November 14th, 2009
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Most of us are confused where to put in our money and where not to invest our hard earned money. I fount the rules mentioned below quite helpful. My suggestion is just follow the directions given below and I am sure, some of you may save lot of money going down the drain. Here it is:
Rule 1: Don’t buy unlisted shares
There are over 20,000 public limited companies in India, of which only around 7,000 are listed on the country’s various stock exchanges. The first rule of profitable share investment is to confine your buying to these 7,000 listed companies only.
Stock exchanges do not permit trading in unlisted shares, nor do they permit their registered members, i.e. brokers to deal in unlisted shares. Therefore, if you want to buy unlisted shares you won’t get the protection of the stock exchange authorities; nor will you be able to use the services of your stockbroker in handling such transactions. Moreover, in the absence of stock exchange quotations you won’t be able to assess what the market price of an unlisted share should be. All these factors create complications and risks, which you are not likely to be in a position to handle. As a basic rule, therefore, you should avoid investing in shares of unlisted companies.
How does one know whether a share is listed or not? It’s simple; all shares whose prices are quoted in daily newspapers or websites are listed shares. Unlisted shares are quoted. Therefore, the fact that a share is quoted means that it must be listed. This is the easiest and surest way of fining out whether a particular share is listed or not.
Rule 2: Don’t buy inactive shares
Active shares are those in which transactions take place every day, or almost every day, on the stock exchange. At the other extreme are shares in which transactions take place rarely, if ever. The latter are called inactive shares. In this book, an inactive share has been defined as one, which is transacted less than two times a month, or not at all.
The main reason why shares are inactive is because there are no buyers for them. They are mostly shares of companies which are not doing well and whose future prospects appear to be dim. Naturally, nobody wants to buy their shares. As a result, existing shareholders of these companies find it difficult to get rid of their shares, even at very low prices. And, if nobody wants to buy these shares, why should you? Why should you allow yourself to get stuck with an investment, which you can’t offload at will, whenever you want to? We would strongly advise you to avoid investing in inactive shares.
How does one find out whether a particular share is inactive or not? The simplest way is to regularly scrutinise the stock market quotations, which appear in the daily newspapers. If you find that a particular share has not been quoted for a long time, you can presume it is inactive. Some newspapers, like The Financial Express not only indicated the last quoted price of each of share, but also the date when it was last transacted. This information can help you to confirm whether a particular share is inactive. Check out BSE or NSE Websites
Inactive shares can generally be bought at very low prices. This is obvious since such shares generally find no buyers. Inexperienced investors looking for bargains are often attracted to such shares by virtue of their low prices. This is how beginners are normally trapped in to making disastrous investments, Beware of such bargains! If you come across a bargain, remember there has to be catch in it somewhere. It is better to hunt for value, and pay a fair for it than to look for such apparent bargains.
Every time you buy a share, you must remember that one day you will want to sell it. If you are likely to face difficulty in selling it – don’t buy it! This is a sound investment principle, which you should never lose sight of, no, matter how cheap or attractive a particular investment may appear to be. Never allow yourself to get caught with illiquid share. They are only pieces of paper without any value. Shares have value only when they are readily encashable.
Of course, it is possible that a share, which is inactive today, could become active tomorrow; just as a share, which is active today, could become active tomorrow. It all depends upon the degree of buying interest in a particular share. If buying interest builds up in a share, it can easily move from the inactive to the active category.
Rule: 3 Don’t buy shares in closely held companies:
Whether a company is widely held or closely held depends upon the number of shareholders it has. In this book, we will draw the line at 5,000 shareholders. Companies with less than 5,000 shareholders will be considered as closely held.
Shares of closely held companies tend to be less active than those of widely held ones since they have a fewer number of shareholders and, thus, a smaller floating stock of shares. Shares of such companies tend to be ignored by the general public. Large institutional investors also tend to avoid closely held companies. As a result their shares do not get sufficient price support, which they would otherwise have got if they had been widely held. Moreover, it is always much easier to manipulate the share prices of a closely held company than those of a widely held one.
Share prices of closely held companies also tend to be more volatile than others. When they rise they rise very fast, and to a very high level. Conversely, when they fall they do so very fast and to a very low level. As a result, it is generally very difficult to buy shares in a closely held company when prices are rising, and very difficult to sell them when prices are falling. Investing in such shares requires a high degree of expertise, knowledge, alertness and quick thinking, which take years of active investing to acquire. We would, therefore, strongly urge you to keep away from such shares.
Source : Various Websites and Books on Share market Basics
Categories: Trading Basics, Your Money
Tags: Investing Rules, Investing Tips
November 10th, 2009
Do you plan to invest in stock market? Do you have some selected scrips in your mind for making investment? If yes, it is extremely important for you to know how well that stock is performing; at what price is it available in the market and how it is expected to do in future. To arrive at a decision, you need some information related to the stock that reflects the financial implications of the stocks in question. Stock quote is that magical figure that gives you all the information related to stock. Due to all this crucial information they give, these can really be considered as the lifeline of an investor.
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Categories: Investing Trends, Stock Market Quotes, Trading Basics, Your Money
Tags: Buying Selling, Stock Market Basics, Stock Market Quotes
November 3rd, 2009
Share Market Trading can be classified into either of these categories - Day Trading, Swing Trading and Position Trading. However, the common factor among all types of traders is that Stock market traders keep up with the news. The businesses and industries react to government actions, changes in oil prices, economic forecasts and world events. The successful stock market trader stays informed about the circumstances outside a company that could cause price fluctuations for the stock.
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Categories: Investing Trends, Trading Basics, Your Money
Tags: Buying Selling, Day Trading, Share Market Trading, Share Market Wisdom, Stock Market Basics
October 28th, 2009
Futures and options are the derivative instruments in which the buyer and seller enter into an agreement or transaction which will get settled on a future date. In simple terms it is a promise between buyer and seller to transfer the actual underlying assets (commodities, gold, stock, currency etc) on a specific future date at a specific stipulated price as per the agreement.
To understand this in a better way, let’s have a look at the below comparison chart between futures and option:
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Categories: Trading Basics, Your Money
Tags: Buying Selling, Derivatives, Futures and Options, Stock Market Basics, Volatility of Stock Markets
October 26th, 2009
Derivatives, as the name indicates are the financial instruments which derive their value from some other asset of monetary value called as “underlying asset”. This underlying asset can be gold, currency, stock or any commodity. In short, derivative is not an asset in itself but an agreement or a contract to transfer the real asset in future whenever exercised!! The date and price of execution is mentioned in the contract as per agreement between the parties. There are varieties of derivatives available at present like futures, options and swaps; futures and options being the most common ones. Before looking into details here are few components of a derivative agreement which need to be introduced first.
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Categories: Investing Trends, Trading Basics, Your Money
Tags: Buying Selling, Derivatives, Stock Market Basics
October 24th, 2009
SEBI approves Share Market Trading from 9 to 5
You could soon be able to trade for an additional two-and-a-half hours on stock exchanges with the Securities and Exchange Board of India (Sebi) on Friday allowing trading between 9 a m and 5 p m to align timings to international standards.
At present, trading hours are between 9.55 a m and 3.30 p m.
Sebi, however, raised the caveat that the exchanges would have to ensure that risk management systems and infrastructure commensurate to longer trading hours were in place before investors transact for eight hours a day.
The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) welcomed the Sebi move and added that they would soon extend trade timings. They, however, did not clarify whether timings would be extended to 5 p m, though executives indicated that trading would start at 9 a m.
Last year, NSE had first proposed a change in trading hours at a time when foreign institutional investors and hedge funds preferred to trade on the Singapore Stock Exchange (SGX), where NSE Nifty futures were also listed. With longer trading hours because SGX opened for trading at around 6.30 a m India time, the open interest positions on Nifty futures traded on SGX had reached close to the levels seen on NSE.
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Categories: Global Economy, Investing Trends, Trading Basics, Your Money
Tags: BSE, Buying Selling, NSE, SEBI
October 24th, 2009
Given below are the types of orders which are used for buying and selling of shares.
Market order: When you put buy or sell price at market rate then the price gets executed at the current rate in the market. The market order gets immediately executed at the current available price.
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Categories: Trading Basics, Your Money
Tags: Buying Selling, Day Trading, Investing Tips, Stock Market Basics
October 22nd, 2009
Many Investors in India prefer dealing in shares through their brokers over the Telephone and not trade online because of the security Concerns.
While concerns about online security will always be there, rest assured that the brokerages themselves have a very, very high stake in making you feel comfortable about the level of security being used. All online brokerages have a portion of their website devoted to explaining the measures they employ to protect your transactions.
Here are a few questions that you may have regarding Online Trading in Stocks.
Is trading through the Internet safe?
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Categories: Investing Trends, Trading Basics, Your Money
Tags: Broker, Day Trading, Investing Tips, Stock Market Basics, Sub-Broker
October 22nd, 2009
Short selling is selling the shares which you do not own. The term “short” here signifies that you do not hold the shares being sold. The first thought popping up in your mind would be – where do these shares come from which you are selling without possessing them in your portfolio of stocks. These come from your broker/brokerage firm that lends you the shares in lieu of your investment as collateral. You short sell these shares but subsequently you have to close the short by buying back the shares from market and then return it to your broker/brokerage firm. You are also charged some interest for the loan of shares you have taken. Below diagram describes the flow of shares involved in short selling
Short Selling
Looking at the flow of shares in above flowchart, one would ponder why to borrow shares for selling in market and then transfer them back to the lender? The logic behind shorting is very simple; earning profit margin. Let’s see how??
If you think a stock is overvalued and expect that the price would come down in future for sure; you would wish to sell the shares at current levels at higher price. So you borrow the shares and sell them at higher price. And when the stock actually falls as you had speculated; you buy it from market at lower price and return it to the lender and the difference between the selling price (higher) and buy price (lower) is what you earned in the deal. So at the end you must close the short by paying back the shares and this is called as “covering the short”. Concluding this, investors who anticipate fall in the stock price go short to take advantage of market fall. An investor can hold the short for as long as he wants but he is charged an interest as it is similar to a loan taken in the form of shares. Also if during the course of loan, the company declares dividend or rights issue, it must be paid to the lender who is the actual owner of shares because you are just a borrower.
Short selling is considered to destabilize markets directly or indirectly. In 2001, the stock prices crashed heavily owing to short selling by big operators after which SEBI banned it. After a gap of 6 years in December 2007 SEBI came up with updated norms of short selling to cover the loopholes and ultimately institutional investor were also permitted to short sell.
Concluding this, short selling no doubt gives you an opportunity to earn profit by taking advantage of downturn of markets, it might bring in huge loss to your investment if stock price moves up. Because in real sense, shorting is a bet against the current market trend. When stock is at current higher levels, you are expecting it to fall down and entering the arena. Speculation is what makes shorting a riskier job. So beware of the dark side of shorting before you actually go for it!
All the Best
Renuka Kinger
Categories: Investing Trends, Trading Basics, Your Money
Tags: Day Trading, Investing Tips, Share Market Wisdom, short selling, Stock Market Basics, Volatility of Stock Markets
July 22nd, 2009
Quarterly Results – Significance to the Share Holder
Many a times we hear about companies coming up with quarterly results that tend to create either euphoria or a silent shock in the market. Quarterly results are the announcement by corporate, of the operational results at the end of each quarter. About a decade ago, only annual results were declared by the companies but later on stock market regulators mandated the declaration of half yearly results and then subsequently to quarterly results to bring in more transparency in the system. The figures representing huge profits, losses, increase in revenues, percentages hike in annual growth are no doubt important for the corporate business, but how much it is important for you as an investor is what we would discuss here.
Logically speaking, it makes no sense running a race and not being bothered about whether you win or loose. As an investor if you have invested your money in a company, it is very important to invest some of your time in knowing how the company has been doing. It helps to judge company’s performance over a period of time and keep a track of its growth or decline before it is too late. For example suppose you are holding shares of a company showing continuous decline in revenues for past 3 quarters. So looking into the results you decide to take out your money and invest somewhere else before the company gets ruined totally. Thus analysing the results, you can judge company’s current performance and future prospects and ultimately plan your investments based on that. It is as simple as tracking down your school report card which needs to be reviewed weekly to know if you still need any improvement. However its significance varies with the type of investor you are. It is more important for a short term investor or an intra-day trader than a long term investor as explicated below:
Long term investors: It is important to note that long term objectives of a company do not change every quarter. There might be many reasons due to which quarterly results of a company are not good. In short, a long term investor with investment period of 3-4 years is hardly affected by the quarterly results and it might prove mere wastage of time to keep analysing the results every three months. So a prudent long term investor will at least not get panicked with poor quarterly results but tend to find out the reasons behind it. Long term investment can be considered as a long tunnel and there is always light at the end of tunnel.
Short term investors: A short term investor might get affected by quarterly results in real sense. It has been seen over time that the markets are very sensitive to news of corporate results. The day blue chip companies like infosys declare its quarterly results; the BSE and NSE indices turn red or green depending on their results. These cause volatile sessions in the markets and hence short term investor or intra day traders may land up in huge losses or end up making huge profits.
Renuka Kinger
Categories: Investing Trends, Trading Basics, Your Money
Tags: Company Results, Day Trading, Investing Tips, Stock Market Basics
