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.

INVESTING IN STOCKS

Good research, good reasons, patience and effective investment plans are key successful factors in stock investment.The stock investments 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.

Stock investment brings financial security , flexibility and tax advantages but you should have a financial and research knowledge.

Why do people invest in stocks?

• To continuously generate some income
• Companies generate earnings by selling products or service.
• Shareholders are compensated for their risks through a risk premium.
• Stocks are more likely to generate long term income.

Factors to consider

Stock is a business of buying business. see something favorable in billions of mind. For example, coca-cola Its running business for a long time and it sells more and more every year. And people still think positive about coca-cola. So, look for the widening of the product.

Write down the qualities and service of the product.

• Good money
• Social programs
• massive military
• expenses go up due to military cost
• Fiat
• loss of faith  
• end of currency and inflation

But overall , James O'Shaughnessy's "Trending Value" method is a good one.I described the method in my own way 

At first ,I download all financial information on every company available so that i can value whatever metrics in whatever way I want.I mainly figure out 6 six statistics to form a stock's value for part 1 and rank them in 0-100 with 100 being the "best" and 0 being the "worst".Those 6 six statistics are

• P/E
• P/S
• P/B
• P/F
• CF
• Shareholder Yield (which is stock Buybacks + Dividend Yield) EV/EBITDA 

( I consider 600 rating stock the perfect stock whereas above or equal 450 as financially sound stock and ignore the undervalued referenced by P/E, P/S, P/B.)

Secondly, i sort 490+ stock by 6-month relative price to get the ordered list of financially sound or stable companies that the market is behind.I find out the right direction by finding out the financially stable company without having growth.

Steps in selling or purchasing stocks or selling a stock

•  A decides to invest in the stock market
•  B decides to sell shares of company X
•  A's broker finds out the highest bid to buy or the lowest offer to sell
•  A tells his broker to purchase 40 shares of X at the current market price.
•  B orders to sell her 40 shares at the current market price.
•  Both orders executes and transactions are processed accordingly.

Key Terms

Before you start investing you should be familiar with some key terminologies below.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

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.

Research  methods

• Get an access to information about the global economy and the markets from Internet, newspapers, magazines and news etc.
• To see initial public offering of a stock, get a prospectus of that company.

• Get company’s annual report, quarterly reports and insider transactions etc.
• On the Internet look for issuer, current price and past performance graphs
• Also find some details about investor fact sheets, annual reports and management backgrounds
• Look for balance sheet to see the company performance. 
• Check previous year and current year changes.
• Look for debts and liabilities like unpaid wages, loans and taxes etc
• Check the net worth of the company. Total assets must equal to liabilities and shareholder’s equity.
• Look for income statement of a company, expenses and total money left for reinvestment.
• Look for past working capital and spending criteria’s.
• If possible, check the truthfulness of annual report from an independent accountant..

FUNDAMENTAL ANALYSIS

Stock Market

Stock market is a market where you trade stocks.

Stocks mean bonds or shares.

Bonds – buy from banks, corporate companies, government.

Example: I buy a bond for $1000 and I invest that money on company. And they give me form of IOU.

So, they pay me interest on that bond.

I can also sell my bond.

Shares – breaking whole or part of company to small pieces.

Stock market has primary and secondary function.

At primary market- the company issues the new shares or bonds.

At secondary market- the shares bought from initial market is sold.

So, as an investor you can buy the shares or bond from the primary market or from the secondary market.

When you own a stock,that means you own a small piece of much larger company.

Stock bought and sold in a stock market means buying and selling their ownership.

Stock price means current market price of a single stock in that company.

Buyers put in a bid price

Sellers put in an ask price

Price to Earning ratio (P/E)

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) ==> 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 ==> 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

Price to Sales ratio ( P/S)

p/s = 1 ==>  pay $1 for $1 sales the company makes
p/s = 2 ==> pay $2 for $1 sales

==> pay less than $1 for $1 sales ==> pretty good bargain

As a whole,

<1   ==> great out performance
1-2 ==> pretty good
3     ==> good
4     ==> go up to high at 4
4<  ==> bad

So ,
p/s ratio below the median = good
p/s < = 2  means strong buys and buys
p/s <= median p/s for its industry
(valuation that are lower than their industry)

Recommend  p/s <= 2

Diversification

If you only own one stock and the share price drops,you could lose a big part of your investment.So,don't just put all your eggs in one basket.

put number of companies and no of stocks on different companies to reduce risk.

do not invest enormous amount on stock

Fundamental Analysis 

A) For Value and Growth

P/ E
PEG
P/B

B) For returns and forecasts

Dividend Yield
Divedend Franking
Total Shareholder Return

C) Financial Strings

Return to Equity
Debt to Equity
Interest cover

Beta

Beta increases ==> stock more volatile and more risky

Beta > 1 stock is riskier than market

Beta < 1 stock is less risky

• high beta stocks are riskier 
• they have a higher expected return

Divident Strategies

               Invest in companies who have a history of increasing their dividend.

·         Compound your results by reinvesting dividends in additional shares of stock.
·         Dividend growth rate is a reliable forecaster of future earnings  growth
·         Dividends are paid in cash.

F     Franking Credit

==> tax officet
==>all companies that provide divedents are franking credits
example : $1 = CT 30%
Div --> 70c
C-->30c
= $1
==> more franking credits are good features for paying less tax
==> franking credits are bonuses.

Dividend Yield

==> tax officet
==>all companies that provide divedents are franking credits
example : $1 = CT 30%
Div --> 70c
C-->30c
= $1
==> more franking credits are good features for paying less tax
==> franking credits are bonuses.

Price to Book ratio

P/B = share price / book value per share
and
book value = Assets - liabilites

example
P/B = 4.30/1.84 = 2.34 times
So,
P/B >1 ==> you paying lot for share [ careful ]
P/B<1 ==> you getting bargain for share [ good ]

PEG ratio

P/B = share price / book value per share
and
book value = Assets - liabilites

example
P/B = 4.30/1.84 = 2.34 times
So,
P/B >1 ==> you paying lot for share [ careful ]
P/B<1 ==> you getting bargain for share [ good ]

Debt to Equity Ratio

Example

	E

                                               

Assets                                              liabilities                  Equity

$120,000                                        $100,000              $20,000      

-cash equipment                             -loans

                                                     

Bank ==è  liabilities/equity = 5

High risk to bank

i.e. per $1 è $5 debt

So, E is highly leveraged.

Return to Equity (ROE)

Example:

	A		B

                                                                                                                                    

Earns per year      $50M                                                    $50M

Equity                      $100M                                               $250M

ROE  = profit/equity

           = 50%                                                                       = 20%

So, A is more efficient in generating profits. So, buy A.