Get rich. Do NOTHING!

Published on Fri, Sep 24, 2010 at 15:00   |  Updated at Fri, Sep 24, 2010 at 15:15  |  Source : Moneycontrol.com

SOME guys have all the luck. A year ago, a friend of mine sold some ancestral property and hit the jackpot. He asked me, quite sensibly, to help him invest it in stocks.Being totally new to the stock market, he thought he would need to watch a business channel throughout the day, be on the phone and carry a laptop, so that he could trade all the time! I didn't ask him to do any of it. Instead, I told him to pursue a hobby, take a holiday, meet his family, start a business, do just about anything, as long as it was not trading. 

Invest and wait
I believe investments are not meant to keep you busy. They are meant to make you rich. People who can't have their morning coffee without watching the stock prices don't know the real meaning of investing. The true investors select their stocks carefully and go fishing in Alaska. No, that's not bizarre. Staying diverted actually helps stay invested for a longer time and let the money grow along with the invested company. See how the power of compounding helps grow your money! 

My friend took my advice. He invested the money in a few companies with strong fundamentals and a visible growth. In one year, his investments fetched around 95 per cent returns.

So, when you forget about your investments, you: 

a. Save time

b. Save cost involved in the form of brokerage. The smart brokers who tell you to trade actively are only filling their own pockets.

c. Avoid fretting and the temptation to sell if the stocks prices fall by 10 per cent.

d. Avoid greed and the temptation to buy if it rose by 30 per cent.

e. Follow the Warren Buffet style of investment. Do you think the champion stockbroker would care if the stock markets closed for a whole year? And we all know how rich he is.

f. Give time for your seeds to sow. If you keep removing your seed and change soil every other day, your seed will remain a seed.

g. Enjoy your morning cup of coffee.

Remember, the people who check their stock price every 30 minutes don't become rich, they just become busy.

- Yogesh Chabria

The author dreams of making each and every Indian financially literate the Happionaire™ Way. His latest bestselling book, Happionaire’s Cash The Crash helps investors make the most of now, while sharing little known insider secrets. You can get in touch with him at yogesh.chabria@moneycontrol.com

Investor, Know Thyself

 

These are turbulent times once again. With bad news trickling in from Europe, the US, China and now the two Korean nations, the markets are reacting and stocks are coming down. Investors are experiencing a fall in their portfolios and memories of the 2008 meltdown have come alive once again.

So, now, it is time to check our own behavioural biases. It is important to understand our feelings when we are confronted with losses and how those feelings can affect our behaviour and distort decision-making. As far as our feelings towards losses are concerned, we tend to suffer from two strong behavioural biases: loss aversion and sunk cost fallacy.

Loss aversion. It has been proved that the pain of loss is three times more than the pleasure of an equal amount of gain. While loss becomes terrifying over time, pleasure becomes boring. This loss aversion has a direct bearing on our investment decisions. However, if one is aware of these biases, they can be used to one’s advantage. Loss-averse investors are prone to the following behaviour.

1. When markets crash, they sell stocks and flee to safety. Or, they buy fixed income securities.
2. They sell winners and hold on to losers. Their portfolios normally have a couple of winners followed by a long list of losers.
3. They take profits very early.
4. They take more risks when threatened with a loss. This is the Gambler’s Fallacy.
5. They are tax-averse. They hate to pay taxes and for that, they are even willing to forego profits.

From their behaviour, it is evident that such investors are not risk-averse but loss-averse. Evidence shows that such investors will increase their risk to avoid the smallest
probability of loss.

Sunk cost fallacy. You increase your commitment to justify your past actions. Averaging the cost of purchases by buying more when you have gone wrong on your stock selection, or spending indefinitely on repairs when the asset needs replacement are glaring examples of sunk cost fallacy. Banks are a good case in point. They lend to undeserving, old borrowers as they have already lent them. The question they should be asking themselves is: “Is the business viable enough to merit a further loan?” However, sunk cost fallacy makes them think: “If we have already lent them, we should do so again.” Good money goes after bad money.

Not looking at gains and losses in isolation will give you a lot of much-needed psychological comfort

God forbid, should the monsoon be delayed, markets could see more turbulence. This could lead to high loss aversion. Investors need to understand that with the Indian growth story intact and very few investment opportunities available to foreign institutional fund managers, India is still the most preferred destination. Such times could offer great investment opportunities. So, refrain from the impulsive flight to security of fixed income instruments.

On the contrary, if stocks are falling, your money should go towards buying the right ones. Stocks are your best hedge against inflation.Don’t sell your winners on the fear that markets will tank. And, do not hold on to your losers in the hope that prices will go up. When you sell your non-performers, the loss is adjusted against your profits. Re-frame losses as gains and have wholesome portfolio vision. Not looking at gains and losses in isolation will give you a lot of psychological comfort. Finally, do not track your investments as if they mean the world to you. There is no need to worry if you have made the right decisions and are guided by the right portfolio manager. To have a thorough understanding of loss aversion, please visit www.ppfas.com and under ‘Understanding Behavioral Biases’ go to ‘Feelings Towards Losses’.

Six Investing Mistakes to Avoid Now

Watching the swings of the stock market lately has been an exercise in anxiety management.

Just when we thought that global stocks were stabilizing, there was a fresh downturn. In recent weeks, India's stock market has been rocky because of fears that the U.S. and European economies are in bad shape and that, in turn, would hurt stocks.

This week opened with the Bombay Stock Exchange's Sensex down 340 points in one day, followed by another 164-point decline the next day. Luckily, the rest of the week has been positive so far.

This sharp volatility is enough to make investors nervous about what's next. It's also a ripe time to make investing mistakes. Beware; they could hurt you in the long run.

Here are six common investing mistakes individuals tend to make in volatile markets, and 

how to avoid them:

Getting emotional: It is natural to be concerned when the value of your savings fluctuates wildly. But financial advisers assert that individuals are best off ignoring day-to-day stock price movements because they simply make you nervous and can get in the way of your long-term investing goals. "It's always good to be balanced in your approach, rather than getting emotional in your investments," says Arti Sahgal, senior manager of financial planning and investment advisory at Bajaj Capital Ltd. in New Delhi. "When you take a call, go steady with it."

Pulling out of stocks: This may seem like the easiest thing to do to reduce your anxiety but it's easily the worst mistake you can make. Once you sell your stocks or stock mutual funds, you've locked in your losses. Also, where would you put that money? It's tempting to think that you will reinvest in stocks when the market stabilizes or hits bottom but are you certain you will know when the bottom has come? Most people don't.

"Your investment should be goal-oriented," says Jai Adiani, an adviser at Mumbai financial services firm Sykes and Ray Equities. If there's a specific goal with which you have invested in stocks – say, saving for your child's college education 10 years from now -- you know that you don't need the money right away. Continue to let it ride the stock market volatility for the period of your goal because stocks give their best performance over the long term.

Stopping your systematic investment plan: If you have been wise enough to invest in the stock market through a systematic investment plan, don't be foolish enough to stop that now. A systematic investment plan basically gets you to put money either into individual stocks or stock mutual funds through a periodic investment, say every month. By buying stocks over a period of time, you capture the ups and downs of the market, and thus hopefully lower the average purchasing price of your stock or mutual fund. If anything, volatile markets are the ideal time to benefit from a systematic investment plan, says Ms. Sahgal, because when a mutual fund's net asset value is down, the investor will be allotted more units of the fund for the same amount of investment.

Buying more "safe" investments: OK, so you're brave enough not to pull out of stocks. But now do you want to put your additional money into a relatively safe fixed deposit? That might not be ideal. If you put too much into this, your portfolio could become too debt-heavy, which in the long term could lower your returns.

A one- to three-year fixed deposit in a bank is paying anywhere from 6.5% to 7.5% interest rate, which is short of the inflation rate. Market experts expect interest rates to go up in the next few months, as the Reserve Bank of India tries to curb inflation. So, if you do plan to invest in fixed deposits, you might be better off waiting for a few months.

Loading up on gold: Given the sharp increase in the gold price over the last six months, investors have been very eager to buy gold as an investment, say financial advisors. The gold price recently hit an all-time high of 19,220 rupees ($430), and its natural to assume that it will keep going up further.

While that is possible, remember that the price can reverse also. In fact, history shows that over the last 20 years, gold has earned only 6% per year compared with an average gain of more than 15% for the Sensex. So, restrict your investments in gold to a small part of your portfolio, 5% or so.

Trading on margins: "In volatile markets, the biggest risk you can take is playing on margins," says Mr. Adiani. "Margin trading" basically involves buying stocks on borrowed money. You can buy a 50-rupee stock by paying just 25 rupees from your pocket and borrowing the remaining 25 rupees from your broker for some interest. If the stock goes up to 75 rupees, you'll have technically made a 100% gain, because you had only put up 25 rupees.

But if the stock price fell to 25 rupees, your loss too would be 100%. In addition, you'll have to pay the broker some interest for the borrowed money. So, in down markets, losses can add up very quickly.

Individuals are best off steering clear of margin trading, say financial advisers. 

Ref: http://online.wsj.com/article/SB127624116529704281.html?mod=wsj_india_main

Buy low, sell high: How Buffet does it

BUY low, sell high.

This is the most popular theory in stock market investing. But the question is -– how would you know when a stock's price is ‘low’?

The key: Compare a stock's price with its ‘value’.

How is price different from value?
-- Price is what the market is willing to pay for the share at a given time. It fluctuates from minute to minute.

-- Value of a stock is the worth of its underlying business. It is more stable as fortunes of a company do not change overnight.

Buy when price is lower than value
If a share's value is Rs 150 and price is Rs 125, then you get the stock at a discount of Rs 25.

While there is no guarantee that the price will not go below Rs 125, the probability is low.

This principle is called the 'margin of safety' and finds it roots in the teachings of legendary investors -- Warren Buffet and Benjamin Graham.


How to find out a share's value?

To begin with, you can read financial statements and understand the nitty-gritties of stocks.

If you are willing to walk that extra mile, then pay heed to these valuation methods that Warren Buffet swears by:

Method 1:
Look at the net liquid assets per share.

Net liquid assets per share = Current assets (cash, debtors, liquid investments etc) - liabilities
Number of shares


Thumb rule: Warren Buffet prefers paying not more than two-thirds of such value for a stock.


Method 2:
Look at the PE (Price to earnings) growth ratio.

PE growth ratio = Market price/ Earnings per share
Annual EPS growth

where Annual EPS growth = Current year's EPS – previous year's EPS x 100
Previous year's EPS'


Thumb rule: A PE growth ratio of 1 indicates a fairly valued share; less than 1 means undervalued; and more than 1 means overvalued.

PE: an indicator of margin of safety

Let's assume you buy a share at Rs 550 whose EPS is Rs 50. In one year, you earn Rs 50 on an investment of Rs 550, that is, a return of about 9 per cent.

You can earn 8-9 per cent risk-free returns on bank deposits as well. So, the margin of safety in this case is practically nil.

To reduce the risk, we must have a higher gap.

Thumb rule: Warren Buffett recommends this gap to be at least 1.25-1.5 per cent.

Last word: During a bull run, investors pay a high price for any and every share. So, it becomes difficult to find stocks with a high margin of safety.

It is in bear markets, as the one we are in now, that there are opportunities to spot the gems.

Tips for investing in stocks

Many studies indicate that believers tend to live longer and be happier than atheists. This is because faith sustains optimism and optimists tend to outlive pessimists. In equity investing as in life, optimists tend to be bullish and being bullish pays.

Despite greater volatility, equity returns outscore other assets in the long run. Certainly this is true for India even though Indian bear markets often see over 50 per cent knocked off peak values. Since liberalisation (June 1991), there have been three major bear markets that have each knocked off over 50 per cent

However, the CAGR of the Nifty-Sensex is about 14.5 per cent across those 19 years.

That comfortably outscores other assets and beats inflation, which ran at 7-8 per cent CAGR (consumer price index for urban non-manual employees).

Very few investors actually got close to 14.5 per cent because there was little scope for passive investment in the first 5-7 years. A small minority of investors made far more. The vast majority made much less.

The default vehicle of passive investors is the cheap, open-ended index fund. Until the monopolistic UTI started coming apart post-1998, Indian investors weren't offered that choice. They got closed-end, opaque schemes instead.

Over the past decade as markets have matured, passive investment vehicles have become available. Few Indian fund managers and individual investors have consistently beaten the indices and this gels with global experience.

The 10-year CAGR of equity returns is lower, at 13 per cent (April 2000-April 2010). Inflation also dropped to about 6 per cent and nominal debt returns are lower as well.

Although it is against the odds and passive investing offers decent returns, many Indian investors prefer trying to actively beat the market. Their returns continue to vary wildly and bear little relationship with market indices.

If an individual investor decides to try and beat the index, there's logic to going the whole hog and chasing multi-baggers, rather than trying to eke out an extra 1-2 per cent. India is an emerging market with high growth rates and so, multi-baggers pop up often.

Even one Infosys or Suzlon can turbo-charge a portfolio. The downside to chasing multi-baggers is low strike-rates (fewer winners) and big capital losses when investment decisions are wrong.

Venture Capitalists and Private Equity players accept low strike rates knowing that they will pick up an occasional big winner that over-compensates. But VCs and PEs have quality information, working closely with managements.

They are also disciplined at managing money and always keep exit options in mind. Eventually, a VC or PE will exit, either through an IPO or via strategic stake sale.

Very few individual investors even consider exit options when they adopt a high-risk strategy. Fewer still accept they will be wrong at least as often as they are right and are therefore, psychologically ready to roll with losses. As a result, individual investors often fail to collect paper profits even when they pick the right stocks. They also end up losing far more capital than necessary, by refusing to exit when they've made wrong decisions.

A third common error is unevenly-weighted initial investment. The logic behind equally weighted investment can be simply illustrated with an exaggerated example.

Suppose every fifth stock pick yields 1000 per cent return while the other four lose 100 per cent. If the investments are evenly weighted, the net return is 120 per cent. If the losers have higher initial weights, the winner may not generate enough to compensate.

An active investor looking for big killing must be careful about managing money and phlegmatic about potential losses. Keep initial investments at equal weights.

Always keep a mental stop loss or exit option in mind, including cut-offs in terms of both time and money. If an investment doesn't yield returns within a given time frame, review it. If it loses more than a certain amount, review it.

Obviously levels must be decided on a case-by-case basis, considering variables like the specific business and the individual risk-appetite. The important thing is to think about it and be prepared for contingencies.

There's nothing wrong with adopting the VC-PE mode of "extreme active investing". But making it work for an individual requires the same disciplined approach that successful PEs-VCs adopt.

It requires plenty of optimism, self-confidence, judgement and some luck. The injection of deliberately pessimistic scenario-building helps as well. Optimism must always be tempered with judgement in investing as in life.

The Basics of Investment Triggers

Automated investment decisions have always had a bad press. Algorithm trading, which is not yet widespread in India, has been routinely held guilty for all kinds of market crashes, as well as an alleged general increase in market's volatility. Anyhow, whatever algorithmic trading kind of things do or don't, I'm mostly a fan of automating investment decisions at the level of individual investor, especially for mutual fund investments. However, the kind of automation I'm referring is not about special algorithms running on high-speed computers, but humble facilities like STPs (Systematic Transfer Plans), SIPs (Systematic Investment Plans) and triggers.

Of these, SIPs and STPs are reasonably well-known among investors, but triggers are not. That's a pity, because triggers are widely available from fund companies and are an excellent way of taking the emotion out of fund investing. They can also be used to construct a sort of a custom investment plan-a kind of simple algorithmic trade in mutual funds-that can be better suited for your needs.

Let's first see what triggers are, in the sense we are talking about. To give a textbook definition, a trigger is an investing action that is triggered by an event. It'll probably make more sense if I give a simple example. Suppose you'd like to redeem your investments when their value reaches a certain amount. You could give instructions to a fund company to the effect. This is a trigger which activates when the NAV reaches a certain level and the action triggered is a full redemption of your investments, regardless of when it happens.

Here's a slightly more complex example. Let's say you are investing for a long period but want to ensure that you initial capital remains safe. You could invest in a short-term debt fund and create a trigger which, once a month, redeems all your gains and invests them in an equity fund. Over a long period, this would effectively act as a capital protection fund with the added advantage of being open-ended.

There's a wide variety of triggers available both in terms of the events that trigger the action and the action that gets triggered. The triggers can be based on value, NAV or gains. That is, something can get triggered when an investment reaches a certain value, a certain NAV or when it makes a pre-determined amount of gain or loss. They can also be simply time-based, happening on a particular date every month or year. They gain / loss triggers can be based on absolute value or a percentage.

The triggered actions are the transactions that an individual can do to his mutual fund investments. This means redemptions and switches to other, predetermined funds. The interesting part if that the amount to which the trigger action is applied can itself be determined automatically. So, as in the above examples, it could be an entire investment or it could be gains, or it could be just the value above a certain pre-determined level. It could also be based on the number of units-the details vary somewhat between different AMCs.

However, beyond the mechanics of the trigger system, investors should appreciate the fact that triggers are not so much an investment technique but a technique to manage your own psychology. Like their simpler cousins, the SIPs and the STPs, triggers help you avoid being swayed by momentary considerations. For example, suppose, as in the second example above, you want all gains in a liquid fund to be shifted to an equity fund. Then, the market falls and suddenly, you cancel the trigger because you don't want to get into equity. That would defeat the origin purpose of the trigger.

Triggers are an under-used but sharp tool to manage your investments. If understood and used well, they can be very useful.

Penny-Wise: Investment tips to cut transaction costs

Here are a few tips on where you should invest in order to reduce your transaction costs.

Art: It’s a long-term and illiquid investment. You incur huge transaction costs both while buying and selling. We recommend that you take the direct route in this one. If you can buy straight from the artist, nothing like it. When you can’t, get yourself a curator to help you select the artist. Galleries typically charge a mark-up of 25-30% on each painting. Curators can bargain it down for you.

Skip art funds. The costs are much higher and you don’t know what you are paying for. You don’t know how they churn their portfolios either. There’s too much secrecy on that front. This is an asset class where you can get killed with one wrong move.

Property: Owning physical property is complicated and expensive. The registration fee and stamp duty can add about 10% to your purchase cost in most states and you cannot recover that when you sell.

Co-operative housing societies and builders also charge transfer fees when you sell a property, points out chartered accountant Gautam Nayak. The legal limit for transfer fees is Rs 25,000 but one of our friends just paid more than Rs 3 lakh for selling a one-bedroom house.

Keeping a property locked is a sure way to lose money. You lose the rent and pay for the maintenance. The best way to invest in this asset class is through real estate mutual funds. As of now, there are a few venture capital funds (ICICI and HDFC run a couple of them) but they are illiquid. When mutual funds make a big entry in India, don’t miss them.

Gold: Exchange traded funds are the way to go for the shiny metal. If you buy physical gold, you have to worry about the cost of storage, wealth tax, etc. If you have gold in hand then you can’t even trade it on a regular basis. With ETFs, fees are reasonable. They are liquid and backed by real gold.

Fixed Income: If you are the kind that wants to flip bonds within a year, then mutual funds are the way to go. Due to the favourable tax treatment given to MFs, they are a much cheaper route for the retail investor than buying bonds directly or investing in fixed deposits. If you are investing for less than a year you should go in for the dividend distribution scheme because dividends are taxed at 14 percent. If you sell bonds on the open market, the returns are taxed at 33 percent.

Commodities: Commodities involve more frequent transactions and hence higher costs. One way to play the commodities market is to buy shares in companies that will benefit from them. For instance, if you think the price of aluminium will rise, you can invest in Hindalco. But if you do want to invest
directly in commodities, make sure you get a discount in the brokerage depending on the volume of your trade. Financial planners can help you bargain down the rate.

Equity: Shop for the lowest brokerage costs. Big banks and well-known brokerages charge a premium for their brand. Leaders like ICICIDirect levy the highest brokerage for delivery trades ranging between 0.7% to 0.8%. A company like Motilal Oswal or Geojit, on the other hand, charges 0.3%
percent to 0.5% for the same. You can have multiple demat accounts. Use that leeway.

The Good Investor’s Checklist

Operating Cash Flow: A company can report a net profit without generating a net cash inflow. But cash is the oxygen of any business. Wide fluctuations or sustained negative cash flows are an indicator of trouble.

Dividends: A profit-making company must decide between funding its growth and rewarding its shareholders. The ability to pay dividends after spending for expansion marks a good company. Divide the payout by the share price to get the dividend yield.

Price to Earnings Ratio: P/E is the most popular ratio among investors. But use it only as one of many inputs. Compare the P/E of your company with that of its competitors.

Price-to-Book Value: It compares a company’s market price with the value of its tangible assets. Banks typically use this ratio. However, the ratio is not useful for companies with large intangible assets like patents and brands.

Debt-Equity Ratio: Each industry has its peculiar need for debt. A software firm can get along without borrowing, but an infrastructure company must borrow heavily. Understand the appropriate level for the industry.

Interest Coverage Ratio: The company’s ability to pay the interest on its borrowings is key to its solvency. Divide the Earnings Before Interest and Tax (EBIT) by the interest outgo (both the numbers are found in the profit & loss account) to get the ratio.

Return Ratios: A stock should earn you more than fixed deposit rates. Look for Return on Net Worth (earnings as a proportion of total shareholders’ funds) and Return of Capital Employed (earnings as a proportion of total capital including debt).

Are you saving or investing?

There are two kinds of people, really - those who have extra money left over at the end of the month, and those who don't.

I'm assuming you're one of the former, otherwise you shouldn't even be here. So what do you do with what's left over?

1) Do you put it in a bank account, and spend it whenever you have a big purchase like an LCD TV, an iPod, a camera?
2) Do you make a fixed deposit every month (or once you have a large sum)?
3) Do you buy mutual funds, shares, or other investments?

1) is a Saving. 3) is an Investment. 2) is "saving" according to me (but others will think of it as an investment) There's a difference.

An Investment is where you can grow your money significantly above inflation, after tax is applied. Remember that quoted inflation is around 5% but for real terms, it's around 6.5% a year. That means your money needs to grow ABOVE That for any real returns. An investment MUST carry some amount of risk; assured returns are usually negative post-tax and post-inflation.

Savings are everything else. Money in the bank, in a fixed deposit, hidden in your pillow etc. Even bonds and debt mutual funds, in my opinion, are "savings" - they hardly return more than inflation post tax.

You might think "No! A fixed deposit can grow at 8% a year!" Reduce tax on that amount at 30%, you'll get 5.6% left over. That's still less than inflation of 6.5%.

Shares and equity/balanced mutual fund units are investments. They carry a large amount of risk, but have the potential to grow much more than inflation. Gold and other commodities are investments too, and so is real estate, paintings (art) etc.

Within investments you have two types: cash-flow and value-appreciation. Cash-flow means you get money ever so often; royalties from books, dividends, rent (from real estate) etc. Cash-flow income is usually called "passive income"; meaning you don't have to work for it.

Value appreciation is growth in the intrinsic value of what you buy. (Note: Cars, iPods etc. are not investments. They lose value from the minute you buy them!)

Most people usually buy for value appreciation, since there are limited cash-flow options available. In India for instance, both dividends and rents are around 3% post-tax, and that's no fun. But there are a few companies that consistently give 10% dividends, and places where you can get upto 7% as rents. You just have to look harder.

Investments are your future. Savings are your present. Straddle the two - keep around 40-60% of your money in investments and the rest in savings. You need your savings to build up your purchases and pay extraordinary bills (like a pregnancy or hospitalisation), but don't forego your investments either.

If you want to ensure a stable future, invest more. Key check:
1) It should "appreciate" in value (either through cash flow of value appreciation)
2) It should have an element of risk.
3) It should have the ability to grow more than inflation.

Basics of booking profits

By Srikala Bhashyam, ET Bureau

When the Sensex came sliding down to the 8,000 levels last year, there were many investors ruing their investment strategies.

Many of them had failed to book profits even though their portfolios had more than doubled in value. They were not to be blamed as the markets in the preceding years hadn't made them think of profitbooking .

The investor sentiment in the current environment, however, is completely different. Though the markets have been on the rise in the last 12 months, individual investor participation has been rather muted because of lack of conviction.

Even those who stayed put with their investments have been rather keen on selling out despite the long tenure for their investments. Those who didn't resort to profitbooking are wondering whether they should exit considering the Sensex has risen by more than 100 percent in one year. Irrespective of the levels, profit-booking is an integral component of wealth management , and hence, one should follow it at all times.

Fix a target:

One of the simple methods of profit-booking is to keep a target for your profits . The percentage or amount should be dependent on your tenure and risktaking abilities. For instance, if your portfolio created last year, would have enabled you to earn over 100 percent profits but does not necessitate a sell strategy as you had the opportunity to invest at a level which may not come up very often.

You may not have the luxury of three-digit returns at all times and instead, may have to settle for a lower percentage , going forward. In fact, for your short-term portfolio, booking profits with a tab on percentage helps you avoid being caught on the wrong foot.

In line with needs:

One of the basic objectives of a portfolio is to generate cash for expenses. That would mean you should have the required funds for your needs when the event arises. As a result, profit-booking becomes crucial in equity as the asset is highly volatile and also cyclical with its performance . You should not be made to dip into capital when in need of cash. The best way to avoid such a scenario is to book profits well ahead of the event.

For instance, parents, building corpus for a child's education over a 10-year period should start booking profits from the portfolio from the eighth year onwards and the focus of the investment strategy should revolve around the corpus creation for education.

STP to build corpus:

The use of STP (systematic transfer plan) option need not be restricted to transfer of funds from debt to equity alone. It can be used the other way in case of profitbooking.

For instance, in a rising market, you can fix a target for yourself for shifting from equity. The strategy holds good in booming market conditions and when liquidity chases stocks despite high values.

Irrespective of the options on hand, one needs to keep in mind a number of other factors such as macro environment, the fundamental strength of a stock and also, the technical indicators which drive the market momentum.

But the key determining factors are the liquidity needs and risk-taking abilities of an individual as they are the bedrock of any investment planning.

Know the key ratios to choose the right stocks!

Looking to buy stocks but worried about how to select them? Are you confused by the various pearls of investment wisdom bestowed upon you by stock market analysts? Well, its time to get a grip on some fundas, which can be a good launch pad to learn your way around stocks. You could start out by understanding the ratios described in this article to come out a winner in stock selection in the long run.

1. Ploughback/Reserves:

Every year, the company divides its net profit (profit left 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, it can reward its shareholders with a generous bonus. Also, any increase in reserves will push up the share price.

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: Book Value per share = Shareholders' funds/Total quantity of equity shares issued

Shareholders' funds can be computed by subtracting the total liabilities (money owed to creditors) of the company from its total assets. It can also be calculated by adding the equity capital to the company's reserves. 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.

3. Earnings Per Share (EPS):

One of the most popular investment ratios, it can be computed as: Earnings Per Share (EPS) = Profit Post Tax/Total quantity of equity shares issued This ratio computes the company's earnings on a per share basis.

E.g. 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%, 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%.

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/Earnings Ratio (P/E) = Price of the share/Earnings per share

It shows the degree to which earnings of a share are protected by its price. E.g. if 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 & 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:

Yield = (Dividend per share/market price of a share) x 100

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.

6. Return on 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 RONW = 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.

PEG = 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. Read up extensively on the financial performance of the company you choose to invest in, it will be a huge help in arriving at your final decsion.

How to find the right financial advisor

When many people think of the term "financial advisor", they picture a stressed out Wall Street type sitting behind a computer or telephone placing buy and sell orders and attempting to make their clients as much money as possible.

While many advisors may still fit this mold, some are evolving their practice into a more comprehensive approach that takes a look at not just investments, but also insurance, budgeting, taxes, retirement, education funding and estate planning.

As you test the waters to find the right financial advisor for you, you'll need to have a grasp on the areas in which you are seeking help. You'll then be able to examine your potential financial advisor before you hire them and determine exactly how skilled they are in the areas for which you are seeking assistance.

Knowledge, qualifications and regulatory record
Unfortunately for the general public, the education standards for financial advisors are very minimal. One could drop out of high school, rent some office space, pass a FINRA general securities exam and be selling you stocks all within a couple of weeks.

While exams such as the Series 6, 7 and 63 satisfy the industry regulatory requirements, they really offer the advisor no experience when it comes to real-life situations. Don't be afraid to quiz your prospective financial advisor on his or her education and experience. How many years of experience in the industry does he or she have? Is a college degree important to you?

The financial industry has also been bombarded with professional designations, many of which can be obtained with little or no effort. The industry has three leading designations that have strict education and ethical requirements: Certified Financial Planner® (CFP®), chartered financial analyst (CFA) and chartered financial consultant (ChFC).

The certified public accountant (CPA) designation is also a valuable designation for professionals that handle the tax portion of your plan.

If you're looking for someone a little different than the everyday stock jockey, it may be wise to hire a registered investment advisor to represent you. They are held to a higher standard than most advisors, and you'll typically the most knowledgeable.

They are also required to provide a Form ADV Part II to all potential investors upon request; this is your opportunity to learn about your advisor, so make sure you use it. This will allow you to determine whether your advisor has applied for personal bankruptcy. If you'd rather not have someone who struggles to manage his or her own finances manage your money, you had better do your advisor homework!

Fiduciary responsibility - acting in your best interests
Seek out an advisor that is held to fiduciary standards. A fiduciary is someone who occupies a position of special trust and confidence with the responsibility of acting in the best interests of an investor. In the investment world, RIAs are required to abide by a fiduciary standard - stockbrokers are not.

Registered investment advisors are either registered with their state of residence or the Securities and Exchange Commission. They are regulated under the Investment Advisors Act of 1940, which requires them to act in the best interests of the investor.

Stockbrokers and large wire-house firms are currently exempt from the fiduciary standards under the act. If you can find an independent RIA, you also won't have to worry about paying high commissions on proprietary products (investment products that are owned and marketed by the investment firm).

Be cautious with stockbrokers. They can be "over-glorified salesmen" hired by large wire houses to sell proprietary mutual funds and stocks that the investment bank firm has promised corporations they will sell to investors. Proprietary products are those owned by the investment firm, and the brokers that sell these products get paid top commissions.

The more buying and selling that a broker does in an investor's account, the higher their commission payouts. If a broker does excessive buying and selling in an account to generate more commissions this is an illegal process known as churning.

In some cases, the investment may not be the most appropriate for the investor, but a lack of fiduciary standards does not hold brokers to always do the right thing. With some wire houses, it's all about quantity, not quality.

The logistics
When you've found a financial advisor that you trust, you'll need to dig a little deeper to iron out some of the more one-to-one issues. For starters, you'll need to agree on how your advisor will be paid. Will it be a fee-only agreement, fee-based or commissions? Each year, more investors are shifting from the traditional commission setup and moving towards the modern fee-only approach.

Because set fees are new to many investors, some common questions have risen, such as: "What is a fair fee?" and, "How will I be billed?" With the average mutual fund still charging an expense fee of approximately 1.40 per cent, it's safe to say that a total fee of 1.80 per cent or less is fair.

If you can find an advisor that can package an investment program that includes the cost of the investments, trading, custody and the advisor's professional services for 1.80 per cent or less, you're getting a sweet deal. Most fees are now billed quarterly, so you'll need to know whether they will be pulled in advance or in arrears. Then discuss with your advisor how frequently you would like to meet with him or her each year to review your portfolio.

True comprehensive financial planning
You need to have a general idea of your weaknesses prior to selecting your professional help. If you just need your taxes done, seek the help of a CPA. If you want someone to look at your entire financial situation, seek the help of a comprehensive financial planning firm. These firms typically have a professional staff that includes an insurance agent, tax professional, estate planner and financial advisor.

Understand all of the services that are available with the firm that you have chosen. Do they have a narrow focus? At a minimum, consider the following:

Will it track your investment cost basis for you?
Can it file your tax return and help you with other tax related questions?
Does it look at risk management? (i.e. life insurance, long-term care, etc...)
Can it help you plan your estate?
Will it refer you to another professional if the firm cannot provide the service itself?

What's next?
Good financial advisors are compared to "life coaches", because they can help you with many of your complex financial decisions throughout your life. A financial advisor can offer tips on buying a car, saving for college and refinancing your home mortgage, just to name a few.

They deal with other financial professionals on a daily basis, and they typically know if you're paying too much for something or not getting a competitive rate. Great financial advisors will not only help you make money on your investments, but will also help you reach your goals and save money on insurance and other major decisions throughout your lifetime.

To maximise your experience with your advisor, you should meet with the person quarterly, share your concerns and goals, and allow your advisor to review all of your financial and legal documents. After all, it's all about trust.

Why Jim Rogers is not buying stocks now

Maverick investment guru Jim Rogers, who has a pessimistic view on the state of western economies and what is being done to counter the recession, says equity markets have run up far too ahead. Rogers attributed the run-up in equity markets to the various stimuli packages released around the world.

The long-term call on the dollar was that it would be “a disaster,” Rogers said, but added that he was positive on the Japanese yen.

On commodities, Rogers said he owned base metals and — among precious metals — gold but wouldn’t buy those at current levels, given the recent rally in the commodities.

Rogers, who last year shifted base from the US to Singapore, said he was long-tern positive on Chinese equities. Among other BRIC markets, Rogers said he wouldn’t buy anything in the Russian market, though Brazil, which was a natural resource-rich country, looked better managed now, while the Indian stock market looked expensive due to its recent rally.

Here is a verbatim transcript of Jim Rogers’ exclusive interview on CNBC-TV18.

Q: It has been a big run for equity markets first and foremost, what have you made of it?

A: The governments around the world are pouring huge amounts of money into the world economy. It has to go somewhere and the easiest, best way for it to go is in the financial markets.

Q: It has also concomitant with a big fall in the dollar and there is a call now for greater weakness in that currency, would you concur?

A: I am not optimistic about the US dollar long-term. In fact, the US dollar long-term is going to be a disaster. However, there are many people in the world right now who are terribly pessimistic about the dollar including me, many people have sold the dollar short, and so it would not surprise me if there were not a big rally. If a rally comes, I plan to sell that rally but I am not selling the dollar down here.

Q: What is your call on the strength that the yen has seen and the kind of a nervousness that most of those export-oriented markets are exhibiting? Where do you see it headed from here?

A: I own the yen so I am very pleased to see the yen going higher. Various things are happening in Tokyo and Japan. They are the second largest creditor nation in the world plus their government has given big incentives for people to bring the yen back into Japan. Billions of yen have been invested outside of Japan and now there is good reason for them to bring it back.

So you have a new government [in Japan], you have incentives to bring the yen back, you have the carry trade unwinding, there are many reasons for the yen to continue to go higher. I own the yen and I hope it does go higher.

Q: What about the base metals, we have seen a lot of volatile moves across most of those base metals, where do you see them headed from here?

A: Base metals have had a huge rally, as you have pointed out. I know I wouldn’t be buying the base metals right now, I do own base metals — I am not selling base metals — but I don’t like to jump on a train, which is moving at a rapid rate. Base metals have gone up a whole lot in the last nine, 10 months. So I am not doing anything except for watching.

Q: You have tracked and watched the Chinese market as well for many years, there is concern on where that market might be headed and why it is lagging the performance of others?

A: I would hardly call it lagging the performance of others. The Chinese market doubled between the fall of last year and August of this year. So it was one of the strongest markets in the world, if not the strongest. It has calmed down in the last month or two but anything that doubles in ten months should slow down and consolidate. Who knows where it is going to go from here but I own Chinese shares, I have not sold any of my Chinese shares because longer-term I am very optimistic about China.

Q: From the emerging and Brazil, Russia, India, China (BRIC) basket, what would be your top pick then right now in terms of markets?

A: I wouldn’t buy any of them. I would never buy the Russian market. The BRIC is some kind of an artificial thing, which some marketing people put together. I would not ever buy the Russian market. I own China. Brazil is a natural resource-based economy and it is being better managed these days and it has been in the past. So Brazil probably has a good future though I don’t own any Brazilian stocks. The Indian stock market has run up a lot in the last year or so. So I don’t think I would buy it either. I am not buying shares anywhere in the world as we speak.

Q: What about gold?

A: I own some gold and I am optimistic about the price of gold but I don’t think I would buy it either. The gold is near its all-time high, I think I would rather buy silver for instance if I had to buy a precious metal. However, I am not buying either at the moment. I certainly would not sell any precious metals — if they go down, I plan to buy more and maybe a lot more.

Q: How is the fund flow situation looking at least for our markets — there is a lot of appetite from foreign investors but in general how is the mood looking across that front?

A: I am not buying any emerging markets (EMs). If I were to buy EMs — I had recently gone to Sri Lanka to look at it as an EM. I have not bought anything there but the Sri Lanka market has been extremely strong in the last year. Most EMs have been very strong in the past year after the collapse or the fall of 2008, most EMs have gone up a lot. I don’t like to buy anything that has gone up a lot. I am very worried about the Western economy, I don’t think that the problems are solved in the West and if you start seeing more problems in the West, it is going to have an effect on most markets around the world as certainly some of the EMs. The EMs, which have a lot of raw materials or commodities would probably do better than the others but again even they will be affected if we have more problems in the West.

How To Make Money In Stock Market

How To Make Money In Stock Market

Chapters

1. Introduction.

2. What you will Need to Get Started.

3. Different type of way for investing in stock market.

4. What is day trading and how its work ?

5. What is short term Investment and how its work ?

6. What is long term Investment and how its work ?

7. How to select the right share for investing in stock market.



Introduction
Many people dream of making money in stock market but very less people become succesfull in fullfilling there dream of making money in stock market. The biggest reson for the people having unsuccesfull in stock market is that they start investments in stock market without firstly taking proper knowledge of stock market. Always remember making money by investing in stock market is not the work of child, It’s a tough job. Its an “Art” of making money in stock market and takes years of experience to get Expert in stock market.

If you are reading this , then you have at least some desire to actually make money in the stock market, whether your current strategy has been “Buy and Hold,” “Buy Low, Sell High” (!), or “Day Trading.” Notice
I placed day trading in quotes. That is because I am now of an opinion that nowhere has a more laughable, emotionalist mentality been applied to the system of stock picking than is practiced by the majority of today’s day
traders. I know. I was one of them.

If you have doubts about whether yet another stock trading strategy can benefit you, then congratulations. You have all the rationality and sense you need to actually stop searching for one and begin using one that works.
If that describes you, read on. You have nothing to lose; this article is not long, it will not appropriate very much of your time. And along the way, be prepared for a discovery that will surprise you, the skeptic, most of all.

Today I am going to tell you about following :

1. Different types of way for investing in stock market.
2. How to start investing in stock market.
3. How to select the right share for investing in stock market.

What you will Need to Get Started

To begin, you will need a computer. It is likely you have already achieved this step. If not, I recommend that you purchase a computer with as fast a chip and as much memory as you can afford. While the share Trading system is not memory intensive, the faster your computer is the less likely you are to encounter problems trading online.
Next, you will need an internet connection. I cannot stress strongly enough how important it is for you to access the web using a DSL (Digital Subscriber Line) connection or faster. DSL has come down in price, is available in more areas than ever, and is practically unbeatable for speed and reliability online.
Speed is critical when placing trades online. If you insist on using a standard modem connection, at least try to get the fastest one made and sign up for the most reliable dial-up internet service you can find. Again, my recommendation is to get a DSL connection. You will be glad you did.
Next, you will need an online trading account. In my experience with online brokers, I have ried all of these: Sharekhan, Indiabulls, ICICI Direct, Religare, Hdfc Security, Kodak Security. Of them, I use all and recommend Sharekhan. You can choose according to your closest facility available.

Different type of way for investing in stock market.

There are three different ways of Investing in stock market as following:

1. Day trading or Intraday : Buying and selling share in a single day by making small amount of profit

2. Short term investment : Buying and selling share in more then single day and less then a single month by making reasonable amount of profit

3. Long term investment : Buying and selling share in more then month by making Big amount of profit

What is Intraday or day trading and how its work ?

Intra means internal of something. Thus intraday means trading in a day. Day trading or intraday is way of making money from stock market in a single day. Buying and selling share in a single day by making small profit. You buy a share in the starting of day in expectation that price of share will slightly rise and at the end of market hour you sell the share by making the small amount of profit on that share. At that night you have no share remain in your account and you start your next day from scrach.

For Example :
You buy the 1000 share of the company name xyz in the staring of day in Rs. 112, so which means we have to multiply “number of share*Value of share = Price of volume share”, which is 1000*112 = Rs. 1,12,000 and at the end of day the share value rise for Rs. 1 which means to Rs. 113, So you make the profit of Rs. 1 on single share you bought , so if you buy 1000 share, which mean you have to multiply “number of share * profit on single share = Net Profit” which is 1000*1= 1000, So your net profit is equal to Rs. 1000. And your brokerage charge and taxes is equal to Rs. 500. So you minus brokerage charges and taxes from net profit which is Rs. 1000 – 500 = Rs. 500, so your gross profit is Rs. 500.
So in this way, if you make Rs. 500 Profit in every single day of 20 days of one month by removing market holidays and other free days means you make profit in one month by multiply “Profit single day*Numbers of days= profit you make in one month” which is Rs. 500*20 = 10,000, So this means You can make profit of minimum Rs. 10,000 in one month. And as you increase the numbers of share you buy on single session, your profit will also increase, that means the more number of share makes more number of profit.

What is short term investment and how its work ?
Short term investment is way of making money from stock market in more then a single day and less then single month. Buying and selling share in more then a single day by making reasonable amount of profit on it. You buy a share in the Expectation that price of share will rise and after the rising of share value to a reasonable amount in more then a days to week you sell the share with making the reasonable amount of profit on that share.

For Example :
You buy the 1000 share of the company name xyz in Rs. 110 so which means we have to multiply “number of share*Value of share = Price of volume share”, which is 1000*110 = Rs. 1,10,000 and at the end of two day to month, the share value rise for Rs. 15 which means to Rs. 125, So you make the profit of Rs. 15 on single share you bought , so if you buy 1000 share, which mean you have to multiply “number of share * profit on single share = Net Profit” which is 1000*15= 15000, So your net profit is equal to Rs. 15,000. And your brokerage charge and taxes is equal to Rs. 1000. So you minus brokerage charges and taxes from net profit which is Rs. 15,000 – 1000 = Rs. 14,000, so your gross profit is Rs. 14,000.
So in this way, if you make Rs. 14,000 Profit in every single day of 10 days of one month by removing market holidays and other free days means you make profit in one month by multiply “Profit single day*Numbers of days = profit you make in one month” which is Rs. 1,40,00*10 = Rs. 1,40,000, So this means You can make profit of minimum Rs. 1,40,000 in one month, And as you increase the numbers of share you buy on single session , your profit will also increase, that means the more number of share makes more number of profit.

What is Long Term investment and how its work ?
Long term investment is way of making money from stock market in more then a month to years. Buying and selling share in more then a single month to years by making big amount of profit on it. In Long term investment you does not have any problem in a small fluctuation in share price because you are looking for long term increase in share price. You buy a share in the Expectation that price of share will rise and after the rising of share value to a big amount in more then a month to years, you sell the share with making the big amount of profit on that share.
For Example :
You buy the 1000 share of the company name xyz in Rs. 200 so which means we have to multiply “number of share*Value of share = Price of volume share”, which is 1000*200 = Rs. 2,00,000 and at the end of month to year, the share value rise for Rs. 200 which means to Rs. 400, So you make the profit of Rs. 200 on single share you bought , so if you buy 1000 share, which mean you have to multiply “number of share * profit on single share = Net Profit” which is 1000*200= Rs. 2,00,000, So your net profit is equal to Rs. 2,00,000. And your brokerage charge and taxes is equal to Rs. 2000. So you minus brokerage charges and taxes from net profit which is Rs. 20,0000 – 2000 = 1,98,000, so your gross profit is Rs. 1,98,000.
So in this way, if you make Rs. 1,98,000 Profit in every single month to years. And as you increase the numbers of share you buy on single session , your profit will also increase, that means the more number of share makes more number of profit.


How to select the right share for investing in stock market ?

1. First, check the upgrade/downgrade listing to be sure the stock was not simultaneously downgraded. Then, copy down the ticker symbols of the upgrades onto a paper list in order to facilitate the elimination of the disqualified stocks one at a time.

2. Next, one at time, copy and paste each of the symbols from the on-screen upgrade list into an online financial website such as Yahoo! Finance. Be sure to select a 1-Year Chart view .

3. Next, visually examine the stock chart for acceptable (rising) performance over the year, and make sure the stock is at least one year old, trades at 15 or more, and has earnings. Also, check its recent News headlines to be sure it wasn’t downgraded any time in the past few business days.

4. Then disqualify the stocks which do not meet the previous fundamental examination test by crossing them from your list.

5. This test and the one that follows are the most important: for the remaining stocks on the list, check Earnings Growth Estimates for the current quarter. This can be found in he Research link of the company in Yahoo! Finance, along with the other financial Information. Make sure that the estimated Percentage figure under the Company's column is : a) not zero or a negative number b) greater than the figure presented for its Industry (not to be confused with its Sector).

6. Check EPS Trends & Revisions. Make sure that the EPS Trend for This Quarter from 90 days, 60 days, 30 days, 7 days, and Current display flat or rising Earnings Per Share going forward, as in the example on the left above. (The amounts must be the same or become larger as they become more recent, rising up the chart). The example on the left above displays an acceptable EPS Trends & Revisions reading on a stock. The example on the right is unacceptable and the stock should be disqualified.

7. Next, check the Target Consensus and Recommending Brokers of the remaining companies. The total of Buy and Buy/Hold simply must be greater than the total of all the other recommendations. Use the reater of either the Mean Target or Median Target. The target price must be greater than the current price plus 1%. If no targets are shown, disqualify the stock. Write down the info beside each entry in your list, and then reduce your choices to one last stock.

8. Calculate the number of shares to purchase by dividing your cash position by the share price at precisely 10:00 AM, and place your buy order for the stock. Don’t anticipate: wait until exactly 10:00 AM before pressing the button to place the order. Be sure to round off to the nearest 100 shares (a round lot). For example, you don’t place an order to buy 243 shares. You buy 200.

9. When you receive a fill report by the broker, usually in only a few minutes, immediately place your limit sell order, GTC, for 1% greater than your buy price. Be sure to enable the sell trade for the Extended Hours session. In this example, the sell order would be for 40.30. Be careful to get the number of shares right.

10. Check the stock again at the day’s end to see if you completed the sale. If not, just hold the stock until it does sell. Above all, don’t worry about it, particularly if it has fallen and even if you get stuck with it for a long time. Upgrades are very forgiving, and it is the long-term average interim time that matters, not any one trade. NEVER TAKE A LOSS.