Normally, I do not scout for stock recommendations from the MSM dailies or the TV. A bit curious (and having a bit extra time to kill!), I took a look around. I found one here today! (29th Oct, 2009).
Just take a look!
Screenshot, dated 29.10.2009
Infosys trades @ Rs 2207/ today!
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In a social gathering, you can win a few brownie points for letting people know that you invest in stocks. Well, cool and sexy people dabble in stock markets, na!
Some people start paying a lot of attention on me when they come to know that I have invested in stocks. But the same people start avoiding me when I actually tell them the details of my stock investments.
The majority of my stock investments have been done 7 years ago. In 7 different stocks. I keep a tab on what’s happening in those 7 companies and review them after every 7 months (Actually 3 months, but I got carried away with the 7s)
Quite boring, no!
That’s one reason I don’t blog much on Stocks or Investing Gyaan 
Having said that, I want to share a few things that may help you get started with your stock market investment journey. However this post is not for day traders and those who believe that they can get rich quick with the help of stocks. It is for those who want to get the best returns possible with a long term perspective.
The Idea
Yesterday, I bothered Gautam Ghosh (The HR Guru) with a question on Money “Competencies”.
My question:
What would be the attitude, motives, values competencies for effective money management? (Background: Competency is the underlying characteristic of an individual that causes superior performance on any specific task, function , job or role.)
Gautam pointed me to a few areas like risk taking ability, ability to analyse opportunities, long term orientation, etc. Thanks Gautam.
The big learning was that just having adequate knowledge is not enough to manage your money. You also need to be aware of your attitudes, values, motives, self confidence before you swim around in the deep waters of stock markets.
Let’s take one at a time.
Knowledge: You don’t need to fully understand the capital market or portfolio management theory to get started. Start with reading about the 5 companies where you want to be the shareholder. I am tempted to recommend 7 companies but you can start with as many as you can handle. From 1-10. Let’s keep a cap at 10.
As you read about them, you’ll learn a few jargons along the way like EPS, PE Ratio, etc. Don’t be finicky about learning everything as if you have to answer a test paper. Don’t worry, it’s not rocket science but plain simple common sense!
In a few months, you’d be raring to invest in a few of them. Go by your instinct and go for it. Ask around for tips and you’ll be more befuddled than before!
Attitude: Many say that the stock market is a zero sum game where some people make money and some make losses. I guess, it’s true on a day to day basis. But on a longer term, good stocks help you make more money than others. Period.
So decide for yourself that whether you’ll be able to stay positive during the downturns. If the slightest tremors on the stock market have an impact on your own heart, it’s better you stay away. It’s not for the faint hearted, dear.
Skills: Skills normally require knowledge, attitude and practice. Infact if you have the knowledge and the attitude, skill automatically comes in.
It’s like if you have love and compassion, peace/harmony/happiness naturally follows in!!
The few skills I can think of are: Analytical skills, Operating the trading account/demat account and monitoring them. Simple, no?
A few more things like your confidence level, motives and value systems also contribute to your money skills.
Infact, your money competencies are a combination of your knowledge, skills, attitude and your overall orientation (Values/Motives/Confidence)
To my mind, it’s important to be aware of your own realities about the above competencies before you start investing in stocks.
Would you agree? Want to share your experience of investing in stocks?
While travelling on a DTC Bus near Kashmere Gate, Delhi yesterday, I saw this interesting con game played out.
A young man with a wad of notes and coupons announced that he was giving away prizes. All coupons will ensure atleast a return of investment and people can win jackpots too.
A man ventured his Rs 50 and immediately got Rs 100 in return. Then another guy got Rs 100 for his 50.
Then the floodgates opened. A guy got Rs 150 for his 50. And the stakes continued to rise.
Suddenly there was a frenzy. In the melee that ensued, the guy sitting next to me joined the melee with Rs 500/-. He came back clutching a handful of “gold rings”.
And the guy with the midas touch had vanished.
I could see the greed writ large on my co-passenger’s face. And later, the wry smile of a loser. !
Obviously the Midas guy had friends planted as passengers. He worked up greed and vanished with a few thousands in a few minutes.
And even though it was obvious that it was a con game, people got sucked into it.
That’s how the sharks operate the stock exchange too. No?
Debt and Equity are two broad classifications for your investments. When we talked about asset allocation, it was about allocating your money between debt and equity funds. In a way, this post should have come before the asset allocation one. Anyway, let me share some basics.
The basic difference between debt and equity would be the ownership level. Let’s take an example where you invest in me.
If you give out some money to me and expect that I return the money along with interest that I pre promise, that would be a debt investment. I’m indebted to you but since I have promised you a return with interest, you don’t actually own me.
In another case, you give me money at your own risk. But you trust me/hope that I’ll be a billionaire in the future and I’ll payback from my profits. The more profits I make, the more you do. If I am bankrupt, you don’t get anything back. And so you have invested in my equity. By trusting me, you own me in a way!
In other words, by investing in a debt instrument such as a bond, you are guaranteed the principal of the bond, plus any interest that is owing.
However, for equity investors, you become an owner. As such, you also take on the risk of the company not being a success. Just as a small business owner has no guarantee of success with each new venture, neither is a shareholder. As a shareholder, if the company is successful, you stand to make a lot of money. On the flipside, you stand to lose a lot of money if the company is less than successful.
Now debt and equity is just a classification of financial products and not a product by itself. So let me share the products available within the two classifications:
Equity: You can own any stock on the Stock Exchanges and you have invested in an equity product. If you invest through Mutual Funds who have schemes for equity. Even ULIPs invest in equity and so part of your Insurance buy goes to equity. The NPS also invests in equity.
Shares come in different sizes and categories. There are large, mid and small caps and there are penny stocks. As a beginner, you can invest in large and mid cap companies and only after you gain experience, you can consider investing a small portion in small caps and hot penny stocks. These are the riskiest but if handled adroitly, give the largest returns. However, it needs expertise and nerves of steel.
Debt: Mutual Funds also have debt funds where you can invest. Some people may find investing in bonds simpler than investing in stocks. Your friendly neighbourhood financial advisor can provide you with government bonds like NSC/KVP. Your banker provides you with Fixed Deposits and PPF accounts. You can also pick up some highly rated corporate bonds.
Then there are hybrid funds where the Mutual Funds invest a part in equity and a part in debt.
To compare debt and equity, you need to consider the risk and the reward tradeoff. But that I guess would be another post.
Would you like to add your thoughts on this? Welcome and Thanks.
While attending a workshop for Trainers, I remembered that I have been planning a “Personal Finance Workshop” for quite some time. I have been telling myself that one should “Do it well, or don’t do it”. The result: no progress!
Let me list out the workshop objectives and the things that I want to cover in the workshop to get me re-started on this job.
Workshop Objective:
The workshops will help the households to make better financial decisions and avoid common financial mistakes
Workshop Contents:
Pretty long list! Do you want to add anything more? Atleast it gives you a sense that personal finance is a pretty serious thing!!
However it still remains a mystery as how less we know about personal finance. The only solution is to share whatever useful stuff you find.
Some readers have come back to me saying that I should facilitate easy sharing of my content. So go ahead share it with your friends and family
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