Making &losing money in equity markets final

 General points on investments
 Brief history of indian stock markets and
indices
 Market sentiments and their causes
 General financial analysis of companies
 Trading patterns and derivative trading
 What to and what not to do in stock markets
 Personal impressions on stock investing

 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 to get return on it in the
future. This is called Investment
 Why should one invest -earn return on your
idle resources, generate a specified sum of
money for a specific goal in life and make a
provision for an uncertain future

 A lot of people call or believe investing in
stocks is gambling. A true investor would
appreciate it being called risky.
 It’s like the belief, that getting into sea
waters or a pool is risky. But someone with the
right swimming skills would know, when and
where to swim to enjoy it

Over Long terms, Equities have outperformed, the other asset
classes by a handsome margin. However, having said that it
requires tremendous patience, discipline, good advise, and
avoiding some costly mistakes in between to achieve those
returns.

 Definition of risk is the chance that an
investment's actual return will be different than
expected.
 High risks are associated with high potential
returns; Low risks are associated with low
potential returns
 High risk also means higher
potential losses.

 This risk free rate (10 Yr Govt Securities)is used as
a reference for equity markets whereas the
overnight repo rate is used as a reference for debt
markets. Approx-6%
 An individual investor needs to arrive at his own
individual risk return trade-off based on his
investment objectives, his life-stage and his risk
appetite
The potential risks can be minimized by
 Diversification
 Rupee cost averaging
 Asset allocation

 Stock Markets came into existence because
Companies or Businesses needed them.
 The little profits, if any they make, in early stages
of a company wouldn't be enough to fuel the
ambitious expansion plans they must have had.
 Taking debt or loans from Banks is one option. But,
it sadly needs to be paid back with interest. So the
option is……..
 Raise funds from public

 Infosys made an IPO on February, 1993 and was listed
on stock exchanges in India on June, 1993. The offer
was priced at Rupees 95 per share
 Assuming, one invested Rupees 10000, in 1993 Infosys
IPO and has been holding till date, it would be worth
over 2 Crores today(Including dividends around 25
lakhs).
 At the same time 99% of stocks listed in Indian Stock
Markets, are not worthy of staying invested at all
times.
 People without the basic knowledge of Stock Market,
would fall into the 99% of non-worthy stocks, which
will erode their investments, ending up in losses.
 The art of investing is to identify evergreen
companies, with profits growing consistently.

Primary Market: it deals in the issuance of new
securities and bring the savers and users of
capital together.
Secondary Market: it is the financial market
where previously issued securities and
financial instruments such as stock, bonds,
options, and futures are bought and sold.
It provide liquidity to the investors.
.

 The stock market is one of the most important
sources for companies to raise money.
 This allows businesses to be publicly traded, or raise
additional financial capital for expansion by
selling shares of ownership of the company in a
public market.
 The liquidity that an exchange provides affords
investors the ability to quickly and easily sell
securities.
 This is an attractive feature of investing in stocks,
compared to other less liquid investments such as
real estate.

History has shown that the price of shares and other
assets is an important part of the dynamics of economic
activity, and can influence or be an indicator of social mood.
An economy where the stock market is on the rise is
considered to be an up-and-coming economy. In fact, the
stock market is often considered the barometer of a
country's economic strength and development.
Rising share prices, for instance, tend to be associated
with increased business investment
and vice versa. Share prices also affect the wealth of
households and their consumption. Therefore, central banks
tend to keep an eye on the control and behaviour of the
stock market

ISSUE TYPE OFFER PRICE DEMAND PAYMENT
Fixed Price
Issues
Price at which the
securities are
offered and would
be allotted is made
known in advance
to the investors
Demand for
the
securities
offered is
known only
after the
closure of
the issue
100 % advance payment is
required to be made by the
investors at the time of
application.
Book Building
Issues
A 20 % price band
is offered by the
issuer within
which investors
are allowed to bid
and the final price
is determined by
the issuer only
after closure of the
bidding.
Demand for
the
securities
offered ,
and at
various
prices, is
available on
a real time
basis..
10 % advance payment is
required to be made by the
QIBs along with the
application, while other
categories of investors
have to pay 100 % advance
along with the application.

Secondary Market refers to a market where
securities are traded after being initially offered
to the public in the primary market and/or
listed on the Stock Exchange.

 A group(Large cap companies with significant market
capitalization)
 B1 Group (medium Sized, Inconsistent profit, less
liquidity)
 B2 Group (Small companies, very low trading, poor
in profit generation)
 T group—highly volatile stocks where
carry forward is not allowed
 Z Group (non compliance, poor companies)
 F Group (debt Market)

 The SENSEX, short form of the BSE-Sensitive Index, is a
"Market Capitalization-Weighted" index of 30 stocks
representing a sample of large, well-established and
financially sound companies. It is the oldest index in India
and has acquired a unique place in the collective
consciousness of investors.
 SENSEX is considered to be the pulse of the Indian stock
markets as it represents the underlying universe of listed
stocks at The Stock Exchange, Mumbai.
 Further, as the oldest index of the Indian Stock market, it
provides time series data over a fairly long period of time
(since 1978-79).

 Market Capitalization:. Liquidity:
 Continuity: Industry Representation:
 Listed History: Track Record:

 SENSEX is calculated using a "Market
Capitalization-Weighted" methodology. The
level of index at any point of time reflects the
total market value of 30 component stocks
relative to a base period
 The base period of SENSEX is 1978-79. The
actual total market value of the stocks in the
Index during the base period has been set
equal to an indexed value of 100.

 Automobiles- Bajaj Auto, Maruti Suzuki, Mahindra
&Mahindra, Tata Motors, Hero Motorcorp
 Banking- Axis Bank, Hdfc Bank, ICICI Bank, SBI,
HDFC
 Eng.&Capital goods—BHEL, Larsen&Toubro
 I&T- Infosys, TCS, Wipro, Bharati Airtel
 Metals—Coal India, Hindalco, Sesa Sterilite, Tata Steel
 Pharma- Cipla, Dr.Reddy’s, Sunpharma
 Petroleum-ONGC, Reliance Industries, GAIL
 Power—NTPC, Tata Power
 FMCG—ITC, Hindustan Unilever

 The index has increased by over 13 times from
June 1990 to today.
 Using information from April 1979 onwards
the long run rate of return on the BSE sensex
can be estimated to be 0.52%per week
(continuously compounded) with a standard
deviation of 3.67%.
 This translates to 27%per annum, which
translate to roughly 18% pa after compensating
for inflation.

 The terms "bear" and "bull" are thought to
derive from the way in which each animal
attacks its opponents.
 First of all, let's remember that bears are
sluggish and bulls spirited and burly
 That is, a bull will thrust its horns up into the
air, while a bear will swipe down.
 These actions were then related metaphorically
to the movement of a market: if the trend was
up, it was considered a bull market; if the
trend was down, it was a bear market.

 Nobody has been able to predict future
behavior of markets with certainty
 Even Astrology has been tried during start of
each Samavat year
 There are TWO widely used scientific methods
to predict future stock movements
 1.Fundamental analysis
 2.Technical analysis

 Fundamental analysis is a method of finding
out the future price of a stock which an
investor wishes to buy.
 It relates to the examination of the intrinsic
worth of a company to find out whether the
current market price is fair or not, whether it is
overpriced or under priced.

 The presumption behind fundamental analysis
is that a thriving economy fosters industrial
growth which leads to development of
companies.
 Estimate of real worth of a stock is made by
considering the earning potential of the
company
 Theoretically, the value of a company, hence its
share price, is the sum of the present value of
future cash flows discounted by the risk
adjusted discount rate

 if a company receives regulatory approval for
a new product, a fundamental trader might
expect the company's stock price to rise.
 Conversely, if a company has a financial
scandal, a fundamental trader might expect its
stock price to fall.
 Fundamental traders need access to all of the
available information as soon as it is available,
and are therefore often institutional traders
with large support teams, rather than
individuals are better equipped to analyze in
this way

 Technical traders use trading information (such
as previous prices and trading volume) along
with mathematical indicators to make their
trading decisions.
 This information is usually displayed on a
graphical chart and is updated in real time
throughout the trading day.
 Technical traders believe that all of the
information about a market is already included
in the price movement, so they do not need any
other fundamental information (such as
earnings reports).

 Stock charts gained popularity in the late 19th
Century from the writings of Charles H. Dow
in the Wall Street Journal, later known as "Dow
Theory", alleged that markets move in all kinds
of measurable trends and that these trends
could be deciphered and predicted in the price
movement seen on all charts.

 A stock chart is a simple two-axis (x-y) plotted
graph of price and time
 Stock charts can be created in many different
time frames
 Stock chart analysis can be applied equally to
individual stocks and major indices

 One of the most common buy or sell signals
in all chart analysis is the MOVING
AVERAGE CROSSOVER.
 These occur when two moving averages
representing different trends criss-cross.
 For example, when a short-term average
crosses BELOW a long-term one, a SELL signal
is generated. Conversely, when a short-term
crosses ABOVE the long-term, a BUY signal is
generated.

 The concept of SUPPORT AND
RESISTANCE is essential to understanding
and interpreting stock charts.
 Just as a ball bounces when it hits the floor or
drops after being thrown to the ceiling, support
and resistance define natural boundaries for
rising and falling prices.

 Support defines that level where buyers are
strong enough to keep price from falling
further.
 Resistance defines that level where sellers are
too strong to allow price to rise further.
 Support and resistance are created because
price has memory. Those prices where
significant buyers or sellers entered the market
in the past will tend to generate a similar mix
of participants

 When a level of support or resistance is
penetrated, price tends to thrust forward
sharply as the crowd notices the BREAKOUT
and jumps in to buy or sell.
 When a level is penetrated but does not attract
a crowd of buyers or sellers, it often falls back
below the old support or resistance. This
failure is known as a FALSE BREAKOUT.
 Support and resistance exist in all time
frames and all markets. Levels in longer time
frames are stronger than those in shorter time
frame

 Elliott concluded that the movement of the
stock market could be predicted by observing
and identifying a repetitive pattern of waves
 This information (about smaller patterns fitting
into bigger patterns), coupled with the
Fibonacci relationships between the waves,
offers the trader a level of anticipation and/or
prediction when searching for and identifying
trading opportunities with solid reward/risk
ratios.
 Japanese Candlestick Charting

 It refers to the same chart with more than one
time compression (e.g. daily or weekly). When
both the weekly and the daily charts are in
harmony, the chances of success can be greatly
enhanced.
 The essence of the strategy is easy: Use the
higher time frame price activity to define the
tradable trend as well as potential support and
resistance

 you should invest so that your money grows
and shields you against rising inflation.
 The rate of return on investments should be
greater than the rate of inflation, leaving you
with a nice surplus over a period of time
 Whether your money is invested in stocks,
bonds, mutual funds or certificates of deposit
(CD), the end result is to create wealth for
retirement, marriage, college fees, vacations,
better standard of living or to just pass on the
money to the next generation

Time horizon is the time period between the age
at which you would like to start investing and
at the age by which you would need a
consolidated amount of money for any said
purpose of yours.
 One should also find out if there are there any
short-term financial needs?
 Will be a need to live off the investment in later
years?

Age Portfolio
below 30
80% in stocks or mutual funds
10% in cash
10% in fixed income
30 t0 40
10% in cash
20% in fixed income
40 to 50
10% in cash
30% in fixed income
50 to 60
10% in cash
40% in fixed income
above 60
10% in cash
50% in fixed income

 It could be growth, income or both
 It's only human if your first reaction on an adverse
market movement is to sell and run away.
 To shield yourself against short term trading risks
one has to take a long-term view. Renowned experts
such as Benjamin Graham and Warren Buffet rarely
shuffle their portfolio unless there is some change in
the fundamentals of a company.
 Once you see the kind of returns you can generate
over time, you'll come to realize that it really doesn't
matter if your stock drops or rises over the course of
a few hours or days or weeks or even months

 Yes, he can.. E-broking is one solution to the lay investor as these
websites provide online information, expert investment advice,
research database which is available with the institutions. and has
bridged the gap between institutions and the retail investor.
 A fund manager is faced with many disadvantages.
 A fund manager will not buy high-growth stocks, which are
available in small volumes.
 In some cases an attractive position cannot be capitalized by a
fund as the situation might be ultra vires to the fund’s objectives.
 Sometimes, the fund manager’s risk exposure is high in particular
scrips and volumes held, high too. Hence his liquidity is curbed
while smaller volumes give the individual investor a higher level
of liquidity.
 A researched view can tilt the scales in favour of the small
investor.

 Revenues/Sales growth
 Bottom line growth
The bottom-line is the net profit of a company
 ROI - Return on Investment
 Volume--Volume is also an indicator of the liquidity in
a stock and is a key way to measure supply and
demand, often the primary indicator of a new price
trend.
 When a stock moves up in price on unusually high
volumes it could indicate that big institutional investors
are accumulating the stock. When a stock moves down
in price on unusually heavy volume, major selling could
be the reason

 Market Capitalization. Market value is the
total number of shares multiplied by the
current price of each share
 Company management
 Return on Equity Supposedly Warren Buffet's
favorite number, this measures how much your
investment is actually earning. Around 20% is
considered good.

 Debt-to-equity ratio is arrived by dividing the
total debt of the company with the equity capital.
 You're looking for a very low number here, not
necessarily zero, but less than .5
 If you see it at 1, then the company is still okay.
A D/E ratio of more than 2 or greater is risky. It
means that the company has a high interest
burden, which will eventually affect the bottom-line.
 Not all debt is bad if used prudently

 The Beta factor measures how volatile a stock is
when compared with an index.
 The higher the beta, the more volatile the stock
is. (A negative beta means that the stock moves
inversely to the market so when the index rises
the stock goes down and vice versa).

 This ratio determines what the company is
earning for every share. For many investors,
earnings is the most important tool. EPS is
calculated by dividing the earnings (net profit)
by the total number of equity shares

 The P/E ratio takes the stock price and divides
it by the last four quarters' worth of earnings.
 When a stock's P-E ratio is high, the majority of
investors consider it as pricey or overvalued.
Stocks with low P-E's are typically considered a
good value.

 History of the company and line of business
Product portfolio's strength
Market Share
Top Management
Intrinsic Values like Patents and trademarks held
Foreign Collaboration, its need and availability
for future
Quality of competition in the market, present
and future
Future business plans and projects

 The stocks are of companies whose potential
for growth in sales and earnings is excellent.
 Companies growing faster than the rest of the
stocks in the market or faster than other stocks
in the same industry are the the Growth
Stocks.
 These companies usually pay little or no
dividends, since they prefer to reinvest their
profits in their business.

 Value investors look to buy stocks that are
undervalued, and then hold those stocks until
the rest of the market (hopefully!) realizes the
real value of the company's assets.
 The value investors tend to purchase a
company's stock usually based on relationships
between the current market price and certain
fundamentals. They like P/E ratio being below a
certain limit; dividend yields above a certain
limit; Total sales at a certain level relative to the
company's market capitalization, or market
value.

 There are many people who buy stocks
primarily because of the stream of dividends
they generate.
 Called income investors, these individuals
often entirely forego companies whose shares
have the possibility of capital appreciation for
high-yielding dividend-paying companies in
slow-growth industries.

 Market leaders who dominate their niche. The big tend
to get bigger, win more contracts and have the largest
R&D budgets.
 Earnings that are growing, at an increasing rate, every
year.
 Revenue growth that exceeds the industry average.
 Strong management.
 Competing in an high and long-term growth oriented
industry sector
 The key to making the big money with these stocks is to
own them for a long time, letting them continue to
grow. Even if you buy only a few shares, over time you
can do very well as the stock grows, splits, and grows
again. (Many Infosys shareholders started with 10 shares
and now own hundreds)

 Investment involves putting money into an
asset in order to enjoy the series of returns in
the long term. This is for average individuals
 Speculation is a financial action that does not
promise safety of the initial investment along
with the return on the principal sum and is
usually short run phenomenon and is done in
expectation of an extra ordinary return and
carry considerable potential risks-suitable for
operators

 Strong long-term and short-term earnings
growth
 Impressive sales growth, profit margins and
return on equity
 New products, services or leadership
 Leading stock in a leading industry group
 High-rated institutional sponsorship
 Positive market.

 When the price in the market for the securities is an
historical high
 When the future expectations no longer support the price
of the stock
 when yields fall below the satisfactory level
 When other alternatives are more attractive than the
stocks held
 When there is tax advantage in the sale for the investor
 Sell if there has been a dramatic change in the direction of
the company
 If the earnings aren't improving over two to three
quarters
 Cut losses at the right level. But do not sell on panic. The
usual rule for retail investor is to sell if a stock falls 8%
below the purchase price. If you don't cut losses quickly,
sooner or later you'll suffer some very large losses

 A stop loss is an order to buy (or sell) a security once the
price of the security climbed above (or dropped below) a
specified stop price. When the specified stop price is
reached, the stop order is entered as a market order (no
limit) or a limit order (fixed or pre-determined price)
 With a stop order, the trader does not have to actively
monitor how a stock is performing because the order is
triggered automatically when the stop price is reached.
 Stop loss orders are great insurance policies that
cost you nothing and can save you a fortune.
Unless you plan to hold a stock forever, you
should consider using them to protect yourself

 If you sell a stock you don't own, you are selling
short. (Yes, it's legal.) You are now short the stock.
 A short seller sells a stock that he believes will fall in
value. He does not own the stock before he sells it.
Instead, he borrows it from someone who already
owns it.
 Later, the short seller buys back the stock he shorted
and returns the stock to close out the loan. If the
stock has fallen in price since he sold short, he can
buy the stock back for less than he received for
selling it. The difference is his profit

 A short sale reverses the order of a typical
stock purchase: the stock is sold first and
bought later.
 Short selling is a marginable transaction
 When you open a margin account, you must
sign an agreement with your broker which says
you will maintain a cash margin or pledge your
stocks as margin.
 The two primary reasons for selling short are
opportunism and portfolio protection
 Short selling just like long buying is essential
for proper functioning of the stock market. It
provides essential liquidity

 Day Trading involves taking a position in the markets with
a view of squaring that position before the end of that day.
 A day trader typically trades several times a day looking for
fractions of a point to a few points per trade, but who close
out all their positions by day's end.
 The goal of a day trader is to capitalize on price movement
within one trading day.
 Unlike investors, a day trader may hold positions for only a
few seconds or minutes, and never overnight.

 Zero Overnight Risk Since positions are closed
prior to the end of the trading day, news and events
that affect the next trading day's opening prices do not
effect your portfolio.
 Increased Leverage Day Traders have a greater
leverage on their trading capital because of low margin
requirements as their trades that are closed in the same
market day.
 Profit in any market direction Day trading often
will utilize short-selling to take advantage of declining
stock prices. The ability to lock in profits even as
markets fall throughout the trading day is extremely
useful during bear market conditions

 Swing Trading takes advantage of brief price
swings in strongly trending stocks to ride the
momentum in the direction of the trend.
 Swing trading combines the best of two worlds
-- the slower pace of investing and the
increased potential gains of day trading.
 Swing traders hold stocks for days or weeks
playing the general upward or downward
trends.

 Trend trading depends on identifying and
catching the trend after it has started and
getting out of the trend as soon as possible after
the trend reverses.
Trend Trading involves taking a position in
the markets with a view of holding that
position for weeks to months for larger than
normal gains.
 Trend traders or investors generally trade the
long term or secular trends and are not
concerned with the day to day market volatility

 Normally to buy and sell shares, you need to have
the money to pay for your purchase and shares in
your demat account to deliver for your sale.
 However as you do not have the full amount to
make good for your purchases or shares to deliver
for your sale you have to cover (square) your
purchase/sale transaction by a sale/purchase
transaction before the close of the settlement cycle.

 In case the price during the course of the
settlement cycle moves in your favor (risen in
case of purchase done earlier and fallen in case
of a sale done earlier) you will make a profit
and you receive the payment from the
exchange.
 In case the price movement is adverse, you
will make a loss and you will have to make the
payment to the exchange. Margins are thus
collected to safeguard against any adverse
price movement. Margins are quoted as a
percentage of the value of the transaction.

 When markets start rising, more people step aboard. And
when the indices start falling there is panic selling.
 Contrarians buy on bad news, and sell on good news.
“Buy low, sell high”.. The herd mentality usually restricts us
from pursuing a contrarian investment strategy, though it
consistently beats the market..
 The contrarian strategy advises you to look at a company's
business fundamentals, stocks trading at below-market
multiples of EPS, cash flow, book value, or dividend yield
before taking an investment decision. Historically, stocks
that are cheap by any of the above measures tend to
outperform the market.
 To do contrary, you would require to go against the crowd,
buying stocks that are out of favour and sell a few of Dalal
Street’s darlings. This requires overriding powerful
instincts.

 Behavioural Finance is the study of the
influence of psychology on the behaviour of
financial practitioners and the subsequent
effect on markets
 Psychological factors can actually explain why
different investors behave in different ways
which affect their investment decisions

 One of the most common investor behaviors is
overconfidence in their judgment towards the
market.
 This actually happens when they actually
underestimate the risk of the investment. The
major mistake; they tend to trade too much
which will lead them to high transaction costs.
The transaction costs might even exceed the
returns that they gained.

 The second behavior is the investor tends to
have biased self- attribution which means that
they will take all the credit for the returns that
they received and they will blame others for
their losses that they encountered.
 This kind of investors will usually support the
information that favor their beliefs and they
will underestimate or not considering the
information that are against them. They
usually see the failure to get the returns as the
result of the factors that are beyond their
control.

 The third behavior is known as loss aversion.
This behavior often happens to the investors
that dislikes the losses much more than the
gains.
 For example, when a person lose Rs2000, the
loss that he experience will have a bigger
impact on him compare with when he is
gaining Rs2000.
 The investor will usually hang on to the
losing stock hoping the price of the stock will
bounce back. They will sell the gaining stock
rather than the losing stock.

.
 This actually means that the investor will just
simply ignore the information that is against their
existing belief.
 They will even avoid finding any new information
because they afraid that the new information is
against their initial opinion.
 Once the investor has decided that they make the
right choice, they will believe it even though there
is evidence proving that their choice is wrong.

 Einstein said 'There are three great forces in the
world: stupidity, fear and greed. ' Stupidity (at
least in hindsight) leads people into situations
where fear and greed are the roots of their
downfall.
 There is an old saying on Wall Street that the
market is driven by just two emotions: fear and
greed.

 Fear is a response to threat. Greed is a response
to opportunity.
 Fear seeks to preserve the self. Greed seeks to
expand the self (via owned acquisitions).
 Fear leads to avoiding. Greed leads to
attraction.
 When fear and greed compete, fear often wins

 Warren Buffet made a very pertinent comment
when he said 'Be fearful when people are
greedy, and greedy when they are fearful'.
When people are greedy, bubbles happen.
When they are fearful, they sell at low prices.
Understanding this can lead to a wiser
investment strategy.

 When Investors get greedy, fueling further
greed and leading to securities being grossly
overpriced, which create a bubble.
 This get-rich-quick mentality makes it hard to
maintain gains and keep to a strict investment
plan over the long term, and amid such a
frenzy, there is an "irrational exuberance" of the
overall market

 Just as the market can become overwhelmed
with greed, the same can happen with fear ("an
unpleasant, often strong emotion, of
anticipation or awareness of danger"). When
stocks suffer large losses .
 This mass exodus out of the stock market
shows a complete disregard for a long-term
investing plan based on fundamentals

 All of this talk of fear and greed relates to the
volatility inherent in the stock market. When
investors lose their comfort level due to losses
or market instability, they become vulnerable
to these emotions, often resulting in very costly
mistakes
 Avoid getting swept up in the dominant
market sentiment of the day, which can be
driven by a mentality of fear and/or greed, and
stick to the basic fundamentals of investing.

 Stock prices drop A LOT!
 Price drops are sudden and unexpected
 Crashes create panic
 People lose money they have invested in
stocks

 Economists agree that supply and demand
forces may lead to future crashes because
stock market prices are based, in great part,
on expectations.
 This increased demand continues until stock prices
become too high for the value of the related
corporation.
 “Over valued” stocks create market situations called
“speculative bubbles” – and bubbles can burst!
 Bubbles burst when investors expect prices to stop
increasing

 Monday, October 19, 1987, when stock
markets around the, world crashed shedding a
huge value in a very short time.
 The crash began in Hong Kong and spread
west to Europe, hitting the U S after other
markets had already declined by a significant
margin. The Dow Jones Industrial
average (DJIA) dropped by 508 points to
1738.74 (22.61%).

 Savers: Savers are those people who spend
the majority of their life slowly growing their nest
egg in order to ensure a comfortable
retirement.
 Speculators: Unlike Savers, Speculators
choose to take control of their investments, and
not rely solely on time.
 Specialists: Specialists believes that the
key to successful investing is education and
experience. single inve sTthine gS paereciaa,li satn gde n bereaclloy mpieckss a an expert in that area.

 Many investors react to market conditions like
lemmings: Stampeding up the high mountain when
markets are rising and down into the cold deep sea when
markets are falling
 This "herd" mentality can be extremely dangerous
Because investors often get into the market too
late and get out too early!
 You should never let emotions cloud your
trading judgment.

 Furthermore, if a movement starts in one direction,
it tends to pick up more and more investors with
time and momentum.
 The impact of this lemming-like behavior has been
made worse in recent years because
financial,economic, and other news affecting
investor psychology travel faster than ever before
 Capital can also flow now between nations with
surprising ease, so that international markets
respond more quickly to sudden changes with a
domino effect in the direction of investor buying
and selling

 The retail investors in India generally start investing when the stock
market go up.
 They exit when the markets crash.
 These results in generation of heavy losses for the retail investors & this
may also be the reason on account of which the retail investors perceive
the stock market to be very risky.
 Above behavior of Indian retail investors exhibits their irrational
approach towards investment and their herd mentality.
 Appropriately an investors should enter into stock market when the
market is down as such a market creates good buying opportunities &
should exit the market when the market goes up

 Trading or investing is so exciting that it often
makes amateurs feel high. But I hope you
realize that nobody can get high and make
money at the same time.
Emotional trading is your own worst enemy.
Greed and fear are bound to destroy any
trader or investor. Conquering your emotions
of fear and greed will help you on the road

 Do you have trouble taking a loss? You are not
alone. Large corporations have trouble taking
losses too.
 Behavioral economists have shown that companies
go bankrupt rather than admit that their corporate
identity and business plan need reworking.
 Bankers refuse to write off bad loans because they
don't want to admit to their superiors that they
mistakenly lent it to people who were a bad risk.
 And institutional money managers leave losses on
paper because they are afraid to own up.

 When you lose money on a trade, you naturally
start to feel guilty and a little panicked.
 It is as if you are unnecessarily risking your safety
and that of your family.
 It's quite understandable, but if you would like to
be a successful professional trader, you must
change your thinking regarding this issue.
 You must fight against your natural inclinations
and learn to take losses.
 Losses are a business expense. It's like a personal
investment in your trading business.
 It's like paying tuition in order to learn
important trading lessons

 Futures : A futures contract is an agreement between
two parties to buy or sell an asset at a certain time in the
future at a certain price. All the futures contracts are
settled in cash
 Options : An Option is a contract which gives the right,
but not an obligation, to buy or sell the underlying at a
stated date and at a stated price.
 While a buyer of an option pays the premium and buys
the right to exercise his option, the writer of an option is
the one who receives the option premium and therefore
obliged to sell/buy the asset if the buyer exercises it on
him.

 “Calls” give the buyer the right but not the
obligation to buy a given quantity of the
underlying asset, at a given price on or before a
given future date
 “Puts” give the buyer the right, but not the
obligation to sell a given quantity of
underlying asset at a given price on or before a
given future date

 Hedging is buying and selling futures contracts to offset
the risks of changing underlying market prices. Thus it
helps in reducing the risk associated with exposures in
underlying market by taking a counter- positions in the
futures market.
 For example, an investor who has purchased a portfolio
of stocks may have a fear of adverse market conditions in
future which may reduce the value of his portfolio.
 He can hedge against this risk by shorting the index
which is correlated with his portfolio, say the Nifty 50.
 In case the markets fall, he would make a profit by
squaring off his short Nifty 50 position. This profit would
compensate for the loss

 Since the investor is required to pay a small
fraction of the value of the total contract as
margins, trading in Futures is a leveraged
activity since the investor is able to control the
total value of the contract with a relatively
small amount of margin.
 Thus the Leverage enables the traders to make
a larger profit (or loss) with a comparatively
small amount of capital

 Not being disciplined and failing to cut losses at 8-10%
below the purchase price
 Do not purchase low-priced, low quality stocks
 Do not let emotions or ego get in the way of a sound
investing strategy
 Invest in equities for long term and not short term .
Patience is a virtue in investing.
 Do not put all your money on the same horse. Diversify
your portfolio ideally into five industries and ten stocks.
 Margin is not a luxury, it is a deep-seated risk,
 Greed is dangerous; it may wipe out the gains already
made. Once a reasonable profit is made the investor
should get out of that stock quickly

1. Never chase a stock.
2. Buy when markets are in the grip of panic.
3. Only buy fundamentally strong stocks, which
are undervalued.
4. Buy stocks grown in top line and bottom line
over the past years.
5. Invest in companies with proven management.
6.Go for quality stocks and not quantity

 6. Avoid loss-making companies.
 7. PE Ratio and Growth in earnings per share
are the key.
 8. Look for the dividend paying record.
 9. Buy when everyone is selling and sell when
everyone buys.
 10. Invest a fixed amount each month.

 Less than Rs. 20,000 1 or 2 stocks
 Rs. 20,000 to Rs. 50,000 2 or 3 stocks
 Rs. 50,000 to Rs. 2,00,000---3 to 5 stocks
 Rs. 2,00,000 to Rs. 5,00,000--5 to 7 stocks
 Rs. 5,00,000 or more--7 to 10 stocks

 1. Do zero research on the company
 2. Execute Market Trades
 3. Buy High and Sell Low –
 4. Invest in companies facing bankruptcy
 5. Treat Proxy Statements and Annual Reports as
spam
 6. Invest in one sector
 7. Trade Penny Stocks –
 8. Buy in one lump sum
 9. Invest in only domestic stocks
 10. Trade with fear

 Financial risk tolerance is defined as the
maximum amount of uncertainty that someone
is willing to accept when making a financial
decision
 risk tolerance decreases with age
 females have a lower preference for risk than
males
 risk tolerance increases with education level
 risk tolerance increases with income level and
net assets
 single (i.e., unmarried) investors are more risk
tolerant than married

guard against Promise of
 unrealistically High Return
 Promise to invest in opportunities based on
secretive information
 Getting euphoric about certain companies and
investment
 Your involvement not required in decision to buy
or sell
 Guaranteed high returns (like double in three
months)
 Promise of no risk, complete capital protection
 Statements like life time opportunity requiring
you to sign papers and part with money
immediately
 Overly consistent returns even during adverse
market conditions

 Recent era witnessed a remarkable growth in inter-regional
flows of capital and equity investments
 Several economic as well as political developments and
reforms that had taken since about the beginning of 1980s,
have made these regions more open to foreign influence and
foreign investments.
 improvements in information and communications
technology that had lowered the cost of cross-border
information flows and financial transactions, and the
expansion in the multinational operations of major
corporations
 These socio-political, economic and technological
developments and reforms towards globalization, have
clearly galvanized the tendency for stock markets to move
together internationally

 It is an investment strategy where an investor buys
stocks and holds them for a long time.
 This is based on the view that in the long run
financial markets give a good rate of return despite
some volatality. It says that investors will never see
such returns if they bail out after a decline.
 This viewpoint holds that market timing, i.e. the
concept that one can enter the market on the lows
and sell on the highs, does not work;
Attempting such timing gives negative results, at
least for small or unsophisticated investors, so it is
better for them to simply buy and hold.

 One argument for the strategy is the efficient market
hypothesis (EMH): If every security is fairly valued at
all times, then there is really no point to trade. Some
take the buy-and-hold strategy to an extreme,
advocating that you should never sell a security unless
you need the money.
 Others have advocated buy-and-hold on purely cost-based
grounds,. Costs such as brokerage are incurred
on all transactions, and buy-and-hold involves the
fewest transactions for a given amount invested
 Taxation law also has some effect; tax for long-term
capital gains may be nil, and tax may be due only when
the asset is sold (or never if the person dies).
 Warren Buffett is an example of a buy-and-hold
advocate who has built his fortune by investing in
companies at times when they were undervalued

 Top-down investing involves analyzing the "big picture".
Investors using this approach look at the economy and
try to forecast which industry will generate the best
returns. These investors then look for individual
companies within the chosen industry and add the stock
to their portfolios
 Conversely, a bottom-up investor overlooks
broad sector and economic conditions and instead focuses
on selecting a stock based on the individual attributes of a
company. Advocates of the bottom-up approach simply
seek strong companies with good prospects, regardless of
industry or macroeconomic factors.

 Do not invest money set aside for a specific
purpose into equity markets
 Do not invest borrowed money in stock
market.
 Book profits when markets are high, maybe
few months or years before your goal time,
because the time of your goal need not coincide
with the market peaks

 Selling is as important as buying; if you do not
do so, your profits are just on paper!
 Cutting your losses are as important as
booking profits!
 Averaging is a bad habit; even if your loss-percentage
appears less, your overall loss is
likely to go up! Sell your loss making stocks
and re enter at a later date if you need to!

 Never have any emotional or sentimental
attachments to the stocks you own; the only
motive for you to be in market is for “Profits”
 You cannot aim for profits in all the stocks you
buy; if you can have profits in6-7 stocks out of
10 you buy, it is reasonable.
 Stock markets react on news and not in actual
happenings; So it is a good idea to buy on some
good actuals rather than news

 Usually most people who are in stock trading
will boast of their profit making and never
disclose their losses; Do not get perturbed by
this
 Everybody into stock investing have burnt
their fingers
 There will be numerous advisors during a
booming market phase but none when the
sentiments are bad.
 Portfolio management services cannot be
blindly believed as they are more interested in
rotating your stocks rather than making long
term profits

 Best time to buy is when the market is beaten
down
 Phased investments are less risky than lump
sum investment.
 Better avoid NFO offerings as it is always
better to put your money in proved funds
 Avoid thematic funds unless you are sure
about a particular story.

 No added risks in buying a fund with higher
NAV than one with smaller NAV because for a
given price, we are buying the assets of the
same value
 An established Fund house with impeccable
credentials, A fund manager who has proved
his stock picking abilities and open ended,
diversified growth fund with long track record
are all desirable qualities

 IT IS BASICALLY THE FRAUD DONE IN THE
CAPITAL MARKET WITH THE INVESTORS
BY MANUPULATING THE FACTS IN ORDER
TO ATTAIN ENORMOUS PROFITS

 TAKING ADVANTAGES OF LOOPHOLES IN
THE BANKING SYSTEM, HARSHAD AND HIS
ASSOCIATES TRIGGERED A SECURITIES
SCAM DIVERTING FUNDS TO THE TUNE OF
RS 4000 CRORES FROM THE BANKS TO
STOCK HOLDERS BETWEEN APRIL 1991 TO
MAY 1992

Ketan Parekh
.
He targetted smaller exchanges like the Allahabad Stock Exchange and
the Calcutta Stock Exchange, and bought shares in fictitious names.
His dealings revolved around shares of ten companies like Himachal
Futuristic, Global Tele-Systems, SSI Ltd, DSQ Software, Zee Telefilms,
Silverline, Pentamedia Graphics and Satyam Computer (K-10 scrips).
Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his
ambitions. Ketan alongwith his associates also managed to get Rs 1,000
crore from the Madhavpura Mercantile Co-operative Bank.

 He is widely considered the most successful
investor of the 20th century. Buffett is the
chairman, CEO and largest shareholder of
Berkshire Hathaway and consistently ranked
among the world's wealthiest people
 In 1962, Buffett became a millionaire and a
billionaire in 1990 through his holdings in his
company Berkshire Hathaway
 In 2008, Buffett became the richest person in
the world, with a total net worth estimated at
$62 billion, overtaking Bill Gates

 In 1999, Buffett was named the top money
manager of the Twentieth Century in a survey
by the Carson Group, ahead of Peter
Lynch and Jhon Tempeleton
 In June 2006, he announced a plan to give away
his fortune to charity, with 83% of it going to
the Bill & Melinda Gates Foundation. (worth
approximately US$ 30.7 billion as of June
23,2006),making it the largest charitable
donation in history

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