Sunday, January 23, 2011

EQUITY - Definitions

...36.....24....36....   WAOooooo  nice figure 
well  this  is a understood description which almost all the guys  longs for..... to WATCH  and  to  OWN...
I would have not meant any thing,  if  the other  guys do not have the inkling of these figures.....
In the similar fashion there are some Pointers or call fundamentals of Equity also,  according to which they can be analysed for their value and worthiness, to buy, to own  or  Sell...
Just a brief  note on these  fundamentals are put together as below;
1) SHARE /EQUITY  - The smallest value unit of the  Company's valuation.
2) EQUITY MARKET -  Two types - 
                      a)  Primary Market   
                      b)  Secondary Market .   ( detail  discussion in subsequent posts)
3) FACE VALUE  -  The Nominal value allocated  to a company Equity at which it is valued in the Company's Ownership valuation accounts. Also termed as PAR VALUE.  It is fixed for a company, until company board decide to revaluate it, compensating shareholders accordingly.
4) MARKET VALUE - The value of the equity at which it is traded in the secondary market that is stock exchanges.  
5) BOOK VALUE  - It is the value of an Equity as it appears in the company's balance sheet, Also called as Carrying value. For a profitable company, The book Value would increase with time.
6) EPS  - (Earning per share) - The portion of a company's profit allocated to each outstanding share of common stock. EPS  is an indicator of a company's profitability.
7) P/E   - (price to earning ratio)- It is the ratio of Prevailing Market Value of Equity to the Earnings per share.  Smaller is the ratio, more preferable it is for investment.  
8) RONW - (Return on Net worth) - It is a ratio of net income after taxes to total end of the financial year NET WORTH. It indicates the return on shareholder's total equity.
9) NET WORTH  -  Net worth of a company, is the amount by which  its assets value  exceeds its total liabilities. 

Tuesday, January 18, 2011

EQUITY TRADING - Income streams

Like any other investments, Income streams are very important to understand the viability of  the investments. The same applies to the Equity investments as well
AS the two sides of coin   INCOME  and OUTGO, I would like to put the total Outcome of Equity Investments under two Heads;
 1)  INCOME  - Investment in equity, provides  return by following means
        Direct Gains    
              a) Dividends - Based on their annual performances, Companies declares  dividends. Some companies declare annual dividends, once in a year after their Board's AGM (annual general meetings). Some companies declare Dividends as Interim dividends  in the middle of the year also and declare the final dividend after their AGM.   These dividends are credited to share holders' bank accounts through ECS. Mostly in the present times ECS is received directly in the bank account. This process saves time and the transactional losses which were quite normal in the earlier times when the Dividend cheques were sent through snail mail.
Profitable companies declare dividends out of their surplus profits. To declare dividend is not mandatory for the companies, they do it out of the idea of having good value in the share markets, which helps  attract investors  and bankers for funds. The companies can declare dividends to any extend as the management wants, like TCS  in the past has declared dividends in the tune of 2000%. The amount in  dividend what a investor gets is the declared percentage on  FACE VALUE of the Share.
              b) Difference Gained in trading shares -  Buying shares at Lower prices and selling them at higher prices. This critical component of trading - to enter at right time and exit at the peak time. (will discuss in subsequent posts).
            Indirect Gains
            a) Bonus Issues-  Sometimes companies in their AGM declares additional benefits to the existing shareholders in form of  Bonus Shares. Proportion of  bonus shares as approved  by  the company board. Here the Share holder is  not required  to pay any thing for these additional shares and these shares are credited/allocated  in his demat account.
            b) Rights Issues-  Sometimes companies in their AGM declares benefits to the existing shareholders in form of  Rights  Shares. Proportion of  right shares as approved  by  the company board. Here the Share holder is  required  to pay price of these shares. The advantage of rights share is that they are offered at discounted price. Only the existing share holders can buy these Rights share.
             c) Shares Split - Companies announce to split shares into smaller face value denominations.
    2)  OUTGO - Like any business, expenses are there for the Equity investments;
            i) Brokerage -  Commission paid to agent for trading in the stock market. As trading can be done only through Stock market authorised  agents.
           ii) Demat Account Charges - Banks charges for maintaining the Demat Accounts with them.
           iii) Taxes on Equity Transactions - For every transaction of  equity trading on stock market, service tax and Transaction Tax is required to be paid to Government.
           iv) Income tax -  Based on the period of Holding of  equity teh gains are classified under two heads
                  a)  SHORT  TERM GAINS  -  If the  period of holding of equity  is less then 1 Year - Short term Gains are considered  and a Tax is required to be paid which is around 20 %.
                   b) LONG TERM GAIN  - If the holding period of  the equity extends beyond 1 year then the gains arising out of transaction is considered as Long term Gain - Long term gains are exempted from Tax.

Friday, January 14, 2011

TRADING - When & How !!!

A Strong fight between BEARS and the BULLS, seems  bears overpowering the bulls.
Well , I have noticed for  last  two weeks the Indian Stock markets - BSE as well as NSE  are  showing a very nervous sign,  which shows the Buyers and sellers are not confident of the direction of the trading whether Buying, Selling  or Holding on.

Being involved in this activity for so many years now, I am still trying to understand ways to make some good returns from the stock markets, which has till date defied from reaching to me.

Lets explore -  With my personal experience what I feel, following points are very crucial for making best from the markets;
1)  TIMING  - It is very Important when to enter in the market and when to Exit.
2)  LIQUIDITY - Liquidity plays a very important role, when you are in the market, never stretch your self beyond your limits. Always retaining some Liquidity.
3) SELECTION - The commodity selection is very crucial. One should not enter and exit just merely from word of mouth. One should essentially convince oneself  before buying specific commodity.
4) NO CREDIT MONEY - The investible fund should come from your freely available reserves, it should not be from any loans.
5) FINANCIAL GOAL/EXIT STRATEGY- One should define his/her  Financial goal (or targets of return). And these targets should be practically achievable.
6) INFORMATION : Information about  Industry, Companies  and  the Government policies is very crucial, need to keep updated, via any means possible.

The above mentioned points I perceive very important for share trading. I am still trying to getting more skilled on the above, this Year I wish I could implement the above startegies for some gud returns.

In my subsequent posts I will try to elaborate further on the above points and would take up some other basics related to the share trading.
by that time Profitable trading.... CHEERS

Monday, January 10, 2011

Market - The crash of 10.01.11

The Stock market - showed  fall - fifth day in continuity,  a loss of more then 1300 Sensex points in last five trading sessions, this is the unpredictable nature of  the stock market,
Reasons : !!!!!
- World economy still in very unpredictable state,
- Major concern for yesterday's fall -  Indian Governement is trying to curb the Inflation and RBI will come with increase in the interest rates in the upcoming monetory policy,

Interesting correlation-  To Curb Inflation - Increase of Interest rate,  and the Stock Market goes into TOSS........
Increase in interest rates-  Increased savings tendency, Tighter Money supply, Demand Fall, vis a vis supply position improves, Inflation is controlled/checked........

Sunday, January 2, 2011

STOCK MARKET - Myriad of UPs and DOWN...

...looks to be a big mountain to climb, for the people who fancy for creating wealth by investments.
When looking at the people like Mr Rakesh Jhunjhunwala , who is called Warrent Buffet of India,  Like Buffet, Jhunjhunwala created his Financial Empire just by Right Investments at right times and thereby creating wealth for himself.
The wealth these people created through Stock markets helped them to turn into Venture Capitalist, which has driven them to create further wealth for their VCs along with the entrepreneurs who  executed their  new Ventures with the support of  these VC.  
Sometimes these people are termed as People with MIDAs touch.........
Probably with their perseverance and efficient efforts with some good luck they managed to turn the tide in their favor.

The other side of the coin
..there are people like Harshad Mehta and Ketan Parekh, where the greed took over the better senses and  resulted into some nasty scandals,  which infact resulted into huge losses for the small time investors (retail investors), not only money losses  but also the huge depletion of the investors confidence in the stock markets. 

One example I would like to Quote - One Nick Leeson of Barring Bank ( a bank founded in 1762 and survived all the world economic recessions) brought down the bank to nadir in 1995, and this all he did while trading in derivatives sitting in Singapore. One example where the person responsible for Banks doom was not a retail investor but a seasoned professional involved in Stocks trading business !!!!

Now then, one question arises, if there are so many risks involved,
WHY stocks trading still exists and people still flock there ????........

the above examples leads to our answer - High Returns from the Stock markets;

                        but decisions  should not be driven by GREED........

in subsequent posts, I will try to explore more about these markets then taking dive into the big ocean of trade, obviously with the help of your comments and feedback, to make it a lively discussion....
With my best wishes for New Year 2011.