stockviz getting started investing
TRANSCRIPT
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Getting Started SeriesInvestinggetting started ........................................................................................................................ 2
Enterprise Valuation ............................................................................................................................... 4
Stock Valuation Metrics .......................................................................................................................... 5
Technical vs. Fundamental investing ...................................................................................................... 6
Why Charts? ............................................................................................................................................ 7
Fundamental strategies .......................................................................................................................... 8
Candlestickslight my fire ..................................................................................................................... 10
How not to use technical indicators ..................................................................................................... 13
Dollar Cost Averaging or Systematic Investment Plan .......................................................................... 155 Measures to Ignore ............................................................................................................................ 16
Staying Alert .......................................................................................................................................... 17
Value Traps ........................................................................................................................................... 19
What are ETFs? ..................................................................................................................................... 21
Market Pundits on Twitter .................................................................................................................... 22
Pundit predictions and coin-toss comparisons ..................................................................................... 23
2011 in IPOsthe story so far ............................................................................................................... 24
GDP Growth vs. Stocks .......................................................................................................................... 25
The best place for cash is in my pocket ................................................................................................ 27
FD returns better than debt funds over a year .................................................................................... 29
The changing landscape of Indias equity markets the bots are here ............................................... 29
Inflation ................................................................................................................................................. 30
Deflation................................................................................................................................................ 32
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Investinggetting started
MA Y 22 , 2011
We instinctively know that to build wealth,we need to take control of our finances.
But to get started investing is a daunting
task. Frompunditsshilling stocks to
brokers selling themselves on CNBC, it is
easy to conclude that the deck is stacked
against the individual investor. However,
not all is lot. A volatile market like ours
rewards patience; something that I see is
in very short supply. Theretail investor,
and this is true across different markets,
gets in too late and gets out too early. Call
it the itchy trigger finger or the lack of courage in ones conviction, retail investors often
end up being contrarian statistics to institutional money. If retail is buying, sell, sell, sell!
Not all is lost. The waters might seem treacherous, but are navigable. The first step is to
be in the right frame of mind. If you think of making money as a zero sum game, i.e., for
you to make money, someone else has to lose it, then you will never make money!
Wealth is created by the value creation process. So the first step is to understand that an
infinite amount of wealth can be created because human ingenuity will always figure out
a way to create value.
The second step is to distance yourself from what you can do with money, to what it
actually is. It is nothing more than a piece of paper with a dead mans picture on it. It is
not really backed by anything other than your faith in its value (this is an entirely different
post altogether). So try to be even minded whether you are making money or losing it.
The third thing is to write down 4-5 lines on how much risk you can take. Capital comes
in two forms, one that is in your pocket and the other is mental. Mental capital is much
more expensive than the notes in your pocket. If you cant take the heat, stay away from
the stove! Once you figure out what yourrisk appetiteis, you can then start looking for
investments that fit your profile.
Number four: valuation matters. Well get to what valuation are in future posts, but leave
momentum chasing to the machines. Make sure that you buy stocks when they are
cheap (fundamental) and have bottomed out (technical). Analyse, analyse, analyse.
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Make sure you understand what the company makes (how does it create value?), the
regulatory backdrop and be prepared to change your stance if the situation demands.
And lastly, remember this: In good times, even errors are profitable; in bad times
even the most well researched trades go awry. Be nimble, be smart and rely on processrather than luck.
Good luck and stay tuned!
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Enterprise Valuation
JUNE 1 , 2011
We discussed some key equity metrics in ourprevious post. Multiples like PE, PB, etc.
help you focus on the equity part of the capital structure while valuing a company.However, in order to get a true picture of the financial health of the company, an investor
needs to focus on the Enterprise Multiples as well. Some of the key enterprise multiples
are:
Revenue: A business has to finally sellsomething. The revenue number gives an
idea about scale and is more or less independent of accounting treatment.
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): Give an
approximate measure of a companys operating cash flow. By ignoring capital
investments and taxes, it allows investors to do apples-to-apples comparisonbetween companies in the same industry.
OpFCF (Operating Free Cash Flow): It is a modified version of EBITDA that includes
the effects of CapEx (Capital Expenditure) into the calculation. It is cash-based,
forward looking and unaffected by accounting.
For readers who are interested in a thorough treatment of valuation metrics, a good
primer from UBS is can be foundhere. Happy investing!
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Stock Valuation Metrics
MA Y 29 , 2011
Every company is different; they have
their own culture, target market,
processes, etc. In order to make relative
value comparisons between them, it is
useful to have a common set of metrics.
Here are some of the key numbers and
rations:
PE Ratio: thePrice-to-Earnings Ratiosimply divides the stocks price by its earningsper share. It basically shows what investors are willing to pay for each Rupee of the
companys earnings. In inverse ratio: Earnings Yield indicates how much the
company yielded in earnings for each invested dollar.
PB Ratio: the Price-to-Book Ratio divides the stocks price by its net assets (less any
intangibles like goodwill.) It basically indicates what investors are willing to pay for
each Rupee of a companys tangible assets.
Free Cash Flow: FCF tells the investor how much cash the company is left with after
capital investments.
PEG Ratio:Price/Earnings to Growthratio is a modified version of the PE ratio that
takes the growth of the company into account. It is calculated by dividing the P/E
ratio by the expected earnings growth rate in %.
So what would be an ideal investment? To get you started, you should aim for a PB = 80 and over-sold: RSI
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There are no short-cuts when it comes to investing and technical indicators are no
different. Spend time learning different investment styles, adopt one that suites your
attitude and be prepared to stick with for the long-term. Robot-style investing is not for
humans.
Related articles How To Use Basic Concepts In Forex Technical Evaluation(pro2sell.com)
Oil is About To Hit a Key RSI Level(businessinsider.com)
http://blog.pro2sell.com/how-to-use-basic-concepts-in-forex-technical-evaluation/http://blog.pro2sell.com/how-to-use-basic-concepts-in-forex-technical-evaluation/http://www.businessinsider.com/oil-is-about-to-hit-a-key-rsi-level-2011-3http://www.businessinsider.com/oil-is-about-to-hit-a-key-rsi-level-2011-3http://www.businessinsider.com/oil-is-about-to-hit-a-key-rsi-level-2011-3http://blog.pro2sell.com/how-to-use-basic-concepts-in-forex-technical-evaluation/ -
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Dollar Cost Averaging or Systematic Investment Plan
JUNE 29 , 2011
While discussing the buy &
holdfundamental investingstrategy, I had
indicated that a constant, fixed investment
into a broad-basedETFwould perhaps be
the best way for new investors to build a
diversified portfolio. The NIFTYBEES is
perhaps the oldest ETF listed in the NSE:
it has been tracking the Nifty 50 index
since 2002.
How does a do-it-yourself SIP work? Well, its pretty simple actually. You just set aside a
fixed amount every month (say, Rs.10,000) and buy the same stock or ETF every time.
To give you an example, say you started buying the NIFTYBEES on the first day of
every month, since the time it was listed in 2002, it would look something like this:
As you can see, the lower the price, the more units you will actually buy and hence the
nameDollar Cost Averaging: you are averaging your buying price of the unit over a
period of time.
Now say you did this irrespective of whether the market was down or up, how much
would you have gained till date? My calculations show that an SIP on the NIFTYBEES
would have netted an IRR of 18%. Thats not bad at all! For those who want to have a
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look at the actual cashflow and returns, they can hop over to thespreadsheeton Google
Docs.
Happy Investing!
Related articles Five ETF flaws you shouldnt overlook(theglobeandmail.com)
Exchange Traded Funds(hedgingcorner.wordpress.com)
5 Measures to Ignore
JULY 2 , 2011
Previously, we had discussed what to look for while buying stocks. Irrespective of
whether you arefundamentalortechnicalinvestor, there are some keymetricsthat you
should follow to screen stocks. However, even though some metrics have complicated
math, they can be completely misleading when it comes to their predictive power.
Measures like Beta, Analyst Recommendations, P/E and PEG typically have very little
bearing to how the stock eventually performs. To read more about the 5 measures to
ignore while screening stocks, hop on over to Smart Moneyhere.
https://spreadsheets.google.com/spreadsheet/ccc?key=0AgZTAJ_9f5j_dG1qNzBrWk5FTU5qUzZDRVZEUXlkOWc&hl=en_GBhttps://spreadsheets.google.com/spreadsheet/ccc?key=0AgZTAJ_9f5j_dG1qNzBrWk5FTU5qUzZDRVZEUXlkOWc&hl=en_GBhttps://spreadsheets.google.com/spreadsheet/ccc?key=0AgZTAJ_9f5j_dG1qNzBrWk5FTU5qUzZDRVZEUXlkOWc&hl=en_GBhttp://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://hedgingcorner.wordpress.com/2011/04/18/exchange-traded-funds/http://hedgingcorner.wordpress.com/2011/04/18/exchange-traded-funds/http://stockviz.biz/index.php/index.php/2011/07/02/5-measures-to-ignore/http://stockviz.biz/index.php/page/2/index.php/2011/06/17/fundamental-strategies/http://stockviz.biz/index.php/page/2/index.php/2011/06/17/fundamental-strategies/http://stockviz.biz/index.php/page/2/index.php/2011/06/17/fundamental-strategies/http://stockviz.biz/index.php/page/2/index.php/2011/06/08/technical-vs-fundamental-investing/http://stockviz.biz/index.php/page/2/index.php/2011/06/08/technical-vs-fundamental-investing/http://stockviz.biz/index.php/page/2/index.php/2011/06/08/technical-vs-fundamental-investing/http://stockviz.biz/index.php/page/2/index.php/2011/06/01/enterprise-valuation/http://stockviz.biz/index.php/page/2/index.php/2011/06/01/enterprise-valuation/http://stockviz.biz/index.php/page/2/index.php/2011/06/01/enterprise-valuation/http://www.smartmoney.com/invest/stocks/shopping-for-stocks-5-measures-to-ignore-1309469445418/http://www.smartmoney.com/invest/stocks/shopping-for-stocks-5-measures-to-ignore-1309469445418/http://www.smartmoney.com/invest/stocks/shopping-for-stocks-5-measures-to-ignore-1309469445418/http://www.smartmoney.com/invest/stocks/shopping-for-stocks-5-measures-to-ignore-1309469445418/http://stockviz.biz/index.php/page/2/index.php/2011/06/01/enterprise-valuation/http://stockviz.biz/index.php/page/2/index.php/2011/06/08/technical-vs-fundamental-investing/http://stockviz.biz/index.php/page/2/index.php/2011/06/17/fundamental-strategies/http://stockviz.biz/index.php/index.php/2011/07/02/5-measures-to-ignore/http://hedgingcorner.wordpress.com/2011/04/18/exchange-traded-funds/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/https://spreadsheets.google.com/spreadsheet/ccc?key=0AgZTAJ_9f5j_dG1qNzBrWk5FTU5qUzZDRVZEUXlkOWc&hl=en_GB -
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Staying Alert
JUNE 13 , 2011
Most of investing literature revolves around buying
decisions. However, in order to truly profit from themarkets, it is important to know when to sell as well.
An important part of knowing when to sell is keeping
informed of actionable market actions in your
portfolio, mainly done through what are known as
trailing alerts.
A trailing alert typically gets triggered when a stock
hits a price level that is relative to its previous close. For example, in order to protect my
profits, I could set a trailing stop of 2% on DLF. Now if DLF drops below 2% from the
previous close, you automatically exit out of the stock, thus monetizing whatever profit
you had in that position or preventing more losses.
The trick is setting the percentage at a level that will pick up a true price drop as
opposed to normal daily price fluctuations.
You can setup to receive alerts on SMS/email on StockViz by
visitinghttp://stockviz.biz/alerts.Heres how Ive setup mine:
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As you can see, Ive set both up and down trailing alerts forDLFso that I can monitor
the stock closely, whereas Im interested in only drops more than 5% in a day
forRelianceandONGC.
Stay alert & Stay sharp!
Related articles You: 3 simple ways to protect your profits(menafn.com)
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Value Traps
JUNE 20 , 2011
One of the fundamental strategies we had discussedbeforewas value investing. While
looking for value plays, it is important to understand the stage at which the rest of themarket is with regard to the specific stock. While you may recognize value in a stock
(value opportunity) and decide to invest in it, it might take a while for the market to
recognize value and bid up its stock price (value in action). Sometimes, you may just be
too early and get trapped in a long position while the rest of the market continues to
hammer the stock price down, a la, value trap.
For example, let us take a look atInfosys. Given its strong cash position, professional
management and brand, a typical value investor could be easily drawn to the stock.
However, investing at any point since the beginning of this year wouldve trapped the
investor in a dog stock, with every single pop turning out to be an opportunity for the
market to sell.
To take another example, this time ofCisco.
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There is no doubt that there is a good value opportunity. It has a ton of overseas profits,
it is paying out dividends and buying back its stock, it is a market leader in most of its
product categories and has an M&A track-record like you hear about. However, the
market has yet to recognize it and just like Infosys, buying the stock at any point since
the beginning of the year wouldve been a trap.
As the John Maynard Keynes once said, the markets can be irrational longer than you
can remain solvent. Value investors will do good to heed that advice.
Related articles Infosys Financial Results Disappoint Analysts(pcworld.com)
Tech giants that still offer a bang for your buck(theglobeandmail.com)
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What are ETFs?
JUNE 15 , 2011
ETFsare fast becoming a popular choice for passive investors who would like to stay
invested in the stock market without having to paying large fees to investmentmanagers. One can think of an ETF as
amutual fundthat can be traded on the stock exchange as any stock
anindex fundthat tracks a popular index (Nifty 50, Junior Nifty, etc)
apassive investmentvehicle that doesnt depend on a managers stock-picking
ability
Essentially, an ETF will be a basket of stocks, much like a mutual fund. It will typically
track an index with much lower fees compared to a mutual fund. And investors can trade
in and out of ETFs on the stock market through their trading accounts.
Some of the popular ETFs in India are theNIFTYBEES(tracking the Nifty 50
index),JUNIORBEES(tracking the Junior Nifty) and the Bank
ETFsKOTAKPSUBK&BANKBEES.
The three things to look out for while investing in ETFs is the total annual expense ratio
(should be < 1%),tracking error(< 0.5% annualized) and liquidity (there should a fair
amount of daily trading activity).
In the recent past, fund houses have tried to capitalize on sector specific ETFs withvarying degree of success. For example, there are more than a dozen Gold ETFs listed
in theNSE. However, the primary problem with commodity ETFs that dont hold the
physical underlying is that the tracking error tends to get compounded over a period of
time and may not reflect the price actions accurately.
ETFs have traditionally worked great at tracking broad, liquid indexes and remain the
preferred way to get passivemarket exposure.
Related articles Who Sneaked These High-Risk Stocks Into Your Portfolio?(fool.com)
John Nyaradis ETF Edge: Will the bear bite us again?(marketwatch.com)
Five ETF flaws you shouldnt overlook(theglobeandmail.com)
Chuck Jaffe: Mutual funds lose their battle with ETFs(marketwatch.com)
http://stockviz.biz/index.php/page/2/index.php/2011/06/15/what-are-etfs/http://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Passive_managementhttp://en.wikipedia.org/wiki/Passive_managementhttp://en.wikipedia.org/wiki/Passive_managementhttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://en.wikipedia.org/wiki/Tracking_errorhttp://en.wikipedia.org/wiki/Tracking_errorhttp://en.wikipedia.org/wiki/Tracking_errorhttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://en.wikipedia.org/wiki/Market_exposurehttp://en.wikipedia.org/wiki/Market_exposurehttp://en.wikipedia.org/wiki/Market_exposurehttp://www.fool.com/investing/etf/2011/06/14/who-sneaked-these-high-risk-stocks-into-your-portf.aspxhttp://www.fool.com/investing/etf/2011/06/14/who-sneaked-these-high-risk-stocks-into-your-portf.aspxhttp://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.marketwatch.com/story/mutual-funds-lose-their-battle-with-etfs-2011-06-08?siteid=rss&rss=1http://www.marketwatch.com/story/mutual-funds-lose-their-battle-with-etfs-2011-06-08?siteid=rss&rss=1http://www.marketwatch.com/story/mutual-funds-lose-their-battle-with-etfs-2011-06-08?siteid=rss&rss=1http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.fool.com/investing/etf/2011/06/14/who-sneaked-these-high-risk-stocks-into-your-portf.aspxhttp://en.wikipedia.org/wiki/Market_exposurehttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://en.wikipedia.org/wiki/Tracking_errorhttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://en.wikipedia.org/wiki/Passive_managementhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://stockviz.biz/index.php/page/2/index.php/2011/06/15/what-are-etfs/ -
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Market Pundits on Twitter
MA Y 7 , 2011
There is a growing trend of market pundits hopping on to Twitter to spread their favourite
stock picks. StockViz has collated tweets since the April of this year and put together a
leader-board of sorts. The largest twitterer was StocksTips, with a whopping 3140
tweets:
With India Shining and all, is it any wonder that most of them were buys?
And lastly the sells:
http://stockviz.biz/index.php/page/4/index.php/2011/05/07/market-pundits-on-twitter/http://stockviz.biz/index.php/page/4/index.php/2011/05/07/market-pundits-on-twitter/ -
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To the active investor, the question is how many of them foretold the most recent market
rout? The leader-board for the number of sells after April 25th:
Get a round-up of all the tipsters atwww.StockViz.biz/tips
Pundit predictions and coin-toss comparisons
MA Y 4 , 2011
Most prognosticators are not very accurate predictors, few offer reliably accurate
predictions, but even fewer are wrong more than half of the time most barely hoverabove the dreaded ugly line.
Source:FT Alphaville Pundit predictions and coin-toss comparisons.
http://www.stockviz.biz/tipshttp://www.stockviz.biz/tipshttp://www.stockviz.biz/tipshttp://stockviz.biz/index.php/page/5/index.php/2011/05/04/pundit-predictions-and-coin-toss-comparisons/http://stockviz.biz/index.php/page/5/index.php/2011/05/04/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://stockviz.biz/index.php/page/5/index.php/2011/05/04/pundit-predictions-and-coin-toss-comparisons/http://www.stockviz.biz/tips -
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2011 in IPOsthe story so far
JUNE 8, 2011
About 33 companies have listed in the NSE so far, on an average, they have yielded 0%
return.
Congratulations to the winners:
JUBLINDS 19%LOVABLE 31%SUDAR 33%
AANJANEYA 71%HFCL 74%KBIL 93%
TCIDEVELOP 100%KICL 110%
CMAHENDRA 130%INDTERRAIN 200%
http://stockviz.biz/index.php/page/2/index.php/2011/06/08/2011-in-iposthe-story-so-far/http://stockviz.biz/index.php/page/2/index.php/2011/06/08/2011-in-iposthe-story-so-far/http://stockviz.biz/StockDive.aspx?TICKER=JUBLINDShttp://stockviz.biz/StockDive.aspx?TICKER=LOVABLEhttp://stockviz.biz/StockDive.aspx?TICKER=LOVABLEhttp://stockviz.biz/StockDive.aspx?TICKER=SUDARhttp://stockviz.biz/StockDive.aspx?TICKER=AANJANEYAhttp://stockviz.biz/StockDive.aspx?TICKER=AANJANEYAhttp://stockviz.biz/StockDive.aspx?TICKER=HFCLhttp://stockviz.biz/StockDive.aspx?TICKER=KBILhttp://stockviz.biz/StockDive.aspx?TICKER=TCIDEVELOPhttp://stockviz.biz/StockDive.aspx?TICKER=KICLhttp://stockviz.biz/StockDive.aspx?TICKER=CMAHENDRAhttp://stockviz.biz/StockDive.aspx?TICKER=INDTERRAINhttp://stockviz.biz/wp-content/uploads/2011/06/image1.pnghttp://stockviz.biz/StockDive.aspx?TICKER=INDTERRAINhttp://stockviz.biz/StockDive.aspx?TICKER=CMAHENDRAhttp://stockviz.biz/StockDive.aspx?TICKER=KICLhttp://stockviz.biz/StockDive.aspx?TICKER=TCIDEVELOPhttp://stockviz.biz/StockDive.aspx?TICKER=KBILhttp://stockviz.biz/StockDive.aspx?TICKER=HFCLhttp://stockviz.biz/StockDive.aspx?TICKER=AANJANEYAhttp://stockviz.biz/StockDive.aspx?TICKER=SUDARhttp://stockviz.biz/StockDive.aspx?TICKER=LOVABLEhttp://stockviz.biz/StockDive.aspx?TICKER=JUBLINDShttp://stockviz.biz/index.php/page/2/index.php/2011/06/08/2011-in-iposthe-story-so-far/ -
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GDP Growth vs. Stocks
MA Y 25 , 2011
Quite often, the reasons that investors
give to be bullish on Indian stocks are:millions of people are rising above poverty
and are experiencing the joys of
consumerism for the first time. Almost all
of India is connected via mobile phones
and cable TV is making inroads in the
remotest of towns. So in effect, what they
are saying is that the stock-market is
going to rise with IndiasGDP. Is that really the case? Are stock-market returns
correlated with GDP growth?
A study by Peter Henry and Prakash Kannan seems to indicate not:
This only reconfirms the theory that stock-markets are leadingindicators of the
economy, not the other way around. And somewhat counter-intuitively, investing in low
growth countries actually yielded higher returns!
So what does this mean for Indian investors? The key take-away is to not get swayed by
all the India Shining callouts and focus on the fundamentals ofindividual stocks. A
http://stockviz.biz/index.php/page/3/index.php/2011/05/25/gdp-growth-vs-stocks/http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://stockviz.biz/wp-content/uploads/2011/05/image.pnghttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://stockviz.biz/index.php/page/3/index.php/2011/05/25/gdp-growth-vs-stocks/ -
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The best place for cash is in my pocket
JUNE 22 , 2011
The purpose of any business is, at the end of the day, to
make money. It could be through providing a service, selling
a product, acting as an intermediary or investing in other
companies. All of these activities should lead to free cash-
flow being generated. At some point, companies have to
decide what to do with the excess cash.
What shouldInfosysdo with Rs. 2,42,14,00,00,000 ($5.38 Billion) in cash?
Acquisitions
Infosys could try and grow bigger by acquiring smaller companies. However, IT services
are a cashflow business; a bigger company will end up stock-piling more cash. For
exampleOFSS(Oracle Financial Services) has more than $1B in cash.
Alternatively, it could buy or fund IT product companies. However, that would mean that
Infosys knows more about running or funding IT product companies than the stock
holder. Also, what if stock holders dont want to invest in product companies at all?
http://stockviz.biz/index.php/index.php/2011/06/22/the-best-place-for-cash-is-in-my-pocket/http://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/wp-content/uploads/2011/06/image6.pnghttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/index.php/index.php/2011/06/22/the-best-place-for-cash-is-in-my-pocket/ -
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Stock buy-backs
Infosys could also buy back its stock. Companies that pay their employees instock
optionstypically need to buy back their stock to avoid dilution. Infosys cash hoard can
buy back nearly 25% of its public float and investors benefit from the capital appreciation
(higher stock price) that the move would entail. The capital appreciation would result in a
tax event for the investor as well.
However, what would Infosys do with all the stock it now owns? It could use it as
currency to acquire other companies (pay in equity rather than cash). Or it could start
paying out stock options to its employees, etc.
Dividends
Infosys could choose a third, simpler alternative: distribute the cash asdividends.
Dividends are perhaps the most straight-forward, investor friendly way to return cash tothe stock holder. It allow the investor maximum flexibility in deciding what to do with the
cash. And since dividends are actual checks that need to get sent out, it means that the
accounting profits are actually real profits. In September, Infosys paid out Rs. 40 per
share, which is close to $339 million to its public shareholders.
I personally prefer dividends to other forms of returning cash to the stock holder. Its
simple, it doesnt expect the management to work miracles trying to diversify and its
cash in the pocket.
Related articles Look beyond the numbers(parthasarathyarjun.wordpress.com)
Infosys gets a new name(hindu.com)
http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dividendhttp://parthasarathyarjun.wordpress.com/2011/04/16/look-beyond-the-numbers/http://parthasarathyarjun.wordpress.com/2011/04/16/look-beyond-the-numbers/http://www.hindu.com/2011/05/01/stories/2011050160230100.htmhttp://www.hindu.com/2011/05/01/stories/2011050160230100.htmhttp://www.hindu.com/2011/05/01/stories/2011050160230100.htmhttp://parthasarathyarjun.wordpress.com/2011/04/16/look-beyond-the-numbers/http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29 -
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FD returns better than debt funds over a yearMAY 19 , 2011
If you are looking to make deposits of a year or so, you should choose fixed deposits
(FDs) over debt funds.
Source:FD returns better than debt funds over a year livemint.com.
The changing landscape of Indias equity markets the bots are here
APR I L 26 , 2011
About 60% of orders into the countrys main exchange are coming from co-located
servers shows that high-frequency trading has come onshore in a big way. High-
frequency traders tend to stick to liquid stocks and liquid derivatives contracts. Hence,
they havent yet contributed meaningfully in enhancing liquidity of the other stocks and
illiquid derivatives contracts such as stock options while greatly increasing the volatility
of the most liquid names.
Combined with the dismantling of SEBIs existing team, the market is at risk of being
swarmed by the bots.
Source:The changing landscape of Indias equity markets livemint.com.
http://stockviz.biz/index.php/page/3/index.php/2011/05/19/fd-returns-better-than-debt-funds%e2%80%99-over-a-year/http://stockviz.biz/index.php/page/3/index.php/2011/05/19/fd-returns-better-than-debt-funds%e2%80%99-over-a-year/http://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://stockviz.biz/index.php/page/5/index.php/2011/04/26/the-changing-landscape-of-india%e2%80%99s-equity-markets/http://stockviz.biz/index.php/page/5/index.php/2011/04/26/the-changing-landscape-of-india%e2%80%99s-equity-markets/http://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://stockviz.biz/index.php/page/5/index.php/2011/04/26/the-changing-landscape-of-india%e2%80%99s-equity-markets/http://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://stockviz.biz/index.php/page/3/index.php/2011/05/19/fd-returns-better-than-debt-funds%e2%80%99-over-a-year/ -
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Inflation
JUNE 3 , 2011
According toWikipedia, inflation is a rise
in the general level of prices of goods andservices in an economy over a period of
time. When the general price level rises;
each unit of currency buys fewer goods
and services. Consequently, inflation also
reflects an erosion in the purchasing
power of money a loss of real value in
the internal medium of exchange and unit of account in the economy.
In order to understand where inflation comes from,lets
begin something that we allintuitively understand: demand & supply. As demand for a good goes up, for the same
level of supply, the price goes up.
Here, S is the supply curve, D is the demand curve,
P is the price level and Q is the quantity of the
product sold.
So if Demand increases from D1 to D2, priceincreases from P1 to P2.
What causes the shift in the Demand and Supply
curves?
In India, as recently as Nov/Dec 2010, we had a
supply-side shock in onions. In a matter of weeks, prices of onions shot up 3x-4x the
regular price. This is typical in local food supplies (happens to tomatoes and sugar on a
regular basis as well.) Typically, supply-side shocks are acts of nature and can behandled by warehousing enough supplies to tide over bouts of disruption. For example, if
we had sufficient food-processing capabilities, we should not be seeing seasonal spikes
and cliffs in food prices.
Typically, supply-side shocks also come from herding behaviour of suppliers: seeing
onion prices hit Rs. 50, they may plant more onions for the next season, resulting in a
glut and collapsing price. The glut causes them to reign-in onion growing for the next
season resulting in shortages and higher prices. It also comes from distortion in pricing
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signals. For example, the government sets a floor-price for most grains. The floor-price
typically has more to do with favouring a particular demographic than with market levels.
This distortion in pricing signals means that the farmer is now forever dependent on the
government both as his largest customer and as a price setter.
Another way inflation gets embedded is when there is a shortage in labour market that
leads to increasing wages that in turn leads to increasing end prices. And seeing end
prices increase, labour starts demanding higher wages, leading to an inflationary spiral.
TheNREGAprogram has been accused of
stoking such a spiral by setting a floor on rural
wages. Higher NREGA wages meant land-
owners had to compete with the government for
labour, resulting in higher input costs which werethen compensated by higher floor prices for
grains. Higher food prices meant that NREGA
wages had to increase to keep up.
Inflation also goes up when the government
increases the amount of money in the system
either by running huge deficits or by just printing money (Quantitative Easing, in the US
Feds words). When you have more money chasing the same amount of goods, inflation
has nowhere to go but up. In fact, currency debasement has been the preferred choice
of governments to tide over funding gaps when tax hikes are no longer feasible. For
example, Roman coins the silver denarius, was 95% silver when they were first
introduced. By 117 AD, it was 85% silver, in 180 AD it was 75% and by 211 AD
(Caracallas reign) it was 50%. But the real crisis came after Caracalla, between 258 and
275, in a period of intense civil war and foreign invasions. The emperors simply
abandoned, for all practical purposes, a silver coinage. By 268 there was only 0.5%
silver in the denarius. The fascinating account of the fall of the Roman empire can be
readhere.
To summarize, the most common reasons for inflation are:
Supply-side shocks
Increasing Demand
Disruption of pricing signals
Shortage of labour
Currency debasement
http://nrega.nic.in/netnrega/home.aspxhttp://nrega.nic.in/netnrega/home.aspxhttp://nrega.nic.in/netnrega/home.aspxhttp://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easinghttp://mises.org/daily/3663http://mises.org/daily/3663http://mises.org/daily/3663http://stockviz.biz/wp-content/uploads/2011/06/image.pnghttp://mises.org/daily/3663http://en.wikipedia.org/wiki/Quantitative_easinghttp://nrega.nic.in/netnrega/home.aspx -
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Related articles Feds Lockhart: Long-Term Infl Expectns Are Reasonably Stable(forexlive.com)
SocGen: The China Domino Has Fallen!, Big-Time Inflation Coming All Around The
World(businessinsider.com)
Inflation in India: central bank battles government(ft.com)
Deflation
JUNE 6, 2011
Any discussion oninflationis incomplete without calling out its
counterpart: deflation. According toWikipedia, deflation is a
decrease in the general price level of goods and services.
Deflation occurs when the annual inflation rate falls below 0% (a
negative inflation rate). Inflation reduces the real value of money
over time; conversely, deflation increases the real value of money the currency of a
national or regional economy. This allows one to buy more goods with the same amount
of money over time.
One can argue that deflation is the natural state of an advanced economy given the up-
and-to-the-right advancement in technology. Technology is a natural deflator: itincreases productivity (allows the same number of employees to produce
more),Moores lawgives us more processing power for the same dollar, it reduces
communication costs (reducing the need to travel as much) and makes globalization
more efficient (allowing businesses to shift production to lower wage/more productive
regions). It also has the effect of making certain commodities irrelevant, for example, the
invention of plastic tooth brushes caused a total collapse in the boars hair market.
However, technology deflation is a function of economies of scale and is more or less
independent ofmonetary policy. New technologies and products come down in priceover time, regardless of the state of the economy, monetary policy, or income
distribution.
Another view of deflation is that it is caused a collapse in final demand. A fall in demand
causes businesses to liquidate inventory and cut production. A cut in production would
lead to cuts in workforce. Unemployment would further destroy demand, thereby
creating a deflationary cycle. Since the same rupee can now buy more goods, it
http://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stablehttp://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stablehttp://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stablehttp://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.ft.com/cms/s/3/58104a6a-508d-11e0-9e89-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/3/58104a6a-508d-11e0-9e89-00144feab49a.html?ftcamp=rsshttp://stockviz.biz/index.php/page/2/index.php/2011/06/06/deflation/http://stockviz.biz/index.php/2011/06/03/inflation/http://stockviz.biz/index.php/2011/06/03/inflation/http://stockviz.biz/index.php/2011/06/03/inflation/http://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Deflationhttp://stockviz.biz/index.php/2011/06/03/inflation/http://stockviz.biz/index.php/page/2/index.php/2011/06/06/deflation/http://www.ft.com/cms/s/3/58104a6a-508d-11e0-9e89-00144feab49a.html?ftcamp=rsshttp://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stable -
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negatively affects people/companies who are in debt (youll have to repay todays Rs. 90
debt a year from now with todays Rs. 100, given a deflation of 10%.)
Given the high-debt loads of important industries, deflation is a bigger nightmare for
governments andcentral banksthan inflation. Given the recent actions of the US Fedand the UK Bank of England, it appears that there is no limit to what central banks will
do to prevent deflation: set short-term rates to zero, print copious amount of new money,
buy debt that nobody else wants and influence sentiment by fudging statistics.
To summarize: just like how inflation is the rise in general levels of prices of goods,
deflation is a fall in price levels, usually brought on by a collapse in demand. Inflation
tends to favour debtors while deflation favours savers.
Related articles Monetary Policy Week in Review 4 June 2011(benzinga.com)
A Visual Guide to Deflation(mint.com)
The deflation dilemma: Why falling prices remain a threat(theglobeandmail.com)
Last chapter in Japans deflation saga?(ft.com)
Hayek on Deflation(coordinationproblem.org)
http://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Central_bankhttp://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.mint.com/blog/finance-core/a-visual-guide-to-deflation/http://www.mint.com/blog/finance-core/a-visual-guide-to-deflation/http://www.theglobeandmail.com/report-on-business/the-deflation-dilemma-why-falling-prices-remain-a-threat/article1959034/http://www.theglobeandmail.com/report-on-business/the-deflation-dilemma-why-falling-prices-remain-a-threat/article1959034/http://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.coordinationproblem.org/2011/05/hayek-on-deflation.htmlhttp://www.coordinationproblem.org/2011/05/hayek-on-deflation.htmlhttp://www.coordinationproblem.org/2011/05/hayek-on-deflation.htmlhttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.theglobeandmail.com/report-on-business/the-deflation-dilemma-why-falling-prices-remain-a-threat/article1959034/http://www.mint.com/blog/finance-core/a-visual-guide-to-deflation/http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://en.wikipedia.org/wiki/Central_bank