Do you know earnings from stock market depend on your approach?

In lure of big money people are attracted to share market but let me caution you making money in stock market is not easy. It requires a lot of patience, a disciplined approach, sound research, and analysis apart from many other factors.

National-Stock-Exchange

The stock market is volatile and this has confused a lot of investors and traders alike. They are in confusion, should they buy, sell or hold on to the equity. There is no sure shot formula to succeed in the stock market, but there are few unsaid golden rules that will increase the chances of getting good returns.

Research before you invest

One should conduct proper research before investing in stocks and in actual practice, it is rarely done. Investors look for the name and brand of the company. Some have a preference only for particular industry or sector or brand and that is not the right way to put your money.

Only invest in the businesses that you have some knowledge about

Never invest simply in a stock instead invest in the business. When you buy shares you are a part owner of the company. So before you invest you should know what the company’s business is.

Never ever try to time the market

The stock market is highly unpredictable even Warren Buffett does not try to time the market, he does have his view about the price level an individual share can go (upside or downside). Majority of investors just do the opposite.

Avoid following the leader blindly

Usually, it is seen that the investor his highly influenced by his family members, friends, colleagues or acquaintance while investing in shares. Did they conduct an analysis before coming to the conclusion what to buy and what not to buy? Another tendency is to buy those shares that everyone around is buying, following the herd mentality. This strategy is sure to backfire. In Warren Buffett words: “be fearful when others are greedy and be greedy when others are fearful”.

Your strategy should have a disciplined approach

Volatility is a part and parcel of every stock market. It is seen that even in bull runs there are bouts of panic moments. In this volatility, many investors lose money even in bull runs. There should be a systematic and disciplined approach for generating good returns. Calculate out at what price you wish to buy shares and at what price you wish to sell them until then hold on to it.

Let not emotions come your way

Do not be carried away with your greed or fear emotions. Investors lose money because of their inability to control their emotions. The stock market is not the game for speculation. Analysis and proper calculations will create wealth for you; use your brain instead of your heart.

Let your portfolio be sufficiently broad

Diversification is the key to reduce your risk. Diversify your folio across different asset classes. This diversification depends upon your risk taking capacity. Also do not over diversify.

In case you need any help or have any queries regarding which stocks which should be bought or sold you can contact us and we will be glad to help you out.

Should you buy shares issued at the premium price?

The shares available in Indian share market of any company have a par value or Face Value (FV). The face value of shares is usually Rs. 1, Rs. 2, Rs. 5, Rs. 10 etc. The FV has to be a positive integer whole number. It cannot have a fractional value like Rs. 1.50 or Rs. 2.25. The shares which are issued in the market are usually issued at a premium price.

premium shares

Let us take an example to understand what shares issued/offered at premium price means.

ABC Company’s share has a face value of Rs. 2 per share. During its public launching (IPO) the company decides to issue shares at Rs. 50 per share in the market. The shares are issued at a premium. That is more than its face value. You can calculate the premium thus.

Premium per share = issue price – face value

As per our example of ABC Company, the premium per share can be calculated as follows

Premium per share = 50 (Issue price) – 2 (face value) = 48

In other words, the face value per share is Rs. 2, Premium is Rs. 48, and the issue price is Rs. 50.

Let us go deeper to understand the concept of why companies issue shares on the premium price and not the face value.

Equity financing

When any company plans for expansion or additions to the existing line of business and grow big the individual owners or partners require funds or the company requires funds for further modernization and expansion. They can get funds through banks, NBFI, or the general public or it can raise funds through equity route or debit route.

When the promoters take the equity route that is called equity financing, the company or its promoters sell a portion of their holding to the public. The number of shares which can be issued to the public is limited by authorized capital. AC is the capital that can be raised which is a total number of shares multiplied by its face value. The authorized capital is mentioned in the company’s MoA (Memorandum of Association). MoA is prepared by the company at the time of its registration and is a legal document which has to be submitted to SEBI (Securities and Exchange Board of India) along with other documents.

It should be noted that the company cannot issue more shares than the number indicated in its MoA. It can raise more capital by issuing shares at a premium.

The reason why the shares are issued at a premium

As stated above the company needs cash for the modernization and expansion plans of its business. As the company wishes to go public that is promoters are ready to dilute their shareholding. Since the company is in businesses for the last several years it develops goodwill among the public, an established brand of product, and a reputation in its line of business earning sufficient profit. When it issues shares at a premium it has two advantages, firstly short term that is higher the premium, less is the number of shares that it has to issue in the market and promoters holding remains higher. Secondly, the long-term benefit is that if shares issued are less the dividend per share is higher. In other words, the existing shareholders will get a better dividend yield. Since promoters’ holding percentage is more, a number of shares held by them are more and they get a larger share of the dividend.

If the premium is higher it has twin advantage for the company and its promoters. They are able to generate the required capital for their expansion plan and holding a larger portion of shares of the company. In future, they can buy-back shares from the public to further strengthen their hold on the company.

It is seen from time to time the company buy-back its shares from the share market when the promoters feel that the share price is undervalued in the market and increase their holding. Promoters know the functioning of the company so they buy their undervalued shares and when in future their share price increases they sell it and book profit. On the other hand just to fool investors and drive up the share price of their company the promoters go in for a buy-back.

If you are undecided that shares should be purchased at the premium price they are offered at or not, you can contact us and we will be glad to solve your query.

Should you hold on or sell your losing stock?

Many investors buy stocks for making money and wealth but not all stocks give you good or expected returns. Some fail miserably in their performance. Mr. Raju had many stocks in his portfolio and most of them he realized were bad businesses in spite of bull-run in the market over the last few years.

losing stock

He did not know the way out. Not only he, but there are also many who do not know what to do with those stocks that are in the portfolio which are not performing well.

Many people can be heard saying that stocks they are holding are in a deep loss and what will they get selling it anyway.

Few other grumble that they have a losing stock and will sell only when they get the capital back, and they do not mind holding to it for a long time. They are ‘forced’ long-term investors, as they think they do not have the option to sell it.

Nobody likes to lose

It is true, many people hang on to their losing investments because they feel selling is worse.

Researchers of investment behavior have found that pain of loss is much bigger than the pleasure from gain. Investors go great length to avoid pain. As a result, our thinking when facing financial loss is to encourage ourselves that the stock will ultimately bounce back and will sell when we reach the break-even point.

To pacify themselves people will say that it is an only paper loss as a real loss will be when the stock is sold.

How to decide whether to hold on or sell?

One of the suggestions to these people is if you think the stocks are good then hold on to them if the stocks are bad to sell them and do not think what price you bought them for in the past.

The cost price at which you bought stock does not matter when you do not know what you should be doing with bad stock in your portfolio. What matter is today’s stock price!!! Assuming that it is a good business and you look to buy those stocks afresh today and your anticipated returns from it in the next 10 years or so. If you think you will not buy it today then sell the stock that you are holding. Do not wait for the breakeven point. There may be even a better way to invest your money.

Are you waiting for the breakeven point before you sell?

You should not keep losers in your investment portfolio, sell them instead and move on just as a well-managed store does not keep obsolete goods as inventory.

If you think how much more the stock price will fall from here think that every 90 percent loss started with 10 percent, 20 percent and so on till 90 percent, so as soon as you realize that you have made mistake purchasing certain stock it is better to take loss sooner than later.

We give recommendation tips as to which shares to buy and which to sell. You can contact/communicate to us which stocks at present you are holding which was a bad business and we will suggest an alternate way to out.

Online Trading Tips to Secure Better Returns on Your Investment

Share trading is buying and selling of shares in the stock exchange. When this trading takes place through computers and the internet it is called online trading. For trading, you need two accounts, demat account, and trading account. Traders/investors who wish to trade on their own prefer this type of trading facility.

Online Trading Tips

Discussed here are few online trading tips to secure better returns on your investment.

Start with small capital

Those who are the newbie in stock trading should start with small amount of capital in the beginning. Human beings make mistakes and so even if you suffer loss during your first few trades your trading spirit will not be broken as you would have not lost much right in the beginning. You will gain experience of how the website works and what are the options that are available.

Study stock market

Before entering into the field of trading, one should study the basics of the stock market and features of an online trading website. You should be aware of how stock markets work, its basic terminologies, and types of trades available. If you do not study and observe you may end up buying/selling wrong orders.

Do your own research

One should gain some understanding of fundamental and technical analysis of the company to choose the right stocks for investment. For this you can rely on your own research and mathematical calculations or take help from experienced people in the field. If your trades are based only on impulse, the outcome of the trade will be unpredictable.

Trade only in a few sectors

One can trade in many sectors but it is advisable to stick to those sectors of whom you have knowledge about. By selecting a few sectors you can stay updated about all the occurrences in those selected sectors and that will be beneficial. You can search about news, related articles, financial reports of the companies in those sectors through the internet, business newspapers, magazines etc. in which you are interested. Company news helps in planning strategy and trade execution.

Using trading tools

There are many tools available to help you come to a decision when and what to buy/sell. Few of the tools are charting tools, stock watch list, SMS/email alerts, charts, graphs, high and low, etc. These resources will help you in taking right decisions. These tools give you information whereby you do not trade on impulse or intuition.

Trade from anywhere

Being online and registered you can trade from wherever you are from home, from office, while traveling or even in some remote location provided you have an internet connection!

Choose a good online brokerage firm

While choosing an online broker see to it that his web speed is good and has a good reputation. The available services for an online trading platform can make a difference between financial success/failure. Check for online broker pricing especially if you are a day trader as in the long run it will make a lot of difference in your profits. A good broker will offer resources for education and research.

Online trading will provide you the convenience of trading and few other benefits. We provide trading tips regarding which shares to purchase/sell so as to derive maximum returns. You can contact us on phone, email or by filling up the details which appear on our webpage.

Is stock trading analogous to gambling?

For many trading and gambling, are same in theory but are practically different. One is calculative risk-taking and another luck or chance game. But both offer unlimited potential for profit or loss.

stock trading

While trading most people have the will to win. Nevertheless only a few have the will to prepare to win. So, here are some stock trading tips for you.

Analyzing data

Trading in the stock market is not a game of dice, it involves, apart from other things introspecting the past data that is available and analyzing it. In gambling, it is an ultimate win or loss, but in trading, nothing is ultimate, neither the win nor the loss. Companies are in constant competition with each other to provide better services and bring in new products for better utility. This leads to a rise in their stock prices which earn better profits for the firm.

Reasoning, rationality, and logic

Traders want to invest in right stocks and hence constantly seek the latest information about the company. To predict market trends they perform technical and fundamental analysis and calculate things mathematically. They apply reasoning, rationality, and logic to come to the conclusion which stocks to buy and which to sell. Investors on the other hand judge past trades and then plan their strategy. Where to invest, amount to be invested, and for how long should they hold. Gambling is totally different game altogether.

Entering and exiting market

All trades are first carefully analyzed before buying and selling. Traders know at what level they will enter the market and exit before initiating any trade. They follow the strategy that they have made and are disciplined in it. Everyone knows that the market is unpredictable and the wise investor goes in a planned manner rather than playing with odds. It is due to his discipline and patience that he made a good profit. Trading is not winning the one-time jackpot but it can be a regular source of income.

Calculating before buying/selling

Before trading one should know that he/she cannot win each and every trade. Whenever one trades he should have a long-term approach. Before investing the trader should gain as much knowledge about the company as possible. Blindly buying stocks without calculations and analysis is like betting at the poker game without looking at your cards.

Effects of environment

In gambling no outside events affect the outcome, in stocks outside events like a good/bad monsoon, change of political power, change in government rules/regulations, strike etc. affect market movements.

Planning and learning

In gambling, there is a get-rich-quick perspective which is not suitable in the stock market. Traders look for a plan that provides for a learning experience which in due course leads to success. A trader gains experience even when he loses and using this experience he can gain better profits in the future, nothing like this in gambling.

Risk can be managed

In trading, you can incorporate risk management techniques to reduce loss. Risk cannot be managed in gambling, you win or you lose as simple as that. No need for technical and fundamental analysis in gambling.

We perform technical and fundamentals analysis of the company before providing you with any tips or suggestions. We also study other parameters like political climate, change in government rules or regulations, weather conditions (rainfall), inventions or discovery, etc. before coming to any conclusion to buy/sell the shares.