STOCK MARKET

(B.S.T.)

SWARIT SINGH
18
CLASS XII-A4
 INDEX

1.Introduction
2.History
3.How to search for a potential stock ?
4.Stocks
A stock market, equity market, or share market is the aggregation of
buyers and sellers of stocks (also called shares), which
represent ownership claims on businesses; these may include securities listed
on a public stock exchange, as well as stock that is only traded privately, such
as shares of private companies which are sold to investors through equity
crowdfunding platforms. Investment is usually made with an investment
strategy in mind.

STOCK EXCHANGE:
A stock exchange is an exchange (or bourse)[note
1]
where stockbrokers and traders can buy and
sell shares (equity stock), bonds, and other securities. Many large companies
have their stocks listed on a stock exchange. This makes the stock more liquid
and thus more attractive to many investors. The exchange may also act as a
guarantor of settlement. These and other stocks may also be traded "over the
counter" (OTC), that is, through a dealer. Some large companies will have
their stock listed on more than one exchange in different countries, so as to
attract international investors.[6]
Stock exchanges may also cover other types of securities, such as fixed-
interest securities (bonds) or (less frequently) derivatives, which are more
likely to be traded OTC.
Trade in stock markets means the transfer (in exchange for money) of a stock
or security from a seller to a buyer. This requires these two parties to agree on
a price. Equities (stocks or shares) confer an ownership interest in a particular
company.
HOW TO SEARCH FOR A POTENTIAL STOCK ?

1. Time Horizon:
Firstly, you need to decide the time horizon before buying a stock as it
plays a crucial role in deciding whether to buy that stock or not. Your
investing time horizon can be short term, middle term or long term, based
on your financial goals.

 Short Term- A short-term time horizon is any investment that you are
planning to own for or under one year. If you’re planning to buy a stock and
hold it for under a year, then it is best to invest in stable blue-chip
stocks which pay dividends. The companies have a good balance sheet
and there are fewer risks involved.
 Medium Term- A medium-term investment is an investment that you want
to hold from one year to 10 years. For middle term investing one should
invest in quality emerging markets stocks and stocks having a moderate
level of risk.
 Long Term-Finally, long-term investments are any investment that you are
planning to hold onto for more than 10 years. These investments have time
to recover if something goes wrong and can generate a significant return.

2. Investment Strategy:
Before buying a stock, it is important to study various investing strategies
and choose the one which suits your investing style.

Below are three key types of strategies that are used by most successful
investors:

 Value Investing: Value investing is the type of investing in stocks that are
undervalued compared to their peers in hopes of generating gains. This is
the strategy that is used by Warren Buffett to make huge profits.
 Growth Investing: Growth investing is the type of investing in stocks that
display market-beating growth in terms of revenue and earnings. Growth
investors believe that the upward trends in these stocks will continue and
create an opportunity to generate profits.
  Income Investing: Finally, investors should look for quality stocks that pay
significant dividends. These dividends generate income that can be used
or reinvested for increasing earnings potential. Thus, before buying a stock,
you should consider the strategy that fits in well with that investing style.

3. Check Fundamentals before buying a stock:

Investors should check fundamentals before buying a stock.

Famous investors like Warren Buffett made a lot of money by comparing

the current market price of stocks to their fair market value. According to
him, an undervalued stock will reach its fair, or intrinsic value.
Some of the most important ratios to consider before buying a stock:

 Price-to-Earnings Ratio (P/E Ratio)- This ratiocompares the stock’s price with
the company’s earnings per share (EPS). For example, if a company is
trading at Rs. 20 per share that produces EPS of Rs. 1 annually, then its P/E
ratio is 20 which means that the share price is 20 times the company’s
earnings on an annual basis.
 Debt to Equity Ratio- The debt-to-equity ratio helps in determining how
much the company is in debt. High levels of debt are bad as it signals
bankruptcy.
 Price-to-Book-Value Ratio (P/B Ratio)- This ratiocompares the stock’s price to
the net value of assets that are owned by the company, and then divided
by the number of outstanding shares.

4. Stock Performance compared to its peers:

Investors should also check how the stock has performed in comparison to
its peers, websites like StockEdge and Google finance help the companies
to compare with their peers.

5. Shareholder Pattern:
Investors should check the shareholding pattern before buying a stock.

Promoters are entities that have a major influence on a company. They

may have a huge controlling stake in the company or hold senior executive
positions.

Thus, Investors should invest in those companies having a high promoter

holding, High Domestic Institutional Investor holding and also High Foreign
Institutional Investor holding.
6. Mutual Funds Holding:
When a stock is held by many mutual funds, it is generally considered a
safer stock compared to the other stocks which are not held by any mutual
funds.

7. Size of the Company:

The size of the company that you are considering investing in plays a
crucial role in the amount of risk that you want to take for buying a stock.

Therefore it is important to consider the company’s size compared to your

risk tolerance and time horizon before buying a stock.

The size of publicly traded companies can be determined by looking at the

company’s market capitalization as shown below:

8. Dividend History:
Dividend stocks are known for giving a part of their profits to their investors
in the form of dividend payments.

Investors who follow the income investing strategy should try to invest in
these dividend stocks.
If the investor’s goal is to generate income through their investments, then
they should look into the dividend history of the company before buying its
stock.

Income investors who are looking for a high level of income compared to
the stock’s price should look at the company’s dividend yield that is
expressed as a percentage.

9. Revenue Growth:
Before buying a stock, investors should look at those companies that are
growing. This can be determined by checking both its revenue and its
earnings.

10. Volatility:
Stocks with high levels of volatility will rise quickly on bullish days, and fall
like a brick on bearish days.
If you invest in a low-volatility stock that moves slowly and a recent
uptrend begins to reverse, then you can take in on your profits before they
disappear.

On the other hand, stocks that show fast-paced movements do not give
you much time for exiting the investment and when a trend reverses then it
could lead to losses.