Finance,shares and investments

This site is not for somebody looking for some hot tips about shares.In this, an attempt has been made to tell some basics in simple format. This is only to help you make your own decision.

This is not only about shares.It shall cover every aspect of personal finance. But, we shall cover them later.

I shall give some simple rules about investing in shares.
1.First step is to assess how much money you can spare. Kindly note that risk of loss of capital is huge in investing in shares. But, returns are equally high. Hence,invest only that amount which you can afford to lose.

2.You have to take daily market ups and downs in your stride. You can worry about daily movements in the market but should not lose sleep over it.

3.Chose only reasonably high market cap companies for investing. The reason is because they would be on the coverage list of most brokerages. Also, when there is a need for money,large cap stocks are liquid enough so they can be sold (at market prices)no matter how the market behaves at that point in time.
Note: Market Capitalisation:No. of shares outstanding X share price.
Liquidity:easy to sell at market price.Some companies shares would be illiquid at some downfall in market. There would not be any buyers.

4.Know your company:You have to chose only those companies whose business model you are familiar with. If you cannot understand what the company is producing or what the company is offering in terms of service, you have to avoid that company.

5.You should pick up stocks as near to their 52 week lows as possible. This is easier said than done because you cannot predict the extent to which the share price may fall. In arriving this, you can use earning per share,and price earnings ratio to get any share at reasonable valuations.

6.Do not buy more of a falling stock to bring your average cost of holding down.It is like throwing good money after bad.

7.As far as possible, buy only into those companies which have a consistent record of profit and dividend. The exceptions to this rule are capital intensive companies and turnaround companies.
You can spot capital intensive companies which may not pay any dividend by looking at its sales growth,capital expenditure plans and the robustness of business model.
You can spot turnaround companies by looking at their intrinsic value per share of tangible net assets. Also look at the sales growth, business cycle, coming to any small profit from losses etc.

8.Do not buy into companies which are mired in controversies or subjected at any time to regulatory reprimands. In effect, do not buy into tainted companies or their associates.

9.Have a time horizon of atleast one year for capital appreciation to happen.

10.Time horizon of at the most five years is enough for capital appreciation to happen. You can set
three years also. If capital appreciation has not happened at the end of selected period, quit the stock at whatever price available.

11.If the price has doubled in short time, sell half of the holding so that you recover your cost. You need not sell the remaining half at all since no cost is incurred for it.And buy with the sale proceeds,shares of other companies at lower valuations. But not when the market is hot.Put that money in FD till the market cools off.

12.Do not put more than 25% of your portfolio into the same industry.

13.Do not put more than 10% of your portfolio in a single stock. Use monthly check points to determine the above levels and reduce exposure by selling the stock and not adding other stocks.

14.Do not put all your savings into the stock market alone.Dynamically allocate your savings among stocks, FD,units of Mutual Funds, Life Insurance, bonds and gold.

15.Think twice before buying into a stock that has a face value of less than the standard amount per share.

16.Do not subscribe to public offers of companies which have first generation promoters and the shares are offered at steep premium.

17.Do not subscribe to private placements of new companies even if they are promising to come out
with a public offer soon.

18.Do not enter into secondary market too often. It makes you put more of your savings into stock market. Instead, enter three or four times a year to buy when the indices are low.

19.Take into account opportunity loss i.e., if the money is rotated at a predetermined interest rate,it would earn interest. So, get out from stocks which offer appreciation in short period to cut opportunity loss of interest. Also, chose high dividend yielding stocks so that dividend received to some extent offsets opportunity loss of interest.

20.The best time to buy into a blue chip stock is when it has declared its worst results or is passing through its worst phase.

21.Track a scrip for its price movements for six months before buying into it.

22.Spend no more than 10% of the total cost of your present portfolio to add a new scrip to the existing portfolio through fresh funds infusion.

23.Have a mix of high to medium dividing yielding, growth, turnaround,and blue chip stocks in the portfolio.

24.Plough back the dividend received into the portfolio, into those stocks where you have recovered your investment through partial or half sale of holdings.

25.Satisfaction is of utmost importance. Be satisfied when the expected price is reached and sell.

26.If a company in your portfolio skips dividend for three consecutive years,dump its shares. Only exeptions to this are capital intensive companies.

27.Pick up good shares at immediate ex-bonus prices. They tend to reach cum-bonus price in the long run.

28.Never be fully invested. Keep some cash for sudden crash of market to buy.

29.Never buy shares of airline companies. Historically, they have not made profits for themselves.

Hope I made myself clear in what I wanted to communicate.
K.A.Babji