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What do the words shares or equities actually mean?
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The words shares, stocks and equities mean the same – there is no difference between them as such. Shares are actually a means of ownership in a company. See - every company needs money to grow and expand. One of the ways of getting this money is to ask the public for money.
The company then offers a "share" of their assets to the general public. The people who buy the shares become part-owners of that company and are called shareholders. If the company does well, everybody makes money including the shareholders and if it doesn't, everybody gets affected.
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How are shares offered? How do I get to know about these offers?
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Shares are offered by companies through the announcement of a Public Issue or a Public Offering. When a companies offers shares for the first time it is called an IPO - Initial Public Offering.
Regarding your question on how do I come to know about the offers, you can come to know about them through newspapers. And electronic media
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I am not so clear about this one - how does an IPO system work?
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It is actually quite simple - through an IPO a company offers to sell the part-ownership of the company by offering shares to general public. There is a given number of shares that a company is willing to offer in an IPO. So depending on how many people have applied for buying the shares, the company will either offer you shares or will refund your money back.
You can easily apply to buy the shares of that company by filling an application form that will be available at your door steps
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And as an investor, how do I actually make profits after I have bought the shares of a company?
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After you buy the shares of a company at a particular price, if the share price of that company goes up then you can sell the shares at a price higher than what you had bought for and thus make a profit.
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So after I have applied for an IPO and received the shares, how do I sell them?
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This is where the role of a stock exchange comes into picture. Stock exchange is like a marketplace where shares of different companies are bought and sold. So after an IPO, the company would get itself listed on a stock exchange. After it has been listed you can either sell your shares or even buy more shares from the stock exchange.
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Is it also possible to buy shares directly from the Stock Exchange without applying for an IPO?
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Yes - you don't necessarily have to apply for an IPO to buy shares. You can also buy them from the stock exchange after the company lists itself on the exchange.
However, to buy and sell shares on a stock exchange you have to go through a registered intermediary called a broker.
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Who all are involved in this share market? I know there is the company, the broker and customers – but who else is a part of this?
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While there are many people involved in the back-end operations of stock market, the two entities that you should know about are a Depository Participant and SEBI. A depository is a place where the stocks of investors are held in electronic form. The depository has agents who are called depository participants or DPs. You can compare it to a bank where the depository is like the main office with all the details of the accounts and DPs are like the branch offices. In India, there are 2 depositories and over 100 DPs. These DPs act as custodian of your shares. You just open your demat account with these DPs and manage all the money in your share transactions through them.
Another important organization you need to know about it SEBI - it regulates the stock market to protect and safeguard the rights of the investors. You can visit www.sebi.gov.into get information about SEBI.
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One more doubt - I have always been confused between Sensex, BSE, NSE, and Nifty. What do they actually mean and what do they do?
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BSE is a short form for The Stock Exchange Mumbai and NSE for National Stock Exchange. They are the two most popular stock exchanges in India.
Each of these stock exchanges has an INDEX value that reflects the price movement of a group of selected important stocks that represent various sectors. SENSEX is the index for BSE and Nifty is of NSE. The SENSEX and NIFTY are generally used as yardsticks to measure the overall sentiments of the stock market.
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For a layman like me, what is the difference between fundamental and technical research?
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In fundamental research, one looks at a large number of factors like the company's performance, business prospects, overall economy etc. and then comes to decision whether a stock is worth buying at the current price. What we can also call the fundamentals of a company.
Technical research, as the name suggests, goes into the slightly technical side of stocks per se. It looks at the history of price movement, volume and tries to predict future movements of stocks. We at Shakthi use a combination of fundamental and technical analysis to come-up with sound and scientific recommendations to buy shares.
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TO BE HAPPY IN THE STOCKMARKET YOU SHOULD BE A PROFIT MAKING TRADER OR PROFIT MAKING INVESTOR
TO BE A PROFIT MAKING TRADER FOLLOW THE FOLLOWING GOLDEN RULES
STAGES OF BECOMING A PROFITABLE TRADER
Handling Your Emotions.
Stress and Anxiety. When the market is in your favor you will rarely feel any stress or anxiety but once it starts going against you the need to do some thing which will cause pain ( in this case loss of money ) will stop you from reacting , the more the market moves against you the more stressful the situation becomes and the greater the urgency to react which will finally lead to panic and irrational behavior at this point what ever you do will most likely be
disasters.
FearAfter suffering a heavy loss its normal to have a fear of the market and stop trading the need to suppress this fear is vital the longer you stop trading the more time your letting this fear to take route also you will be missing all the other opportunities to capitalize on the market
Over confidence Your first few trades are a success the feeling of being on the right side feels great and you think the trading is the thing to do.
WATCH OUT HEROES DIE YOUNG
Being over confident could be more disasterous than in being state of fear because you think you know every thing there is to know about trading and you have shut out the possibility of learning , your ego has taken over and when you eventually find yourself on the wrong side of a trade you will not be able to handle the situation of having to cut your position .
Not only have all the profit from previous trades been wiped out you might also have lost a huge portion of your initial capital if not all of it.
Self disciplineTo avoid the feeling of stress and fear you should know exactly what you want to do before you enter the market know where you want to take your profit and more important where you would cut your losses . if prices hit your predetermine levels you must execute your liquidations without hesitation excepting the consequences of your trade even before you enter the market will alleviate the stress involved in trading in this situation even if you suffer a loss you will not feel fear having looked at the market objectively in the first place you will not be afraid to enter the market again when the next opportunity rises .
Developing a Trading Strategy.
Maximize profits by understanding the psychology of the traders in the market.
Trading psychology – Introduction
Prices fluctuate not because of fundamental news or technical analysis .
It is traders who move prices. How a trader interprets the news or events will govern the way in which he enters the market. By executing the trade he would either have made prices go higher or lower. For trade to be struck there must always be a buyer and a seller , obviously there can be only one winner both the buyer and seller truly believe there was an opportunity for profit when they enter into the trade if the looser does not act objectively and cut his loses he would be falling into another trap. A trap that will cost him dearly , not only financially but also psychologically .
The first and hardest to becoming successful trader is knowing how to control not the markets but your own emotional behavior towards the market .
Therefore before you start trading know your self what your strength and weaknesses are learn how to control your emotions and approach the market objectively
Trading rules
1. The market is always right
2. Cut your losses
3. Never average a bad position
4. Don’t be greedy
5. Be committed to your decisions
6. Do not be influenced by others
7. Too much analysis breeds hesitation
8. Know the difference between gut feeling and wishful thinking
9. Take a break .
TO BE A SUCCESSFUL INVESTOR YOU SHOULD FOLLOW
THE FOLLOWING GOLDEN RULES
I will truly invest for the long-term
Everybody claims to be a long-term investor, but nobody really is. Most investors are relentlessly checking their portfolio every day, often more than professional money managers, and they lose sight of the long term. Checking your portfolio every day leads to overtrading, which only makes your broker and the tax department richer. Don’t forget that when you invest in a stock, you invest in a business – businesses don’t change materially every day.
. I will be disciplined and not emotional about investments
It’s very easy to see an article about the 10% rise in a mid-cap stock and go out and buy it, forgetting that news is meant to get you excited. If there is one place where discipline and not emotion pays off, it is your money. Make a plan when you build a portfolio – why are you building a portfolio, when do you intend to sell it to use the money, when would you increase it?
I will do due diligence on my fund manager
It is very easy to invest with a fund manager and then blame him when something goes wrong. Do the due diligence before investing. Just because you are investing in a known fund house doesn’t not mean the fund manager is competent. Find out about the fund manager’s track record and ask the manager about their practices – accounting, reporting, redeeming funds, talking to clients – to see if you can really rely on them.
I will have reasonable expectations with my money
Investing in the stock market will not double your money in a year – you should stop working if it did. Have reasonable expectations from your money and money manager. A manager who can beat the market by 5% every year net of all fees has done very well by global standards and a manager who claims they can beat it by 30% a year is lying. Any equity investment will lose some money in a 2008 like crisis – no manager can perfectly call a crisis and neither can you.
I will try something new with my money
Are you tired of saying every money manager sounds the same and that there is nothing new in the market? Think again – the market is full of young boutique managers with interesting ideas and new approaches to investing. All you have to do is seek them out and give them a listen. Suspend your existing beliefs and learn new approaches to investing, and try them out, at least in a small dose. If nothing, it adds valuable diversification to your portfolio.
I will invest based on my needs
No two investors are the same and every investor has different needs based on their income, life stage and responsibilities. Investing isn’t about gambling or playing the market for fun, it is about building long term wealth to meet your future needs. Understand what your needs are and then invest appropriately in different asset classes and instruments.
I will think about risk
Most investors conveniently ignore the more important side in the risk-return equation of finance – the risk side. Risk exists and is different by stock, sector, and asset class, and every investor should have a basic understanding of risk. Don’t evaluate the return on any investment independent of the risk of that investment. Get mathematical with risk – you always want to know the return numbers on an investment, ask for the risk ones too.
I will not follow the herd
Who doesn’t love following the herd, whether it is movies, music or money? If everyone is subscribing to the Reliance Power IPO, there must be something great about it, right? Wrong. What everyone is investing in or not investing in doesn’t have to be right – in fact, investing by nature is about discovering opportunities that others haven’t. Next time, when you make an investment decision, don’t look to the world for validation.
I will invest, today
If you do one thing i.e, don’t try to time when you invest. There is always a great excuse not to invest – market has run up too much, I am busy with other things, I don’t understand the market, afraid of a correction, can’t afford it. All the stars in the investing world never align and no time is a perfect time to invest – that is why markets work. If you are truly investing for the long term , there is no difference between today and two weeks later.
IF YOU HAVE ANY QUERY PLEASE MAIL YOUR QUERY TO moreinfo@shaktiinvestments.com
Disclaimer
This document has been prepared by the Research Desk of Shakthi Investment Consultancy P Ltd the information and opinions on shares,commodity , currency , property, funds and other investment options are based on The information obtained from sources believed reliable (print and electronic media). Investors /traders are, however, warned that they should NOT take any buy or sell decision based on the views expressed by us , Investors/traders should consult their own financial and share advisors before taking purchase or sale decisions.Trading and investing involves considerable risk. Trade and/or invest at your own risk to the extent you are comfortable. Shakti investment .com and/or Shakthi investment consutancy P. Ltd.shall not be responsible for any losses incurred for acting on its recommendations
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