http://riddhisiddhijewellery.blogspot.com
For more details just click the above link
Friday, November 6, 2009
Sunday, November 1, 2009
8 key ratios while buying stocks
8 key ratios while buying stocks
LOOKING to buy stocks but you are not sure how to select them? Don't fret. We have, here, eight ratios that would make your life easier, and of course, enable you to make the best possible stock selection.
1. Ploughback or Reserves
Every year, the company divides its net profit (profits in hand after subtracting various expenses including taxes) in two portions: ploughback and dividends.
While dividends are handed out to the shareholders, ploughback is kept by the company for its future use and is included in its reserves. Ploughback is essential because, besides boosting the company’s reserves, it is a source of funds for the company’s expansion plans. Hence, if you are looking for a company with good growth prospects, check its ploughback figures. Reserves are also known as shareholders’ funds, since they belong to the shareholders. If a company’s reserves are twice its equity capital, the company can reward its shareholders with a generous bonus. Also any increase in reserves will push the share price of your share.
2. Book value per share
This ratio shows the worth of each share of a company as per the company's accounting books. It is calculated as:
Shareholders' funds
------------------------------------------------ = Book Value per share
Total quantity of equity shares issued
Shareholders' funds can be computed as such:
Total assets (equity capital to the company's reserves) less total liabilities (money owed to creditors).
Book value is an old record that uses the original purchase prices of the assets.
However, it doesn't show the present market price of the company’s assets. As a result, this ratio has a restricted use when it comes to estimating the market price of the shares, but can give you an estimate of the minimum price of the company’s shares. It will also help you judge if the share price is overpriced or under-priced.
Also read: 4 golden rules of equity investing
3. Earnings per share (EPS)
One of the most popular investment ratios, it can be computed as:
Profit Post Tax
------------------------------------------------ = EPS
Total quantity of equity shares issued
This ratio computes the company's earnings on a per share basis. Say, you own 100 shares of ABC Co., each having a face value of Rs 10. Assume the earnings per share is Rs 10 and the dividend declared is 30 per cent, or Rs 3 per share. This implies that on every share of ABC Co., you earn Rs 6 each year, but you actually get Rs 3 via dividend. The balance of Rs 4 per share goes into the ploughback (retained earnings). Had you purchased these shares at par, it implies a return of 60 per cent.
This example shows that instead of looking at the dividends received from to company as the base of investment returns, always look at earnings per share, as it is the actual indicator of the returns earned by your shares.
4. Price Earnings Ratio (P/E)
This ratio highlights the connection between the market price of a share and its EPS.
Price of the share
------------------------ = P/E
Earnings per share
It shows the degree to which earnings of a share are protected by its price. Say, the P/E is 40, it means the share price is 40 times its earnings. So if the company's EPS is constant, it will need about 40 years to make up for the purchase price of the share, after taking into account the dividends and the capital appreciation. Hence, low P/E means you will recover your money quickly.
P/E ratio shows what the market thinks about the earnings potential and future business forecast of a company. Companies with high P/E ratios are the darlings of the investors and thus enjoy a higher market rating. In order to use the P/E ratio properly, take into account the future earnings and growth projections of the company. If the current P/E ratio is low, as against the future prospects of a company, then the shares make an attractive investment option. But if the company is saddled with losses and falling sales, stay away from it, despite the low P/E ratio.
5. Dividend and yield
Dividend is the portion of the profit that is distributed amongst shareholders. Companies offering high dividends, normally don’t have much of growth to talk about. This is because the ploughback required to finance future development is insufficient. Similarly, those companies in high growth sector don’t give any dividend. Instead here they give sharp capital appreciation, which ultimately will lead to higher dividends.
So it makes much more sense to invest for capital appreciation instead of dividends. Rather it makes more sense to invest for yield, which is nothing but the association between the dividends and the market price of the shares. Yield (dividend yield) can be calculated as:
Dividend per share
----------------------------- x 100 = Yield
Market price of a share
Yield shows the returns in percentage that you can expect via dividends earned by your investment at the current market price. It is more useful than simply focusing on the dividends.
Also read: Will dividend yield stock make you rich?
6. Return of capital employed (ROCE)
ROCE is the ratio that is calculated as:
Operating profit
----------------------------------------
Capital employed (net value + debt)
To get operating profit, add old taxes paid, depreciation, special one-off expenses, and special one-off income and miscellaneous income to get the net profit. The operating profit is a far better indicator of the profits earned by the company instead of the net profit. Hence this ratio is the better indicator of the general performance of the company and the company’s operational efficiency. It is one of the most useful ratio that lets you compare amongst the companies.
7. Return on net worth (RONW)
RONW is calculated as
Net Profit
-----------------
Net Worth
This ratio gives you an idea of the returns generated by investing in the company. While ROCE is an effective measure to get a general overview of the profitability of the company’s business operations, RONW lets you gauge the returns you can earn on your investment. When used along with ROCE, you get an overview of the company’s competence, financial standing and its capacity to generate returns on shareholders’ finances and capital employed.
8. PEG ratio
PEG is an essential and extensively used ratio for calculating the inbuilt worth of a share. It helps you decide whether the share is under-priced, totally priced or overpriced. To derive the ratio, you have to associate the P/E ratio with the expected growth rate of the company. It assumes that higher the growth rate of the company, higher the P/E ratio of the company’s shares. Vice versa also holds true.
P/E
----------------------------------
Expected growth rate of the EPS of the company
In general, a PEG lesser than 0.5 is a lucrative investment opportunity. However if the PEG exceeds 1.5, it is time to sell.
These are some of the most critical ratios that must be considered when purchasing a share. Extensive reading of the financial performance of the company in newspapers and magazines will help you get all the relevant information to arrive at the correct decision.
LOOKING to buy stocks but you are not sure how to select them? Don't fret. We have, here, eight ratios that would make your life easier, and of course, enable you to make the best possible stock selection.
1. Ploughback or Reserves
Every year, the company divides its net profit (profits in hand after subtracting various expenses including taxes) in two portions: ploughback and dividends.
While dividends are handed out to the shareholders, ploughback is kept by the company for its future use and is included in its reserves. Ploughback is essential because, besides boosting the company’s reserves, it is a source of funds for the company’s expansion plans. Hence, if you are looking for a company with good growth prospects, check its ploughback figures. Reserves are also known as shareholders’ funds, since they belong to the shareholders. If a company’s reserves are twice its equity capital, the company can reward its shareholders with a generous bonus. Also any increase in reserves will push the share price of your share.
2. Book value per share
This ratio shows the worth of each share of a company as per the company's accounting books. It is calculated as:
Shareholders' funds
------------------------------------------------ = Book Value per share
Total quantity of equity shares issued
Shareholders' funds can be computed as such:
Total assets (equity capital to the company's reserves) less total liabilities (money owed to creditors).
Book value is an old record that uses the original purchase prices of the assets.
However, it doesn't show the present market price of the company’s assets. As a result, this ratio has a restricted use when it comes to estimating the market price of the shares, but can give you an estimate of the minimum price of the company’s shares. It will also help you judge if the share price is overpriced or under-priced.
Also read: 4 golden rules of equity investing
3. Earnings per share (EPS)
One of the most popular investment ratios, it can be computed as:
Profit Post Tax
------------------------------------------------ = EPS
Total quantity of equity shares issued
This ratio computes the company's earnings on a per share basis. Say, you own 100 shares of ABC Co., each having a face value of Rs 10. Assume the earnings per share is Rs 10 and the dividend declared is 30 per cent, or Rs 3 per share. This implies that on every share of ABC Co., you earn Rs 6 each year, but you actually get Rs 3 via dividend. The balance of Rs 4 per share goes into the ploughback (retained earnings). Had you purchased these shares at par, it implies a return of 60 per cent.
This example shows that instead of looking at the dividends received from to company as the base of investment returns, always look at earnings per share, as it is the actual indicator of the returns earned by your shares.
4. Price Earnings Ratio (P/E)
This ratio highlights the connection between the market price of a share and its EPS.
Price of the share
------------------------ = P/E
Earnings per share
It shows the degree to which earnings of a share are protected by its price. Say, the P/E is 40, it means the share price is 40 times its earnings. So if the company's EPS is constant, it will need about 40 years to make up for the purchase price of the share, after taking into account the dividends and the capital appreciation. Hence, low P/E means you will recover your money quickly.
P/E ratio shows what the market thinks about the earnings potential and future business forecast of a company. Companies with high P/E ratios are the darlings of the investors and thus enjoy a higher market rating. In order to use the P/E ratio properly, take into account the future earnings and growth projections of the company. If the current P/E ratio is low, as against the future prospects of a company, then the shares make an attractive investment option. But if the company is saddled with losses and falling sales, stay away from it, despite the low P/E ratio.
5. Dividend and yield
Dividend is the portion of the profit that is distributed amongst shareholders. Companies offering high dividends, normally don’t have much of growth to talk about. This is because the ploughback required to finance future development is insufficient. Similarly, those companies in high growth sector don’t give any dividend. Instead here they give sharp capital appreciation, which ultimately will lead to higher dividends.
So it makes much more sense to invest for capital appreciation instead of dividends. Rather it makes more sense to invest for yield, which is nothing but the association between the dividends and the market price of the shares. Yield (dividend yield) can be calculated as:
Dividend per share
----------------------------- x 100 = Yield
Market price of a share
Yield shows the returns in percentage that you can expect via dividends earned by your investment at the current market price. It is more useful than simply focusing on the dividends.
Also read: Will dividend yield stock make you rich?
6. Return of capital employed (ROCE)
ROCE is the ratio that is calculated as:
Operating profit
----------------------------------------
Capital employed (net value + debt)
To get operating profit, add old taxes paid, depreciation, special one-off expenses, and special one-off income and miscellaneous income to get the net profit. The operating profit is a far better indicator of the profits earned by the company instead of the net profit. Hence this ratio is the better indicator of the general performance of the company and the company’s operational efficiency. It is one of the most useful ratio that lets you compare amongst the companies.
7. Return on net worth (RONW)
RONW is calculated as
Net Profit
-----------------
Net Worth
This ratio gives you an idea of the returns generated by investing in the company. While ROCE is an effective measure to get a general overview of the profitability of the company’s business operations, RONW lets you gauge the returns you can earn on your investment. When used along with ROCE, you get an overview of the company’s competence, financial standing and its capacity to generate returns on shareholders’ finances and capital employed.
8. PEG ratio
PEG is an essential and extensively used ratio for calculating the inbuilt worth of a share. It helps you decide whether the share is under-priced, totally priced or overpriced. To derive the ratio, you have to associate the P/E ratio with the expected growth rate of the company. It assumes that higher the growth rate of the company, higher the P/E ratio of the company’s shares. Vice versa also holds true.
P/E
----------------------------------
Expected growth rate of the EPS of the company
In general, a PEG lesser than 0.5 is a lucrative investment opportunity. However if the PEG exceeds 1.5, it is time to sell.
These are some of the most critical ratios that must be considered when purchasing a share. Extensive reading of the financial performance of the company in newspapers and magazines will help you get all the relevant information to arrive at the correct decision.
Investing is NOT a game with only one winner
In October-November 2008, there was excessive pessimism around. In fact that period could take the cake for being one of the most challenging periods for most investors. It was a period when not just equity markets but also bank accounts were no longer considered safe. Everyday you heard noises of FMPs, liquid funds and even banks going bust and how the financial world would end soon. In fact the only safe way was to hoard cash. One currency expert even went on air saying that he was closing all his accounts at private banks and stashing his dough at State Bank of India, SBI. Suddenly people queued outside SBI branches and SBI started collecting several thousand crore of deposits every day. It was outright foolish to do so but the herd mentality was at work and the headlines and experts were screaming doom.
One smart investment banker redeemed his FMP midway falling prey to such rumors and at a discount. The FMP is up 11% today. He regretfully now says “Sometimes it’s dangerous to know many things. I would have been better off not knowing many things.”I told him that I disagree as it is all about your ability to think rationally during such times and not following all the bull thrown at you. I told him that I know of smart people who know things as well as people who do not know much about investing who have made amazing gains because of their ability to filter the noise.
On the other hand in October 2009, one is witnessing euphoria all around with the stock markets having crossed several milestones.
There are 3 key lessons or principles that equity markets have once again taught us over the last one year and they can surely come in handy when we face a similar situation sometime later in our investing life.
1st Principle
Besides investing regularly in equities (as the SIPs during these periods have given the best gains), invest a lot more confidently when no one wants to even listen to the word equity. The whole world was full of insights, research, inputs and so on about the death of equity as an asset class. There were media reports on the poor data coming from every possible front and to top it there was the Satyam scandal which made a lot of foreign and local investors doubt the integrity of Indian managements. Everyday you read about the next set of companies who could be in trouble. A friend who wanted to invest in equities just could not because all around he read that we were headed for doom. By the way he is still waiting.
There is no way to know that the stock market has bottomed out but it’s during such times of excessive pessimism that the market turn around and this was demonstrated well even during the recent turnaround on March 9, 2009.
Do not obsess over earnings and wait endlessly for clear data points. Stock markets always try to anticipate the future and are actually well ahead of significant changes in earnings and other data points. It is quite possible that earnings are lousy or take a lot of time to catch up. However a lot of people obsess over this and miss out on huge up moves. We are currently witnessing the second quarter results which seem to be quite encouraging. The recent IIP data of a 10.4% spurt advance tax collections and a host of other factors point out at GDP upgrades in the near term.
Yes there sure could be pain as the western world is still not out of woods and higher commodity prices and inflation will have interest rates inching up next year onwards. As always there will be a lot of negative factors that could pull down markets such as interest rate hikes, oil prices rising in very high inflation, sell off by hedge funds because of poor economic data coming from western countries , geo political risks (China & other threats) and others.
However there is no way to know when a correction will happen. There is no point in meaninglessly waiting for corrections. In strong bull markets, corrections are often elusive and generally do not happen, till the market has rallied significantly. From March 9, 2009, the markets are up by 100% whereas you saw only a couple of minor corrections with one caused during the budget week. In a market that has run up sharply by 100% a correction of 15-20% is quite normal but the key question is will the correction happen now or after the market crosses the previous high. I am sure no one knows the answer to this one. If a correction were to happen, don’t just say “See I knew it , I was right. I am smart.”
Continue to invest in a staggered manner.
3rd Principle
Do not underestimate the power of policymakers to effect a change. Starting late last year one saw a spate of interest rate cuts by central banks around the world injecting liquidity in the system. Besides this there were many bailout packages and policy changes that were quickly implemented. All such actions have the potential to turn things around and before actual change is visible, stock markets change direction. We have witnessed this happen.
This is one of the biggest bubbles waiting to be burst. I have explained this with a few examples and anecdotes.
35 year old Deven Desai is a frustrated man today. He has been waiting patiently to buy his dream house in Juhu for the last 3 years. He has seen many flats so far and is thoroughly disappointed at the overall transaction and deal that he is getting. He is earning Rs. 40 lakh post tax per year and is looking at buying a 3 BHK flat. He saw one where the halls and rooms were pretty small. The builder’s sales person told him “Sir, this is the last flat left. All are sold. The price also is very reasonable at Rs 15000.”Though he was not very pleased hearing the amount he still decided to go ahead considering the area and his long wait.
He asked the sales person about the size of the apartment and the net cost to him. The sales person told him that it is a 1980 sq.ft flat super built up. “What about carpet area?”, Deven enquired. “It is 1188 sq.ft. There is a 40% loading.” Deven was annoyed and said “How is loading just 40%? It is 65% minimum as the loading must be done on the carpet area and not in the reverse manner that you are calculating. If you add 65% to 1188, then it comes close to the super built up figure that you are talking about. Why do you guys calculate loading on the super built up figure? This means that my carpet area cost is Rs. 24750 which is ridiculous.”The salesperson who had a lot of attitude said “Sir .This is a common practice and everybody calculates it this way. You take it or there are many people waiting in the queue.”
Deven decided to let this go as it just did not make sense to him.
Ashok Ganesan , a sales professional faced a similar situation in Malad. He was made to believe that the price was low and that he should buy it before prices move northwards. However the loading on the carpet area was way beyond 55%. Many people are simply unaware about this computation and often ignore this. Additionally, how many people have actually measured the super built area that they have been charged for? The absence of a regulator makes real estate a perfect recipe for abuse.
There is no correct loading figure but I can’t see why it should be more than 35%. 35% is too high a number but must be calculated on the base carpet area. There is no regulatory help or any other available but you can negotiate hard on this front as there is still a lot of inventory that has to be sold. For e.g in Andheri, Mumbai, a couple of buildings in a premium 2.5-3 BHK flat complex are completely vacant for the last 12-18 months. Investors have put in money but end users have not bought in as they still cannot afford and banks are unwilling to lend as they were back in 2006 and 2007.
There is no point in paying any price because someone else will buy before you. Prices are still not low enough to spur genuine demand in the real estate market so don’t worry, you won’t be left out. The patient ones will be amply rewarded.
Finally the key take home is “Investing is not a game where there is only one winner. Everyone can win in the investing process provided one develops the ability to filter the financial noise and take prudent economic calls rather than emotional ones.”
-- Amar Pandit
One smart investment banker redeemed his FMP midway falling prey to such rumors and at a discount. The FMP is up 11% today. He regretfully now says “Sometimes it’s dangerous to know many things. I would have been better off not knowing many things.”I told him that I disagree as it is all about your ability to think rationally during such times and not following all the bull thrown at you. I told him that I know of smart people who know things as well as people who do not know much about investing who have made amazing gains because of their ability to filter the noise.
On the other hand in October 2009, one is witnessing euphoria all around with the stock markets having crossed several milestones.
There are 3 key lessons or principles that equity markets have once again taught us over the last one year and they can surely come in handy when we face a similar situation sometime later in our investing life.
1st Principle
Besides investing regularly in equities (as the SIPs during these periods have given the best gains), invest a lot more confidently when no one wants to even listen to the word equity. The whole world was full of insights, research, inputs and so on about the death of equity as an asset class. There were media reports on the poor data coming from every possible front and to top it there was the Satyam scandal which made a lot of foreign and local investors doubt the integrity of Indian managements. Everyday you read about the next set of companies who could be in trouble. A friend who wanted to invest in equities just could not because all around he read that we were headed for doom. By the way he is still waiting.
There is no way to know that the stock market has bottomed out but it’s during such times of excessive pessimism that the market turn around and this was demonstrated well even during the recent turnaround on March 9, 2009.
Do not obsess over earnings and wait endlessly for clear data points. Stock markets always try to anticipate the future and are actually well ahead of significant changes in earnings and other data points. It is quite possible that earnings are lousy or take a lot of time to catch up. However a lot of people obsess over this and miss out on huge up moves. We are currently witnessing the second quarter results which seem to be quite encouraging. The recent IIP data of a 10.4% spurt advance tax collections and a host of other factors point out at GDP upgrades in the near term.
Yes there sure could be pain as the western world is still not out of woods and higher commodity prices and inflation will have interest rates inching up next year onwards. As always there will be a lot of negative factors that could pull down markets such as interest rate hikes, oil prices rising in very high inflation, sell off by hedge funds because of poor economic data coming from western countries , geo political risks (China & other threats) and others.
However there is no way to know when a correction will happen. There is no point in meaninglessly waiting for corrections. In strong bull markets, corrections are often elusive and generally do not happen, till the market has rallied significantly. From March 9, 2009, the markets are up by 100% whereas you saw only a couple of minor corrections with one caused during the budget week. In a market that has run up sharply by 100% a correction of 15-20% is quite normal but the key question is will the correction happen now or after the market crosses the previous high. I am sure no one knows the answer to this one. If a correction were to happen, don’t just say “See I knew it , I was right. I am smart.”
Continue to invest in a staggered manner.
3rd Principle
Do not underestimate the power of policymakers to effect a change. Starting late last year one saw a spate of interest rate cuts by central banks around the world injecting liquidity in the system. Besides this there were many bailout packages and policy changes that were quickly implemented. All such actions have the potential to turn things around and before actual change is visible, stock markets change direction. We have witnessed this happen.
This is one of the biggest bubbles waiting to be burst. I have explained this with a few examples and anecdotes.
35 year old Deven Desai is a frustrated man today. He has been waiting patiently to buy his dream house in Juhu for the last 3 years. He has seen many flats so far and is thoroughly disappointed at the overall transaction and deal that he is getting. He is earning Rs. 40 lakh post tax per year and is looking at buying a 3 BHK flat. He saw one where the halls and rooms were pretty small. The builder’s sales person told him “Sir, this is the last flat left. All are sold. The price also is very reasonable at Rs 15000.”Though he was not very pleased hearing the amount he still decided to go ahead considering the area and his long wait.
He asked the sales person about the size of the apartment and the net cost to him. The sales person told him that it is a 1980 sq.ft flat super built up. “What about carpet area?”, Deven enquired. “It is 1188 sq.ft. There is a 40% loading.” Deven was annoyed and said “How is loading just 40%? It is 65% minimum as the loading must be done on the carpet area and not in the reverse manner that you are calculating. If you add 65% to 1188, then it comes close to the super built up figure that you are talking about. Why do you guys calculate loading on the super built up figure? This means that my carpet area cost is Rs. 24750 which is ridiculous.”The salesperson who had a lot of attitude said “Sir .This is a common practice and everybody calculates it this way. You take it or there are many people waiting in the queue.”
Deven decided to let this go as it just did not make sense to him.
Ashok Ganesan , a sales professional faced a similar situation in Malad. He was made to believe that the price was low and that he should buy it before prices move northwards. However the loading on the carpet area was way beyond 55%. Many people are simply unaware about this computation and often ignore this. Additionally, how many people have actually measured the super built area that they have been charged for? The absence of a regulator makes real estate a perfect recipe for abuse.
There is no correct loading figure but I can’t see why it should be more than 35%. 35% is too high a number but must be calculated on the base carpet area. There is no regulatory help or any other available but you can negotiate hard on this front as there is still a lot of inventory that has to be sold. For e.g in Andheri, Mumbai, a couple of buildings in a premium 2.5-3 BHK flat complex are completely vacant for the last 12-18 months. Investors have put in money but end users have not bought in as they still cannot afford and banks are unwilling to lend as they were back in 2006 and 2007.
There is no point in paying any price because someone else will buy before you. Prices are still not low enough to spur genuine demand in the real estate market so don’t worry, you won’t be left out. The patient ones will be amply rewarded.
Finally the key take home is “Investing is not a game where there is only one winner. Everyone can win in the investing process provided one develops the ability to filter the financial noise and take prudent economic calls rather than emotional ones.”
-- Amar Pandit
Tuesday, October 20, 2009
17 ways to cut costs
THE basic needs of man are food, clothing, shelter and entertainment. Today, most of us have graduated from needs to luxuries. When the newspaper headlines were screaming inflation at 11.9 per cent, it became a topic of worry. Today, the challenges are not just high standard of living, high commodity prices, it's job loss too. How do you deal with meeting your basic requirements with less means to buy them?
While eating just one meal a day is good for Yogis and is a nice way to cut down costs, that is not what I'm suggesting. Instead, Try something simpler.
While eating just one meal a day is good for Yogis and is a nice way to cut down costs, that is not what I'm suggesting. Instead, Try something simpler.
1. Eat at home
Eating out can be expensive. If you are spending Rs 200 on eating out compared to Rs 50 at home, you would be surprised to know the kind of amount you are spending. A systematic investment plan of Rs 150 (200-50) a day saved for 30 years can give you returns in excess of Rs 5 crore!MUST READ:
2. Know what you are buying
Plan your shopping. If you fill your cart with everything that catches your eye, chances are you will be spending a lot more. Instead, plan your meals for the week ahead and make careful note of what you need to buy. Purchase only the items on the list, avoid the rest.
3. Wear your blinkers
Stores are designed to make you go through a long walk to reach for your most basic items. Reason -- you can tricked into buying what you don't really need. Most basic commodities are found towards the end of the store. So, the next time you go shopping, you could skip the other outlets and move towards your destination.
4. Shop on a full stomach
4. Shop on a full stomach
When you're hungry and shopping, you may end up buying lot of things that look like food! You might also pick up what you don't really need. On the other hand, you can easily avoid unnecessary shopping when you're a full stomach.
5. Do you really need bottled water?
You can take a bottle of water when leaving home rather than buying when you're out.
6. Shop sans the kids
6. Shop sans the kids
Hungry, tired, cranky kids increase the amount of time it takes to get your shopping done. Kids can really bug you into buying things which are bad for your health and for your purse. Leave them at home when you go out shopping.
7. Buy in bulk
You can save a significant amount of money if buying in bulk. Pay attention to the prices and pick up the family size package if the per unit cost is lower. However, you need to realise that bulk buying has a dark side too! If you are not a big user of any particular product, it could mean wastage.
8. Use store reward cards
8. Use store reward cards
If you visit a particular store often, you can sign up for their reward card. In some cases, stores raise their prices when they offer reward cards, and without the card your bill will certainly be higher. If the card offers other benefits, such as a preferred (or free) parking, free schemes, etc., be sure to maximize your benefits before they expire.
9. Buy local products
For instance fruits. Whenever I step into a big branded store, I was pushed into buying 'American grapes'. I fell for it once, and realized only on billing that it was Rs 400 a kg! The Indian variety is normally available for Rs 40. Locally grown or produced food is often available at a cheaper price because you don't pay for long transportation costs. Stick to them.
10. Choose unbranded goods
10. Choose unbranded goods
There is a huge cost difference between a branded product and an unbranded one. Even in case of 'expensive' items like dry-fruits, if you buy it from a wholesale-retail shop you will find a 20 per cent price difference. Some branded foods like cornflakes, are more expensive than dry fruits on a per kilogram basis. If you thought potatoes were selling at Rs 12 a kg, you are correct, but when it gets converted to branded chips, it becomes a little expensive, about Rs 300 a kg!
11. Men are bad shoppers
It is not so much of a gender issue. But the truth is men do not have much patience and that shows while shopping. So, if you are a man, realize that shops know and understand this. So things are arranged in such a way that when you are in a hurry you will end up buying the most expensive items. Look around to find cheaper items.
12. Compare prices and stores
I personally do not compare prices and stores but my wife has a degree in this! She knows which shop is good to buy vegetables, branded goods, unbranded goods. And she plans her shopping accordingly.
13. Shop in sales offers
In India, September to December months are considered as 'festive season'. This is the time when most of the shopping happens. Surprisingly, Hindus, Muslims and Christians have some festivals for which they buy new clothes during this period. So, stores generally keep a pre-festive sale in July-August and a post-festive offer in January. Use these sales to build your wardrobe. You can even get good deals!
14. Shop less frequently
14. Shop less frequently
The lesser the number of trips to the shop, the lesser you will buy! So, if you are making more trips to the store, it is time you reduced them.
15. Pay in cash
When you buy your day-to-day requirements with your credit card, you run the risk of paying your credit card dues late. So, for all the saving you have been doing, you may give it away in the form of interest. Cash is a good option. Besides, you tend to be more careful when making cash payments.
16. Check your bill
16. Check your bill
You should check all the statements which have a financial implication be it your credit card statement, mutual fund statement or your groceries bill. Scanners are fine, but there are possibilities of mistakes. So, you must see the bill before you pay.
17. Buy leather goods in monsoon and umbrellas in winter!Buying goods in off season will cost you less. If it's monsoon, check out for sale on leather goods and umbrellas in winter.
17. Buy leather goods in monsoon and umbrellas in winter!Buying goods in off season will cost you less. If it's monsoon, check out for sale on leather goods and umbrellas in winter.
10 simple steps to get off the “expensive” train
Here are 10 simple steps to get off the “expensive” train
1. Plan for your goals and invest your money in the correct assets. Take professional help, if needed. Put the investments on auto pilot like a SIP, RD etc. That is what works best for most people. This will ensure that you can spend only the rest.
2. Understand how much you are spending by tracking the expenses. You will be surprised how much you’re spending on the “misc” head
3. Don’t borrow to spend. Credit card spends ensures that you do precisely that. Use a debit card instead.
4. Buy most provisions for a month at one go. You’ll end up spending less time, effort and money.
5. Do focused shopping. Write out what you want buy, buy that and head for the exit. Don’t take children with you on these occasions. They fill the shopping cart with unwanted fluff.
6. Don’t buy unwanted items or in huge quantity, just because there is some offer.
7. Don’t buy a toy due to your guilt that you are unable to spend enough time with your child. Try and find the time instead. You child wants you, not another toy.
8. Stop spending on that item, once you reach the limit in that month. For instance, if your entertainment allowance for the month is Rs 3,000 and that is spent by the middle of the month, then it needs to be dal-chawal and TV for the rest of the month.
9. Same goes for fuel. Long drives and excursions on weekends are out, once the fuel limit for the month is breached.
10. Don’t switch on the AC by force of habit. Use AC as required. Switch off fans/ lights and other appliances, when no one is around. In many households, TV is on, irrespective of whether someone is watching or otherwise.
Thursday, October 8, 2009
Top Ten Investor Fantasies!
Top Ten Investor Fantasies!
In the past few months if reports are to believed, lakhs of new investors have jumped into the stock market. Especially after they saw a small minority of experienced investors getting extra ordinary returns. Anyone who has invested in value buys would easily have made over 100%. With a little bit of more research and knowledge companies like LIC Housing Finance and Jindal Steel have given returns between 300%-500%. These have rewarded investors all on basis of value and not ‘hot tips’ that are manipulated.
Unfortunately many new investors don’t realize this and have a lot of fantasies and myths in their mind when they enter. I had them too when I started out! Here are a few of them:
1. I will spend time trading every day and won’t do anything else. Isn’t that how hot shot multi-millionaires make money in the movies?
2. My uncle has been investing for several years. I will get tips from him. Of course it doesn’t matter that my uncle is on the verge of bankruptcy for the fourth time and has turned into a alcoholic.
3. I have magical powers and any company I invest in will give me returns in excess of 100% within a week.
4. The first company I invested in gave me 10% in a single day. This isn’t just co-incidence and luck, but because I am investment genius.
5. Everything I hear on the business news channel and everything I read in the newspaper actually needs to be followed.
6. Rich investors watch every single move of the Sensex and know exactly where it is headed.
7. I need to get tips from everybody - specially my broker. I don't care about knowledge, it won't make me rich.
8. My broker exists only to make me rich and wealthy. He loves me a lot.
9. I need to sell all my assets and remove all my money from the bank and pour it into a single share that can rise by 1000%. I read about it on an online forum - it must be true.
10. No need to study the business model, research reports, read or study financial statements. Losers do that!
I had many of the above fantasies when I started. They lead to losses - luckily I started investing with very small amounts. Following any of the above will most certainly lead to losses. You can be smarter than me and learn from my fantasies!
Keep smiling, laughing and happy investing!
Yogesh Chabria
In the past few months if reports are to believed, lakhs of new investors have jumped into the stock market. Especially after they saw a small minority of experienced investors getting extra ordinary returns. Anyone who has invested in value buys would easily have made over 100%. With a little bit of more research and knowledge companies like LIC Housing Finance and Jindal Steel have given returns between 300%-500%. These have rewarded investors all on basis of value and not ‘hot tips’ that are manipulated.
Unfortunately many new investors don’t realize this and have a lot of fantasies and myths in their mind when they enter. I had them too when I started out! Here are a few of them:
1. I will spend time trading every day and won’t do anything else. Isn’t that how hot shot multi-millionaires make money in the movies?
2. My uncle has been investing for several years. I will get tips from him. Of course it doesn’t matter that my uncle is on the verge of bankruptcy for the fourth time and has turned into a alcoholic.
3. I have magical powers and any company I invest in will give me returns in excess of 100% within a week.
4. The first company I invested in gave me 10% in a single day. This isn’t just co-incidence and luck, but because I am investment genius.
5. Everything I hear on the business news channel and everything I read in the newspaper actually needs to be followed.
6. Rich investors watch every single move of the Sensex and know exactly where it is headed.
7. I need to get tips from everybody - specially my broker. I don't care about knowledge, it won't make me rich.
8. My broker exists only to make me rich and wealthy. He loves me a lot.
9. I need to sell all my assets and remove all my money from the bank and pour it into a single share that can rise by 1000%. I read about it on an online forum - it must be true.
10. No need to study the business model, research reports, read or study financial statements. Losers do that!
I had many of the above fantasies when I started. They lead to losses - luckily I started investing with very small amounts. Following any of the above will most certainly lead to losses. You can be smarter than me and learn from my fantasies!
Keep smiling, laughing and happy investing!
Yogesh Chabria
Tuesday, October 6, 2009
Investors have two faces: Fear & Greed
MUMBAI: Everyone knows that fear and greed are the two key factors that drive the stock market. If you talk to any seasoned investors in the market, they would regale you with stories of how people got carried away by greed and lost all their money in the process. Stories about people spooked by ‘fear factor’ also do the rounds of Dalal Street at regular intervals. According to a study by SMC Capitals, “the elements of fear and greed are clearly visible in the trends of allocation of assets by the investors in terms of cash and stocks.’’
The trend, says the study, can be seen at the levels of market cap and bank deposits in the economy. When there is fear among the investing community, the bank deposits go up. And, when there is widespread optimism , the market cap levels go up. “If you look at investor behaviour in the last three years, the pattern is very clear: the first year was of over-optimism, the second was of over-pessimism and now it’s the recovery period. This trend is clearly visible if you look at the market cap and bank deposits (or the real wealth),’’ says Jagannadham Thunuguntla, equity head of New Delhi-based SMC Capitals.
In the study, SMC has compared the BSE market cap from the period starting January 2007, with the aggregate bank deposits in the banking system. The relative measure of the entire market capitalisation of BSE as a percentage of aggregate bank deposits in the entire banking system demonstrates the mindset of the investor community.
For example, in January 2007, the BSE market cap as a percentage of aggregate bank deposits was 152%, which means BSE market cap is 1.52 times more than the entire bank deposits. The figure kept on racing ahead during 2007 as the bull market gathered further momentum. By the time the bull market peaked in December 2007, the figure has reached 235%.
This means that with the deposits available, the banks couldn’t even buy half of the BSE stocks. At that time, the aggregate bank deposits were to the tune of Rs 30.47 lakh crore, whereas the BSE market cap was at Rs 71.69 lakh crore, probably signalling the exuberance in the capital market. By the time the bear market commenced in 2008, the BSE market cap as a percent of aggregate bank deposits kept falling. When the markets touched the bottom in February 2009, it had slid to 74%.
This means the entire listed stocks on BSE could be bought with aggregate bank deposits available with the banking system and it will still be left with 26% of the deposits. By this time, the total BSE market cap was to the tune of Rs 28.62 lakh crore, whereas the aggregate bank deposits were to the tune of Rs 38.48 lakh crore. Now, as the markets have started recovering since March 2009, again this level of BSE market cap as a percentage of aggregate bank deposits has crossed 100% levels and currently it stood at around 129% in August.
IDBI Bank’s executive director and head of personal banking C S Jain said, “Whenever there is fear among investors, they tend to go for bank deposits. Though there has been a rise in bank deposits during the last three years, the trend has been of people going in for short-term deposits that had a tenure of less than a year as they expect markets to bounce back and route their money to stocks,’’ he added.
The trend, says the study, can be seen at the levels of market cap and bank deposits in the economy. When there is fear among the investing community, the bank deposits go up. And, when there is widespread optimism , the market cap levels go up. “If you look at investor behaviour in the last three years, the pattern is very clear: the first year was of over-optimism, the second was of over-pessimism and now it’s the recovery period. This trend is clearly visible if you look at the market cap and bank deposits (or the real wealth),’’ says Jagannadham Thunuguntla, equity head of New Delhi-based SMC Capitals.
In the study, SMC has compared the BSE market cap from the period starting January 2007, with the aggregate bank deposits in the banking system. The relative measure of the entire market capitalisation of BSE as a percentage of aggregate bank deposits in the entire banking system demonstrates the mindset of the investor community.
For example, in January 2007, the BSE market cap as a percentage of aggregate bank deposits was 152%, which means BSE market cap is 1.52 times more than the entire bank deposits. The figure kept on racing ahead during 2007 as the bull market gathered further momentum. By the time the bull market peaked in December 2007, the figure has reached 235%.
This means that with the deposits available, the banks couldn’t even buy half of the BSE stocks. At that time, the aggregate bank deposits were to the tune of Rs 30.47 lakh crore, whereas the BSE market cap was at Rs 71.69 lakh crore, probably signalling the exuberance in the capital market. By the time the bear market commenced in 2008, the BSE market cap as a percent of aggregate bank deposits kept falling. When the markets touched the bottom in February 2009, it had slid to 74%.
This means the entire listed stocks on BSE could be bought with aggregate bank deposits available with the banking system and it will still be left with 26% of the deposits. By this time, the total BSE market cap was to the tune of Rs 28.62 lakh crore, whereas the aggregate bank deposits were to the tune of Rs 38.48 lakh crore. Now, as the markets have started recovering since March 2009, again this level of BSE market cap as a percentage of aggregate bank deposits has crossed 100% levels and currently it stood at around 129% in August.
IDBI Bank’s executive director and head of personal banking C S Jain said, “Whenever there is fear among investors, they tend to go for bank deposits. Though there has been a rise in bank deposits during the last three years, the trend has been of people going in for short-term deposits that had a tenure of less than a year as they expect markets to bounce back and route their money to stocks,’’ he added.
-Madhu T & Reeba Zachariah, ET Bureau
Subscribe to:
Posts (Atom)