Category: Money Matters

Our markets have been performing horribly, completely under performing it’s peers and specially the west. There is hardly any buyers out in the markets due to all the negativity.

On the positive side, each fall on this market is giving a very good entry point to long term investors where one can cherry pick good quality stocks on cheap valuations and hold tight till markets rebound in future. I don’t recommend trading short term at all. A lot of people are buying into the markets for 2-3 months perspective, well please don’t. This free falling market is not the right time to buy with such a short duration. Invest into the market at current levels and using each declines to buy some more ONLY if you are going to stay invested with a long term horizon, atleast 24-36 months.

There is a lot of uncertainty in the markets and it is going to remain so lackluster for a few months more. The best part for this consolidation move in the lower levels is as each month is passing, the investors are getting their salaries from where they could fetch some money to buy good quality stocks on these prices. I shall advice investors to keep buying into good quality stocks on every declines and have a 36-60 months view, you will definitely make a lot of money. The only risk to your return is if you’re not buying into the right company. Stick to good quality stocks and avoid stocks you have no clue about.

With violent reversals current stock, the trader does not know whether to buy or sell and the investor is reluctant to build or to enter the market because the fall is probably not over.

So if you are an investor and a little bit trader … there is something crazy. Do not worry, we will put the record straight. What to do, whatever your profile? The investor wants to grow its capital An investor seeking to profit from its capital over the long term, for example, a project financially.

The idea is to grow your capital over time, so that in X years, you are richer today. Success is measured in years by then. It is a complete philosophy of life, how to manage your money. And that’s what you have in mind right now: no matter how short-term markets.

The trader wants to be a little rich, but very quickly and very often. Conversely, a trader is someone who tries to beat the market in the short term and to deliver short-term income. This approach is obviously more risky – especially when you look at the markets in recent weeks, which gave us nice surprises and reversals.

The strategy here is to position themselves in securities that have met all conditions to see their classes quickly and strongly shifted (either up or down) in the coming sessions.

Is it time to buy? For long-term investors, the recent rout in the markets is the real godsend. This is the best time to buy shares for five months. Yes, the market may drop even lower in the short term it may come back to test the yearly lows or even crash down further! And right now, you find how the market? Quiet or risky?

It would be a shame to follow your gut right now, and you say “I will buy when it’s quieter. “Just remember the flight of investors during the fall of 2009: it was at this time that he was buying!  copyright stock market today

Car buying quiet usually returns to first pass a strong rebound. The short-term traders should have a different approach. They must find a turning point on a title – or conversely when a course will accelerate.

But nothing is certain and everything happens very quickly. We must therefore carefully follow your trading scenario: playing an announcement of results, follow your technical goals. come from stock market today

And always place a stop. There is no urgency to buy a market in a low point: in trading, the opportunities are for all time. That said, there is no doubt that the current volatility offers great opportunities.

Do not just mix your long-term objectives with short-term strategy.

As I had already shared, SIP is a method of investing a fixed sum of money regularly in a Mutual Fund Scheme. It is quite similar to regular saving scheme in a bank account like a recurring deposit. The only difference is that there are good chances of getting a better return than a bank deposit when investing in stocks.

Benefits Of SIP

• SIP offers you tax benefits which could come in handy if have to pay income tax.
• Regular Investment makes you disciplined in your savings and also leads to wealth accumulation.
• SIP comes with a locking period, so even if you wish to spend you cannot as the funds are locked and cannot be taken out.
• In SIP, invest as low as 500 or 1000 rupees. There is no need to worry if you do not earn a lot of money as you can still be a market investor with as low as 500 a month and even that would come up to be quite a good sum after a few years.
• In SIP, you invest in mutual funds where your investments are managed by market experts and professionals who have good knowledge in this field, so you have a chance to do much better than that of investing yourself alone.
• In SIP, you will be purchasing units at all phases of the market, high or low, depending on that you get the units share and so you dont need to worry about market going up or down. But just have to wait for the right time to take out your money after the scheme is over and no more deposits are being done. Thus your investments get averages out at the end and the loss is very limited which isnt the case when you invest all at once.

SIP refers to Systematic Investment Plan. SIP is a method of investing a regular amount of money every certain time period, say a month. It is an alternative to investing a large sum of money at once. SIP is a good method of investment, specially for those who do not have a large sum of money to invest at a go or even if they have but they are not able to invest all of them at the same time, due to whatever reasons. It is a good method for those who are working and earn a fixed sum of money every month. Like for example, if a person earns 20,000 rupees a month and his expenses are 10,000, then he can easily invest at least 5,000 a month. Most of the working professionals do not have a large sum of money to invest, so they can go into SIP method and can save quite a lot of money on a recurring basis and also enjoy good returns on his savings. SIP is also preferred by those people who wants a good saving but cannot resist spending money. If their money would directly deduct from the account and go into a plan that has a 3 to 5 year locking period, then there is no chance they can take out money or spend anywhere.

In SIP method, you buy share units every month/quarter based on the share value at that current time. So it balances itself at the end, since we know that the market keeps going up and down every time and your shares will be bought at a time the market is low, as well as at the time the market is high. If the market is too high at a time you want to invest, SIP is the best way to go, since if you invest a large sum at a high price and the market falls, your large sum value will go way down but in SIP, you only purchased a little bit at that high time and once the market falls, you do incur a loss but only on the small sum you invested, all the rest of the investments that will proceed in further months will be bought in a lower market value. So like I said, it averages out at the end.

But remember that SIP does not offer you a very high gain that you can get from a one time investment of a large sum but it is more sort of a very safe play and plus keeps regular disciplined savings. If you have a large sum of money to invest in the market and want a good gain on it then prefer some one time investments of large sums in different sectors of the market, specially at a time when market is going low.

It is very important that you identify your stance in stock market. That is, are you going to invest OR trade in the stock market? If you are not sure about this, then you will commit a lot of mistakes and yield lower returns from your investments. You might be an investor and behave like a trader making losses and vice versa. I’m going to give a brief introduction to both of the types which will help you identify yourself.

Investors – Investors invest their money into stocks for a longer period of time. They invest into stocks with good fundamentals and stay invested till they reap profits, could it take a year or two or even more. A smart investor enters a good stock when it has corrected or say they buy good undervalued stocks and maximise their gains. They don’t put money into a stock that has already rallied up and are in it’s highs because a high valued stock has limited upside and they will not get much appreciation in that stock. So investors wait for a correction in the stock and buy stocks on dips. Investors don’t care about stop losses and targets, they invest from a long time view and only take out once they’ve claimed a nice appreciation. If the stock goes down a lot from their purchase price, they will continue to hold the stock or even buy more to average it out. They’ll hold it till the day the stock comes back to its highs and only then book profits.

Traders – Traders put their money into any stock that is going to give them some appreciation in a short term. They don’t keep money into stocks for a very long period of time. They identify a stock worth putting money into, then buy it keeping in mind a target price to book profits and a stop loss to book losses. Traders can never trade in any stock without a specific target and stop loss in mind. Traders exit the stock if a target or a stop loss price has been achieved in that specific stock. A trader does not care if the stock is undervalued or overvalued, all they care about is entering a stock that is going to give any appreciation in a day or a few days to a week. Since a trader maintains a stop loss close to the buying price, they don’t really have a chance to make much loss. Many times the already rallied stocks rally even further up and that is where traders make their profits and investors miss out. Traders sometimes also enter stocks with no fundamentals unlike investors.

A trader usually makes more profit than an investor but being a trader means putting a lot of time into stock market investing. Majority of the active traders spend their day trading in the stock market and that is how they mostly make their living. However investors are normally working people, a job or business who do not have a lot of time to give to stock market and so they invest into the market from a longer term perspective and don’t need to check  their stocks all the time. An investor misses out returns during a time when he is waiting with cash on the side lines for the market to correct and market instead of correcting continues to make new highs, like the scene with current market. So if you have a lot of time in hand, it is better to trade than to invest to claim better returns.

Let me give you some basics to stock market investment today. I’m going to cover three types of stock investments that are being done on the market:-

Short Term Investment – This kind of investment is mostly done by stock traders who buy stocks from a very short period of time, perhaps a day (intra day) or a couple of days to a few weeks. Short term investors always keep a target price and a stop loss in mind. If any of the price hits, they exit the stock. The basic idea in mind is to get into a stock that is going to give some appreciation in a short time and book profits and shift to another stock. For short term trading, you need to invest a lot of time into the stock market, whole of the week is gone doing this. Most of the people who have a full time earning through the stock market are into this kind of investment.

Medium Term Investment – This kind of investment is done by the investors who want to put their money into the stocks for a few months to a year. They are mostly the working people who don’t have a lot of time in hands to give to the stock market but want to grow their money through investing in stocks. They are majorly looking to enter stocks that is going to give them a good appreciation in the medium term. They mostly never exit any stock in a loss but only after they’ve got some appreciation. Sometimes medium term investment becomes a long term investment if markets fall a lot. The goal of medium term investors is to get any appreciation that is better than bank fixed deposits or any other kind of low return investments.

Long Term Investment – This kind of investment is done by people who believe in buying a stock and forgetting it. These people never enter the bad stocks, they only invest into companies they know or heard about. They believe that the market is going to continue growing in the longer term period and so will their wealth. They only look for opportunities to buy at the correct time and then forget it. They don’t care what returns they’re getting on a day to day basis because they want to exit the stock several years later. They invest from a very long time period and market ups and downs really don’t concern them as they know by the time they check out, market will be back to its highs.

Mid-cap and Small-cap stocks are very volatile and go up and down sharply. They are the first ones to crash when things go wrong in the stock market. So you need to understand the fact that you’re in for some risk and you need not feel down if you see your money down by a big margin if by chance markets crash. However, it markets are on a bull run, then these small stocks rally like anything thus maximizing your gains. So if you are looking to invest into mid-cap and small-cap stocks, then have a look at 3 rules below : –

Identifying Quality Mid-caps and Small-caps

This is the first step towards investing into these small companies. You need to first make a list of all good small and mid stocks that are expected to do good in the current year. If a stock is not supposed to give good growth this coming year, then it is NOT the best investment you can do now. So look for only companies that are expected to post strong set of numbers this year. It does not matter which sector the stock belongs do, the earnings outlook should be good that’s it.

Shortlist Attractive Valuation Stocks

Now that you have a list of a lot of good stocks, you are going to shortlist the stocks as per their valuations. Some stocks might be trading at a high valuation and some must be trading at a very low valuation. High valued stocks are a big NO! Low valued stocks are the way to go, if you notice, most low valued stocks have been corrected and thus they look attractive. For example, I can say that I found a small cap company that is expected to grow at 30% in the current financial year and right now the stock has been hammered 15% from it’s highs and is trading at a P/E of 5 as per previous financial earnings. So that is attractive and forms a buy.

Don’t put all your eggs in one basket

One of the most common phrase which is extremely important when investing into these smaller companies. A lot of times it happens that the companies don’t get value it deserves from the market and thus you cannot put all money in a couple of companies and miss out on the returns which you could have got by diversifying into a lot of stocks. This is not entirely the case with large-caps but with small-caps, it is. Sometimes there are stocks that give really good results but still don’t move up. So the best case is diversifying into several such good stocks and minimizing the downside risk to returns. For example if you are investing 1 lakh rupees, I’ll say invest into 10 such stocks by putting 10,000 each. If one or two don’t move at least the others will since you don’t know which are those selective stocks that will fail to attract attention from large investors. So it is best you diversify among various such small stocks.

Mid-caps and Small-caps make you the most money but can also erode most of your money, so be careful and only enter into quality stocks that are looking good. Stay away from bad fundamental stocks as they are in the best position to erode your money.

So what to look for in small cap or just about to become a mid cap company? Is it a “multibagger” or a fraud?

These are some of the points that I look for and in no way this list is exhaustive

1. Cash Flow statement

Yes P&L is great for ratios and all but in a small company with not a lot of data, it is important to see if it is actually making any money.
Look for cash flow from operations and check if it is growing or not.

2. Short term liabilities

If there is one thing that I have to have to look in a company it will be it short term liquidity.

“You need to survive short term to be alive to see the long term”

Is the company raising short term debt to manage its working capital? If yes, how much of short term debt was for just meeting the WC needs? Can the cash flow support the short term obligation?

3. Working capital management

Great people at top have one thing in common – they know how to manage the working capital

How is the inventory moving with respect to sales? Is the inventory at the risk of going obsolete? In how many days do they take get the money from their buyers? How quickly do their suppliers need money?

4. Off balance sheet items

Check for unfunded pension liabilities (it should not be a problem in a young company but do check it)
For sure check for contingent liability – This is the MOST IMPORTANT item to check in any company financials.

5. Cost of goods sold

Is the gross margin constant or in a tight range or is it moving wildly?
If it is all over the place, exit immediately as the company is either a fraud or the management has no idea on how to purchase raw materials

6. Employee cost and management pays

Great management comes at a great cost. Check for management salaries. If the company has good disclosures they may even mention the parameters that decides the bonus of the management (large cap companies will give this). If stock price is one of the parameters, smile.

If employee cost is not increasing while sales is jumping, there is a high chances there is a fraud. The company is bumping up its margins to push the stock price. Take your call.

7. Depreciation

How is the company depreciating it’s fixed assets? Too aggressive? Or slow?
It is a subjective call so talk to a CA friend on this.

8. Are there Convertible bonds on the balance sheet?

If there are, your small stake in the company may get diluted further. So think about it

9. Dividends

Most small caps and mid caps don’t give dividend as the company usually get invested back into the business. But if they do, love them. They want to reward long term investors and for sure they are making cash flow.

10. Do you see their product?

If the company sells its product directly to consumers, do check with your local kiranawala or the shelves in big bazaar.
In fact, stroll around the shelve in a big bazaar and check who all picks it. And when they pick, have a look at their cart – what all are they buying other than this product? It will give an idea of the consumer profile.
But please don’t stalk the consumer.

Finally, if you have done all the above, you can do the Discounted cash flow and ratio analysis.

It usually turns out that doing things as simply as possible is better than allowing intricacy and details to complicate our lives. Simple strategies give us the opportunity to sort things at a basic level and know them from the inside out. Based on this easy principle, here are 10 very simple things that every investor needs to know about the stock market:

1. Moves and Counter Moves Determine Price Trends.

When a stock either goes up and remains there without going down for a period of time or goes down and remains there, it is considered to have made a move. After the move occurs, if the stock price moves in the opposite direction again but not as far as it moved the first time, that’s considered a counter move. Uptrends hook up with the bottoms of counter moves while downtrends are at the top edge of counter moves. A stock trend happens in a series of moves upward interspersed with smaller, shorter counter moves downward. While this trend is occurring, investors are able to draw a line between the lows created by the counter moves and still see the line slant upwards overall.

2. Inevitable Changes in Irrational Valuations

Stock prices that are much higher than the estimated earnings potential of the company are known as irrational valuations. What the market strives to do is determine what a company’s future worth will be. Therefore, rational stock prices are based on what the future earnings expected of a company are presently valued at. When stock prices are irrational, you can expect them to change as the behavior that caused them is modified.

3. Sometimes Irrational Behavior Lasts Longer Than You Can

Short term mistakes happen in the pricing of stocks. Although the market is usually very efficient in the method it uses to set prices, don’t take this to mean that prices will always be set correctly. Prices are often based on the emotions of the investors which are never rational as far as stock trading is concerned. If the market stays irrational for a longer period of time than expected, all of those who have invested in a stock stand to lose. The wisest course of action is to go with the flow of the market, because it will always be right.

4. Buyers Have Control with Rising Bottoms

Counter moves that rise left to right over time on the stock charts are indicative that buyers are controlling the market. If you wait until such times when the buyers are in control like this, you will have much better success with the stocks you invest in.

5. Sellers Have Control with Falling Tops

Whenever you see highs of counter moves falling from left to right over a period of time on the stock charts, you’ll know that the market is being controlled by the sellers. If you want to be successful when shorting stocks, wait for a time when the sellers are controlling the market.

6. Uptrends: Slow Starts and Quick Ends

It takes a while for a bull market to develop, due to the skepticism that is inherent amongst investors. Eventually people will start to gain the confidence they need to start investing, and the trend upwards will pick up. The end comes quickly, however, because when too many investors start buying a stock, the price will skyrocket to irrational levels that will force an immediate downward trend to correct the situation.

7. Downtrends: Quick Starts and Slow Ends

As stated above, downtrends start quickly as a way of correcting irrational prices. Luckily, however, the downtrend will moderate over a period of time as the trend flattens out and more rational pricing appears. What started as a deluge ends with a trickle.

8. Give Trends a Chance to Reverse Themselves

When the market starts showing irrational behavior, investors get nervous. They realize that something is going to change in order to correct the problem. It’s always wisest to give trends a chance to reverse themselves before selling. After all, it only takes a few seconds to sell when you execute a stop loss order, while trend reversals will take considerably longer to start.

9. Avoid Stock Information that is Already Public

Never forget that by the time a company makes an announcement that their business fundamentals have changed, the knowledge has already been acted upon by those in the know. Positive public information always results in a stock price surge as less-savvy investors rush to take advantage of it, but it’s really already too late to cash in big by that time.

10. Abnormal Activity Means Something is Taking Place

In order to score big in the stock market, you must trade on information that hasn’t yet been made public. Do your research and act on inside knowledge. Every company has people who know what’s going on prior to the information being announced publicly, and when they act on their knowledge, it shows up as abnormal trading activity which you can use to get in on the action.