Take your own decision.
As a beginner, once you have set aside an amount for investment, the simplest thing is to ask for experienced investors for tips. Its ok to ask for such tips, but the final investment decision should be yours. You should do your own research on the stock and decide the amount and timeframe of investment. After all its your own money thats getting invested. The person who gave you the tip won't compensate you if the investment goes bust.
Another point to bear in mind is to not fall for tips of companies who's daily trading volumes are very low. Those may be penny stocks whose price movements are huge. Such stocks if picked at right time might bring in huge returns. However these are exactly the kind where you might loose all money invested.
Wednesday, May 28, 2008
Sunday, May 25, 2008
The stock market survival guide - II
Research.
As a novice the temptation, to listen to tips from experienced investors or brokers and then buy those stocks, is huge. Nothing wrong in listening to the tips.
However its important to do your own research.
Some of the criteria to consider while researching are as follows
- Results posted by the company. Look at quarterly as well as yearly. Look for consistent growth. A simple number to look at here would be EPS (Earnings per share). A continued increase in this number generally indicates that the company is in good health.
- Graph of the stock price over a long period of time ( About 6 months to a year is decent ). The trend in the stock price should typically be consistent with market conditions and the earnings growth. Any significant deviation would be indicative of some news around the company or its industry sector.
- Check price to earnings ratio (P/E) of the stock. This ratio generally indicates how costly or cheap the stock is. If its very low but greater than 0 then there is a good chance that the price of the stock may have been hit due to certain factors. However for companies with strong potential its generally a good time to buy.
A corollary to above rule is that a high P/E is generally a good time to sell.
- Check news. Although the 3 parameters mentioned above can help one in making judgement about any stock, news is what really causes stocks to move in a big way and in a relatively short time frame. Its usually difficult for a novice to make good judgements about stock movements based on news. This is however something that only can come through experience. Therefore it is worth keeping abreast news and its impact on the market.
As a novice the temptation, to listen to tips from experienced investors or brokers and then buy those stocks, is huge. Nothing wrong in listening to the tips.
However its important to do your own research.
Some of the criteria to consider while researching are as follows
- Results posted by the company. Look at quarterly as well as yearly. Look for consistent growth. A simple number to look at here would be EPS (Earnings per share). A continued increase in this number generally indicates that the company is in good health.
- Graph of the stock price over a long period of time ( About 6 months to a year is decent ). The trend in the stock price should typically be consistent with market conditions and the earnings growth. Any significant deviation would be indicative of some news around the company or its industry sector.
- Check price to earnings ratio (P/E) of the stock. This ratio generally indicates how costly or cheap the stock is. If its very low but greater than 0 then there is a good chance that the price of the stock may have been hit due to certain factors. However for companies with strong potential its generally a good time to buy.
A corollary to above rule is that a high P/E is generally a good time to sell.
- Check news. Although the 3 parameters mentioned above can help one in making judgement about any stock, news is what really causes stocks to move in a big way and in a relatively short time frame. Its usually difficult for a novice to make good judgements about stock movements based on news. This is however something that only can come through experience. Therefore it is worth keeping abreast news and its impact on the market.
Tuesday, May 13, 2008
The stock market survival guide - I
Try not to get a heart attack.
As a novice investor I am biased towards deposits as safe investments. The reason is that the chances that my invested principal is lost are virtually zero. (Those who don't know what principal here means, do 10 sit ups as punishment for not paying attention in high school mathematics class). However with the market there is always news about people losing a fortune and falling ill when the market crashes. I remember a friend of mind telling me about an uncle who got a heart attack after suffering loses in the market. Thus I think most of these people would be the ones who are so highly invested in the market that it is a little beyond the comfort zone.
Thus given the risk of loss, I think it is best to invest only as much as one can afford to lose without falling ill (or metaphorically speaking - "getting a heart attack").
As a novice investor I am biased towards deposits as safe investments. The reason is that the chances that my invested principal is lost are virtually zero. (Those who don't know what principal here means, do 10 sit ups as punishment for not paying attention in high school mathematics class). However with the market there is always news about people losing a fortune and falling ill when the market crashes. I remember a friend of mind telling me about an uncle who got a heart attack after suffering loses in the market. Thus I think most of these people would be the ones who are so highly invested in the market that it is a little beyond the comfort zone.
Thus given the risk of loss, I think it is best to invest only as much as one can afford to lose without falling ill (or metaphorically speaking - "getting a heart attack").
Sunday, May 4, 2008
The stock market survival guide for dummies.
Its been 4 years since I bought my first ever stock in the market. The Indian market has been in a phenomenal bull run since. In between it has seen quite a few bear phases too. Naturally as an investor I have learn't a few things. I therefore decided its time for publishing a few survival tips for a first generation novice investor like me.
First what does survival really mean?
As a dummy with the market my known modes of investment are at best fixed interest income instruments. These include bank deposits, saving certificates, provident fund, pension funds. Thus my investments can be expected to grow about 8 % annually as per current fixed deposit interest rates. This of course is virtually zero risk. Thus this marks the benchmark for my expectation of returns from any investment. With this background I consider that one has survived the market if over the long term (per current Indian rules a period greater than a year is considered long term for investments in stock market) one has achieved a return better than the benchmark mentioned above. Thus anything significantly better than 8 % and one would have more than just survived. In such a case consider comparing your returns to a more realistic benchmark (e.g. Market Indices like Sensex, nifty ). That comparison is of course not for the novice so for the posts in this series I'll stick to the benchmark defined before.
First what does survival really mean?
As a dummy with the market my known modes of investment are at best fixed interest income instruments. These include bank deposits, saving certificates, provident fund, pension funds. Thus my investments can be expected to grow about 8 % annually as per current fixed deposit interest rates. This of course is virtually zero risk. Thus this marks the benchmark for my expectation of returns from any investment. With this background I consider that one has survived the market if over the long term (per current Indian rules a period greater than a year is considered long term for investments in stock market) one has achieved a return better than the benchmark mentioned above. Thus anything significantly better than 8 % and one would have more than just survived. In such a case consider comparing your returns to a more realistic benchmark (e.g. Market Indices like Sensex, nifty ). That comparison is of course not for the novice so for the posts in this series I'll stick to the benchmark defined before.
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