How we buy and sell stocks?

Why stocks exist? Stocks are a a small piece of company. when we buy stocks we buy a small ownership. Owners entitled for a profit or loss. On the other hand lenders(bond holders etc) they are not entitled for profit. They get what they agreed when they lend money. when the company goes bankrupt the lenders get their money first. Most of the times stock holders wont get  any money. Companies exist to increase the value of a shareholders. if the company is not increasing the value then it is not the good investment.

Companies are like credit rating is more like our own credit rating. If the company consistently making good progress it has a good rating. on the other hand if it borrows lot of money fulfill the interest rate and not making enough profit for the shareholders then it is not a good investment. A good investment is giving good returns over a long peroid of time with less risk and less time spent.

Day traders and option trading requires lot of time spent everyday and lot of risk. People good at option trading say there is less risk but for normal investors that incurs lot of risk.

How do we buy stocks? what influences our decision to buy stocks?

Do you have to listen entirely to your friend on investing?

Often times we get opinions from people who are close to us. We ask for suggestions even for trivial things such as where to get a haircut. Generally we decide or proceed with the plan if at least one person agrees with us. We wear that dress on approval. We buy things based on the opinion of others. You would not have joined that college if no one(friends, parents or classmates) agreed on. Most of the times the people who influence us most are our friends.

In life we learn new things by watching others, listening to others only few things trying on our own. It is no wonder stock analysts, newspapers, blogs, journalists, TV, and other media trying to influence us. We have a tendency to listen to the opinion. We developed a mindset of thinking that we may be wrong, if no one agrees upon.

One of my friends wanted to study PhD after his bachelors. He was asking opinion to his Uncle if he can study further. His uncle never went to college nor he is going to finance his education. He just wants someone to agree upon. People will agree only if they themselves been in that situations or seen someone doing that or if they are open minded. Most of the time people will disagree on things which they have no clue. If some one asked Warren Buffet if they could invest in Google when it went for IPO, then he might not have agreed. He is not invested in technology and his opinions are based on his experience. Each person talks from their experience or seen someone doing that.

If your friend is an experienced investor with a knowledge of that particular company then he might agree or he will disagree.  Are you not going to buy based on his opinion? Maybe you will end up not having invested in opportunity like Google.  You can use your close ones to get a second opinion only. Your financial decisions should be based on your analysis and careful decisions. No one should allow your financial decisions being  influenced by friends. It may be a good idea not to discuss your personal finances to no one at all. You may ask for opinoin but you have to act on your will and judgement.

Opinion is the medium between knowledge and ignorance.-Plato

Invest based on your strength and what comes easily to you.

Stock market has investors who are class toppers as well as average students, PhDs and dropouts. But all these investors have one thing  in common that all are continuous learners. They continuously learn what is interesting to them. Among us some people are good at studies. Some may not score good marks despite being intelligent, the reason may be just that the regular education system maybe boring to them. People who score high in school or college have the liking or developed a liking to the system. Scoring high in schools is a procedure. It is similar to cooking. People who follow the recipe procedurally will end up with a good dish.

  In order to score high in stock market an investor has to develop an interest on stocks and invest procedurally. Investors have to first  like the stock system and willing to learn more. Then they have to identify what they are good at. Every body is good at something. Even in the same subject such as history some one may be good at war history and other person may be good at history of computers.  In physical science, some one may be good at classical mechanics and others maybe in quantum mechanics. In stock market there are so many kinds of investors. Long term investor, Short term investor, International investor, Cyclical investor, Day trader, IPO investor, Biotech investor etc.  So it is important to identify what kind of investment works for you. Unfortunately there is no way to know if you are a good investor or bad investor and which style works for you, unless you start investing. So it is always better to start small to know which works for you. Without learning we will not drive a car. Similarly learning is an important aspect of stock investing. Warren Buffett has not invested in technology and the simple reason is he wont venture into something which he does not completely understand.

  Investors who start fresh want to make quick money and  invest on companies which they have not yet learned.  Indian pharma companies got hammered this year due to FDA inspections on various sites and warning letters. Wockardt pharma which was around Rs.2000 a year before tanked to as low as Rs.336. For seasoned investors who understand pharma it offered a good buying opportunity.To invest in these kind of situation investor has to understand what drives the stock prize. So it is a good idea for new investor to put some money and experiment and learn which works. Creating portfolio and trading in virtual money may help investors to understand which works for them.

Stock market has more Gurus than all spiritual Gurus combined. On top of that it has Analysts and  Journalists. So when an investor venture into the stock market first he should not be mislead by the vastness of stock market and various theories and suggestion. It is important to invest small and learn the system like a good student for few years. After learning it will be easier to invest on which works for you or which comes easily.

Give me six hours to chop down a tree and I will spend the first four sharpening the axe. Abraham Lincoln

Want to be rich? Stop following advice of stock gurus?

What are Restricted trade segment stocks or T group stocks in BSE and NSE?

Question: What are T group stocks?  

Answer: Stocks which are traded for Delivery only and not allowed for intraday positions

Question: Why are they in the T group?

Answer: It is a preventive action by exchange to curb excessive speculation which brings large swings in stock price

Question: What will happen?

Answer: Speculation diminishes once in T group.

Question: How speculations occur?    

Answer: Operators raise the stock price in collusion with management.

Question: How speculation detected?

Answer: Circuit filters identify trading and notify abnormal activity

What are T group restrictions?

T category stocks have an upper and lower circuit limit of 5% based on previous day's close

What are other stock groups?              

A, B, S, and Z(assigned based on SEBI norms)

A group stocks        Classified based on  large market cap, float; stock maintain good records on dividend and  capital appreciation

B group         Stocks not in the A, S, T or Z group, consists of B1, B2

S group         Indonext group, Small market cap 3-30 crores

Z group         Non -compliant with the exchange's listing agreements

               

How to learn investing without being really putting money in stock?

Say you are a student and expecting to go to work soon or you are expecting some money. You want to invest that money in stocks for long term so that the money can grow. But you are afraid of loosing the money since you have no knowledge of stocks. We learn games by playing, we learn dance by dancing. So in life we learn everything by actually doing, remember when you rode cycling for the first time, and stock investing also no different.   There is a chance of losing the money if invested in wrong stocks.

In the beginning stages of investing, for many of us, it is more of a emotional game. People often try to prove to their friends, spouses or colleagues that they can make money in investing. They just treat investing like gambling and put everything in one basket expecting huge returns. People do not want to wait to gain investing knowledge. That is why many investors lose money in the beginning stages. We call successful people in their profession as practitioners.To make money in stock market you have to learn and become a practitioners.

Unlike yester years there is lot of information available for those who really want to learn the art of investing. It is always better to start with small money and getting used to the nuances of buying, holding and selling stocks. Since investing in stocks is so risky, is there a way to learn investing without really putting money in stocks? People say  playing games like Monopoly improve the investing acumen. Warren Buffet and Bill Gates play Bridge. But do they play Bridge to improve their investing acumen? Is there a way to improve investing skills without being putting real money in stock? Yes.Now a days many brokerages offer guest accounts which you can trade with virtual money.

Investopedia  offers virtual trading simulator. Also   Indiabulls, Moneybhai,  Dalal street, Chicago mercantile exchange, Android Apps offer games to practice stock trading. Bombay stock exchange(BSE) training institute also offer simulation game. Many trading accounts such as Axis direct offer guest accounts to learn stock trade. Prospective investors can also create dummy portfolios in Yahoo finance, Google finance and Money control

Regularly reading business and finance news and articles help to accumulate knowledge.  These preparation help to reduce risk. Most of the times risk comes from not knowing. If you know how to reduce risks then you are on your way to be a better investor.To enjoy fruits in future we have to plant the seed today. Warren Buffett said "You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." We have to always invest on knowledge and based on reasoning.

Investing in Pharma companies.

Investing in pharmaceuticals is different from other companies. Pharma companies can multiply many fold if invested with a knowledge of pharma. Pharmaceutical companies with no product may have higher valuations and some with sales may have very low valuations. To understand this we have to understand how drug development and regulatory approval for marketing the drug works.

There are three types of pharma companies.

Devlopment stage

Small

and Large .

Development stage pharma companies are cash burners with no revenue and no product and the companies running on dream. That is on the expectation of making it big by coming out with a product and selling them. We can call these companies as dreamer companies and the talk is more about future than what they have now. This is like a start up company. Start up companies may at least have product. But these companies don't have any product yet.

Small pharma companies may have revenue or expecting revenues. These companies may have one or two approved products and in sales or ready to sell. These may also have some or many in the pipeline on various stages. These companies are starting to realize their dream and hope companies.

	Development pharma	Small pharma	Large pharma
Source of funds	Mostly venture capital funded and recently listed in the exchange	Venture capital, Institutional investors, partial  acquisitions by big pharma,   new issue of shares	Institutional investors,  new share issues
Revenue	No revenue, Cash burners	Licensing agreements, collaborative drug development,  marketing agreements, product sales	Licensing agreements, collaboration, JV, product sales, marketing agreements, patent royalties,
P/E	Difficult to calculate	large P/E	As expected of pharma
EPS	None	Makes no sense	As expected of pharma
Market cap	Few tens of millions to hundreds of Mill	Upto few billions	Tens of billions
Brand(s)	No Brand yet	Getting establish	Established
Visibility	No analyst coverage	One or two	Good coverage
Investing risk	very very high	Very High to high	As expected in pharma
Returns	extra ordinary	Superlative	As expected in pharma
Pharma knowledge needed	Familiarity with pharma	Understanding of pharma	Regular investing knowledge
Information	Only whatever company provides	Few financial sites, company	Many media, analyst articles, finace sites like google, yahoo, money control
Behavior	Move huge on news	Move huge on news	Typical behavior
Positive news items	Phase 2 success and NDA filing, FDA approval, Buy out	Buy out, Marketing agreement, FDA approval, Sales target achievements	FDA approval of new drug, M&A, favorable Government regulation. , expansion in new geography, new blockbuster drug,  market share
Negative news items	Drug failure, Cash burn out	failure of drug sales, cash burn, no partner, drug failure in pipeline	FDA inspections and warning letters, Dwindling main drug sales, patent expiry, competitive drug indroduction, no new drugs in pipeline

Basic fundamental anlaysis

Can anyone become a Billionaire? Can you plan it?

In life many things happen either expected or unexpected. Things which happen as expected normally takes the following course. We wish, then we plan and we reach our goal. For example for a person to get married(arranged marriage), she has to first wish to be married. Then the planning happens: where and who to marry, when to marry, where to marry, who to invite, at what budget, where to go for honey moon etc, This wish, plan and act process applies to any goal in life. So can someone plan to be a Billionaire?

Before answering this question let us examine the process which produces billionaires. Forbes estimates about 1600 Billionaires around the world.  All of the billionaires own businesses or invested in ventures. Those businesses are multi Billion in nature. In large corporations lot of people work. In olden days lot of people work for whom?  Kings and Lords. Today thousands of people work for large corporations which are owned by Billionaires. Billionaires are modern day equivalent of Kings and Lords.

In order to be a Billionaire one has to start a company and thousands of people have to work for them.  Not many companies grow to be multi billion in value and even if it grows it will be difficult to keep huge ownership. Very few owners have the ability to keep their shares undiluted while it grows.  If ten people work for you then you are a millionaire. If 100 people work for you then you are a Deca millionaire. If thousand people work for you then you are a Centi millionaire. If 10,000 people work for you then you are a Billionaire. How many people work for you?

While any one can wish to be Billionaire, considering the process which creates Billionaires it will be difficult to further that wish into planning and attaining. It is obvious that one cannot plan to be a Billionaire but becoming a multi millionaire is always within reach. In summary Billionairehood is the by product of  a millionairehood. One can start a company and grow to be a millionaire. If things work out then he or she becomes a Billionaire.

Do you think Bill Gates started Microsoft to be a Billionaire? If you can answer this questions then it is easy for you to be a millionaire if not a Billionaire.

Copyright note: This Article cannot be published or copied anywhere without written permission. Use contact form to get permission. Thanks. Nalanking admin

Why we have to learn about stocks?

Many of us invest especially in the beginning stages through information from friends and relatives or office colleagues. In my recent visit to the bank I came across a person who just invested (first investment) 200 shares on theme parks IPO because he was introduced to the scheme by his friend. He does not have any clue about IPO, how to sell or buy the stock or how stock market works. No one should be ashamed of not knowing things first. But we have to try to learn things once we get introduced or get an interest. If one wants to win a war most of the time then they have to master the Art of war. Stock market or investing entails information. Unless your father is a stock broker or you have ties with someone who deals with stock  markets or own a company, stock market is new to almost all of us. So there is no shame in not knowing about stocks. But once you decided that you want to be an investor then it is important to learn about stocks.

Do you think Warren Buffett knows more about stocks? Yes. He is even having a masters degree  from a top university and leant from a top teacher. Without financial knowledge no one can become a top investor. In schools we learn very limited information about banking, personal finances and investing. So we have to learn and improve our financial knowledge. Superior financial knowledge leads to increased financial decision and wisdom. One has to spend small amounts of time everyday in improving financial acumen. Reading articles on newspapers and asking questions on why a particular stocks goes up or going down. For example do you understand the following terms: cyclical stock, FDA decision on a drug, SEBI, reverse stock split. Start today and you will have more financial IQ next year than what you have today. That will help you to understand the stocks better.

So how can one know more about stocks. After the advent of internet and Google it is easy for anyone to lean anything. So stocks are no exception. Whatever questions one has they can simply type on Google and it will take you to some site which deals with that question. Web sites like fool.com, Investopedia, Wikipedia, money control, morning star and reading newspapers and financial columns help you to gain more knowledge over time.

Risk comes from not knowing what you are doing. - Warren Buffet

Indian stock exchange Hours of operation and holidays

Session	Timing (GMT + 5:30).
Pre-open Trading Session	09:00 - 09:15
Trading Session	09:15 - 17:00
Position Transfer Session	17:05 - 17:15
Closing Session	17:05 - 17:15
Option Exercise Session	17:07

All days of the week except Saturday, Sundays and holidays declared by the Exchange in advance. For the list of holidays please follow the link to the BSE web site. Trading holidays Bombay stock exchange

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How to improve investing IQ?

I am a class topper. Will I be good investor?

Do I need a large amount to be an investor?

No. People often complain that if they had lot of money then they would have invested. The reality is to become rich you have to have investments. Investing is the only way available to common man to become rich. Some people move up the career ladder and become Executives and paid significantly. But most people who work everyday can only become rich by investing. Simply putting money in savings account wont make some one rich.

So it is very clear that one has to invest to become rich. In the era of discount brokerages investing become very easier for common man. All you need is a knowledge of computer, an understanding of how stock market works and patience. Anyone can open account and start investing  with a little money.  Financial knowledge is as important as capital for stock investing. It may take longer time to reach the goal with small investment but surely it is reachable.

Many of us want to be rich in a short span of time, but we have no patience to wait for longer time. According to 'The Millionaire Mind', a book by Thomas J. Stanley, on an average it takes 25 years to save a million. But everyone wants to be rich within a year or two. Happiness and investing go hand in hand. One has to cultivate the mind over a period of time. Some people try for some time and give up. To achieve really big things we have to plan, practice and wait patiently for a longer time. In the movie the Pursuit of Happiness, Will Smith quotes Thomas Jefferson's United States Declaration of Independence that every individual HAS to pursue happiness. Becoming rich also a pursuit. Unless you pursue it won't happen.

"Becoming rich, becoming happy or any life achievement is a product of continuous effort. So start today and you will achieve one day" - from  Motivateus.com

How to open a trading account?

First of all Congratulations on Saving enough to start your investing journey.

Now a days investing in stocks is mainly done through online. In order to start buying stocks you need 1)Savings Account 2) Demat Account  and 3) Trading account

1) Savings bank account: Choose a bank which offers better internet features. Even though many banks offer this facility, private banks (such as Axis bank, ICICI, HDFC) have better features for managing money online. Try to open an account with sweep facility. Sweep account helps to earn at a Fixed Deposit rate in a Savings account without a need to opening a separate FD account. When the money is not invested in stock the money in sweep accounts earn interest at a higher rate than the regular savings account. Ok. Now you have opened the savings account with better interest rate.

2) Trading Account: Choose the trading firm which also has a physical presence near you, so that you can visit them whenever needed. Before opening account ask for the presentation on various schemes available. Some trading firms charge a lower fee  upto a certain amount or duration as a promotional offer. Try understand the fee structure and commissions and make a note of it. If you do not understand the terms ask questions and fully understand how it works. Practice the online demo by opening the guest account.

3) Demat account: Demat is the online account for keeping  for stocks. It avoids the need to have a paper version of contract for securities sent though mail. Generally Demat  is provided along with the trading account. There is a separate fee for demat(annual fee, adding and removing stocks at a nominal fee)

Fill up the form. Pay the opening fee and wait for about a week for the account to get activated. Once the account is active then start buying stocks.

Some banks are offering 3 in 1 accounts, meaning Savings, Demat and Trading.  It may be a good idea for some but for others they might prefer a separate log in for Saving and Demat. Three in one accounts have no advantage except avoiding the need to have two log ins. Axis bank, ICICI and HDFC offer 3in 1 accounts.

Now you are ready for your investing journey. Good Luck.

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