To track how your stocks are doing, you have to look at stock listings. Stock listings are published in most of the newspaper (e.g. Dawn). The listings look confusing at first, since they look like a mixture of numbers, but can be a very useful tool when tracking your stock's progress. The listings are organized into many columns, including the following information:
Company name: This field is usually abbreviated in the listings, and listed alphabetically.
Symbol: This field is a one to five character symbol used as a sort of nickname for the company.
Volume: The volume is the amount of stocks that were traded the day before.
High, Low and Close: These are the highest and lowest price of the stock the day before, and the closing price for the day before. This is an indicator of how much the price of the stock fluctuated throughout the previous day.
Net change: This is the change of the price of the stock from the previous day. This gives you an idea whether the price is dropping or rising.
In addition to the stock listings, other useful information about companies is available in the Annual Reports that reflects the balance sheet, income statement and cash flows and states the reasons for changes in these financial statements during the year.
Showing posts with label Investor's Guide 3. Show all posts
Showing posts with label Investor's Guide 3. Show all posts
Sunday, April 12, 2009
Key considerations for investment in equities
Goals
Understanding why you are investing is the first step in structuring a portfolio. There are few questions investors need to ask themselves and review with their broker before starting to invest.
Specifically, What are my investment objectives? What is this money for? What kind of risk am I willing to take? What is my time horizon? It is important that you work closely with your advisor so you both have a clear understanding of your specific needs and goals.
Risk
Understanding risk is an integral factor that is required to be evaluated before making any investment. You can view risk as portfolio volatility, as the risk of not achieving your goals, or as the risk of permanent capital loss. When you are assessing risk, questions to ask yourself include: How much volatility am I willing to accept? What are the consequences if I do not achieve my investment objectives? How large a loss can I sustain? Do I want to use leverage?
Risk and returns are generally related. Over the long term, increasing your risk typically leads to higher expected returns, while lowering your risk leads to lower expected returns. However, this is not always so. For some occasions, which may occur for an extended period of time, higher levels of risk may lead to lower returns, and vice versa.
Goals and risk tolerance should be the basis for establishing investment guidelines for your portfolio. These guidelines will enable you to structure your portfolio and provide you with a framework that allows you to review and understand your investment performance.
Investment Climate
Whenever you hire a broker to invest in the stocks it’s not necessary that your results would be same as the market movements. In some cases brokers advise to invest in stocks that are not highly correlated with stock index due to the small capitalization of that particular scrip in the market.
Maximization of Return
The goal of the investor, in most cases, is to maximize return. Higher returns are often related with higher degree of risk. Investor should not take unnecessary risk to earn higher profits because it posts a great deal of threat to its basic equity and investments. Investors could avoid risk by diversifying its portfolio in different sectors, which usually pays off in terms of better returns.
Compnay Profile
Information regarding companies invested in and their economic profile should be exposed to the investor. Investor should be well aware of the financial background, management style and the nature of business of the company to make an adequate investment. Investing in the stock market requires looking ahead to anticipate future events in the company's life and changes in its business environment, to minimize risk and maximize return on investment.
How much Money can you afford to Invest?
Investors should be aware of the fact that investments in the stock usually do not result in immediate profits. A sound investment strategy avoids speculative moves. An investor should have excess reserves with its broker to protect himself against frequent fluctuations in stock.
Investment Avenues
Investors can invest in their money in stock in following ways:
Shares: It is the direct mode of investment in which investor directly sell and purchase stocks of various companies through the brokers or dealers.
Own Investment Strategy VS. Professional’s Advice
Sound strategy for investment in stock market requires either professional’s advice or own stock dealing decisions, which are often, time consuming. Despite the time consideration it is advisable to pursue own investment strategy because it is more rewarding than seeking broker’s opinion.
Understanding why you are investing is the first step in structuring a portfolio. There are few questions investors need to ask themselves and review with their broker before starting to invest.
Specifically, What are my investment objectives? What is this money for? What kind of risk am I willing to take? What is my time horizon? It is important that you work closely with your advisor so you both have a clear understanding of your specific needs and goals.
Risk
Understanding risk is an integral factor that is required to be evaluated before making any investment. You can view risk as portfolio volatility, as the risk of not achieving your goals, or as the risk of permanent capital loss. When you are assessing risk, questions to ask yourself include: How much volatility am I willing to accept? What are the consequences if I do not achieve my investment objectives? How large a loss can I sustain? Do I want to use leverage?
Risk and returns are generally related. Over the long term, increasing your risk typically leads to higher expected returns, while lowering your risk leads to lower expected returns. However, this is not always so. For some occasions, which may occur for an extended period of time, higher levels of risk may lead to lower returns, and vice versa.
Goals and risk tolerance should be the basis for establishing investment guidelines for your portfolio. These guidelines will enable you to structure your portfolio and provide you with a framework that allows you to review and understand your investment performance.
Investment Climate
Whenever you hire a broker to invest in the stocks it’s not necessary that your results would be same as the market movements. In some cases brokers advise to invest in stocks that are not highly correlated with stock index due to the small capitalization of that particular scrip in the market.
Maximization of Return
The goal of the investor, in most cases, is to maximize return. Higher returns are often related with higher degree of risk. Investor should not take unnecessary risk to earn higher profits because it posts a great deal of threat to its basic equity and investments. Investors could avoid risk by diversifying its portfolio in different sectors, which usually pays off in terms of better returns.
Compnay Profile
Information regarding companies invested in and their economic profile should be exposed to the investor. Investor should be well aware of the financial background, management style and the nature of business of the company to make an adequate investment. Investing in the stock market requires looking ahead to anticipate future events in the company's life and changes in its business environment, to minimize risk and maximize return on investment.
How much Money can you afford to Invest?
Investors should be aware of the fact that investments in the stock usually do not result in immediate profits. A sound investment strategy avoids speculative moves. An investor should have excess reserves with its broker to protect himself against frequent fluctuations in stock.
Investment Avenues
Investors can invest in their money in stock in following ways:
Shares: It is the direct mode of investment in which investor directly sell and purchase stocks of various companies through the brokers or dealers.
Own Investment Strategy VS. Professional’s Advice
Sound strategy for investment in stock market requires either professional’s advice or own stock dealing decisions, which are often, time consuming. Despite the time consideration it is advisable to pursue own investment strategy because it is more rewarding than seeking broker’s opinion.
Costs
Costs that are associated with stock dealing usually fall under the following heads:
1. Daily trade charges cost incurred by the investor for intra day transactions.
2. Badla charges are the charges incurred by the clients for carry over transactions commonly known as COT.
3. Delivery charges cost incurred by the investor for delivery transactions.
It is highly recommended that the investors should have a proper understanding of the commission structure of the brokerage service. The structure varies from broker to broker in most cases. It is advisable that the investor should ask his broker about all the cost associated with stock dealings to arrive at his net profit position
Concept of ‘Badla’
What is Badla
Badla is a mechanism to carry forward a speculative trade. It is also known as the Carry Over Transaction (COT).
Badla Finance in simple terms means putting money on interest. The mechanism is very easy for the stockbroking society but complex for the ordinary investor. History says Badla was born in the nineteenth century. Then, till today, the purpose has remained the same, the mechanism has hardly changed but the process has. These changes have made Badla Finance safer, more secure and transparent to clients besides a fair business practice for the stockbrokers
Machanism of Badla
A person buys shares with the intention to make profits but without blocking money. The purchase at the end of the settlement is carried forward to the next settlement. Here is where the client / Badla financiers steps in. The financier's block the money for taking delivery of shares purchased by the speculators. He gives the money to the exchange for shares bought. For this facility the speculator pays interest to the financiers. This interest is known as Badla.
Badla financing is done through stockbrokers
The financier gives money to his broker who in turn, hands over the same to the Exchange. The shares are retained by the Exchange under custody, on behalf of the broker's client. Since the shares and the money lie with the Exchange, broker's risk is also eliminated.
Example: If "A" has purchased 1000 shares of MCB @ Rs. 50 per share in Settlement 1, he has to take delivery from "B" who has sold the same. "A" would like to carry forward his position to the next settlement by letting "C" (Badla Financier) take delivery at the prevailing interest rate.
In settlement 2 "A" will have to purchase the shares at a higher badla rate as determined by the Exchange. If the Badla was Rs. 0.20 in settlement no.1, "A" will have to buy MCB @ Rs. 50.20 per share from "C".
The difference in purchase price in settlement no.1, and sale price in settlement no.2, is the earning for the Badla Financier.
Badla is a mechanism to carry forward a speculative trade. It is also known as the Carry Over Transaction (COT).
Badla Finance in simple terms means putting money on interest. The mechanism is very easy for the stockbroking society but complex for the ordinary investor. History says Badla was born in the nineteenth century. Then, till today, the purpose has remained the same, the mechanism has hardly changed but the process has. These changes have made Badla Finance safer, more secure and transparent to clients besides a fair business practice for the stockbrokers
Machanism of Badla
A person buys shares with the intention to make profits but without blocking money. The purchase at the end of the settlement is carried forward to the next settlement. Here is where the client / Badla financiers steps in. The financier's block the money for taking delivery of shares purchased by the speculators. He gives the money to the exchange for shares bought. For this facility the speculator pays interest to the financiers. This interest is known as Badla.
Badla financing is done through stockbrokers
The financier gives money to his broker who in turn, hands over the same to the Exchange. The shares are retained by the Exchange under custody, on behalf of the broker's client. Since the shares and the money lie with the Exchange, broker's risk is also eliminated.
Example: If "A" has purchased 1000 shares of MCB @ Rs. 50 per share in Settlement 1, he has to take delivery from "B" who has sold the same. "A" would like to carry forward his position to the next settlement by letting "C" (Badla Financier) take delivery at the prevailing interest rate.
In settlement 2 "A" will have to purchase the shares at a higher badla rate as determined by the Exchange. If the Badla was Rs. 0.20 in settlement no.1, "A" will have to buy MCB @ Rs. 50.20 per share from "C".
The difference in purchase price in settlement no.1, and sale price in settlement no.2, is the earning for the Badla Financier.
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