Learning

 LEARNINGChapter 1 - What Is Investing !!


 

 

In this chapter SouthEastern Equity Master’s, explain an in-depth analysis of Equity Investment, the following topics are covered in this chapter.

Investing !! What’s that?

Why should you invest?

When to invest?

How much money do you need to invest ?

What can you invest in ?

Investing !! What’s that?

 Knowledge is power. It is common knowledge that money has to be invested wisely. If you are a novice at investing, terms such as stocks, bonds, badla, undha badla, yield, P/E ratio may sound Greek and Latin. Relax. It takes years to understand the art of investing. You’re not alone in the quest to crack the jargon. To start with, take your investment decisions with as many facts as you can assimilate. But, understand that you can never know everything. Learning to live with the anxiety of the unknown is part of investing. Being enthusiastic about getting started is the first step, though daunting at the first instance. That’s why our investment course begins with a dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make the right moves in the market. Patience and the willingness to pepper your savings across a portfolio of securities tailored to suit your age and risk profile will propel your revenues at the same time cushion you against any major losses. Investing is not about putting all your money into the “Next Infosys,” hoping to make a killing. Investing isn’t gambling or speculation; it’s about taking reasonable risks to reap steady rewards. Investing is a method of purchasing assets in order to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and appreciation over the long term.

Why should you invest?

Simply put, 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. Also, it’s exciting to review your investment returns and to see how they are accumulating at a faster rate than your salary.

When to Invest?

The sooner the better. By investing into the market right away you allow your investments more time to grow, whereby the concept of compounding interest swells your income by accumulating your earnings and dividends. Considering the unpredictability of the markets, research and history indicates these three golden rules for all investors 1. Invest early 2. Invest regularly 3. Invest for long term and not short term While it’s tempting to wait for the “best time” to invest, especially in a rising market, remember that the risk of waiting may be much greater than the potential rewards of participating. Trust in the power of compounding Compounding is growth via reinvestment of returns earned on your savings. Compounding has a snowballing effect because you earn income not only on the original investment but also on the reinvestment of dividend/interest accumulated over the years. The power of compounding is one of the most compelling reasons for investing as soon as possible. The earlier you start investing and continue to do so consistently the more money you will make. The longer you leave your money invested and the higher the interest rates, the faster your money will grow. That’s why stocks are the best long-term investment tool. The general upward momentum of the economy mitigates the stock market volatility and the risk of losses. That’s the reasoning behind investing for long term rather than short term.

How much money do I need to invest?

There is no statutory amount that an investor needs to invest in order to generate adequate returns from his savings. The amount that you invest will eventually depend on factors such as:

           Your risk profile

           Your Time horizon

           Savings made

All the above three factors will be discussed in brief in the latter part of the course.

What can you invest in?

The investing options are many, to name a few

           Stocks

           Bonds

           Mutual funds

           Fixed deposits

           Others

LEARNINGChapter 2 – Savings & investment Instruments


 

Personal Finances. What are those to be bothered about?

Different investment options and their current market rate of returns.

Personal finances.Why bother?

There is always a first time for everything so also for investing. To invest you need capital free of any obligation. If you are not in the habit of saving sufficient amount every month, then you are not ready for investing. Our advice is :-

 Save to at least 4-5 months of your monthly income for emergencies. Do not invest from savings made for this purpose. Hold them in a liquid state and do not lock it up against any liability or in term deposits.

 Save at least 30-35 per cent of your monthly income. Stick to this practice and try to increase your savings.

 Avoid unnecessary or lavish expenses as they add up to your savings. A dinner at Copper Chimney can always   be avoided, the pleasures of avoiding it will be far greater if the amount is saved and invested.

 Try gifting a bundle of share certificates to yourself on your marriage anniversary or your hubby’s birthday   instead of spending your money on a lavish holiday package.

Clear all your high interest debts first out of the savings that you make. Credit card debts (revolving credits)   and loans from pawnbrokers typically carry interest rates of between 24-36% annually. It is foolish to pay off   debt by trying to first make money for that cause out of gambling or investing in stocks with whatever little   money you hold. Infact its prudent to clear a portion of the debt with whatever amounts you have.

Retirement benefits is an ideal savings tool. Never opt out of retirement benefits in place of a consolidated pay   cheque. You are then missing out on a substantial employer contribution into the fund.

Different investment options and their current market rate of returns.

The investment options before you are many. Pick the right investment tool based on the risk profile, circumstance, time zone available etc. If you feel market volatility is something which you can live with then buy stocks. If you do not want to risk the volatility and simply desire some income, then you should consider fixed income securities. However, remember that risk and returns are directly proportional to each other. Higher the risk, higher the returns. A brief preview of different investment options is given below:

Equities: Investment in shares of companies is investing in equities. Stocks can be bought/sold from the exchanges (secondary market) or via IPOs – Initial Public Offerings (primary market). Stocks are the best long-term investment options wherein the market volatility and the resultant risk of losses, if given enough time, is mitigated by the general upward momentum of the economy. There are two streams of revenue generation from this form of investment.

  1. Dividend:Periodic payments made out of the company’s profits are termed as dividends.
  2. Growth:The price of a stock appreciates commensurate to the growth posted by the company resulting in capital appreciation.

On an average an investment in equities in India has a return of 25%. Good portfolio management, precise timing may ensure a return of 40% or more. Picking the right stock at the right time would guarantee that your capital gains i.e. growth in market value of your stock possessions, will rise.

BondsIt is a fixed income(debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with fixed rate of interest on a specified date, called as the maturity date. Other fixed income instruments include bank fixed deposits, debentures, preference shares etc.

The average rate of return on bonds and securities in India has been around 10 – 12 % p.a.

Certificate of DepositsThese are short – to-medium-term interest bearing, debt instruments offered by banks. These are low-risk, low-return instruments. There is usually an early withdrawal penalty. Savings account, fixed deposits, recurring deposits etc are some of them. Average rate of return is usually between 4-8 %, depending on which instrument you park your funds in. Minimum required investment is Rs. 1,00,000.

Mutual Fund : These are open and close ended funds operated by an investment company which raises money from the public and invests in a group of assets, in accordance with a stated set of objectives. It’s a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include diversification and professional money management. Shares are issued and redeemed on demand, based on the fund’s net asset value, which is determined at the end of each trading session. The average rate of return as a combination of all mutual funds put together is not fixed but is generally more than what earn in fixed deposits. However, each mutual fund will have its own average rate of return based on several schemes that they have floated. In the recent past, MFs have given a return of 18 – 30 %.

Cash Equivalents: These are highly liquid and safe instruments which can be easily converted into cash, treasury bills and money market funds are a couple of examples for cash equivalents.

Others : There are also other saving and investment vehicles such as gold, real estate, commodities, art and crafts, antiques, foreign currency etc. However, holding assets in foreign currency are considered more of an hedging tool (risk management) rather than an investment.

LEARNINGChapter 3 – Why Invest in Stock Market


 

Introduction to Equity Investing.

Many investors go about their investing in an irrational way:
1. They are tipped of a ‘news’/’rumor’ in a ‘hot stock’ from their broker.
2. They impulsively buy the scrip.
3. And after the purchase wonder why they bought the stock.
He is a fool to act in such an irrational manner. We suggest a three-step approach to investing in equities.

 The moment you get a tip on any stock, get the first hand news immediately. You’ll find information on the following sites:
www.southeasternpro.com
www.nse-index.com
www.bseindex.com

The news, if any, will be on the sites. Be it announcements earnings, dividend payoffs, corporate move to buy another company, flight of top management to another company, these sites should be your first stop.

 Do some number crunching. Check out the growth rate of the stock’s earnings, as shown in a percentage and analyze those graphs shown on your broker’s site. You will learn to do it in Chapter II of our learning center under the module named ‘Technical tutorials’. Learn more about the P/E ratio (price-to-earnings ratio), earning per share (EPS), market capitalization to sales ratio, projected earnings growth for the next quarter and some historical data, which will tell what the company has done in the past. Get the current status of the stock movement such as real-time quote, average trades per day, total number of shares outstanding, dividend, high and low for the day and for the last 52 weeks. This information should give you an indication of the nature of the company’s performance and stock movement. Also its ideal that you be aware of the following terms:-

 High (high) : The highest price for the stock in the trading day.
 Low (low) : The lowest price for the stock in the trading day.
 Close (close) : The price of the stock at the time the stock market closes for the day.
 Chg (Change) : The difference between two successive days’ closing price of the stock.
 Yld (Yield) : Dividend divided by price
 Bid and Ask (Offer) Price

When you enter an order to buy or sell a stock, you will essentially see the “Bid” and “Ask” for a stock and some numbers. What does this mean?

The ‘Bid’ is the buyer’s price. It is this price that you need to know when you have to sell a stock. Bid is the rate/price at which there is a ready buyer for the stock, which you intend to sell.

The ‘Ask’ (or offer) is what you need to know when you’re buying i.e. this is the rate/ price at which there is seller ready to sell his stock. The seller will sell his stock if he gets the quoted “Ask’ price.

 Bid size and Ask (Offer) size

If an investor looks at a computer screen for a quote on the stock of say ABC Ltd, it might look something like this:

Bid Price : 3550
Offer Price : 3595
Bid Qty : 40T
Offer Qty : 20T

What this means is that there is total demand for 40,000 shares of company ABC at Rs 3550 per share. Whereas the supply is only of 20,000 shares, which are available for sale at a price of Rs 3595 per share. The law of demand and supply is a major factor, which will determine which way the stock is headed.

 Armed with this information, you’ve got a great chance to pick up a winning stock. Again don’t be in a hurry, ferret out some more facts, try to find out as to who is picking up the stock (FIIs, mutual funds, big industrial houses? The significance of which you will learn in section II of our learning center). Watch for the daily volume in a day: is it more/less than the average daily volume? If it’s more, maybe some fund is accumulating the stock.

Next time you hear or read a ‘hot tip’: do some research; try to know all you can about the stock and then shoot your investing power into the stock. With practice, you’ll be hitting a bull’s eye more often than not.

SouthEastern recommends investors to be aware of the technical tools of measuring stock performances before investing. Learn to identify the signals that the market emits. The Trending Chart of SouthEastern will help you in this effort.

LEARNINGChapter 4 – Basics On The stock Market

SouthEastern Market Expert’s cover this important topic based on the below mentioned points.

  • Working of Stock Market.
  • Indian Stock Market Overview.
  • Rolling Settlements.
  • Concept of Buying Limits.
  • What is Dematerializtion ?
  • Going Short.
  • Concept of Margin Trading.
  • Types of orders.
  • Circuits Filters & Trading bands.
  • India’s Unique – Badla.
  • Securities Lending.
  • Insider Trading.

Working of a stock market

To learn more about how you can earn on the stock market, one has to understand how it works. A person desirous of buying/selling shares in the market has to first place his order with a broker. When the buy order of the shares is communicated to the broker he routes the order through his system to the exchange. The order stays in the queue exchange’s systems and gets executed when the order logs on to the system within buy limit that has been specified. The shares purchased will be sent to the purchaser by the broker either in physical or demat format.

Indian Stock Market Overview.

The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April – August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9,21,500 crore (Rs 9215-bln). The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9,68,000 crore (Rs 9680-bln). Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE On Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency. The scrips traded on the BSE have been classified into ‘A’, ‘B1’, ‘B2’, ‘C’, ‘F’ and ‘Z’ groups. The ‘A’ group shares represent those, which are in the carry forward system (Badla). The ‘F’ group represents the debt market (fixed income securities) segment. The ‘Z’ group scrips are the blacklisted companies. The ‘C’ group covers the odd lot securities in ‘A’, ‘B1’ & ‘B2’ groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.

Rolling Settlement Cycle 

In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day. At NSE and BSE, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day. For arriving at the settlement day all intervening holidays, which include bank holidays, NSE/BSE holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are settled on Wednesday, Tuesday’s trades settled on Thursday and so on.

Concept Of Buying Limit

Suppose you have sold some shares on NSE and are trying to figure out that if you can use the money to buy shares on NSE in a different settlement cycle or say on BSE. To simplify things for SouthEastern customers, we have introduced the concept of Buying Limit (BL). Buying Limit simply tells the customer what is his limit for a given settlement for the desired exchange. Assume that you have enrolled for a Demat account, which requires 100% of the money required to fund the purchase, be available. Suppose you have Rs 1,00,000 in your Bank A/C and you set aside Rs 50,000 for which you would like to make some purchase. Your Buying Limit is Rs 50,000. Assume that you sell shares worth Rs 1,00,000 on the NSE on Monday. The BL therefore for the NSE at that point of time goes upto Rs 1,50,000. This means you can buy shares upto Rs 1,50,000 on NSE or BSE. If you buy shares worth Rs 75,000 on Tuesday on NSE your BL will naturally reduce to Rs 75,000. Hence your BL is simply the amount set aside by you from your bank account and the amount realized from the sale of any shares you have made less any purchases you have made.

 Your BL of Rs 50,000, which is the amount set aside by you from your Bank account for purchase is available for BSE and NSE. As you have made the sale of shares on NSE for Rs.100000, the BL for NSE & BSE rises to 1,50,000. The amount from sale of shares in NSE will also be available for purchase on BSE. SouthEastern makes it very easy for its customers to know their BL on the click of a mouse. You just have to specify the Exchange and settlement cycle and on a click of your mouse, the BL will be known to you.

What Is Dematerialization?

Dematerialization in short called as ‘demat is the process by which an investor can get physical certificates converted into electronic form maintained in an account with the Depository Participant. The investors can dematerialize only those share certificates that are already registered in their name and belong to the list of securities admitted for dematerialization at the depositories.
Depository : The organization responsible to maintain investor’s securities in the electronic form is called the depository. In other words, a depository can therefore be conceived of as a “Bank” for securities. In India there are two such organizations viz. NSDL and CDSL. The depository concept is similar to the Banking system with the exception that banks handle funds whereas a depository handles securities of the investors. An investor wishing to utilize the services offered by a depository has to open an account with the depository through a Depository Participant.
Depository Participant : The market intermediary through whom the depository services can be availed by the investors is called a Depository Participant (DP). As per SEBI regulations, DP could be organizations involved in the business of providing financial services like banks, brokers, custodians and financial institutions. This system of using the existing distribution channel (mainly constituting DPs) helps the depository to reach a wide cross section of investors spread across a large geographical area at a minimum cost. The admission of the DPs involve a detailed evaluation by the depository of their capability to meet with the strict service standards and a further evaluation and approval from SEBI. Realizing the potential, all the custodians in India and a number of banks, financial institutions and major brokers have already joined as DPs to provide services in a number of cities.

Advantages of a depository services 

Trading in demat segment completely eliminates the risk of bad deliveries. In case of transfer of electronic shares, you save 0.5% in stamp duty. Avoids the cost of courier/ notarization/ the need for further follow-up with your broker for shares returned for company objection No loss of certificates in transit and saves substantial expenses involved in obtaining duplicate certificates, when the original share certificates become mutilated or misplaced. Increasing liquidity of securities due to immediate transfer & registration Reduction in brokerage for trading in dematerialized shares Receive bonuses and rights into the depository account as a direct credit, thus eliminating risk of loss in transit. Lower interest charge for loans taken against demat shares as compared to the interest for loan against physical shares. RBI has increased the limit of loans availed against dematerialized securities as collateral to Rs 20 lakh per borrower as against Rs 10 lakh per borrower in case of loans against physical securities. RBI has also reduced the minimum margin to 25% for loans against dematerialized securities, as against 50% for loans against physical securities. Fill up the account opening form, which is available with the DP. Sign the DP-client agreement, which defines the rights and duties of the DP and the person wishing to open the account. Receive your client account number (client ID). This client id along with your DP id gives you a unique identification in the depository system. Fill up a dematerialization request form, which is available with your DP. Submit your share certificates along with the form; (write “surrendered for demat” on the face of the certificate before submitting it for demat) Receive credit for the dematerialized shares into your account within 15 days.

Procedure of opening a demat account:
Opening a depository account is as simple as opening a bank account. You can open a depository account with any DP convenient to you by following these steps:
Fill up the account opening form, which is available with the DP. Sign the DP-client agreement, which defines the rights and duties of the DP and the person wishing to open the account. Receive your client account number (client ID). This client id along with your DP id gives you a unique identification in the depository system.
There is no restriction on the number of depository accounts you can open. However, if your existing physical shares are in joint names, be sure to open the account in the same order of names before you submit your share certificates for demat

Procedure to dematerialize your share certificates: 
Fill up a dematerialization request form, which is available with your DP. Submit your share certificates along with the form; (write “surrendered for demat” on the face of the certificate before submitting it for demat) Receive credit for the dematerialized shares into your account within 15 days.
In case of directly purchasing dematerialized shares from the broker, instruct your broker to purchase the dematerialized shares from the stock exchanges linked to the depositories. Once the order is executed, you have to instruct your DP to receive securities from your broker’s clearing account. You have to ensure that your broker also gives a matching instruction to his DP to transfer the shares purchased on your behalf into your depository account. You should also ensure that your broker transfers the shares purchased from his clearing account to your depository account, before the book closure/record date to avail the benefits of corporate action.

Stocks traded under demat:
Securities and Exchange Board of India (SEBI) has already specified for settlement only in the dematerialized form in for 761 particular scripts. Investors interested in these stocks receive shares only in demat form without any instruction to your broker. While SEBI has instructed the institutional investors to sell 421 scripts only in the demat form. The shares by non institutional investors can be sold in both physical and demat form. As there is a mix of both form of stocks, it is possible if you have purchased a stock in this category, you may get delivery of both physical and demat shares.

Opening of a demat account through Southeastern
Opening an e-Invest account with SouthEastern, will enable you to automatically open a demat account with SMC, one of the largest DP in India, thereby avoiding the hassles of finding an efficient DP.

LEARNINGChapter 5 – Set your Goal

An Investor must set his/her Goal, SouthEastern Market Expert’s analyzing Goal setting and its resources.

 

·          Investment Goals

·          Is time on Your Side?

·          Mobilizeable Resources.

Investment Goals.

Investment avenues should always be treated as tools which will generate good returns over a period of time. To take a short term view would be fatal. In the stock markets, prices fluctuate very fast for the lay investor. To get the maximum returns begin with a two-year perspective.

Begin with an understanding of yourself.

What do you want from your investments?

It could be growth, income or both.

How comfortable are you to take risks?

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. Mutual funds are a good way to begin investing in the stock market. Funds render investment services with professionalism and give a good diversification over many sectors. If volatility is not your cup of tea, then you might consider buying fixed income securities.

Planning and Setting Goals: Investment requires a lot of planning. Decide on your basic framework of investments and chart your risk profile.

Ask yourself: What is the investment “time horizon”? 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?

Your investments could be for retirement, a down payment for a house, your child’s education, a second home or just for incremental income to take up a better standard of living.

Make clear-cut, measurable and reasonable goals. Be more specific when you decide your goals. For example you must reasonably predict how much amount of money would require and at what time inorder to satisfy any of the above stated needs? If arriving at these figures looks cumbersome or daunting, our online interactive calculators will help you figure out your future money requirements. The answers to the above will lead you directly to “The type of investments will you make”.

Is time on Your side ?

The time frame you seek to invest on, your investment profile and the moblizable resources are interdependent and are not mutually exclusive.

How much time do you want to spend on investing?
You can be active, allocate an hour every day or just spend a few hours every month.

Another important factor is when do you need the money?
To help put all of this into context, you also need to look at how various types of investments have performed historically. Bonds and stocks are the two major asset classes that have been used by investors over the past century. Knowing the total return on each of the above and the associated volatility is crucial in deciding where you should put your money.

Moblizable Resources

After you zero in on your investments its time to decide on how much money you want to invest. Setting investment goals and checking out on allocable monetary resources go hand in hand. It is necessary to fix your monetary considerations as soon as you decide on the basic investment framework.

Some of your basic monetary considerations could be:-

 The amount of initial investments that you can pump in.
The sources for the money that you need for investments.
The foreseeable bulk expense which prevents you from saving or which may force you to liquidate your existing portfolio (this expense itself may be your investment goal).
Money that you need to have as back up for emergencies.
The amount of savings that you can afford to allocate every month on a continual basis for such number of year that you may desire.

Answers to all or atleast the most important of these would logically lead you to where you ideally have to invest your money in, can it be equity, mutual funds or bonds.

LEARNINGChapter 6 – How to invest like an Analyst


 

@SouthEastern we believe in sharing expertise with our Investor’s and groom them like an expert, we will cover this chapter on below point’s as how one can become market expert.

  • Can an individual investor match upto market experts?
  • Singing to the market’s tune. Not always. Be a contrarian !
  • Power of the World Wide Web (www).
  •  Forming Investment clubs.
  • How else can we help ?

Can an individual investor match upto market experts?

Yes, he can. The popular opinion is that an investor has no chance in today’s volatile markets. The methodology used by professionals, investment strategies and links to worldwide happenings imply that there is no scope for the individual investor in today’s institutionalized markets. Nothing could be further away from the truth. E-broking is one solution to the lay investor as these websites provide online information from wire agencies such as Reuters, expert investment advice, research database which is available with the institutions. The advent of online broking has bridged the gap between institutions and the retail investor.

A fund manager is faced with many disadvantages. Typically, 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.

Singing the market’s tune. Not always. Be a contrarian!

When markets start rising, more people step aboard. And when the indices start falling there is panic selling. Most of the times new investors are late in identifying a rally and are late entrants, leaving them with high-priced stocks.

Contrarians buy on bad news, and sell on good news. “Buy low, sell high” is a well-known cliché. That’s how an investor must think in order to profit from stock investing. All stock-market investors embrace the motto “Buy low, sell high.” But few act accordingly. The herd mentality restricts us from pursuing a contrarian investment strategy, though it consistently beats the market. There are proven techniques for selecting undervalued stocks which are rarely followed.

The contrarian strategy advises you to pay a cursory 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.

Power of the World Wide Web (www)

Internet has changed the way the retail investor invests. Stock prices, volume information, investment tools, technical analysis is at his fingertips. Many sites offer Spot Reviews of news breaks and result analysis, which help investors to from an opinion on a particular stock. As the world is networked with the Web you can consult with experts from across cities states. As the internet is flooded with information, an overload, its imperative that you learn to figure out which information is useful and which is not.

Forming Investment Clubs

If you as an individual investor do not have enough money to invest, or know not enough about investing and do not have the time to learn too. Well, a perfect solution then will be to join or form an investment club.

Investment clubs are formed by people who pool in their money to invest in stocks, bonds, mutual funds and other investments. The appeal is simple: A club has the funds to diversify its investments better than an individual and the knowledge base is wider. Investment clubs can be formed between family, friends and people who work together. However, forming a club with co-workers is a lot easier. But bear in mind that the biggest complaint among club members is finding a convenient time and place to meet each month. Forget not, you can talk about club news over the water cooler or canteen too. To form a club

First step, send out a memo or email asking select members to come to an introductory meeting. During that first meeting, discuss monthly dues. How much can people afford?

Secondly, give members a profile personality test to see where everyone stands. Are they risk takers or conservative investors? Club members should be compatible when it comes to investment goals.

Make sure you recruit people who are truly committed, which means meeting once a month and sharing the workload when it comes to researching companies, picking stocks and reviewing the club’s portfolio.

It’s common for members to get impatient and to jump ship shortly after the club’s formation. Alternatively, member participation tends to drag due to a personal or financial crisis arises. The first few years are the crucial building blocks of a club. Members who survive the two-year hump tend to hang on for the long haul — 20 years or more. Still, every club must prepare in its bylaws how to bring in new recruits and handle departing members who want to cash out.

Finally, once you have hammered out the goals and operation of the proposed club, if a sufficient number — around 10 — are still interested, then you are ready to forge ahead.

How else can we at SouthEastern help?

SouthEastern from its end offers virtually everything within the ambit of research tools. Investors has option of using technical analysis, fundamental research, database of over 5000 companies, key ratios, analysts recommendations of future earnings, features, news from the country’s leading business daily Business Standard and worldwide wire agency Reuters, which assist our investors to make their investment decisions.

 

 

 

 

 


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