Monday, 28 March 2011
What is Investment?
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.
DAY-TRADING SKILLS FROM THE WORLD OF FOREIGN EXCHANGE
When it comes to investor types, TWO types, two styles seem to dominate: either an investor likes to study companies at his leisure before employing a “buy-and-hold” long-term strategy, or he prefers the rough and tumble activity of active trade management, timing his market entries and exits by discerning profit opportunities from technical chart patterns. This latter trader would not conceive of holding a position for any great length of time. His objective is to secure short-term gains in the daily price action of a stock or commodiaty currency. However, the goal is not to make every trade a winner, but to achieve consistency such that the “net” of all trades shows increasing profits
Much has been written about daytrading Some experienced traders that have been successful are quick to point to its rewards, while its critics note the carnage of lost fortunes from novice traders that never got the hang of it. Academics will argue that “Random Walk Theory” debunks the notion that profits can be made from technical indicators that rely on past history. Recent studies, however, have actually debunked their arguments, as well have the experiences of active traders in the field of foreign exchange, or Forex, as it is commonly called.
Most beginners that embark on a day-trading regimen in stocks are ill prepared for the task. They have read about companies, studied financial statements, and bought and sold various shares on their favorite stock trading internet platform. They mistakenly make a giant leap of faith that the only thing different about a day-trading environment is the “holding period” for a position. When the market gyrates for whatever reason, they must know how to react quickly, almost instinctively, to unwind a position or take advantage of the wide swings that volatility can bring. The turmoil seen in recent markets due to debt issues in Europe is a prime example. The seasoned trader saw opportunity, while the novice was scared out of his wits.
How then does an aspiring day-trader in stocks prepare for the action to come? He would be well advised to learn from his day-trading brethren in foreign exchange. Forex offers something directly that stock markets can only emulate, and that is the “free” Forex demo trading account offered by most competent Forex brokers. In Forex, the casualty rate is also high - nearly 60% of novices perish in the first six months. Beginners that are still at it after this six-month trading initiation period are regarded as seasoned veterans.
Forex brokers do not make any money if their clients lose their capital quickly. For this reason and others, they have developed extensive training courses to drive home the necessary skill sets that are required in the topsy-turvy world of currency trading. Fundamentals and technicals are studied in depth. Trading strategies are developed and students are instructed on how to approach the market with a disciplined routine, devoid of any influence by your emotions. Psychology plays an important role. Warren Buffett may never have been a day-trader, but some of his favorite words of advice are to never let your emotions “corrode your intellectual framework”.
After education, practicing your art on the free demo system with virtual currency, but with real time trading data is most important. Believe it or not, most successful traders claim that a minimum of six months should be devoted to this practice activity. That amount of time is required to become “battle tested” such that your confidence rises and consistent trading results are routine. You learn what the best forex indicators are, how to use them in combination, and in which markets they may tend to give false trading signals. One of the benefits of technical analysis is its flexibility. You will find that all of the charting skills developed in the Forex world will also apply when using stock charts.
As for the high casualty rate in any day-trading activity, studies have shown that impatience and the lack of experience are the two contributing factors that make all the difference. Practicing on virtual demo accounts is the only way to address these two issues.
As with any other performance-based activity or profession, the best education is to observe experts at the craft and learn how they have achieved their honored status. It is not about luck. It is all about hard work. “Practice, Practice, Practice” should become your daily mantra before you ever step into the real world and put your own real money at risk. Day-trading, whether in stocks, commodities, or currencies, is a high risk business. However, with proper training and considerable practice, you, too can become a “seasoned veteran”, make good money at it, and have fun in the process, too!
Much has been written about daytrading Some experienced traders that have been successful are quick to point to its rewards, while its critics note the carnage of lost fortunes from novice traders that never got the hang of it. Academics will argue that “Random Walk Theory” debunks the notion that profits can be made from technical indicators that rely on past history. Recent studies, however, have actually debunked their arguments, as well have the experiences of active traders in the field of foreign exchange, or Forex, as it is commonly called.
Most beginners that embark on a day-trading regimen in stocks are ill prepared for the task. They have read about companies, studied financial statements, and bought and sold various shares on their favorite stock trading internet platform. They mistakenly make a giant leap of faith that the only thing different about a day-trading environment is the “holding period” for a position. When the market gyrates for whatever reason, they must know how to react quickly, almost instinctively, to unwind a position or take advantage of the wide swings that volatility can bring. The turmoil seen in recent markets due to debt issues in Europe is a prime example. The seasoned trader saw opportunity, while the novice was scared out of his wits.
How then does an aspiring day-trader in stocks prepare for the action to come? He would be well advised to learn from his day-trading brethren in foreign exchange. Forex offers something directly that stock markets can only emulate, and that is the “free” Forex demo trading account offered by most competent Forex brokers. In Forex, the casualty rate is also high - nearly 60% of novices perish in the first six months. Beginners that are still at it after this six-month trading initiation period are regarded as seasoned veterans.
Forex brokers do not make any money if their clients lose their capital quickly. For this reason and others, they have developed extensive training courses to drive home the necessary skill sets that are required in the topsy-turvy world of currency trading. Fundamentals and technicals are studied in depth. Trading strategies are developed and students are instructed on how to approach the market with a disciplined routine, devoid of any influence by your emotions. Psychology plays an important role. Warren Buffett may never have been a day-trader, but some of his favorite words of advice are to never let your emotions “corrode your intellectual framework”.
After education, practicing your art on the free demo system with virtual currency, but with real time trading data is most important. Believe it or not, most successful traders claim that a minimum of six months should be devoted to this practice activity. That amount of time is required to become “battle tested” such that your confidence rises and consistent trading results are routine. You learn what the best forex indicators are, how to use them in combination, and in which markets they may tend to give false trading signals. One of the benefits of technical analysis is its flexibility. You will find that all of the charting skills developed in the Forex world will also apply when using stock charts.
As for the high casualty rate in any day-trading activity, studies have shown that impatience and the lack of experience are the two contributing factors that make all the difference. Practicing on virtual demo accounts is the only way to address these two issues.
As with any other performance-based activity or profession, the best education is to observe experts at the craft and learn how they have achieved their honored status. It is not about luck. It is all about hard work. “Practice, Practice, Practice” should become your daily mantra before you ever step into the real world and put your own real money at risk. Day-trading, whether in stocks, commodities, or currencies, is a high risk business. However, with proper training and considerable practice, you, too can become a “seasoned veteran”, make good money at it, and have fun in the process, too!
Monday, 21 March 2011
Share market investment tipps
Are you a person crazy about shares and how it functions? Are you an individual who looks at others as genius when they discuss about shares and stock market investments? Don’t get frightened about that!
In this site our main aim is to help beginners with interest in shares and stock market investments with fundamentals. This will be a good guide to help you reach the pinnacle from where you are.
We will provide you theory about share market, how it functions, how to invest, what’s mutual funds, when and how to buy etc. as day progresses and your knowledge progresses.
In this site our main aim is to help beginners with interest in shares and stock market investments with fundamentals. This will be a good guide to help you reach the pinnacle from where you are.
We will provide you theory about share market, how it functions, how to invest, what’s mutual funds, when and how to buy etc. as day progresses and your knowledge progresses.
Introduction for share market beginners
Share market is an area which fascinates each and every individual who is craving for more money. Some common phrases are “If we want to earn just try with share markets; my friend has made lot of money in that “.
As beginners we should understand one thing. If we are planning to invest in share market, first we have to categorize our self.
Are we a long term investor?
Are we a short term investor? (Daily trading).
Note:
In share market we are 95% secured if we are ready to wait (provided company fundamentals are good. Exclude cases like enron, worldcom.etc) .The problem comes when we have invested in a bank we can withdraw same amount with interests till date for any of our emergency.
Assume our money is in form of stocks we got an emergency by today evening 7 pm of 1 lakh. We have seen our stock’s worth in today’s closing was our investment 1 lakh+ whatever market price added to it. We think we have more than required and sell it tomorrow. But tomorrow fate decided the other way market falls our stock value becomes 90 thousand. If we sell that’s where the problem comes.
It may even go upto 1.25 laks next week /next month. Can we wait? That’s the million dollar question.
Case1 – short term investor (Risky)
Remember its here we play not invest.
1.Make investment break ups: If we have “x” Rs in our hand don’t get carried away to buy shares for all “x” Rs. Always we should have fifty percent in our hand.
2.Reinvest only when profits: Make the profits what we earn on the first trade if daily trader (if so happens) to buy extra shares. Suppose if 0ur stock didn’t go up after first investment wait till (may be months) till our holding goes up.
3.Capital maintain: Always ensure that our capital is maintained with till date interest rate of banks. Though depository participants suggests us its always better we should have basic ideas of the company. We have lot of information sources (net, softwares).
4.In case of IPO: Buy and sell within max 1 week of IPOS. Invest in established stocks. If we feel trend of IPO is good come back and invest.
5.Sell well ahead of your expected need: Suppose we have a marriage and we wanted money for that. If we feel that today our investment + return (m-cap) is good may be 30 days ahead of marraige.sell it today. We are secured.
The very simple formula will be if we crave for more we have more chances to lose more.
Case 2 – Long term investor
It’s here we invest. We are most secured in this case because we don’t consider money invested to be used for emergency. Any company will one day have a growth curve. Even a sick company value can be raised by psychological factors of investors.
As beginners we should understand one thing. If we are planning to invest in share market, first we have to categorize our self.
Are we a long term investor?
Are we a short term investor? (Daily trading).
Note:
In share market we are 95% secured if we are ready to wait (provided company fundamentals are good. Exclude cases like enron, worldcom.etc) .The problem comes when we have invested in a bank we can withdraw same amount with interests till date for any of our emergency.
Assume our money is in form of stocks we got an emergency by today evening 7 pm of 1 lakh. We have seen our stock’s worth in today’s closing was our investment 1 lakh+ whatever market price added to it. We think we have more than required and sell it tomorrow. But tomorrow fate decided the other way market falls our stock value becomes 90 thousand. If we sell that’s where the problem comes.
It may even go upto 1.25 laks next week /next month. Can we wait? That’s the million dollar question.
Case1 – short term investor (Risky)
Remember its here we play not invest.
1.Make investment break ups: If we have “x” Rs in our hand don’t get carried away to buy shares for all “x” Rs. Always we should have fifty percent in our hand.
2.Reinvest only when profits: Make the profits what we earn on the first trade if daily trader (if so happens) to buy extra shares. Suppose if 0ur stock didn’t go up after first investment wait till (may be months) till our holding goes up.
3.Capital maintain: Always ensure that our capital is maintained with till date interest rate of banks. Though depository participants suggests us its always better we should have basic ideas of the company. We have lot of information sources (net, softwares).
4.In case of IPO: Buy and sell within max 1 week of IPOS. Invest in established stocks. If we feel trend of IPO is good come back and invest.
5.Sell well ahead of your expected need: Suppose we have a marriage and we wanted money for that. If we feel that today our investment + return (m-cap) is good may be 30 days ahead of marraige.sell it today. We are secured.
The very simple formula will be if we crave for more we have more chances to lose more.
Case 2 – Long term investor
It’s here we invest. We are most secured in this case because we don’t consider money invested to be used for emergency. Any company will one day have a growth curve. Even a sick company value can be raised by psychological factors of investors.
Management guru warren buffet analysis
WARREN BUFFET was born on 30th august 1930 in Omaha, NEBRASKA. While in his senior year at the University of Nebraska, Buffet read Benjamin Graham’s book, The Intelligent Investor. This inspired Buffet that after finishing his degree he left to New York to study with Ben Graham at Columbia graduate business school.
There Buffet understood the importance of numbers in investing. He returned back and after the call from graham once again he went back and joined Graham-Newman Company in 1954. In 1956, Graham Newman disbanded. He returned back to Omaha.
With the base of knowledge acquired from Graham he started his investment company when he was twenty-five years old. His family and friends were supported him. In 1961 he bought dempster mill manufacturing company and in 1962 he began purchasing shares in Textile Company called Berkshire Hathaway, which was in miserable condition by that time. Buffet really struggled to turn it into profits. By late 1970s shareholders of Berkshire Hathaway began losing trust. However he didn’t lose heart because he believed
•The textile mills were the largest employer in their area.
•The work force was senior people with skills that cannot be transferred.
•High interest from management
•Reasonable union
With all these reasons he believed that profit can be earned from textile business. As Hathaway entered in 1980s Buffet understood the ground realities.
•Textiles Are Commodities and Commodities Can Least Differentiate Themselves from Their Competitors.
•In Order to Stay Competitive Textiles Have to Invest in Capital Improvements.
•Cheap Labor from Foreign Competition was Disturbing Profits.
Then based on these facts Buffet closed his books of textile group, thus ending the business. However in between 1962 and 1980 Buffet has purchased a lot of companies under Berkshire Hathaway, Insurance, Blue Chip Stamps, See’s Candy Shops, Buffalo News, Furniture Etc.
Even after closing of textile business he acquired many companies. Based on all his experiences compiled Robert. G.Hagstorm in his book gives four tenets that Warren Buffet adapted as his investment strategy
There Buffet understood the importance of numbers in investing. He returned back and after the call from graham once again he went back and joined Graham-Newman Company in 1954. In 1956, Graham Newman disbanded. He returned back to Omaha.
With the base of knowledge acquired from Graham he started his investment company when he was twenty-five years old. His family and friends were supported him. In 1961 he bought dempster mill manufacturing company and in 1962 he began purchasing shares in Textile Company called Berkshire Hathaway, which was in miserable condition by that time. Buffet really struggled to turn it into profits. By late 1970s shareholders of Berkshire Hathaway began losing trust. However he didn’t lose heart because he believed
•The textile mills were the largest employer in their area.
•The work force was senior people with skills that cannot be transferred.
•High interest from management
•Reasonable union
With all these reasons he believed that profit can be earned from textile business. As Hathaway entered in 1980s Buffet understood the ground realities.
•Textiles Are Commodities and Commodities Can Least Differentiate Themselves from Their Competitors.
•In Order to Stay Competitive Textiles Have to Invest in Capital Improvements.
•Cheap Labor from Foreign Competition was Disturbing Profits.
Then based on these facts Buffet closed his books of textile group, thus ending the business. However in between 1962 and 1980 Buffet has purchased a lot of companies under Berkshire Hathaway, Insurance, Blue Chip Stamps, See’s Candy Shops, Buffalo News, Furniture Etc.
Even after closing of textile business he acquired many companies. Based on all his experiences compiled Robert. G.Hagstorm in his book gives four tenets that Warren Buffet adapted as his investment strategy
How to invest on the shares
When I wanted to know about share market investing, I just typed “how to invest in shares” in google and looked for a detailed answer. Most of the time I got a high tech, high funda output but none of the thing helped me as a layman when I was looking for the first brick to build my house.
I just learned by inquiring and practically working on several issues. Now I am an MBA student which further helps me in enriching my knowledge. I am just publishing this article to help beginners practically how to start with stock market investing.To start investing in share trading, we have to open an account called “Demat account” which is called as dematerialised account.
What is a Demat Account?
It is an account which can be compared to a bank account wherein here your shares are in electronic form with its respective value (either purchase price or selling price). Don’t get bogged down by high fundas like “Demat Account”. In simple words, instead of having shares in paper form we are having it in electronic form .That’s it! In early days, stocks and shares are traded in paper form by people gathering in stock exchanges and showing signs of company and price through signals. Even now Chicago stock markets operate in this way. The highest bidder or the one who is quoting for highest price will be awarded the shares. Now you can trade electronically and so you need an electronic format and hence demat. The reverse of “demat” is “remat” and it is not our concern now.
What should I do to open a Demat Account and where?
You can open a demat account with depositary participant (DP). You can compare this DP with a bank. They will charge you for every purchase and every sale you make. To find a list of DP you can type “Depository Participant” in the search engine and find a one close to your location. Some of the notable ones are India bulls and geogith. And most of the banks like ICICI also provide you this option.
What should I have to open a Demat Account?
•You should have a three months bank statement.
•PAN Card.
•An identity proof.
These depository participants will also advice on stocks and shares. However I personally advice you to have market watch before investing. In next article I will further explain how to trade
I just learned by inquiring and practically working on several issues. Now I am an MBA student which further helps me in enriching my knowledge. I am just publishing this article to help beginners practically how to start with stock market investing.To start investing in share trading, we have to open an account called “Demat account” which is called as dematerialised account.
What is a Demat Account?
It is an account which can be compared to a bank account wherein here your shares are in electronic form with its respective value (either purchase price or selling price). Don’t get bogged down by high fundas like “Demat Account”. In simple words, instead of having shares in paper form we are having it in electronic form .That’s it! In early days, stocks and shares are traded in paper form by people gathering in stock exchanges and showing signs of company and price through signals. Even now Chicago stock markets operate in this way. The highest bidder or the one who is quoting for highest price will be awarded the shares. Now you can trade electronically and so you need an electronic format and hence demat. The reverse of “demat” is “remat” and it is not our concern now.
What should I do to open a Demat Account and where?
You can open a demat account with depositary participant (DP). You can compare this DP with a bank. They will charge you for every purchase and every sale you make. To find a list of DP you can type “Depository Participant” in the search engine and find a one close to your location. Some of the notable ones are India bulls and geogith. And most of the banks like ICICI also provide you this option.
What should I have to open a Demat Account?
•You should have a three months bank statement.
•PAN Card.
•An identity proof.
These depository participants will also advice on stocks and shares. However I personally advice you to have market watch before investing. In next article I will further explain how to trade
What is the Mutual Funds
When I was young, my grandmother was a great influencer of my life. Of course still she is! Whenever we plan for a travel she will take the cash and keep some in her wallet some in bag and some in my pocket and some in my mother’s wallet. I asked my grandma why so?
She will say “If you lose one amount by mistake or someone poaches it, the other will help you. Instead, if you keep all in one purse and if you lose the purse you lost the way.”
It was this concept in operations called as buffer, in engineering called as “Safety Factor” and in finance “The Balanced Portfolio“.
Let me try to explain this with two simple stocks for example. Let us consider one stock whose share value increases when index (assume sensex) increases and another stock whose share value decreases as sensex increases. The first one is called as “Positive Correlation” and the second one is called as “Negative Correlation“. The value which we use to measure how much the stock price increases with respect to sensex is called as “Beta“. It is nothing but the slope of the curve drawn in a graph where we take “sensex” (index) value in x-axis over a period of time and stock price in y-axis. So the first stock will have a positive beta value and the second one a negative beta value.
Now assume if you invest in only first stock assuming that sensex will move up and if it goes down you are going to lose a lot. Similarly if you invest in second stock thinking that sensex will go down and if it increases you will once again lose. Incase, if you invest in both the stocks (in proportion to how much their price vary according to the sensex index) you may not get maximum return but whatever be the sensex(index) movement bullish(upward) or bearish(downward) you will get optimum return. This is how mutual funds choose their stocks in their portfolio and maximize their returns and minimizes their risk.
But choosing stocks is not that easy as we mentioned. Many things in life are written but done with sweat. This is not an exemption for that. Based on this principle, some funds choose stock pertaining to only one sector called “sector funds“. Some in proportionate amount listed in all sectors in an index called “index funds” and so on.
This is simple thing we can also do as an investor by tracking the stock price. Instead of investing one stock, pick two or three by logics (or use tools if you can) and we can minimize risk.
And hope a few who benefit out of this will always be thankful to my great investment guru “my grandmother”.
She will say “If you lose one amount by mistake or someone poaches it, the other will help you. Instead, if you keep all in one purse and if you lose the purse you lost the way.”
It was this concept in operations called as buffer, in engineering called as “Safety Factor” and in finance “The Balanced Portfolio“.
Let me try to explain this with two simple stocks for example. Let us consider one stock whose share value increases when index (assume sensex) increases and another stock whose share value decreases as sensex increases. The first one is called as “Positive Correlation” and the second one is called as “Negative Correlation“. The value which we use to measure how much the stock price increases with respect to sensex is called as “Beta“. It is nothing but the slope of the curve drawn in a graph where we take “sensex” (index) value in x-axis over a period of time and stock price in y-axis. So the first stock will have a positive beta value and the second one a negative beta value.
Now assume if you invest in only first stock assuming that sensex will move up and if it goes down you are going to lose a lot. Similarly if you invest in second stock thinking that sensex will go down and if it increases you will once again lose. Incase, if you invest in both the stocks (in proportion to how much their price vary according to the sensex index) you may not get maximum return but whatever be the sensex(index) movement bullish(upward) or bearish(downward) you will get optimum return. This is how mutual funds choose their stocks in their portfolio and maximize their returns and minimizes their risk.
But choosing stocks is not that easy as we mentioned. Many things in life are written but done with sweat. This is not an exemption for that. Based on this principle, some funds choose stock pertaining to only one sector called “sector funds“. Some in proportionate amount listed in all sectors in an index called “index funds” and so on.
This is simple thing we can also do as an investor by tracking the stock price. Instead of investing one stock, pick two or three by logics (or use tools if you can) and we can minimize risk.
And hope a few who benefit out of this will always be thankful to my great investment guru “my grandmother”.
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