One of the basic mistakes people do is when they decide to venture into the share bazaar (stock market) with the belief Greed is Good! Here is a News Flash .. Greed was never good, not in mythology & likewise in the stock market!
photo credit: thinkpanama
There are no rigid rules here .. now I assume you are a cautious investor & would like to achieve returns over a period of time. Short term gains are not based upon luck ( Yea I know its paradoxical ), they are based upon the powers that be in the stock market!
More often than not brokers form a coalition to try and affect the market in a profitable manner! Similar to the Vegetable vendors, when there is a shortage they immediately shore up supplies to artificially jack up the prices over & above the normal rise in the price.
So you are not really well of with short term investing (assuming you do not have cash to burn) unless
A.you are incredibly lucky or
B.you have a direct line to a top broker!
C.you are Warren Buffet.
Mind you sub-brokers are small fry in this business, they are whores to the fancies of the brokers, if brokers say buy ‘x’ they buy ‘x’ if Brokers say sell ‘y’, they sell ‘y’!!
So when I say a direct line to a broker I mean a DIRECT LINE to a broker who makes the decisions!
Now as far as long term investing is concerned, people generally tend to diversify the risk (its economics at work here) by investing in many stocks from different industries. This is just a measure to buffer your investment against any pitfall the industry may suffer!
When you look at long term gains, it again makes sense to look into the company’s track record. Following points maybe considered while choosing a company,
How old is the company?
The older generally means better as its then assumed to have weathered more crisis and withstood them!
Share Premium
Premium is generally decided upon the goodwill enjoyed by the company among the masses .. more goodwill directly translates into higher premium .. premium is the unrefundable extra you pay to the company during the first issue also known as Initial Public Offering(IPO).
The dividend payout is always on the face value of the share. If the face value of a share is Rs 10 and the premium is Rs 56, and the IPO, thus, at Rs 66, then a 10& dividen payout means only Re 1. Hence be careful when you sell!
Old or New Economy?
Old economy companies generally have lesser fluctuating prices in the stock market and hence not much care is to be taken about when to buy, while new economy companies have a whole history of fluctuations as wild as wild could be!So care should be taken that these stocks are picked up at the lowest possible price because if you pick up at a very high price then your capital appreciation ( increase in the value of the stock) would be less or worse may depreciate.For e.g.: If you had bought an INFY say when it was Rs. 14000 then long the years your original capital investment has eroded by approximately Rs. 10000 & no amount of dividends will ever be able to erase that loss!
Management style, Professional or archaic hierarchical?
Professionally managed companies are generally better because they commit lesser errors than the hierarchical one. On the downside Hierarchical companies benefit greatly if lead by a visionary & the decision making process is far much faster & the qualities of the leader greatly affect the qualities of the company!
Industry Future
This is important in the sense that, if the government comes out with a new regulation whereby our company X is unable to produce its basic product then it can be concluded, it has no future! Some mining companies run the risk of using up all of its raw ore!
How many bonus shares has the company issued in the past?
Bonus issues are the free shares granted by the company to its shareholders. It’s a sign of good performance of the company. The bonus issue adds to your (investors) capital value of the share at no extra cost to the investor (You). Care should be taken as there have been cases when companies in deep trouble have issued bonus shares to calm fears of alarmed investors.
Dividend payout as a % of profit
The rest of the money goes into the capital Reserve account thus fattening the cash reserves of the company. All the money needed for a new venture is swiped from this account and thus the percentage is a measure of the internal financial strength of the company. Sometimes sitting on huge cash reserves could also be a sign of retarded growth as it signifies missed opportunities.
Growth in last five years.
These figures give you a fair idea of the direction the company is moving towards & is a good measure to predict the future of the company. Please be aware that no company can sustain with high growth rate for long periods of tie though there have been cases where astonishing performances have been achieved!
Creditors & Debtors
(these are then people whom the company owes & has lent money respectively) Look into who these entities are, consider whether more money has to be given out or whether more money is coming in. It is also important to note the Credit/Debt worthiness of the entities. Keep a sharp eye on foul play as far as the debtors are concerned, too many scams have occurred with bad debtors turning up, to suit the purses of the management!
Visit the company website,
you will get a fair idea of what the company is all about and also a measure ( for a few more years, after that it will cannot be counted) of the companies attitude of embracing new age technology!
Do not blindly believe in ratios
Ratios are something which can be easily played upon & thus though they are very widely used and are fair to a large extent, keep in mind that its possible to play truant with these figures!
Exercise alertness!
Do not act hastly on so called HOT TIPS they might be a rumour for all you know!Note: It will help to go and play a few games found over the internet to get a feel of what the market would be!Tthere have been lots of times when a few savvy investors have made some real good money at the equity markets, while noone will ever guarantee(i mena bet their life on your money) you a return, it’s generally wise to keep your eyes and ears wide open just n case. Keeping ‘tab‘ on the market for a few weeks before plunging in is a good idea for the ‘i want money quick’ investor.
Disclaimer: I do not claim this to be the definitive guide to investing & I advise you to consider it as a supplement to any literature which you already have. I do not take any responsibility ( I cannot ) for any profit/loss though I would be extremely happy if I find you have found these points useful!! 
All the Best & HAPPY INVESTING
COMMENTS
Post a comment