WHO WANTS TO BE A BILLIONAIRE?
The article starts with simple jargon related to stock market. It is exclusively meant for starters who do not know fundamentals of stock market investment. What are the reasons for low participation in equity market in India are highlighted. The power of Systemic Investment Plan, the role of Mutual Funds and the potential in the High Net worth Individuals are attempted effectively. Risk diversification and tips for effective investment are dwelt at length so as to encourage new investors in this area. At the end, the article concluded that any one can become a billionaire like Mr. Warren Buffet if there is passion, patience, preservation to reach the top slot.
Key words: Technical jargon, Indian Stock market Scenario, Demat Format, Systematic Investment Plan, Mutual Funds, High Net worth Individuals, Risk diversification, Tips for investment and Conclusion.
"Every fall has a rise and every rise has a fall".
The globe has turned out to be a materialitic and no one can survive without money. Money has taken precedence over other things in life. Although every one knows and admits that money is not everything but yet money is essential to survive in this world. But how can we make money? Can every one make money? Of course, if there is a mindset to make money. The performance of any individual depends on his mindset. If there is passion to make or mint money and also if one knows the secrets and strategies of generating more money, then it is very much possible. Above all if an individual has firm mindset to make the same.
One of the fastest ways to gain or lose money is by way of share market trading. Indian economy is doing well due to the privatization, liberalization and globalization. The share market is also bullish with minor hiccups here and there. Stock market has given excellent returns and presently is in the down turn due to the fear of global recession. Indian market is cut out for long term players and still there is a huge potential for growth and appreciation.
This script provides basic guidelines for new players to know the fundamental concepts related to stock market. Below are the related jargons.
'Long selling' is the position where a trader has stocks and sells and in short it is called as selling. 'Short selling' is a position where the trader has no stocks but sells with an intention to buy the stocks at a lower price later on. It is not advisable to go for short selling as the stock markets are totally unpredictable.
One might question why and how the fluctuation takes place in prices of scrips. For instance, if buyers are more and the sellers are less then the stock price goes up depending upon the orders of the buyers. Similarly if the sellers are more and buyers are less in a given situation the stock price falls. When the market trend is towards downward it is known as bearish market and on the other hand if the market trend is towards upward it is known as bullish market.
While trading if the stocks are bought and sold with in the same trading day it is known as intra trading and it is also known as 'day trading' as the trading is executed with in the same day. On the other hand, if the scrips are bought on a specific day and sold on some other day, the delivery of the stocks has to be taken and it is known as 'inter day trading'.
The scrip is traded from stock exchanges via share brokers or institutional brokers and there are many such exchanges. BSE and NSE is the acronym for Bombay Stock Exchange and National Stock Exchange and each has a specific quantity of scrips in its fold. People say that the BSE or NSE has gone up and that happens when the majority of the scirips go up and collectively it is said that the sensex has gone up. Sensex is nothing but the sensitivity index. It is not mandatory that the all the scrips in the BSE or NSE should move up so as to conclude that the sensex has moved up. The majority scrips with market capitalization will tip the scales of the index.
When an individual acquires shares from the company directly then the transaction can be called as 'primary market' source. If the scrips are bought from the exchange through broker then the transaction can be called as 'secondary market'. When a company issues shares directly to the public through an offer for the first time, then it is known as Initial Public Offer (IPO). IPO's and if is second time or any other times it is called Follow on Public Offer FPO and another concept is NFO New Fund Offer. There are also concepts like rights issue and bonus issue. In rights issue the company offers shares to the existing shareholders at a price and against the existing shares and in bonus issue the company offers the shares free of cost based on the number of shares the person holds.
All the companies offer shares with a face value of Rs 1 or 2 or 5 or 10/- etc with a premium price with a lower and upper price band for bidding. It all depends on the investor whether to accept at the lower or any other price band or may leave it at the discretion of the company by stating 'cut off' price. In such a situation whatever the price the company fixes to issue shares becomes the final price.
INDIAN STOCKMARKET SCENARIO:
India has the second largest population in the world and it has very low investor literacy rate. In western countries people's participation in stock market is far higher. Of course, there are number of reasons towards the same. India is a country of savers and Indians taking risk in the share market is one of the lowest in the world. People feel safe and comfortable by depositing their money in Fixed Deposits, Banks, and Postal savings. Besides, Indians have great taste towards yellow metal Gold. They also invest in lands, buildings and real estate. In western countries there are social security measures like old age pensions, unemployment allowance and other insurance. The Govt. takes care of the welfare of their people. That is the reason why there is a strong credit card culture there. People spend and borrow. All these measures have made the people living in developed countries to take high risks. Therefore, we can't expect Indian population to behave and invest like them.
In the past, the scrips were held in paper format and in physical format. There were too many loopholes and things were getting delayed. Brokers and intermediatories manipulated the transactions and ultimately the retail investors burnt their fingers. Conversion from floor based trading to screen based trading has enhanced transparency levels in the business transactions. In demat format the securities are held in electronic form and the charges for the same are nominal and minimal.
For opening demat account it is always advisable to approach institutional brokers who offer better services promptly and there is total transparency in the dealings. The brokerage charges can be negotiated and it all depends on the volume and the frequency of the business transactions.
SYSTEMATIC INVESTMENT PLAN (SIP):
SIP is an excellent tool to build up a capital base in the long term to meet your financial goals and objectives. It also creates a disciplined mindset and gives the benefit of cost averaging. It is necessary to invest regularly into specific stocks so as to average and leverage. If the scrip falls then by adopting this tool, the scrip can be acquired at a lower rate and if the scrip goes up then also you can average it at a little lower level than the real present price. SIP leaves no room for regrets. Many Mutual Funds schemes are encouraging and offering with a provision to invest through SIP by post dated cheque instruments.
When investors do not know how to invest in the stock market directly and if they want to learn the tricks of the trade it is better to invest in Mutual Funds. These are run by professional people who have flair for investment. The Mutual Funds collect the funds from the public and make a corpus and then they invest into various securities and instruments. They do lot of research, visit the companies, gather the information and know the upcoming companies and sectors that have huge potential for growth and appreciation. Every now and then they change their strategies to stay invested in to the best stocks. At times, they get the internal information of the companies much faster and act accordingly. The Mutual Funds follow Net Asset Value (NAV) where it is converted into units and it is very easy to trade and liquidate also. There are tax savings schemes in the Mutual Fund so that the investors will get the tax benefits. But there will be lock in period and during which the units can not be sold. To conclude, investing in Mutual Funds is a safe bet for new investors.
HIGH NET WORTH INDIVIDUALS (HNIs):
There is a huge potential in the area of HNIs. The elite investors have no time to manage their investments and they hire financial consultants to take care of their investments. The bosses find inadequate time due to their hectic work schedules and as a result they hand over the responsibility to the trusted and professional financial consultants. These consultants keep the HNIs informed about the developments in their portfolios.
"Wide diversification is only required when investors do not understand what they are doing", quoted Warren Buffet.
Risk is directly proportional to return. Higher the risk higher the return and lower the risk lower the risk. The risk is divided into low, medium and high risk. Taking risk depends on the risk appetite of the individual. And again taking risk depends on the age of the individual. The age is inversely proportional to risk. Lower the age, higher the risk an individual can take and vice versa.
It is essential to invest money in various scrips. And always invest in the scrips from different sectors that have a huge potential for growth. Observe the day to day life and find out what sectors are progressing and prospering and what sectors may flourish in the years to come and then invest your money in the best companies of different sectors so that if a particular sector did not do well then other sector will support you thereby having average, healthy and sustained growth.
TIPS FOR INVESTMENT:
"Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars", quoted Warren Buffet.
Look at the fundamentals of the company and check its previous track record.
Find out the management of the company whether it is professionally run or not?
What are the plans, prospects and expansions it is undertaking.
Does the company have good will and brand image in the corporate world?
Are there any related and unrelated diversifications, acquisitions or mergers etc?
Closely observe the promoter holding and track record of its dividend, EPS, P/E ratio.
Does the company have any other sister concern companies? Is the company financial sound or not?
Look at both the fundamental analysis and technical analysis and check for its consistency and complementary.
Read various business magazines, journals and newspaper before investing.
From Mutual Fund Fact sheet find out the investment pattern and you can learn the percentage of the investment and the companies the Mutual Funds have invested.
Pick up the scrips that have consistent growth and appreciation as well as giving handsome returns.
Avoid penny stocks.
Don't overtrade as overtrading kills. Ultimately it is the broker who gets commissions against each transaction.
Don't speculate but invest.
Never borrow and invest. Cut the cloth as per the coat.
Treat volatility as your friend not as a foe.
Always look at the margin of safety.
Above all, read between the lines.
Investing in equity market is both an art and science. The management institutes in India have started academic courses related to stock markets. It indicates the significance and importance attached to equity investments. Investing in stock market requires a lot of knowledge, inner information, patience and perseverance. An individual must be willing to take a risk and should have his own capital. He should also keep himself updated with the latest happenings about the company in which he has invested. If all the conditions are met, making money in the stock market is easy and any one can become a billionaire. Globally renowned investor and the richest man in the world Mr. Warren Buffet has not come to number one slot in overnight. It took many years of efforts, financial discipline, patience, perseverance and business acumen to come to this stage. Anything and everything is possible in the world if there is passion, patience and perseverance to reach to the top slot.