EQUIP YOURSELF TO MAKE INVESTMENTS DECISIONS YOURSELF

To equip yourself for an effective investment plan you should research about :

Financial Strength 

Financial Leverage
Debt to Equity (D/E)
Interest Coverage
Current Ratio

Quick ratio

Valuation Ratios

Price to Earnings (P/E)
Price to Sale (P/S)
Price to Book (P/B)
Earning Yield
Dividend Yield
Cash Return

Management Side Effectiveness 

Return on Assets (ROA)
Return on Equity (ROE)
Return to Investment Capital (ROC)

Effectiveness

Free Cash Flow (FCF)
Discounted Cash Flow (DCF)
Intrinsic value

Practice Explanation based on Figure 1-2 below

Lets see Opto Circuits India Ltd - Stock Research & Analysis (15 Dec 2008)
The Annual report shows the company grown has grown so fast.Lets Analysis step by step

Reasons

Strong foundation
Stents-the growth engine
Strategic acquisitions
Strong Distribution Network

How sustainable is this growth likely to be in future?

Quality of this growth

Competitive advantage in Core non-invasive business
Sensors: Opto has now emerged as the largest supplier of SpO2 sensors
Patient monitors: New launches to fuel growth
Acquisition of Criticare Systems to widen product portfolio
Invasive Business – future growth engine
Opto’s stents are of superior quality
DIOR: a revolutionary product –launched Feb 2007
Huge Domestic market potential
Growing Innovation focus - R&D, licenses, trials and Patents protection
Niche Segments -Competitive barriers work to Opto’s favour

Profitability

There are these 3 levers that can boost Return on Equity (ROE) - net margins, asset turnover, and financial leverage. (Because ROE = Net Margin x Asset Turnover x Financial Leverage).




Sources of Profitability

Sales
Cost of goods sold

Gross margin
Selling and operating expenses
Operating margin

Fiscal year 07 shows negative free cash flow. The cash flow was negative because the Operating level and is a cause of concern.

Analysis 

Investors should watch this negative cash flow closely. It could be the is catching early signs of improvement and/or worsening of its business operations.

But Opto Circuits has solid ROEs and ROICs margins so we can analysis that Opto Circuits is still in sound financial health

So, what does these negative cash flows indicates?
It's might be an indication that Opto Circuits is re-investing the cash wisely.

After the financial health check, we should check for a solid foundation.

Financial leverage

Debt to Equity(D/E)
Interest Coverage
Current Ratio
Quick ratio

The next step is to analysis the Risks factors as follows

Risks/Bear Case

Litigation Risk
Technological obsolescence
Debtor days on the higher side
Foreign Exchange Risks    

Management

Compensation
Character
Running the Business
Performance
Self-Confidence

                                                                                    The End.                                                             

2013 INVESTMENT STRATEGIES

An achievable and specific financial goal

Good investment strategy starts from your good saving habit.So, you should make a plan to achieve specific financial goal within a time frame. For example I am going to save extra $200 on my saving account this month.

Warren Buffet says " Do not save what is left after spending, but spend what is left after saving"

Lower your credit card loans and personal debts.

To lower the debt you must make a strategy to clear the debt in specific period of time. You can do it by dividing the debt by months and see how much you can put regular amount of money to pay that debt in full. This will generate some saving in future as well reduce your financial stress in long run.

Find your super and consolidate them. 

This is also a long term strategy and helps you to save some money for your future.

Invest in yourself.

This investment should go for your career development and could be anything from education, job training, business setup ,online marketing or stock investment.

But in fact make stock investment your second priority at the beginning.

Though people make lot of money from stocks and once you learn how to trade you can make good money regularly but this is not something you can depend on fully in your life.

So as a beginner, always use your extra time from your work and study to do the research about stock. You can visit my blog regularly to get more and more ideas and also i appreciate if you actively take the participation in discussion.

If you are investing in stock to earn money quickly ,or to get rid of your debt quickly then forget about stocks.


Stock investment is not for lazy people who want to become rich in one day.

Stock investment brings financial security , flexibility and tax advantages.But if you don't have a financial knowledge and not ready to research in depth before investing then it ruins your life with some more debts and losses.

Good research, good reasons, patience and more research for new stocks are key successful factors in stock investment.These terms have too many technical terminologies,formulas and calculation tools.But the basic you get out of all the books,theories and experts are all the same.

They only talk about research, patience and your habits.

2013 BEST STOCK INVESTMENT STRATEGIES

In 2013, to understand the stock market direction and movement, the most powerful indicator is the research on market conditions.

The first strategy is to have more and more cash on your saving account rather than credit cards or loans. The reason for this strategy is that in 2013 the broad based market decline might occur and experts are predicting that in 2013 lots of low value opportunities will be available for trade off. Which will definitely be a good cash investment in 2013?

The next strategy is to sort out long term and short term investments.Categorize your stock investments in short term and long term approach. Having both short term and long term strategy is really a balanced approach in investing. So, trade really good opportunities in short term if you find any but hold majority of your cash for long term investment where you can wait for good opportunities in future or hold stock for long time to get a largest return via different policies and procedures.

In general, It is seen that investments close to the fair value or overvalued are more likely to decline. Trading the overvalued stock gives you some capital for future whereas trading investments close to fair value might reduce your loss a little bit. But the question is holding for long term? Some people when want to hold a stock for long time, some trade-offs questions should be considered.

a) Here we must analyse in terms of investment plan. If trading off the stocks (close to the fair value or overvalued ) gives you some more capital and the rest of the investment is will handle your overall functionality and required amount of income as planned then it is safe to sell. But if this is not the case then it is encouraged to hold the stock for the right period of time.

b) Second trade-off question is about the capital. You have to calculate how much capital you can collect by reducing your position or trading off your stock. If the profit is far more greater than the dividend payments received then it is a good deal otherwise reducing your position is not a wise decision.

c) The third trade-off question is the amount of reduction. The trade-off should not be so large that the remaining position of overall investment becomes incapable of generating your required income. In general the amount of reduction should not be that large that it weakens the functionality of your investment plan.

Prioritize the task that requires attention:

Since high priority items cannot be neglected for too long, we should prioritize each item in terms of importance and need. According to your investment plan, you should create a priority list of all functional areas that require attention. This is the best way to prepare for every opportunity. You should be capable of addressing each item considering the expected market outlook and likelihood of opportunities.

The item with more opportunities needs to be listed first.

Functional Investing

Create a prioritized list and perform the necessary research to filter out stocks that meet your investment criteria. Create a wish list according to your investment plan and categorize stocks according to their characteristics. For example short term investment, long term investment, high dividend, ETFs etc and then you finalize the amount of capital and length of time for each category. 

Concentrate on quality and risk

Warren Buffet says on Investment “Do not put all eggs in one basket” and on Expectation “Honesty is very expensive gift. Do not expect it from cheap people.” Minimize unnecessary risk.

For Equities -Focus on growth, competitive history and strong balance sheets.

For Bonds-Focus on high capital and long term established business that is more likely to pay distribution when bond market decline occurs.

LOW PRICED INVESTMENT

Although, with Low priced stock you can get lots of shares and if the stock you bought went up you can get good amount of money sometime. But it doesn't work all the time, the low priced stock sometime drops rapidly and may never peak up again.

If P/E ratios of a stock are high and the stock price might be overpriced. Then should we go for lower P/E ratios for better investment. The answer to this question is also NO and it depends on number of other factors.

To know this, lets revise P/E calculation for a while again

Example : price per share/ earnings per share = $4.20/ 30 cents = 14
i.e. if you pay $4.20 per share right now,you are paying 14 times 1 year earnings to get $4.20.It means it takes 14 years to get money back from 1 year earning investment.

• Utility companies have low Price to Earning ratio (P/E)
• Telecom companies have high Price to Earning ratio (P/E)Price to Earning ratio (P/E) doesn't predict the size,dividend,future earning.
• low Price to Earning ratio (P/E) is good
• high Price to Earning ratio (P/E) means high expectation
• Price to Earning ratio (P/E) > 16 don't buy
• Price to Earning ratio (P/E) > 20 = high growth,competitive advantage,rich valuation
• Price to Earning ratio (P/E) = 12-20 means fair value,stable industry
• Price to Earning ratio (P/E) < 12 low margin,commodity and undervalued finance

So, Price to Earning ratio (P/E) = 12-30

Normally, average P/E ratios varies industry wise. Industries with moderate potential growth tend to have lower P/E ratios whereas,industries with robust future potential tend to have higher P/E ratios.

So, while doing the P/E calculation, companies of same industry or different industry or company in same industry with different characteristics needs to be compared.

MISTAKES A BEGINNER SHOULD AVOID

Hi there,

Beginners make some common silly mistakes at the early phase of investment.

The first one is they look for the stock alone and do not calculate the financial situations.

They just go for the same sector stocks with same buying value that had given them decent profit in previous investment.For instance,X buy $85 share in Agricultural sector and get $50 profit after 6 months,Then X start to look for the same $85 value share to buy for his next investment.Another similar example of this is Y made decent money from silver industry last year then he only look for the same industry this year to make same or more amount of profit,which in fact can be a blunder investment mistake because the overall capitalization or P/E value or volume of share might have changed this time.So every time you make an investment in share market you need to do a detail research before investment.

Another mistake is beginners just see the stock value and overlook the other investment opportunities like mutual fund offer,dividend offer,low rate offer etc.

Beginners assume that they should wait for a stock drop at the same level where you made some profit last year.But they forget that the company's financial situation and market competition changes over time to time.

Beginners are always in hurry and don't do financial research before investment which is another big mistake.

The financial fundamentals should be tracked at least quarterly.Annual reports,company announcement,liability and debt calculation,overall capitalization,volume and demand etc needs to be studied first before the good investment in stock market. 

Another silly mistake that beginners assume that $80 is twice cheaper than $160.But this is not true,The value of a stock is  calculated by the price of the stock  divided by the earnings per share,i.e. P/E ratio.

So if P/E =30 < P/E = 50. This can also be understand by taking the concept that $80 traded stock may have only 6 million shares while $160 worth of stock might have 2 million stock.

Good Luck,

Dibesh

STOCK TERMINOLOGIES AND BASIC CHART READING

Please feel free to advise me at the end of this article if you feel I've missed an important one.

After-Hours Trading –Any trading done before and after the major stock exchanges are closed. In the United States, major stock exchanges open from 9:30 am ET to 4:00 pm ET

Market volume – It is the amount of stocks of a company traded over any period of time.

Market capitalization – It is the total value of a company determined by stock market.

Market capitalization = current stock price * No of outstanding shares.

Day range – lowest and highest price of a stock in a day 

52 weeks high and low- highest and lowest price paid for the stock during the past year.

Stock - The name of the company name, every stock has a symbol.

Div: dividend. For each share, shareholders receive at least $1.76 from company's annual profit. It is a portion of profit paid to stockholders. Dividends could be cash or stock paid to investors. It is the profit split between all of the company’s shareholders and more shares you own more dividends you get. And it is paid out every 4 months (quarterly)

P/E - Price/earnings ratio for the last year.It is a good indicator of a stock strength as lower the PE ratio,the higher the earnings.

Yld% or yield (rate of return) = annual dividend/current price of stock

Sales 100s: Total amount of stock traded during the previous day.

Bear Market – It is a period of time when most stock are declining in value.

EPS: Earnings per Share or net consolidated earnings divided by the number of shares. EPS lets you know which earnings have been distributed to shareholders.

CA: corporate actions like take-over bid, a public exchange offer or a capital increase that could impact share values

Asks Price – It is the price that the buyer asks to pay to buy a stock. In general ask price is slightly higher than the current value of a stock. Let’s say 26 for 25.5 valued stock

Bid Price – The price that is offered by a buyer. When both bid price and ask price are met up than the transaction occurs for desired number of shares.

Bull Market – It is a period of time when most stock are increasing in value.

Call Option – It is a buyer and seller agreement to make the trading on specific date, at fixed price per share with certain fee paid to seller. The seller cannot back out the deal if the buyer intends to buy as per agreement.

Commission – The fees paid to a stock broker for your order execution. The fee varies according to different company.

Daily Volume – Total amount of shared traded in a daily basis.Each stock has its own daily volume chart and it shows how active or passive they are in the market.

Discount Broker – A discounted broker is the one who facilitates trades and offers trading for a discounted price.

Fiscal Year – It is a 12 month accounting period designated by a company and it can begin anytime in a year but once it begins,it can’t be changed.

Stock index –It is a specific group of stocks.It is a method of measuring the value of a section of the stock market.It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors , financial managers and reporters to describe the market, and to compare the return on specific investments.

Limit Order – When buyers and sellers don’t wish to make a real time trade they both can give limit orders to each other.Buyers place a limit order when stock price drops to a certain buy/low point and similarly seller place a limit when stock price rises to a certain sell high point.

Margin – Buying a stock on margin simply means borrowing money from brokers to buy a stock.Investors take advantage of this opportunity when they don’t have cash to make an immediate good deal.

Market Order – It is an order that executes immediately at the current price of stock.

Put Option – Here the seller gets the power of trade but have to pay premium fee for this option and if buyer and seller agree on a put option than the seller has the right to sell his stock anytime to the buyer before the expiration date occurs.

Portfolio – A portfolio is simply a collection of all your investments.If you own 4 stocks A,B,C,D then your portfolio would have A,B,C,D stocks.

                                                                                                                                                         

Some Investing terms 

Preferred Stock – Preferred stock is the result of negotiation that takes place between investors and company.It holds higher value to investors than common stock because dividends are paid out first and sometimes at a higher rate.The owners of preferred stock have no voting rights within the company but owners of common stock have.

Quote – It is the current price of the stock and some websites give it in real time while others with a time delay of around 10-15 minutes.

Short Sale – It is the sale for a short period time where investors can sell others stock for a short time in the hope that it declines. The profit or risk bearer is the investor in this case because either on stock price increase or decrease the investor have to buy it back.

Ticker Symbol – It is a unique abbreviation of a company in a stock exchange and contains usually 1 to 5 characters. A tickler symbol is unique representation of a company and is publicly traded in a stock exchange.    

Stock Index

Stock index is a specific group of stocks.It is a method of measuring the value of a section of the stock market.It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors , financial managers and reporters to describe the market, and to compare the return on specific investments.

            










Share Performance :If your are achieving your investment goals then you can say your shares are going well.
But,Share's performance continue to vary within the market sector from one period of time to another.

To measure the investment performance,share market indices are the benchmark of measurement.Indices provides an indication of share price movement for particular industry groups.

 Basic stock chart reading 1                                                                                                    

Basic stock chart reading 2                                                                                                    

HOW STOCK PRICE GOES UP AND DOWN?

A company only issues limited number of shares.The individual stock price goes up and down according to supply and demand.

More people want to buy the stock,they ready to pay high and the price goes up.As the supply of shares of any stock is limited,when the price goes very high and buyers not ready to pay that price,the stock price starts to drop.

So,for a limited stock,more demand means price goes up and less demand means price goes down.

                Stock Market : How Is the Price of a Stock Determined?

LEARN FROM WARREN BUFFETT

Warren Buffett - How to Turn $40 into $5 Million

  How to Stay Out of Debt: Warren Buffett - Financial Future of America

Warren Buffett - 10 ways to get rich

   Warren Buffett - This is Always a Bad Investment

       Warren Buffet - The World's Best Product

Warren Buffett - There is Only One Type of Investment Risk

Warren Buffett Book That Changed My Life

Warren Buffett's Financial Rules to Live By

  

WHERE DOES THE MONEY GO WHEN STOCK PRICE GOES DOWN ?

Is it true that when market is super-down, somebody makes a lot of money?

Example: I bought shares of ABC company at $80, but the shares are now worth $15. Now think where does the extra $65 go?

Lets see four different entities: A company and three people named X, Y, and Z. A wants to sell the shares and X,Y and Z has initial positions as 

·         A has $0 (but owns 1 share)

·         X has $200

·         Y has $500

·         Z has $1000 

1.    A has initial public offering called IPO, and sells 1 share of stock to X for $30.

2.    A stock value goes up, and X sells his share to Y for $80.

3.    A stock value crashes, and Y sells her share to Z for $15

Scenario 1:

·         A has $30 (down 1 share, up $30 from initial)

·         X has $170 ($200-$30)

·         Y has $500

·         Z has $1000

X worries and sells his share to Y for $80.

Transaction 2: Mert sells his share to Rachel for $80

·         A has $30 (down 1 share, up $30 from initial)

·         X has $250 ($50 up ,$170+$80 = $250)

·         Y has $420 (up 1 share, down $80 from initial, i.e. $500-$80=$420)

·         Z has $1000

X went right and the burst occurred. Now Y  is worried, so Y sells to Z for $15

Final Transaction: Y sells his share to Z for $15

·         A has $30 (down 1 share, up $30 from initial)

·         X has $250 (up $50 from initial)

·         Y has $435 ($65 down from initial($500),$420+$15=$435)

·         Z has $985 (up 1 share, down $15 from initial)

In conclusion ,we can see that

Total money lost = Total money gained and

Total number of stocks lost = Total number of stocks gained

It is terrifying to hear that the share market has lost $45 billion dollars in one day.But should we really worry about this or does this fall have an impact on the shares we own? Not necessarily.

The share market can be compared to any market and in fact share investment is just like property investment.

When you invest in a property ,there are mainly developer and buyer.The developer gets benefited only once and thereafter buyer gets the benefit or losses on that property.Similar is the concept of share market.Once the initial public offering is issued,the the shares are traded on the share market  and the company doesn't receive any money from buyers selling their shares to someone else.