placed in this category and their settlement system would be like B Category companies. Companies which have failed to hold the AGM or failed to declare any dividend or which are not in operation continuously for more than six months or whose accumulated loss after adjustment of revenue reserve, if any is negative and exceeded its paid up capital.

“B” Category

“G” Category “N” Category

“Z” Category

Make your investment decision based on company fundamentals, technical analysis, price level, disclosed information; and avoid rumor based speculations. Dhaka Stock Exchange date: 06/07/2012.

Figure 7: Total number of DSE listed companies Source: Dhaka Stock Exchange.The number of listed companies The number of listed companies has grown from 149 to 268 with an average annual growth rate of 2. 2011 I never attempt to make money on the stock market.99 and a standard deviation of 43. -Warren Buffett SECTOR WISE PERFORMANCE . I buy on the assumption that they could close the market the next day and not reopen it for five years.39 from fiscal year 1990-91 to FY2010-11. the number of listed companies was increased to 248. In FY 1990-91 the number of listed companies of DSE was 149 while in FY 2001-02. in FY 2010-11 listed companies raised to 268 and finally in FY2011-12 the listed companies of DSE stood at 275.

22131.28 percent in terms of previous fiscal year.4 crore which was 4 percent lower than that of previous fiscal year on the other hand the market capitalization growth of insurance sector accumulated 32.5 crore.46 percent and became Tk. all sectors experienced an upward trend with a few exception. 28931.4 crore. In FY 2010-11 the market capitalization of fuel and power sector was Tk.9 crore which was 5. 31826. In general the investment in mutual fund is normally assumed to safe investment due to volatility in capital market but the market Capitalization of mutual fund was comparably lower than other sector. But real sector components of economy such as jute industry although gained a positive market capitalization growth but the total market capitalization were lower and in last fiscal year it was only Tk. 79 crore.67 percent higher than that of previous fiscal year. A market is the combined behavior of thousands of people responding to information. Kenneth Chang Figure 12: Sector Wise Performance in FY 2011-12 . misinformation and whim. But in the following fiscal year. In this fiscal year total market capitalization of mutual fund was Tk. the market capitalization of this sector dropped down about 30.6 crore.In FY 2010-11. there was an upward trend in terms of sector wise performance. On the basis of market capitalization of ordinary shares of companies listed with DSE. Telecommunication sector started it activities in capital market in FY 2009-10 with a total market capitalization of Tk. total market capitalization of banking sector in FY 2010-11 was Tk. 32 percent higher than that of previous fiscal year. 3595. 68061.

.Source: Dhaka Stock Exchange. The short term larger profit of financial sector has induced the investors to make a larger investment in financial sector than those of real sectors. insurance including mutual funds have jointly contributed 53 percent of market capitalization whereas pharmaceuticals and chemicals.Warren Buffett Importance of investment Bangladesh economical status has developed much. the increase in salary habit of investment also increased. 2011 The financial market contribution in capital market in terms of market capitalization has increased significantly in FY 2010-11. In this year the banks. food and allied products and engineering have jointly contributed 21 percent of total market capitalization. As per. . Salary of the individual is increased much than in the past. Look at market fluctuations as your friend rather than your enemy. profit from folly rather than participate in it. Therefore in short run the profit has been maximized but in the long run it can make a disturbing effect on the economy which has already been observed through capital market downward trend and zero recovery in the capital market in this year. textile industries.

Through . . Everyone select suitable methods according to their plans. Recurring deposits will give comparatively a good return since it gets an interest rate "between" 7. It is not necessary to deposit a higher amount in a single installment itself.M. To buy a house.45% to 9%. The second rule is. Along with that the depositor should be aware of the risk.People depend on different investment methods for a better future. Depositor can deposit frequently through systematic investment plan in mutual funds. Therefore we should select the investment method which is more suitable for the fulfillment of our ambitions. Fixed deposits Fixed deposits are secure deposits in which we can deposit with an aware of return amount. to buy a car. Recurring deposit methods are available in all banks. For example let us assume that if you are planning to buy a car the investment should be in such a way that loan can be paid by E. In such cases. investment should be arranged in such a way that an amount which is equal to loan installment will be get as return. Floating deposit has great possibilities while comparing to fixed rates in the present economic condition.Benjamin Graham Mutual funds Mutual funds are become a must included investment scheme in portfolio investment method. In such cases investment in fixed deposit is more advantages. Therefore time also get its significance in investment. returns and the initial amount of the deposit. Recurring deposits Recurring deposits are best investment schemes in which amount will get together at maturity by depositing small amounts in frequent levels for a fixed term. That is a certain amount will be getting as monthly plan. Education of children. Because the amount which is equal to pay the loan of the car will be get from the fixed investment. Despite this investment becomes un-useful if returns would not get at the proper time for the fulfillment of our wishes. don’t lose.I return. Recurring deposit is comparatively a good invest scheme for women. Post office recurring deposit also a popular investment scheme. We could plan the future demands connected to fixed deposit. the first rule is. Even though the returns are less bank deposits are far better than in secure. Despite this depositor can repay the whole amount with the amount of fixed deposit. We have to pay attention in a preplanned plan by considering the salary in fixed deposits. don’t forget rule number one. Different types of investment methods It is a better idea that the depositor can fulfill his wishes through investment. But the depositor could have a clear idea about the needs of future and time. If those who are ready to take more risk can invest in floating rate fixed deposit. There are different types of investment methods. It is the most suitable plan who has a desire to buy car or two-wheeler. retirement plans etc are the different plans of people. There are two rules of investing. The interest rate of recurring deposit will decrease if the depositor withdraws the amount before completing maturity. Usually recurring deposit will start from a maturity of 6 months to 120 month.

Higher return amount is the main attraction of gold investment. It avoids the higher risk of deposit stock. Life health insurance policies are more suitable. Depositor can deposit a fixed amount like Depositor can invest a fixed amount like taka 1000. Experts told that we have to invest 10%of our profit in insurance schemes. Gain from IPO . Along with insurance companies. 3000. Gold can maintain its value at every financial condition. Risk is less while compared to the stock since mutual fund is deal with experts. Even though a long term scheme equity deposits give higher amount than gold and real estate. 5000 through systematic investment plan for the future need in a stock selected by him. Generally women have more attraction towards gold so that they may attract to gold deposit easily. Though Insurance is also a best investment method. Gold Gold is a traditional investment method. It is a suitable method to fulfill as long term plans like to buy a plot to buy a car and retirement savings. Otherwise we can sell the gold in order to use for marriage purposes. . Insurance Insurance can be considered as just a method to insure. Despite this the possibility of profit is higher among mutual funds.systematic investment plan of mutual fund can deposit 500 taka onwards monthly. Therefore it can't be said that mutual fund is not at all suitable for time bounded necessaries.Warren Buffett Tell me why I should invest in the stock market Your own benefit (major benefits) 1. banks and post office provides insurance services Only buy something that you'd be perfectly happy to hold if the market shut down for ten years. Health insurance policy should take by considering the possibilities of diseases and its treatment. Stock While compared to fixed deposit equity funds give higher return. But we can't predict the amount of return. Life insurance policy should be taken by considering retirement age. Gold coins of 24 carrot and chips can use for making ornaments. Gold can purchase with an aim of long term investment. If the investment is for the marriage of children gold investment is most suitable. Systematic investment plan is a most suitable method for those who are starting investment in stock market. After five years higher return amount than other investment schemes will get from stock deposit. 2000.

the worst time to invest is when the economy of Bangladesh looks good. and consumers are dejected. another sells.2. corporate profits look bad. The reason for this is simple: WHEN IT LOOKS REALLY BAD. THERE’S PLENTY OF ROOM ON THE DOWNSIDE. 6. THERE’S PLENTY OF ROOM ON THE UPSIDE. AND WHEN IT FEELS REALLY GOOD. You WANT to buy when the economy looks bad. Learn how to budget your money and to spend your . 5." William Feather. Capital Gain Get Tax exemption 4. This is the best time to invest you’re much more likely to make a mint. you need money. if you want to make a ton of money in stocks. in case you lose your job. 2. and consumers are happy. 3. and both think they are astute. and consumers are dejected. You simply don’t want to buy when these factors converge you’ll never make any money. Don't start investing until you have a secure job and six to twelve months of living expenses in a savings account. Earn Cash and Stock Dividend 3. corporate earnings look bad. as an emergency fund. What should investors do before invest in a stock? Save: Before you can invest. Industrialization Infrastructure development GDP growth Per Capita Income Standard of living Employment Asset Distribution The Worst Time To Invest The truth is. Ownership of a company Benefit of the Nation (major benefits) 1. "One of the funny things about the stock market is that every time one person buys. The Best Time To Invest Buy when the economy looks bad. corporate profits look good. 7. 4.

and some offer a limited number of free trades per year. Other than costs.earnings wisely. stock prices. . you should also consider whether dividend reinvestment is offered (which is the best way to build up your positions). Discount brokers generally charge commissions of less than $10 per trade. including commissions. but you should do your own due diligence by checking out their site and looking at reviews online.Warren Buffett Build a small portfolio of 10-50 stocks: Blue chip stocks are stocks of market leading companies known for quality. Be prepared to always live within or even below and not beyond your means. some as low as $1 per trade. although they are generally fully priced and difficult to buy at a bargain price except in a severe bear market. taxes on dividend. and how to evaluate stocks. and for retirement. and ability to generate profit in good times and bad. keeping track of dates of the trades. The most important factor to consider here is cost. Warren Buffet says that if he cannot fill out on a piece of paper several reasons to buy a stock. etc. Trial and error is probably the only way to find a good broker. provided you meet certain criteria. Most investors have to be careful not to spend any of their profits. as well as emergencies. number of shares. Aim to read every book on investing you can get your hands on. Do not start trading with real money until you are comfortable with your trading abilities. and what other fees are involved. namely. Think: Warren Buffet says that after you think then think again. Here are some of the very best books and resources for all serious investors. Calculate your net profit or loss less commissions and taxes for a meaningful period (1 year or more) and compare your results with the market index. Open a stock brokerage account with a discount broker: No specific recommendation can be offered here. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. then he will not buy it. Read: Before you start investing. It is also helpful to record the reasons for each buy or sell decision. This will help to ensure that you always have enough money. profit or loss. as the stock brokerage business is a rapidly changing field. what it means to invest. how much commission is charged. you need a basic understanding of what a stock is. customer service. Get some basic books in stock investment. Record your stock trades on paper. and short or long term capital gains taxes you would have to pay for each trade. and to keep some aside for future use. Practice: Trade stocks on paper before actually trading stocks with real money. what research tools are offered. safety. Choose stocks of companies with proven records of profitability with .

low debt to equity (less than 1). However. On the other hand. sound strategy. . do not sell. He says that these salesmen are being paid to say good things about the stock so that the company can raise money by dumping stocks on unsuspecting investors. 100 percent. Avoid stock tips: Do your own research and do not seek or pay attention to any stock tips. Invest regularly and systematically: Taka cost averaging forces you to buy low and sell high and is a simple. Hold on to the winners and do not add to the losers without good reason: Peter Lynch said that if you have a garden and every day you water the weeds and pick the flowers. and continue to read as many books and articles as possible written by experts who have successfully invested in the types of markets in which you have an interest. The stock market has always bounced back. for example. Analyze the market whether individual security or mutual fund is better for you to invest. And remember that bear markets are for buying.Feroz Ahmed Khan Consult a reputable broker. preferably forever: Avoid the temptation to sell when the market has a bad day or month or even year. that in one year you will have all weeds. You will also want to read articles helping you with the emotional and psychological aspects of investing. or investment adviser if you need to: Never stop learning. Just be sure to invest with money you don't need for five or more years. or more.at least some earning in each of the past ten years. avoid the temptation to take profit even if your stocks have gone up 50 percent. pay at least some dividend in each of the past 5-10 years. 200 percent. average EPS for years 2008-2010 compared to average EPS for years 1998-2000). Warren Buffett says that he throws away all letters that are mailed to him recommending one stock or another. Trading Stocks is simple mathematics 2+2= 4 but our greed makes it 5 and our panic makes it 3. It is important for you to know how to make the smartest choices possible when investing in . Hold for the long term. and high interest coverage (at least 5). Set aside a percentage of each paycheck to buy stocks every month. at least 30 percent EPS growth over the past 10 years (using 3-year averages to smoothes out variations. to help you deal with the ups and downs of participating in the stock market. As long as the fundamentals are still sound. even from insiders. at least 5-10 years. Peter Lynch said that he was the best trader on Wall Street for 13 years because he picked the weeds and watered the flowers. it does make sense to sell if the stock price appreciates too much above its value or if the fundamentals have drastically changed since purchase so that the company is unlikely to be profitable anymore. banker. even from the crash that occurred between 1996 and 2011. move more cash into stocks. and move all available discretionary cash and bonds into stocks if the stock market drops by more than 50 percent. If the stock market drops by 20 percent or more.

but how much money you make when you're right and how much you lose when you're wrong.George Soros Fundamental Analysis answers all these questions. to know how to deal with loss in the event that it happens. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. On a broader scale one can perform fundamental analysis on industries or the economy as a whole. As the fundament analysis cover a board area. Such as • Is the Company’s sale growing? • Is the Company’s making profit? • Is the Company’s competitive? • Is the Company’s is able to repay its debts? • Is management trying to manipulated company’s financials? It's not whether you're right or wrong that's important. This article will give a basic idea about fundamental analysis. Technicians (sometimes called chartists) are only interested in the price movements in the market. Fundamental . But is difficult to understand what the fundamentals are. . One can define fundamental analysis as researching the fundamental. it doesn't care one bit about the "value" of a company or a commodity. Technical analysis takes a completely different approach. Stock analysis The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. it’s tough to know where to start. Fundamental Analysis Fundamental Analysis is the foundation of investing.stock and even if you does make the wisest decisions. When it comes to investment everyone wants to know one question’s answer “Is the company’s stock a good investment?” There are literally hundreds of questions come with this question. The big problem with defining fundamentals is that it can include anything related to the economic well-being of a company. Fundamental analysis is a technique that attempts to determine a security’s value by focusing on principle factors that affect a company’s actual business and its future prospect. Some say’s that you are not truly investing if you are not performing fundamental analysis.

So according to the analyst the intrinsic value of the stock is TK 50. patents or proprietary technology Qualitative analysis or Quantitative analysis which one is better?? Qualitative analysis and Quantitative analysis both are equally important. So the investor will go for buy the share because the trading price is significantly below their intrinsic value. profit. a market must go up because there are no sellers eft. For example. earnings per share. There is no point of buying the shares When everyone is bearish. but only a few companies on the earth is recognized by billions of people. an analyst determines that it really is worth TK 50. There are many companies which sells Tobacco. Let us Choose BATBC as an example. when everyone is bullish. the stock market will reflect the fundamentals. he might look at the stock’s annual dividend payout.” -Don Hays. Turning to qualitative fundamentals. Though it is hard to figure out the BATBC Brand worth but it is quite obvious that brand value will contribute to the company’s ongoing success. This leads us to one of the second major assumption of fundamental analysis: In the long run. assets and more with great precision. Fundamental factors can be divided into two categories: a) Quantitative analysis b) Qualitative analysis. Intrinsic value is the value in which price investors want to buy the share. It’s easy to see how the biggest source of quantitative data is the financial statements. When an analyst examines BATBC as a stock. One can measure revenue. In fundamental analysis context. But this analysis would not be complete without taking its brand recognition into account. P/E ratio and many other quantitative factors. its brand-name recognition. “Emotions are your worst enemy in the stock market. quantitative fundamentals are numeric. We do all the price analysis to find out the intrinsic value. . The Primary assumption of fundamental analysis is that the price of the stock does not reflect the Intrinsic value (Real Value). these are the less tangible factors surrounding a business thing such as the quality of a company’s board members and key executives. measurable characteristics about a business. Assumptions of Fundamental Analysis Before going deep into the fundamental analysis we have to know the assumptions of Fundamental Analysis. a Company’s stock is trading at TK 40. After doing analysis on the company.analysis not only includes revenue and profit but also include everything from a company’s market share to the quality of its management. Most of the analysts combine Quantitative analysis with Qualitative analysis.conversely. a market must go down because there are no buyers left.

Such as Square Pharmaceuticals brand name is a Competitive advantage. the investment will pay off over time as the market catches up to the fundamentals. If all goes well. But qualitative factors are difficult to or impossible to quantify. Government . No one knows the estimation of long run. Famous Fundamental analyst Warren Buffett rarely invests in the technological sector." Donald Trump. By Fundamental analysis we seek to determine the intrinsic value of the stock. "Sometimes your best investments are the ones you don't make. Like Production based company.based on intrinsic value if the price never reflected that value. People should not invest in the company without understand the business model. they earn money by selling their produced goods. Sometimes it is easy to understand Business model. as an example. No one knows that his calculated intrinsic value is 100% correct or not. it may be some couple of days or years. But sometimes it is hard to understand the Business model for general people. Like NBFI (Non Banking Financial Institute) it is hard for general people to understand the Business model. But there are two limitations of the fundamental analysis assumptions: Intrinsic value differs from person to person. And no one knows how long it will take for the intrinsic value to reflect in the market price. an investor do fundamental analysis to estimate the intrinsic value of a firm and find the opportunities where he or she can buy at a discount price. a high degree of operational effectiveness. Clear tradeoffs and choices vis-à-vis competitors. If we consider Summit Power Ltd. Competitive advantage can be gained by unique competitive position. This part will discuss some of the qualitative factors of an Investor should know. what a company does refers to the Business Model? I will give basic idea about Business model. As Warren Buffett is not expert in Technological sector he does not feel comfort to invest in the technological sector. So according to Fundamental analysis without knowing Business Model it is not wise to invest in the stock. In the light of the above fundamental analysis assumptions. Competitive Advantage: Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry. Business Model: For earning money. So incorporation of this kind of information is quite difficult.

A company’s long-term success is driven largely by its ability to maintain a competitive advantage and keep it up. If Board of directors are same since formation than it is a positive sign for the company. Technical analysts do not attempt to measure a security's intrinsic value. technical analysis really just studies . but instead use charts and other tools to identify patterns that can suggest future activity. Investors should monitor the change of directors. Philip Fisher Technical Analysis What Is Technical Analysis? Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity. Ownership and Indirect Sales: Every Publicly listed company has a Board of directors. Management Discussion and Analysis: Management Discussion and Analysis can be found in the beginning of the Annual Report. it is also a positive sign. The stock market is filled with individuals who know the price of everything. Checking top executives Background: Top executive basically run the business. Or they are implementing new strategy. Take five years annual reports. Check what the management said earlier. What they are saying now. Top executives plays huge role in the successful company. Also it can be found in the annual reports. If there is any independent director in the Board of directors. It is also worth to checking out if management has been selling its stock. From Fundamental point of view.guaranteed against minimum power purchase from Summit Power ltd. such as past prices and volume. There is a simple way to evaluate this section. an Investor invests in company not in the paper. Despite all the fancy and exotic tools it employs. but the value of nothing. Is they are saying the same things over the years. The profiles of the top executives are found in the website. If a directors is unloading all of his shares investors should be aware. This is also a competitive advantage. So before investing in a company’s stock investor should evaluate the company’s competitive advantage. This competitive advantage gives a company opportunity to grow.

3. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement. -Oliver Wendell Holmes 3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself. will continue in the future. 2. as opposed to its components. a stock's price reflects everything that has or could affect the company including fundamental factors. This means that after a trend has been established. which technical theory views as a product of the supply and demand for a particular stock in the market. 2. technical analysis attempts to understand the emotions in the market by studying the market itself. but put your money in trust. The field of technical analysis is based on three assumptions: 1. at any given time. History tends to repeat itself. ignoring the fundamental factors of the company. market participants tend to provide a consistent reaction to similar market stimuli over time. Price Moves in Trends In technical analysis. the future price movement is more likely to be in the same direction as the trend than to be against it. If you understand the benefits and limitations of technical analysis. However. in other words. or trend. Although many of these charts have been used for more . Technical analysts believe that the company's fundamentals. Technical analysis uses chart patterns to analyze market movements and understand trends. This only leaves the analysis of price movement.supply and demand in a market in an attempt to determine what direction. Most technical trading strategies are based on this assumption. along with broader economic factors and market psychology. removing the need to actually consider these factors separately. it can give you a new set of tools or skills that will enable you to be a better trader or investor. price movements are believed to follow trends. Price moves in trends. technical analysis assumes that. The repetitive nature of price movements is attributed to market psychology. are all priced into the stock. Put not your trust in money. 1. In other words. mainly in terms of price movement.The market discounts everything.

ii) How does the company’s price relate to earnings? The price/earnings (P/E) ratio is calculated by dividing the company’s stock price by EPS. which shows a pattern of consistent growth. P/E ratios can be calculated using different earnings numbers. while forward P/E ratios use forecasts of future earnings per share. if you pick up a company’s annual report. you should look for answers to these eight questions: i) What are the company’s earnings? Earnings per share (EPS) are the company’s net income after taxes and preferred stock dividends divided by the average number of shares outstanding.than 100 years. the P/E ratio of other companies in similar industries. and the P/E ratio of the market as a whole. . An investor without investment objectives is like a traveler without a destination. This is the overall measure of the stock performance and is useful when comparing one investment with other investments. However. Companies with low price-to-book values are often considered value stocks. It is used to measure how well a company is utilizing capital retained in the company. Dividing the stock price by its book value per share will give you the price-to-book value. Look for steadily increasing EPS. commonly referred to as stockholders equity. iii) How does the company’s book value relate to its price? A company’s book value equals its assets less its liabilities. Ralph Seger. v) What is the stock total return? Total return equals dividends plus or minus changes in stock price divided by your purchase price. To get a feel for the reasonableness of a company’s P/E ratio. Trailing P/E ratios use earnings per share for the most recent four quarters. 8 points to evaluate a Stock You should thoroughly analyze a stock before purchase. It basically indicates how much investors are willing to pay for a dollar of the company’s earnings. iv) What is the company’s return on equity? Return on equity (ROE) is calculated by dividing the company’s income by its shareholders equity. What figures should you concentrate on when evaluating a stock? At a minimum. you can quickly become overwhelmed by all the numbers. they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. review its historical P/E ratio.

meaning the growth rate is incorporated in the stock price. Since beta measures movements on average. Buy whatever he sells. A stock with a beta of one means that on average it moves parallel with the S&P 500. It is a measure of a company’s ability to pay its current obligations. while a beta less than one means it should raise or fall to a lesser extent than the S&P 500. stocks. estimating a return on investment will aid you in choosing among investment options. ratio. prospects for the company’s industry. Also take a look at the current ratio. By comparing the movements of the Standard & Poor 500 (S&P 500) to the movements of a particular stock. Whether you’re investing in savings accounts. which measures how leveraged a company is. Ask a layman to trade. you cannot expect an exact correlation with each market movement. A beta greater than one means the stock should rise or fall to a greater extent than movements in the S&P 500. Easiest way to earn money in stock Market. The S&P 500 is an unmanaged index generally considered representative of the U. which is calculated by dividing the P/E ratio by the company’s projected earnings growth rate. while a ratio of less than one may mean the stock is undervalued. You will also need to evaluate subjective factors. such as the quality of management. and where the company stands in relation to its competitors. or PEG. real estate. which is calculated by dividing current assets by current liabilities. viii) How volatile is the stock? Beta is a statistical measure of how stock market movements have historically impacted a stock price.S. stock market and has a beta of one. The decision to purchase a stock can be made solely from a review of financial ratios. capital upgrades. A PEG ratio of one is considered standard. . vii) What is the company’s growth rate? A company’s growth prospects can be evaluated using the price/earnings growth. High levels of debt can make a company more vulnerable during economic downturns. A PEG ratio higher than one means the stock is trading at a premium to its growth rate. Hrishikesh Sen Gupta How can we measure Return on a securities Determining your return on investment is a very important part of any investment review. a pattern develops that gauges the stock exposure to stock market risk. Sell whatever he buys.vi) What is the company’s debt level? The debt ratio is the company’s outstanding debt divided by shareholders equity. or new business ventures.

so a complicated project could have real opportunity costs.. The return is the total gain or loss experienced on an investment over a given period of time.. we need to be certain what return is and how to measure it. Calculate all the costs associated with an investment.e.Benjamin Franklin Step 2. At the end of the day the person with money goes with experience and the experienced goes with all the money. Be sure to list out all costs you can think of..If we are going to assess risk on the basis of variability of return. don’t forget the hidden costs often associated with investments. Basically. There are two people in the stock market. It is commonly measured as cash distributions during the period plus the change in value. due diligence) the investment? How much of your time will this investment consume? Your time is valuable. Ask yourself the following questions about the investment: • • • • • What are the initial upfront costs associated with the investment? What are the maintenance costs? Are there any fees or taxes associated with the investment? What kind of research costs will you incur to properly evaluate (i.one comes with the money the other with experience. . Step 1.. Estimate or calculate your returns. expressed as percentage of the beginning of period investment value. • • How much do you expect to gain from the investment? When do you expect returns to happen? .

Costs should be listed as negative dollars and returns as positive dollars. rt = actual. rt. wishes to determine the return on two securities. Draw a simple timeline or just list in chronological order all the costs and returns you discovered in steps 1 and 2. Example: Mr.$100. Calculate a return of an investment: The expression for calculating the rate of return earned on any asset over period t. Give me a man with no goals and I will give you a stock clerk. Md. capital market investors.000 Step 4.1 “Give me a stock clerk with a goal and I will give you a man who will make history. For example: • • 1/1/2006 Initial investment cost: .Determine how much you expect to gain from the investment. or required rate of return during period t. is commonly defined as Rate of return during period t: rt = ct + pt – pt – 1 / pt – 1 Where. Beximco ltd and Bd finance.James Cash. Establish a timeline for costs and returns.000 9/21/2006 Sell investment: $120. Step 3. ct = cash received from the asset investment in the time period t – 1 to t pt = price of asset at time t pt-1 = price of asset at time t . Beximco ltd was purchased 2 year ago for 30000tk and currently has a market value of . Erfan Ullah. Detail specifically all the individual returns you expect to receive from the investment. expected.” .

Erfan should invest more on the Beximco ltd company securities as it has high relative return than others.” -Richard Thaler. its value in the year just completed declined from 12000 to 11400. it happens because of the cash flow earned during the year of Bd finance is less than the Beximco earned during the same period of time. .83% We see that the market value of BD finance declined during the year.3% Bd Finance (f): rf = 940 + 11400 – 12000 / 12000 = 2. Beximco (b): rb = 1500 + 32500 – 30000 / 30000 = 13. During the year. So. After all. we can calculate the annual rate of return. Mr. you can buy a good car but pay too much for it. Substituting into following equation. for each security. Bd finance was purchased 1 year ago. it generated 1500tk of after tax cash receipts. r.32500tk. During the year it generated 940 of after tax cash receipts. “Investors must keep in mind that there’s a difference between a good company and a good stock.