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Showing posts with label stock market. Show all posts
Showing posts with label stock market. Show all posts
Sunday, September 11, 2016
Blue Chip Stocks Slide
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Blue Chip,
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Blue Chip Definition
Blue Chip
According to the New York Stock Exchange, a blue chip is stock in
a corporation with a national reputation for quality, reliability,
and the ability to operate profitably in good times and bad.
From the investor’s perspective, a blue chip is a stock or
shares in a company that in addition to having proven abilities, rewards the
shareholders handsome dividends regularly, without break, issues bonus shares
at regular intervals and generally protects the interests of the investors
through conservative management policies like not contracting debt at all are
very small debt and so on.
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stock,
stock market
Bear Market Slide
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Saturday, September 10, 2016
Market Is A Pendulum Slide
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Thursday, September 1, 2016
What is US Federal Reserve and How will a Fed Rate Hike Affect the Indian Stock Market?
Every country has a central bank akin
to our own the ‘Reserve Bank of India (RBI)’ to regulate the commercial banks
and craft and implement the the country’s monetary policy. The ‘US Federal
Reserve’ is the central bank of the US.
Central banks world over usually discharge
following functions:
- Regulate functioning of commercial banks in various ways.
- Monitor and control liquidity in the economy by mopping of excess liquidity in the system (by borrowing, raising limits of compulsory reserves like CRR and SLR) and creating liquidity where there is a shortage (recent Quantitative Easing measures of the US is an example).
- Determining the Interest Rates through the ‘Repo and Reverse Repo Rates’.
- Monitoring and controlling ‘Inflation’ or ‘Price Rise’ through the different monetary measures discussed above.
Although stagnant or on a slight decline for a
decade perhaps, the US still is a great nation. Even though her economy is not
in great shape (the US today carries the highest external debt in the world),
in the absence of a credible alternative, its currency remains the last resort
in an increasingly turbulent global economy.
In an effort to revive her sagging economy,
the successive US governments, aided by the Federal Reserve, have been
implementing following stimulus measures:
- Enhancing liquidity in the system through the most controversial and undesirable ‘Quantitative Easing’ or in plain words ‘Printing of Money’.
- In order to boost investment, maintaining negative or ridiculously low interest rates.
- Excess Liquidity: Though meant for boosting domestic investment, cash invariably flows out and floods world markets. This results in a lot of money chasing a small number of stocks and other financial instruments. As per the latest study published by ‘Value Research’ an incredible 40% of the free floating shares of the Indian stock market is held by Foreign Institutional Investors or FIIs. This in-turn drives up valuations to absurdly high levels, making many goos stocks unaffordable to value investors.
- Maintaining low interest rates for long periods of time adversely impact the interest incomes of majority of common population - ultimately affecting internal savings and investments, which was the goal of the measure in the first place! Additionally it aids the flow of money from the US to global markets, especially emerging economies like India, in search of better interest rates and other investment returns.
In this overall scenario, in the light of
signals emerging from the the US economy that it is strengthening and realising
in hind sight that the stimulus measures are hurting the economy the Federal
Reserve is attempting a course correction by restoring healthy interest rates
gradually.
Having covered the basics and understanding
the background let us now address your question in the following paragraphs.
- An increase in interest rates by the US Federal Reserve will have the impact of reversing the outward flow of liquidity. The FIIs will find it little more attractive to invest in their own home country. As a result they start selling their holdings in the world markets, causing a fall in stock prices globally.
- In addition, an increase in interest rates at home will make the Dollar stronger and conversely the other countries currencies, including the Indian Rupee, weaker. This will force the hands of FIIs to sell immediately, as otherwise they will face a double loss:
- A loss on sale that is certain to arise by selling latter in a falling market.
- The currency exchange loss; when the Indian rupee depreciates, rupees 68 will fetch one dollar today will fetch less than a dollar after a week.
In the end, when the Fed increases rates,
global markets will fall and liquidity in the global markets will reduce
drastically. There is no doubt abiout this.
Real impact of market correction
Is such a steep fall or deep correction of the
Indian Stock Market good? Yes, it is really very good for the investors. Please
note that excess liquidity chasing the small available floating stock has driven-up
the valuations to unreasonable levels. While prudent investment guidelines
prescribe a PE Ratio of
10 based on past five years earnings, the market today is trading at over 15 of
expected, future earnings of the financial
year 2016–17. As a result, real investors like you and I are unable to afford
to buy shares at these levels.
In conclusion, the Indian stock market will
correct on the back of the US Fed increasing interest rates, as and when it
happens, and I as a value investor is eagerly looking forward to that day when
I will be able to afford to buy many great Indian companies’ stocks like 'Infosys Ltd.',
which I cannot afford presently.
Please Note: This is almost a reproduction of the question I
had answered on the website ‘Quora’, which I thought could be useful to the
visitors to this blog site also.
Labels:
Fed Rate,
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interest rate,
liquidity,
market correction,
Price to Earnings Ratio,
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US Fed Reserve
Thursday, August 25, 2016
Market Is A Pendulum
The stock market is dynamic
and prices of shares fluctuate constantly. Thus is normal for any large and
open market. It also constantly swings like pendulum between extreme optimism
and pessimism.
Stock Market Is A Pendulum |
Many lay investors, not groomed
in value investing, and driven by uncontrolled emotions of greed and fear; enter the
market when it is unjustifiably high. No wonder soon the market crashes. The
same investors are now gripped with panic and sell the shares which they had
bought at high valuations some time back sell at a steep loss, fearing further
fall in prices.
An intelligent investor
on the other hand, knowing the true, intrinsic value of the shares is perfectly
at peace during the market turbulences. He capitalizes on the opportunities
thrown up by the market. He purchases when the market is in extreme
pessimism and sells when it is in extreme optimism.
The seller from whim the
intelligent investor buys and the buyer to whom the wise value investor sells may
be the same person, at two different points of time.
Tuesday, August 23, 2016
Steps to Invest in the Indian Stock Market
Historically stock market investments have rewarded investors with significant returns over long periods of time. Still, awareness about benefits of investing in stocks is poor in India. People are piqued by questions like how to invest money, how to invest in stocks, how to invest in share market, what are the best stocks to buy, so on so forth. In order to address such question this article provides the steps to invest in the Indian stock market.
Step 1:
First and foremost is learn investing. Without sound investing knowledge people may face unnecessary pitfalls and may get disheartened early in their investing careers. Please read the book “Intelligent Investor - The Investors' Bible” by Benjamin Graham.
Please also learn value investing for FREE in the blog here.
Please also learn value investing for FREE in the blog here.
Step 2
Using a kotak stock filter, “Kotak Securities” which appear as follows:
Using two parameters ‘market cap’ between ‘1000 to 99999 crores’ and ‘PE Ratio’ between 1 and 10, filter the stock. It should yield you about 100 stocks for further study. You must study carefully past 10 - 15 years’ profitability ratios, solvency ratios, liquidity ratios, dividend track record, etc. Please note this is an indicative list of items.
The stocks listed in “Portfolio 2K15” is the final list of Indian Shares I have deemed fit for investing. The list is only for educational purposes. One cannot blindly invest in the scrips mentioned there - one has to calculate the intrinsic value of stocks and pay only the lowest best stock prices below their intrinsic value.
Step 3
Open a ‘Trading’ account with a stock broker and a ‘Demat’ account with a stock depositary account (DP Account). You should link an existing bank account or open a fresh bank account with the DP Account for the automatic crediting of dividends. Your stock broker will assist you in this. I use ‘Kotak Securities’ as my stock broker. ‘Zerodha’ offers minimal charges.
Mutual Funds/ Exchange Traded Funds
If you think learning stock investing very tedious, you may invest in 'Mutual Funds' or ‘Exchange Traded Funds (ETFs), which are a type of mutual fund which mirrors popular indices like NIFTY 50, for which you have to undergo the procedure in Step 3, but instead of buying the share of a company you choose the ETF. Goldman Sachs NIFTY BEES and Goldman Sachs Junior NIFTY BEES are what I have invested in and shown in ‘Portfolio 2K15’. The advantage of ETFs is that fund management charges are very low at about less than 0.50% per annum.
Alternatively, you may choose normal mutual funds. I find the fund management charges are high.
Suggested Further Reading:
- Miracle of Compounding
- Risk Comes from Not Knowing What You are Doing
- Margin of Safety
- You Only Find Out Who is Swimming Naked When The Tide Goes Out
- How to Find The Fair Price of A Stock?
Conclusion
Investments in best stocks will no doubt produce enduring wealth. There is absolutely no need for investors to be hassled by questions like how to invest money, how to invest in stocks, how to invest in share market, what are the best stocks to buy, and so on. Steps to invest in the Indian stock market have been deliberated in detail above offering guidance to identify the best stock to buy at the best stock prices.
Labels:
investing,
Questions and Answers,
steps,
stock market
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