Before I discuss why nifty may not be able to cross 15000
let me assure you that even if nifty doesn't cross 15000 it won't matter much and it won't be such a bad thing!
But first, let us see how nifty is calculated.
Nifty comprises of 50 stocks.
Top 50 by way of 'highest free float market capitalisation' are selected.
Let us understand this.
Suppose a company A has 1 lac shares, and the current market price of each is Rs.500/-
So, the total market capitalisation of this company is 500/- x 1 lac = 500 lacs
But this is not the free float market capitalisation. This is total market capitalisation.
This is so because all 1 lac shares are not available for trade in the market.
Some of these are with the promoters besides soome locked with government etc.
Lets assume that there are 30,000 such "holy" shares.
This reduces the number of shares freely available for trade in the open market as 1 lac minus 30,000 = 70,000
So, now the free float market capitalisation of company A is 500/- x 70,000 = 350 lacs (not 500 lacs as earlier)
-------------
Now, calculate the free float market capitalisation of all companies
and shortlist the top 50.
Add the free-float market capitalisation figures of all of these 50 companies.
Let's assume this figure comes as F.
We are just one step of calculating.
Let's see how....
-------------
Nifty was launched in 1995 with base value 1000.
Does this mean that the market capitalisation of nifty 50 shares in 1995 was 1000.
Not really.
It might have been 10000 crore or so.
But how would it have sounded if someone were to say that nifty today is 1213 crore!!!???
It would sound ridiculous.
Certainly not an indicator.
So, someone must have given the idea of taking 1200 crore as 1000.
This is known as the base value.
So, what will be the nifty value if market capitalisation was 2400 crore?
Simple, 2000! (Because 1200 crore was taken as 1000).
Similarly, what will be the nifty value if market capitalisation was 3600 crore?
Simple, 3000!
--------------
So, now can you convert the sum total of freefloat marketcap of 50 companies into today's nifty value?
--------------
Now, we come to our main question
why nifty may not cross 1500 ever?
--------------
Would you be surprised if I told you that the list of 50 companies in the nifty fifty list keeps on changing?
Yes, it is true as most of us know that!
If the share price of a company in the index keeps falling, its market capitalisation also keeps slipping.
Finally it is no more in the top 50.
is given a silent good-bye from the nifty fifty
and is replaced by a new upcoming midcap-turned-large-cap blue eyed company!
--------------
Now, you will not be surprised that majority of the nifty fifty companies of 1995 are out of the present list!!!
Why?
They stopped growing (that fast)
and hence their share price and market capitalisation stagnated or dropped!
Others overtook them!
--------------
Every company in the nifty fifty has a limit of growth!
Every company grows old and must die (or atleast fade away respectfully), sooner or later.
Nifty value will keep rising only till India is a developed country
Even inflation will die down thereafter!
Thereafter, it will keep oscillating in a range.
But it will never be the same.
Old companies will keep making way for new companies in the top 50!
-----------
Want proof?
Look at Nasdaq.
It was near 2500 in 1999.
It is near 2100 in 2010 !!!
But the size of economy has increased manyfold!!!
It is the middle or the bottom of the corporate pyramid that is fattening!
-----------
So, 15000 or 20000 or whatever!
Nifty's growth hormones will subside even as the economy will keep growing
But investing opportunities in stocks
and trading opportunities in both nifty as well as stocks will always be there!
Monday, August 30, 2010
Sunday, August 29, 2010
Trading lessons from Politicians
* Listen to all, do your own!
* Nobody (no stock) is your permanent friend or foe.
* If you want to survive, go with the herd (trend) - even if they are wrong!
* Leave the herd at the peak of frenzy!
* Learn from others' mistakes. Yours may be too costly.
* Never forget the old lies of opposition (including stock market experts)
* Be totally flexible (don't hesitate to reverse the position when things backlash). Never make anything prestige issue!
* Never forget the brokerage.
* Immediately drop the losing proposition. Stop loss!
* Let others test the waters first!
* Take calculated risks! Keep risk-reward ratio always in mind
* Watch the company you keep (including that of the stocks)
* Live simple (Keep the money for the trade)
* Don't miss any opportunity. Be present at the right place at the right time!
* Keep exit routes open
* Oversmartness and HyperActivity thrills but kills
* Be greedy when others panic, Be cautious when others are greedy!
-----------------------------------------------
One thanks giving return lesson for Politicians from Traders
* The Principal (Principle) must be preserved at all cost!
* Nobody (no stock) is your permanent friend or foe.
* If you want to survive, go with the herd (trend) - even if they are wrong!
* Leave the herd at the peak of frenzy!
* Learn from others' mistakes. Yours may be too costly.
* Never forget the old lies of opposition (including stock market experts)
* Be totally flexible (don't hesitate to reverse the position when things backlash). Never make anything prestige issue!
* Never forget the brokerage.
* Immediately drop the losing proposition. Stop loss!
* Let others test the waters first!
* Take calculated risks! Keep risk-reward ratio always in mind
* Watch the company you keep (including that of the stocks)
* Live simple (Keep the money for the trade)
* Don't miss any opportunity. Be present at the right place at the right time!
* Keep exit routes open
* Oversmartness and HyperActivity thrills but kills
* Be greedy when others panic, Be cautious when others are greedy!
-----------------------------------------------
One thanks giving return lesson for Politicians from Traders
* The Principal (Principle) must be preserved at all cost!
Time the trades, not the investments
Have you driven on a 6-lane Expressway?
It is 3+3 lane highway.
L1 : L2 : L3 ::: R3 : R2 : R1
The left three lanes L1,L2,L3 and the right three lanes R3,R2,R1
L1,L2,L3 take the traffic to that side.
R3,R2,R1 are bringing the traffic to this side.
Vehicles on L3 & R3 are moving at fastest speed,
those on L2 & R2 are slower
while those on outer lanes L1 & R1 are moving the slowest.
Markets & Business-world in any country is also like a 6-lane expressway!
There are some companies growing and moving ahead at breathtaking speed
Others are growing at decent speed
Still others are growing but slowly.
Similarly, there are companies on the right side lanes also!
Some are stagnating, some are de-growing, some are slipping fast!
The beauty is - None of the 6-lanes is ever empty!
There are always newer and newer companies on all the highways.
Majority of them keep changing lanes.
Faster to slower to medium to faster......!
Back to forth to back to forth.......!!
Change is inevitable.
Every company going from Ahmedabad to Mumbai on the Expressway has to come back some day!!!
Atleast it has to change the lane to make way for younger and more relevant companies!
The Highway is alive! Always! 24x7x365 !!!
So, how to time investing into these companies?
Companied growing fast will continute to grow even when times are bad! At worst, their speed will slow down a bit!
Companies who are already on the "return-journey" will not reverse just because the economy and market are booming!
-------------------
Though late, finally I have got it right.
Trades should be timed, not the investments!
(When i say don't time the investment, I don't mean buy anything anytime. What i mean is if you see a great fundamentals' company at mouth-watering price, don't look at the watch!)
All the internet, print and electronic media
is cluttered with myths, confusion and misinformation about timing the market.
On one hand everyone is busy trying to learn to time the market or stock
with the help of bag-full of technical indicators,
on the other hand everyone has been mindlessly chirping
"Never try to time the market"
I have realised that short to medium term trading can be timed to reasonable accuracy with indicators but companies ready to take-off due to fundamental strength don't wait for the indicators to turn green.
So, trades should and must be timed
Investments - never!!!
Some businesses make a killing even when "the markets are down"!
Great investments are not done while looking at the clock.
As Warren Buffet says " As far as I am concerned the stock market doesn't exist. It is there only as a reference to see if anybody is offering to anything foolish."
As Peter Lynch says " I don't believe in predicting markets. I believe in buying great companies - especially companies that are undervalued and/or underappreciated."
It is 3+3 lane highway.
L1 : L2 : L3 ::: R3 : R2 : R1
The left three lanes L1,L2,L3 and the right three lanes R3,R2,R1
L1,L2,L3 take the traffic to that side.
R3,R2,R1 are bringing the traffic to this side.
Vehicles on L3 & R3 are moving at fastest speed,
those on L2 & R2 are slower
while those on outer lanes L1 & R1 are moving the slowest.
Markets & Business-world in any country is also like a 6-lane expressway!
There are some companies growing and moving ahead at breathtaking speed
Others are growing at decent speed
Still others are growing but slowly.
Similarly, there are companies on the right side lanes also!
Some are stagnating, some are de-growing, some are slipping fast!
The beauty is - None of the 6-lanes is ever empty!
There are always newer and newer companies on all the highways.
Majority of them keep changing lanes.
Faster to slower to medium to faster......!
Back to forth to back to forth.......!!
Change is inevitable.
Every company going from Ahmedabad to Mumbai on the Expressway has to come back some day!!!
Atleast it has to change the lane to make way for younger and more relevant companies!
The Highway is alive! Always! 24x7x365 !!!
So, how to time investing into these companies?
Companied growing fast will continute to grow even when times are bad! At worst, their speed will slow down a bit!
Companies who are already on the "return-journey" will not reverse just because the economy and market are booming!
-------------------
Though late, finally I have got it right.
Trades should be timed, not the investments!
(When i say don't time the investment, I don't mean buy anything anytime. What i mean is if you see a great fundamentals' company at mouth-watering price, don't look at the watch!)
All the internet, print and electronic media
is cluttered with myths, confusion and misinformation about timing the market.
On one hand everyone is busy trying to learn to time the market or stock
with the help of bag-full of technical indicators,
on the other hand everyone has been mindlessly chirping
"Never try to time the market"
I have realised that short to medium term trading can be timed to reasonable accuracy with indicators but companies ready to take-off due to fundamental strength don't wait for the indicators to turn green.
So, trades should and must be timed
Investments - never!!!
Some businesses make a killing even when "the markets are down"!
Great investments are not done while looking at the clock.
As Warren Buffet says " As far as I am concerned the stock market doesn't exist. It is there only as a reference to see if anybody is offering to anything foolish."
As Peter Lynch says " I don't believe in predicting markets. I believe in buying great companies - especially companies that are undervalued and/or underappreciated."
Saturday, August 28, 2010
Trading lessons from butterflies
Fact : Butterflies have 6 legs
Lesson : Doesn't matter how many legs (indicators) you have, it is the wings (confidence) that will fly you!
--------------------------------------
Fact : Butterflies have a pair of antennae to navigate
Lesson : Master atleast 2 technical indicators
--------------------------------------
Fact : A butterfly's taste sensors are located below their feet. It can taste food right by standing on it!
Lesson : With experience a trader can "taste the (stock) food" just by "standing" on the graph!
--------------------------------------
Fact : The color in a butterfly's wings does not come from pigment. The color is produced prism-like by light reflected by their transparent wing scales.
Lesson : A trader's true color of talent comes not from the pigments of profit but light reflected at the time of loss!
--------------------------------------
Fact : A butterfly has to have a body temperature greater than 86 degrees to be able to fly.
Lesson : Be in the right frame of mind before trading
--------------------------------------
Fact : A butterfly can see the colors red, green, and yellow.
Lesson : Trader must be able to spot Red (=danger), Green (=Trade signal) and Yellow (=alert all the time)!
Lesson : Doesn't matter how many legs (indicators) you have, it is the wings (confidence) that will fly you!
--------------------------------------
Fact : Butterflies have a pair of antennae to navigate
Lesson : Master atleast 2 technical indicators
--------------------------------------
Fact : A butterfly's taste sensors are located below their feet. It can taste food right by standing on it!
Lesson : With experience a trader can "taste the (stock) food" just by "standing" on the graph!
--------------------------------------
Fact : The color in a butterfly's wings does not come from pigment. The color is produced prism-like by light reflected by their transparent wing scales.
Lesson : A trader's true color of talent comes not from the pigments of profit but light reflected at the time of loss!
--------------------------------------
Fact : A butterfly has to have a body temperature greater than 86 degrees to be able to fly.
Lesson : Be in the right frame of mind before trading
--------------------------------------
Fact : A butterfly can see the colors red, green, and yellow.
Lesson : Trader must be able to spot Red (=danger), Green (=Trade signal) and Yellow (=alert all the time)!
Trading lessons from turtles
Fact : Turtles have been on the earth for more than 200 million years.
Lesson : Survive
--------------------------
Fact : Sea turtles excrete salt absorbed in sea water from their eyes, which is why they seem to cry.
Lesson : Traders never cry! Even when they appear as if they are crying
--------------------------
Fact : Some female turtles produce eggs four years after mating.
Lesson : Believe in your trade!
--------------------------
Fact : Turtles live on every continent except Antarctica.
Lesson : Traders should be willing to trade anything anywhere which offers opportunity to make money. Unlike turtles, traders are willing to go even to Antarctica if there is a deal!
--------------------------
Fact : All chelonian turtles lay their eggs on land, even the marine turtles.
Lesson : Good traders trade on (ground) realities.
--------------------------
Fact : Turtles range in size from the 4-inch Bog Turtle to the 1500 pound Leathery Turtle
6 and a half feet long and weighing up to 1,500 lb.
Lesson : Even if you are a small-time trader, be a proud one. You are in the same pit as Rakesh Jhunjhunwala!
--------------------------
Fact : Turtles will live in almost any climate warm enough to allow them to complete their breeding cycle.
Lesson : Anything for profit!
--------------------------
Fact : The soft shelled turtle uses it's long tip nose and nostrils like a snorkel to breath under water.
Lesson : Improvise to handle difficult situations.
--------------------------
Fact : The shell of a turtle is made up of 60 different bones all connected together.
Lesson : A human trader has 206 bones. We should survive longer.
--------------------------
Fact : Most land tortoises have high domed carapaces that offer protection from the snapping jaws of terrestrial predators.
Lesson : Absolute safety of the principle amount - First rule
--------------------------
Fact : Turtles have hinges on their shells that actaully allow them to completely enter their shell by closing up the openings.
Trader : When there is danger, withdraw from the market.
--------------------------
Fact : Turtles have good eyesight and an excellent sense of smell.
Lesson : Spot the oppotunity, smell the trouble - fast!
--------------------------
Fact : Only one out of one thousand sea turtles survive after hatching.
Lesson : Congratulations! You are one of the surviving ones!
--------------------------
Lesson : Survive
--------------------------
Fact : Sea turtles excrete salt absorbed in sea water from their eyes, which is why they seem to cry.
Lesson : Traders never cry! Even when they appear as if they are crying
--------------------------
Fact : Some female turtles produce eggs four years after mating.
Lesson : Believe in your trade!
--------------------------
Fact : Turtles live on every continent except Antarctica.
Lesson : Traders should be willing to trade anything anywhere which offers opportunity to make money. Unlike turtles, traders are willing to go even to Antarctica if there is a deal!
--------------------------
Fact : All chelonian turtles lay their eggs on land, even the marine turtles.
Lesson : Good traders trade on (ground) realities.
--------------------------
Fact : Turtles range in size from the 4-inch Bog Turtle to the 1500 pound Leathery Turtle
6 and a half feet long and weighing up to 1,500 lb.
Lesson : Even if you are a small-time trader, be a proud one. You are in the same pit as Rakesh Jhunjhunwala!
--------------------------
Fact : Turtles will live in almost any climate warm enough to allow them to complete their breeding cycle.
Lesson : Anything for profit!
--------------------------
Fact : The soft shelled turtle uses it's long tip nose and nostrils like a snorkel to breath under water.
Lesson : Improvise to handle difficult situations.
--------------------------
Fact : The shell of a turtle is made up of 60 different bones all connected together.
Lesson : A human trader has 206 bones. We should survive longer.
--------------------------
Fact : Most land tortoises have high domed carapaces that offer protection from the snapping jaws of terrestrial predators.
Lesson : Absolute safety of the principle amount - First rule
--------------------------
Fact : Turtles have hinges on their shells that actaully allow them to completely enter their shell by closing up the openings.
Trader : When there is danger, withdraw from the market.
--------------------------
Fact : Turtles have good eyesight and an excellent sense of smell.
Lesson : Spot the oppotunity, smell the trouble - fast!
--------------------------
Fact : Only one out of one thousand sea turtles survive after hatching.
Lesson : Congratulations! You are one of the surviving ones!
--------------------------
"I Quit"
Once a trader lost everything
He didn't know what to do, how to react?
Thoughts of suicide started coming to his mind.
But he loved his family too much to take that step
The desire to live was too deep in him to let him do it
The dreams that had brought him to the stock market were still young in his mind!
The catastrophic loss had ruined him.
"What will I tell to my parents, my wife?"
"How will I tell it!"
"What will I do now?"
"How will I return the debt?"
.....questions like these started creeping in his idle mind echoing with deafening silence!
He had no answer.
It was all dark before his eyes...
Life seemed like worse than the death.
Death seemed like a soothing lap!
He decided to commit suidice
"I quit" he wrote on a piece of paper and posted it to his home.
He took the bus to the last town up the hill
and walked all the way to the secluded edge.
But as he went near the cliff, fear took over him.
He couldn't gather the courage to take that final step.
He kept standing there for a while.
Suddenly he felt a hand on his right shoulder.
He turned back and saw a feeble old man with long white beard standing behind him.
"Finding it difficult?" the old man asked.
The man was sweating in that winter evening.
He couldn't utter even a word.
"Come with me" said the old man and started to walk towards his hut nearby.
The man started following him.
Inside the hut, the old man gave him a glass of water from his pitcher and asked
"Why do you want to end your life?"
The man told him everything.
"I can't face my family and debtors now." he said.
"Then why didn't you plunge?" the old man asked.
"I am afraid." the man replied.
"Should I tell you the easiest way?" asked the old man.
"What's that?" the man asked.
"Close your eyes." said the old man
The man closed his eyes.
"Now, imagine yourself standing at the edge of the cliff."
The man imagined that he was standing right at the edge.
"Now, look below."
The man looked below.
"What do you see?"
"A deep gorge!"
Now, walk into it.
The man took the step and fell into it....
...and fainted
...in the old man's lap!
After almost half an hour
he woke up and saw the glowing face of the old man!
He couldn't understand what had happened!
"What happened, Baba!"
"You just died!"
"But.....!!!"
"This is your new life, my child!"
"You can consider yourself relieved from all the last life's burdens and debts!"
"Now, go back and face it all as you would have done in your second life."
The man felt a lightening bolt inside him.
He resolved to fight it out!
He went home.
His parents and wife and kids had all gone to sleep waiting for him.
---------------
The next morning the postman came and handed over a letter to him
He tore open it and inside he read
"I quit"
He realised his folly, folded the letter and put it in his purse.
He told it all to his wife and parents and kids
(except his suicide)
he went to his debtors and asked for time
went back to his fellow trader friend and asked for sane advice.
Everytime he faced the heat
he just took out the paper from his purse and read aloud in his heart
"I Quit"
He didn't know what to do, how to react?
Thoughts of suicide started coming to his mind.
But he loved his family too much to take that step
The desire to live was too deep in him to let him do it
The dreams that had brought him to the stock market were still young in his mind!
The catastrophic loss had ruined him.
"What will I tell to my parents, my wife?"
"How will I tell it!"
"What will I do now?"
"How will I return the debt?"
.....questions like these started creeping in his idle mind echoing with deafening silence!
He had no answer.
It was all dark before his eyes...
Life seemed like worse than the death.
Death seemed like a soothing lap!
He decided to commit suidice
"I quit" he wrote on a piece of paper and posted it to his home.
He took the bus to the last town up the hill
and walked all the way to the secluded edge.
But as he went near the cliff, fear took over him.
He couldn't gather the courage to take that final step.
He kept standing there for a while.
Suddenly he felt a hand on his right shoulder.
He turned back and saw a feeble old man with long white beard standing behind him.
"Finding it difficult?" the old man asked.
The man was sweating in that winter evening.
He couldn't utter even a word.
"Come with me" said the old man and started to walk towards his hut nearby.
The man started following him.
Inside the hut, the old man gave him a glass of water from his pitcher and asked
"Why do you want to end your life?"
The man told him everything.
"I can't face my family and debtors now." he said.
"Then why didn't you plunge?" the old man asked.
"I am afraid." the man replied.
"Should I tell you the easiest way?" asked the old man.
"What's that?" the man asked.
"Close your eyes." said the old man
The man closed his eyes.
"Now, imagine yourself standing at the edge of the cliff."
The man imagined that he was standing right at the edge.
"Now, look below."
The man looked below.
"What do you see?"
"A deep gorge!"
Now, walk into it.
The man took the step and fell into it....
...and fainted
...in the old man's lap!
After almost half an hour
he woke up and saw the glowing face of the old man!
He couldn't understand what had happened!
"What happened, Baba!"
"You just died!"
"But.....!!!"
"This is your new life, my child!"
"You can consider yourself relieved from all the last life's burdens and debts!"
"Now, go back and face it all as you would have done in your second life."
The man felt a lightening bolt inside him.
He resolved to fight it out!
He went home.
His parents and wife and kids had all gone to sleep waiting for him.
---------------
The next morning the postman came and handed over a letter to him
He tore open it and inside he read
"I quit"
He realised his folly, folded the letter and put it in his purse.
He told it all to his wife and parents and kids
(except his suicide)
he went to his debtors and asked for time
went back to his fellow trader friend and asked for sane advice.
Everytime he faced the heat
he just took out the paper from his purse and read aloud in his heart
"I Quit"
Let go! (Power Soup for injured trader's soul)
Long ago I got a big hit in stock market.
The loss was enough to shake my roots.
Even after many days I couldn't get over it!
I had spotted the mistake and vowed to not to repeat it again!
But somehow I couldn't come to terms with the loss!!!
Then, one day the words of one of my professors in the university of life,
Guy Finley,
did the magic!
I call these
"A serving of the Power Soup for the injured traders' soul"
Yesterday, while I was shuffling thru my old notes, I came across these gems and thought I should share these with fellow traders.
-------------------------------------------
"Let Go!"
"How long will you keep carrying the accumulated defeats of a lifetime......
"Clinging to the wreckage is not the same as being rescued........"
"Letting go takes no strength; only a willingness to see the need for it......"
"Defeat comes from clinging to solutions that don't work"
"Being unhappy over being unhappy is like throwing gasoline on a fire to out it out"
"Letting go what holds you down is how you co-operate with going up"
"Events may happen to you, but you are not the event"
"Get out of your own way"
"Our solutions have their roots in the problem"
"Real hope is the fact that there is always a higher solution"
"Stress exists because you insist"
"You need no power to flow.....why push when you can ride (over it)...."
"One of the most clever deceits is to make ourselves believe that the unhappy experience of feeling trapped is the trap itself."
"A crisis always precedes any real advancement. A crisis only becomes a breaking point when we fail to use it as a turning point."
"Want what life wants"
"We are tied to whatever we avoid."
"If you could have you would have."
The loss was enough to shake my roots.
Even after many days I couldn't get over it!
I had spotted the mistake and vowed to not to repeat it again!
But somehow I couldn't come to terms with the loss!!!
Then, one day the words of one of my professors in the university of life,
Guy Finley,
did the magic!
I call these
"A serving of the Power Soup for the injured traders' soul"
Yesterday, while I was shuffling thru my old notes, I came across these gems and thought I should share these with fellow traders.
-------------------------------------------
"Let Go!"
"How long will you keep carrying the accumulated defeats of a lifetime......
"Clinging to the wreckage is not the same as being rescued........"
"Letting go takes no strength; only a willingness to see the need for it......"
"Defeat comes from clinging to solutions that don't work"
"Being unhappy over being unhappy is like throwing gasoline on a fire to out it out"
"Letting go what holds you down is how you co-operate with going up"
"Events may happen to you, but you are not the event"
"Get out of your own way"
"Our solutions have their roots in the problem"
"Real hope is the fact that there is always a higher solution"
"Stress exists because you insist"
"You need no power to flow.....why push when you can ride (over it)...."
"One of the most clever deceits is to make ourselves believe that the unhappy experience of feeling trapped is the trap itself."
"A crisis always precedes any real advancement. A crisis only becomes a breaking point when we fail to use it as a turning point."
"Want what life wants"
"We are tied to whatever we avoid."
"If you could have you would have."
Thursday, August 26, 2010
A hen for 100 bucks?
If you were to sell your healthy hen, how much will you ask for?
100 bucks?
That's the approximate going market rate of a broiler!
But considering that a healthy hen can lay up to one egg per day (5 to 7 per week),
and considering that a hen has a productive life of about 70 weeks,
a hen can give you approx. 400-500 eggs in a year and a half!
@3 bucks per egg, that means a hen can give you a revenue of upto 1500 bucks before fetching you 100 more bucks in the end. (Though I request you to spare her life after she has already fetched you 1500/-)
So, now what will you ask for as the price of the hen?
==========================
Similarly, the price of a business is not the price of the net assets in the business but the cashflow it can generate in future!
==========================
If you can somehow estimate net profits from a business for the next 4 years,
then add the net current assets of the company to that figure,
and then divide that figure with the total number of shares
you will find an estimated fair futuristic value of the share
in the current scenario!
==========================
100 bucks?
That's the approximate going market rate of a broiler!
But considering that a healthy hen can lay up to one egg per day (5 to 7 per week),
and considering that a hen has a productive life of about 70 weeks,
a hen can give you approx. 400-500 eggs in a year and a half!
@3 bucks per egg, that means a hen can give you a revenue of upto 1500 bucks before fetching you 100 more bucks in the end. (Though I request you to spare her life after she has already fetched you 1500/-)
So, now what will you ask for as the price of the hen?
==========================
Similarly, the price of a business is not the price of the net assets in the business but the cashflow it can generate in future!
==========================
If you can somehow estimate net profits from a business for the next 4 years,
then add the net current assets of the company to that figure,
and then divide that figure with the total number of shares
you will find an estimated fair futuristic value of the share
in the current scenario!
==========================
PAT on the back
If you want to invest in a company on the basis of minimum research
then look for PAT.
PAT = Net Profit after Tax, Depreciation and Interest
Afterall, we do business and do investment for profit.
But before you invest, just check where from this profit has come, and
how does this profit relate to the revenue!
Four situations may arise
I. PAT has increased and the Revenue has decreased
II. PAT has decreased and the Revenue has increased
III. PAT and Revenue have both decreased
IV. PAT and Revenue have both increased.
In First case, the company is not growing but is becoming financially healthier by controlling the costs (except in case of extraordinary income case).
In Second case, the company is facing extra-ordinary pressure on cost side due to competition or input costs etc.. If the decrease in profit despite increase in revenue is because of inefficiency it is a danger signal! Anyway, this second case is a "stay-away" or "wait and watch" signal.
Third case is a big No-No.
Fourth case is a big Yes, IF
it is sustainable and more than the expectations!
then look for PAT.
PAT = Net Profit after Tax, Depreciation and Interest
Afterall, we do business and do investment for profit.
But before you invest, just check where from this profit has come, and
how does this profit relate to the revenue!
Four situations may arise
I. PAT has increased and the Revenue has decreased
II. PAT has decreased and the Revenue has increased
III. PAT and Revenue have both decreased
IV. PAT and Revenue have both increased.
In First case, the company is not growing but is becoming financially healthier by controlling the costs (except in case of extraordinary income case).
In Second case, the company is facing extra-ordinary pressure on cost side due to competition or input costs etc.. If the decrease in profit despite increase in revenue is because of inefficiency it is a danger signal! Anyway, this second case is a "stay-away" or "wait and watch" signal.
Third case is a big No-No.
Fourth case is a big Yes, IF
it is sustainable and more than the expectations!
Fore-noon Express! (Day Trading Technique)
If you want to look for Day Trading opportunity before the arrival of the Noon Express then try this technique
This technique is valid ONLY if the opening of today is between the highest and lowest points of previous trading day!
Note the highest point (H2) and lowest point (L2) of the previous day
Sell when price falls below L2
Buy when price breakouts above H2
Keep entry point as strict stop loss
After 12:30hrs, go as per Noon Express.
========================
How far it will go after breakout or breakdown depends upon
- whether it had already gone too far since opening?
- whether it is pro-rally, anti-rally or ranging times?
- whether rsi and william%r in the favour or against that breakout or breakdown.
===================
if you back-test this on ftse for 29 sessions from 16th July to 25th Aug, you will notice that
- 17 times, the trade was not triggered
- Out of 12 times it got triggered, 9 times it gave profit while rest 3 times you exited cost-to-cost at the trigger of stop loss after which second trade was not triggered.
This technique is valid ONLY if the opening of today is between the highest and lowest points of previous trading day!
Note the highest point (H2) and lowest point (L2) of the previous day
Sell when price falls below L2
Buy when price breakouts above H2
Keep entry point as strict stop loss
After 12:30hrs, go as per Noon Express.
========================
How far it will go after breakout or breakdown depends upon
- whether it had already gone too far since opening?
- whether it is pro-rally, anti-rally or ranging times?
- whether rsi and william%r in the favour or against that breakout or breakdown.
===================
if you back-test this on ftse for 29 sessions from 16th July to 25th Aug, you will notice that
- 17 times, the trade was not triggered
- Out of 12 times it got triggered, 9 times it gave profit while rest 3 times you exited cost-to-cost at the trigger of stop loss after which second trade was not triggered.
Noon Express! (Day Trading Technique)
Here is a simple Day Trading Technique.
Note the highest point (H) and lowest point (L) till 12:30 hrs
Sell when price falls below L
Buy when price breakouts above H
Keep entry point as strict stop loss
Have the guts to win big
Book profit according to your comfort level or as suggested by technicals.
Avoid carrying forward the trade to the next day below L
May carry forward the trade to the next day above H (if u can risk the profit)
===================
How far it will go after breakout or breakdown depends upon
- whether it had already gone too far since opening?
- whether it is pro-rally, anti-rally or ranging times?
- whether rsi and william%r in the favour or against that breakout or breakdown.
- whether the higher low step (in case of breakout) and lower high step (in case of breakdown) was long pending to be formed when the breakout or breakdown happened.
===================
If after clear breakout or breakdown, it comes back into the H-L zone again, reverse position can be taken with entry as strict stop loss.
Also, one may wait to take position till the lower high step (in case of breakdown) and higher low step (in case of breakout). This can help in avoiding bluff Stop loss trigger.
===================
If u back test this on FTSE for 29 sessions from 16th July to 25th Aug, you will find that
- 27 times out of 29 it gave profit!!!
- Out of 27 profitable trades, 15 were big-to-medium ones, 9 were small.
- Only 3 out of 29 times, it did not trigger
===================
If u back test this on nasdaq for 30 sessions from 16th July to 26th Aug'10
- 13 times out of 30 no trade was triggered
- Out of rest 17 times, it yielded profit in .........ALL 17 trades
- 7 big wins, 1 medium, 9 small ones
===================
If u back test this on Nifty for 30 sessions from 19th July to 27th Aug'10
- 9 times out of 30 no trade was triggered
- Out of rest 21 times, it yielded profit in .........ALL 21 trades!!!
- 13 big wins, 4 medium, 4 small ones
===================
If u back test this on India Cement for 30 sessions from 19th July to 27th Aug'10
- 12 times out of 30 no trade was triggered
- Out of rest 18 times, it yielded profit in .........ALL 18 trades!!!
- total return of 21.5% in a month!
===================
If u back test this on M&M for 30 sessions from 19th July to 27th Aug'10
- 10 times out of 30 no trade was triggered
- Out of rest 20 times, it yielded profit in .........ALL 20 trades!!!
- total return of 17% in a month!
===================
If u back test this on Praj Industries for 30 sessions from 19th July to 27th Aug'10
- 8 times out of 30 no trade was triggered
- Out of rest 22 times, it yielded profit in .........ALL 22 trades!!!
- total return of 27.5% in a month!
====================
Why this method works so brilliantly?
- A range (whether of the previous day or that of current day) has a sanctity. So when it is broken, it is for real (subject to special conditions mentioned above)
- European markets open during noon and their effects are decisive
- Markets are not random. Market forces can't be random lest they should go mad! So, the method in the madness has to be there and is evident in this method.
- If a stock or index has to move it has to have some bouts and runs. This method spots these!
Note the highest point (H) and lowest point (L) till 12:30 hrs
Sell when price falls below L
Buy when price breakouts above H
Keep entry point as strict stop loss
Have the guts to win big
Book profit according to your comfort level or as suggested by technicals.
Avoid carrying forward the trade to the next day below L
May carry forward the trade to the next day above H (if u can risk the profit)
===================
How far it will go after breakout or breakdown depends upon
- whether it had already gone too far since opening?
- whether it is pro-rally, anti-rally or ranging times?
- whether rsi and william%r in the favour or against that breakout or breakdown.
- whether the higher low step (in case of breakout) and lower high step (in case of breakdown) was long pending to be formed when the breakout or breakdown happened.
===================
If after clear breakout or breakdown, it comes back into the H-L zone again, reverse position can be taken with entry as strict stop loss.
Also, one may wait to take position till the lower high step (in case of breakdown) and higher low step (in case of breakout). This can help in avoiding bluff Stop loss trigger.
===================
If u back test this on FTSE for 29 sessions from 16th July to 25th Aug, you will find that
- 27 times out of 29 it gave profit!!!
- Out of 27 profitable trades, 15 were big-to-medium ones, 9 were small.
- Only 3 out of 29 times, it did not trigger
===================
If u back test this on nasdaq for 30 sessions from 16th July to 26th Aug'10
- 13 times out of 30 no trade was triggered
- Out of rest 17 times, it yielded profit in .........ALL 17 trades
- 7 big wins, 1 medium, 9 small ones
===================
If u back test this on Nifty for 30 sessions from 19th July to 27th Aug'10
- 9 times out of 30 no trade was triggered
- Out of rest 21 times, it yielded profit in .........ALL 21 trades!!!
- 13 big wins, 4 medium, 4 small ones
===================
If u back test this on India Cement for 30 sessions from 19th July to 27th Aug'10
- 12 times out of 30 no trade was triggered
- Out of rest 18 times, it yielded profit in .........ALL 18 trades!!!
- total return of 21.5% in a month!
===================
If u back test this on M&M for 30 sessions from 19th July to 27th Aug'10
- 10 times out of 30 no trade was triggered
- Out of rest 20 times, it yielded profit in .........ALL 20 trades!!!
- total return of 17% in a month!
===================
If u back test this on Praj Industries for 30 sessions from 19th July to 27th Aug'10
- 8 times out of 30 no trade was triggered
- Out of rest 22 times, it yielded profit in .........ALL 22 trades!!!
- total return of 27.5% in a month!
====================
Why this method works so brilliantly?
- A range (whether of the previous day or that of current day) has a sanctity. So when it is broken, it is for real (subject to special conditions mentioned above)
- European markets open during noon and their effects are decisive
- Markets are not random. Market forces can't be random lest they should go mad! So, the method in the madness has to be there and is evident in this method.
- If a stock or index has to move it has to have some bouts and runs. This method spots these!
go with the growth! (Quick Word)
Consider 4 types of companies
1. Large cap growing companies
2. Small and Mid cap growing companies
3. Large cap stagnant companies
4. Small and Medium cap stagnant companies
The third ones struggle to be as good as bonds.
The fourth ones are the biggest advertisers of bonds.
The first type grow faster than inflation and bonds.
The second types grow fastest.
Smell the sustainable growth & follow
almost blindly!
1. Large cap growing companies
2. Small and Mid cap growing companies
3. Large cap stagnant companies
4. Small and Medium cap stagnant companies
The third ones struggle to be as good as bonds.
The fourth ones are the biggest advertisers of bonds.
The first type grow faster than inflation and bonds.
The second types grow fastest.
Smell the sustainable growth & follow
almost blindly!
Wednesday, August 25, 2010
True value of a share?
If you were to buy the entire company, how much will you pay?
If there are 10 lac shares of the company and each share is available @50/-, you can walk away with the company if you pay value of the entire 10 lac shares i.e. 500 lacs or 5 crore.
But if you don't know the share price or if you don't trust the share price or if the company is not a listed one, how much should you pay?
In such a case you need to find out the true value of the company by alternative methods.
One obvious way is to find out the net worth of the company.
Net worth = Assets - Liabilities = Net assets
But many a times this can give you very wrong picture.
For example, there is a decades-old super-famous Chane-bhaturewala shop on the mall road in Shimla.
It daily downs the shutter at 4 pm. Irrespective of how much stuff is prepared in the morning everything is sold out by around 4. (I must myself admit that they make damn tastiest Chane-bhature!)
If you were to buy out his business and go by the above formula of net worth, you may commit the mistake of offering him the cost of his shop minus whatsoever liabilities he has (by the way, he has none!)
He will fry you in his Bhatura vessel!!!
Why?
Because he daily sells Chana bhatura worth approx. 11000 and his shop's value in municipal corporation's accounts book is just 2 lacs! Putting the networth of this shop at just 2.33 lacs!
Therefore, as in this case, it may be grossly wrong to judge the value of a company by its net worth.
So, how do we find the fair value of a company?
Another way is the cash flow way!
This chana bhatura shop is generating an annual cashflow of 3years x 11000 per day x 365days days = 1 crore 20 lacs!
So according to a formula, the minimum price of his business (and not shop, mind you)
= (Potential profits for 3 years) + Assets and Inventories
Assuming a net profit margin of 50% in chana Bhatura, this gentleman's empire will be valued at
= 50% of 1crore20lacs + book value of shop
= 60 lacs + 2 lacs
=62 lacs
Now, would you be surprised if I told you that this gentleman's shrewd son is demanding 80 lacs as "pagri" from the potential buyers!
And would you be surprised if I told you that some businessmen are already willing to pay as much as 45 lacs! (The negotiation was going on till the writing of this article!)
But why is the son of the chana bhatura king asking for 80lacs and not 62lacs?
In his words "People come here in 'our' name!!! We have been serving mouth watering chana bhaturas since 60 years! we have a reputation and a pull value! We have a brand equity. 18 lacs is just for that. You can expand the business with that name!"
What if the potential buyer says
"We don't want to keep your name. Reduce the price now by 18 lacs" ?
And what if the equally-shrewd son of the bhatura-empire replied
"Ok, we will reduce the price by 18 lacs. But i hope you will not mind if we open another Chana bhatura shop in the neighbourhood in our name!!!"
-------------------
Now if I told you that this Chana bhaturawala floats 10,000 shares what will be the fair market value of each share?
= (Market value of the company as decided above i.e. 80 lacs) divided by (1000 shares)
= 800/- per share
-------------------
If this company was making software instead of chana Bhaturas and had a huge future value, that value would have been added to the share value!
-------------------
Now, what will be the value of this company if its current owners decide to start giving franchisees under their brand name in all Tier-II and tier-III cities along with their secret recipe !!!
If there are 10 lac shares of the company and each share is available @50/-, you can walk away with the company if you pay value of the entire 10 lac shares i.e. 500 lacs or 5 crore.
But if you don't know the share price or if you don't trust the share price or if the company is not a listed one, how much should you pay?
In such a case you need to find out the true value of the company by alternative methods.
One obvious way is to find out the net worth of the company.
Net worth = Assets - Liabilities = Net assets
But many a times this can give you very wrong picture.
For example, there is a decades-old super-famous Chane-bhaturewala shop on the mall road in Shimla.
It daily downs the shutter at 4 pm. Irrespective of how much stuff is prepared in the morning everything is sold out by around 4. (I must myself admit that they make damn tastiest Chane-bhature!)
If you were to buy out his business and go by the above formula of net worth, you may commit the mistake of offering him the cost of his shop minus whatsoever liabilities he has (by the way, he has none!)
He will fry you in his Bhatura vessel!!!
Why?
Because he daily sells Chana bhatura worth approx. 11000 and his shop's value in municipal corporation's accounts book is just 2 lacs! Putting the networth of this shop at just 2.33 lacs!
Therefore, as in this case, it may be grossly wrong to judge the value of a company by its net worth.
So, how do we find the fair value of a company?
Another way is the cash flow way!
This chana bhatura shop is generating an annual cashflow of 3years x 11000 per day x 365days days = 1 crore 20 lacs!
So according to a formula, the minimum price of his business (and not shop, mind you)
= (Potential profits for 3 years) + Assets and Inventories
Assuming a net profit margin of 50% in chana Bhatura, this gentleman's empire will be valued at
= 50% of 1crore20lacs + book value of shop
= 60 lacs + 2 lacs
=62 lacs
Now, would you be surprised if I told you that this gentleman's shrewd son is demanding 80 lacs as "pagri" from the potential buyers!
And would you be surprised if I told you that some businessmen are already willing to pay as much as 45 lacs! (The negotiation was going on till the writing of this article!)
But why is the son of the chana bhatura king asking for 80lacs and not 62lacs?
In his words "People come here in 'our' name!!! We have been serving mouth watering chana bhaturas since 60 years! we have a reputation and a pull value! We have a brand equity. 18 lacs is just for that. You can expand the business with that name!"
What if the potential buyer says
"We don't want to keep your name. Reduce the price now by 18 lacs" ?
And what if the equally-shrewd son of the bhatura-empire replied
"Ok, we will reduce the price by 18 lacs. But i hope you will not mind if we open another Chana bhatura shop in the neighbourhood in our name!!!"
-------------------
Now if I told you that this Chana bhaturawala floats 10,000 shares what will be the fair market value of each share?
= (Market value of the company as decided above i.e. 80 lacs) divided by (1000 shares)
= 800/- per share
-------------------
If this company was making software instead of chana Bhaturas and had a huge future value, that value would have been added to the share value!
-------------------
Now, what will be the value of this company if its current owners decide to start giving franchisees under their brand name in all Tier-II and tier-III cities along with their secret recipe !!!
Tuesday, August 24, 2010
Stock crash!!! (In lighter vein)
A big big investor went for the plant visit of a fundamentally good small-cap company.
Afterall, he had staked a few millions in that company's stocks!
He wanted "to have a look himself".
The director had deputed his top PR man to escort the investor around the huge plant.
As the two were moving around the plant, the PR man kept explaining:
As they approached the cabin of the Sales Manager, the PR man proundly announced
"Meet Mr.ABC, Manager for Sale!"
(The investor was shocked to hear that.
"Is he so corrupt that he is for SALE!" he thought!)
Next cabin was that of the Spare Parts Manager.
The PR man again did the honours
"Meet Mr.XYZ, the Spare Manager"
("if he is spare, then why are you keeping him on rolls?" the investor thought!)
After the "Manager for Sale" and the "spare Manager", the PR man took the shaken investor to the body shop where the accidental vehicles were repaired and said
"I want you to meet Mr.EFG, our Accidental Manager"
("O my god!" - the investor was aghast.
"What a blunder I made when i invested my millions in this company!")
On the first floor, the PR guy took the investor to another executive
"This is Mr.IJK, our Quality Manager"
"Thank God, a quality manager is also there in this company. Otherwise I would have sold all the shares", thought the investor.
In the relaxing room, PR stopped by the Personnel department and said
"Sir, this is Mr. OPQ, our Personal Manager"
"Your what!!!"
"Our PERSONAL manager, Sir"
"Greaaaatttttt!!!!!!! what a wastage" thought the investor.
"And who are we meeting next....." he curiously asked the PR genious!
"Sir, I want you to meet our Legal Manager, Mr.RST!"
"Why not sack the Illegal ones?" murmurred the investor.
"Also, Sir! Here comes our Salvage Manager!"
"Anyone else we haven't met,Mr.PR?" the visibly upset investor asked
"Sir, the Purchased Manager is on leave"
By now the investor was furious.
He saw his investment in unsafe hands.
He wanted to talk to the Director.
"I want to see the Director IMMEDIATELY!" ordered the angry investor to the PR man.
"Sir, you just missed him. While we were taking the round of the plant, the Director just passed away!"
The investor took out his cellphone and ordered his broker to sell all his shares of the company.
Next morning the stock price of the company crashed!!!
the Director called the PR man and shouted
"Go, and get me the Share Manager!"
Afterall, he had staked a few millions in that company's stocks!
He wanted "to have a look himself".
The director had deputed his top PR man to escort the investor around the huge plant.
As the two were moving around the plant, the PR man kept explaining:
As they approached the cabin of the Sales Manager, the PR man proundly announced
"Meet Mr.ABC, Manager for Sale!"
(The investor was shocked to hear that.
"Is he so corrupt that he is for SALE!" he thought!)
Next cabin was that of the Spare Parts Manager.
The PR man again did the honours
"Meet Mr.XYZ, the Spare Manager"
("if he is spare, then why are you keeping him on rolls?" the investor thought!)
After the "Manager for Sale" and the "spare Manager", the PR man took the shaken investor to the body shop where the accidental vehicles were repaired and said
"I want you to meet Mr.EFG, our Accidental Manager"
("O my god!" - the investor was aghast.
"What a blunder I made when i invested my millions in this company!")
On the first floor, the PR guy took the investor to another executive
"This is Mr.IJK, our Quality Manager"
"Thank God, a quality manager is also there in this company. Otherwise I would have sold all the shares", thought the investor.
In the relaxing room, PR stopped by the Personnel department and said
"Sir, this is Mr. OPQ, our Personal Manager"
"Your what!!!"
"Our PERSONAL manager, Sir"
"Greaaaatttttt!!!!!!! what a wastage" thought the investor.
"And who are we meeting next....." he curiously asked the PR genious!
"Sir, I want you to meet our Legal Manager, Mr.RST!"
"Why not sack the Illegal ones?" murmurred the investor.
"Also, Sir! Here comes our Salvage Manager!"
"Anyone else we haven't met,Mr.PR?" the visibly upset investor asked
"Sir, the Purchased Manager is on leave"
By now the investor was furious.
He saw his investment in unsafe hands.
He wanted to talk to the Director.
"I want to see the Director IMMEDIATELY!" ordered the angry investor to the PR man.
"Sir, you just missed him. While we were taking the round of the plant, the Director just passed away!"
The investor took out his cellphone and ordered his broker to sell all his shares of the company.
Next morning the stock price of the company crashed!!!
the Director called the PR man and shouted
"Go, and get me the Share Manager!"
Investing without tears!
Yesterday I met the grand old man of stock trading at a club in Shimla.
On finding him alone, I asked whether I could have a cup of coffee with him.
He obliged.
-------------------
"What are you doing these days?", he asked.
"I am itching to get into fundamental side of trading, Sir! Till now I was so focused on technicals that fundamental part got totally ignored. I am trying to make up for that!" I revealed frankly.
"So, how are you entering this sea of fundamentals!", he smiled!
"Well, I have got my hand on a few good books of stock fundamentals. I am burning my midnight oil to get the head and tail of balancesheets and Profit & Loss accounts and ratios....etc." I shared, albeit with a sigh of exhaustion.
He was listening quite attentively but didn't speak.
"It is a big big syllabi and I'm afraid I am already tired!" I admitted.
"But why are you getting into all this junk?" he said.
I was rather shocked at his question.
Everyone knew that this guy was a gem of an investor. His opinion about potential multi-baggers was famous in the Shimla circle.
"Sorry, I didn't get you!", I said.
"I am asking why are you mugging all this financial stuff?", he clarified.
"But why not, uncle!" I got involved!
"Afterall, how can I be a fundamentals-based investor without being a master of all this technical stuff?", I retorted.
"Look, Mr.Singh. You don't have to be an Chartered Accountant or M.Com or MBA (Finance) to be a good fundamental investor.
Rather, the more you entangle yourself in this jargon the more you will be vulnerable to being befooled by the army of financial special-effect experts of the corporate world.
You just can't think of beating them!", he explained.
"To be a good fundamental-investor you need to be good at psychology and common-sense!"
he continued.
"What!", I couldn't help reacting.
"Yes, you heard it right!", he calmed me down.
"All you need to focus on are these two things
1) The future of the business
2) The man behind the controls.
That's all I look for when I commit my money to a stock!"
"Sounds very interesting!" I was surely amused.
"So long as a budding Anand Mahindra or a Rattan Tata or a Sunil Mittal or a Kiran Majumdar or a Y.C.Deveshwar is at the helm of affairs....how can I be worried."
"When I am taking these names I don't mean I invest only in these bluechips or their new ventures.Rather, I have a big chunk of my investment portfolio into small caps and mid caps. And I must share that I regularly keep coming across tomorrow's Ratan Tatas and Anand Mahindras and Mittals..!"
"When I see common-sense business opportunities picked by able unstoppable men, I know I have found my investment opportunity!"
"So, all I am interested to know is
- what's the business opportunity
- who's heading, and
- what's in his head!
..............Period!
why should I bother about the fundamentals when I am sure "my" man-in-charge and his team is competent enough to manage it quite well for me?
His or her track record, the fire in their belly, passion in their body language, promise in their eyes............these all reveal it all!
If the fundamentals are not good, my man (or woman)-friday and his team will set it right for me.
Rather a situation where good team inherits a good business with marred fundamentals is a fantastic investing opportunity as the stock will be available at peanuts!!!
I know I can never be expert enough to be able to sniff-out the rat or cat in a cleverly dressed balancesheet, statements and ratios! So why bang my head into these?
Besides, what's the guarantee that a good balance sheet and P&L account will stay good?
Only a great team headed by a great leader can do that!
So, I should rather put my senses and energies to know about the guy (or guys) at the helm of affairs besides some common-sense gaze into the future of the business!
Once I am sure that the business potential is huge
Once I believe in the ability, integrity and intentions of the captain, I relax and let him and his team sufficient time to deliver results!!!
So, all I do to pick a stock for investment is
- look for emerging business opportunities
- read hell lot of interviews and anecdotes and stories about budding businessmen."
--------------
"I hope I have not bored you dear, you haven't finished your coffee!" he said.
I was awe-struck!
I just got rid of a mountain of books!!!
On finding him alone, I asked whether I could have a cup of coffee with him.
He obliged.
-------------------
"What are you doing these days?", he asked.
"I am itching to get into fundamental side of trading, Sir! Till now I was so focused on technicals that fundamental part got totally ignored. I am trying to make up for that!" I revealed frankly.
"So, how are you entering this sea of fundamentals!", he smiled!
"Well, I have got my hand on a few good books of stock fundamentals. I am burning my midnight oil to get the head and tail of balancesheets and Profit & Loss accounts and ratios....etc." I shared, albeit with a sigh of exhaustion.
He was listening quite attentively but didn't speak.
"It is a big big syllabi and I'm afraid I am already tired!" I admitted.
"But why are you getting into all this junk?" he said.
I was rather shocked at his question.
Everyone knew that this guy was a gem of an investor. His opinion about potential multi-baggers was famous in the Shimla circle.
"Sorry, I didn't get you!", I said.
"I am asking why are you mugging all this financial stuff?", he clarified.
"But why not, uncle!" I got involved!
"Afterall, how can I be a fundamentals-based investor without being a master of all this technical stuff?", I retorted.
"Look, Mr.Singh. You don't have to be an Chartered Accountant or M.Com or MBA (Finance) to be a good fundamental investor.
Rather, the more you entangle yourself in this jargon the more you will be vulnerable to being befooled by the army of financial special-effect experts of the corporate world.
You just can't think of beating them!", he explained.
"To be a good fundamental-investor you need to be good at psychology and common-sense!"
he continued.
"What!", I couldn't help reacting.
"Yes, you heard it right!", he calmed me down.
"All you need to focus on are these two things
1) The future of the business
2) The man behind the controls.
That's all I look for when I commit my money to a stock!"
"Sounds very interesting!" I was surely amused.
"So long as a budding Anand Mahindra or a Rattan Tata or a Sunil Mittal or a Kiran Majumdar or a Y.C.Deveshwar is at the helm of affairs....how can I be worried."
"When I am taking these names I don't mean I invest only in these bluechips or their new ventures.Rather, I have a big chunk of my investment portfolio into small caps and mid caps. And I must share that I regularly keep coming across tomorrow's Ratan Tatas and Anand Mahindras and Mittals..!"
"When I see common-sense business opportunities picked by able unstoppable men, I know I have found my investment opportunity!"
"So, all I am interested to know is
- what's the business opportunity
- who's heading, and
- what's in his head!
..............Period!
why should I bother about the fundamentals when I am sure "my" man-in-charge and his team is competent enough to manage it quite well for me?
His or her track record, the fire in their belly, passion in their body language, promise in their eyes............these all reveal it all!
If the fundamentals are not good, my man (or woman)-friday and his team will set it right for me.
Rather a situation where good team inherits a good business with marred fundamentals is a fantastic investing opportunity as the stock will be available at peanuts!!!
I know I can never be expert enough to be able to sniff-out the rat or cat in a cleverly dressed balancesheet, statements and ratios! So why bang my head into these?
Besides, what's the guarantee that a good balance sheet and P&L account will stay good?
Only a great team headed by a great leader can do that!
So, I should rather put my senses and energies to know about the guy (or guys) at the helm of affairs besides some common-sense gaze into the future of the business!
Once I am sure that the business potential is huge
Once I believe in the ability, integrity and intentions of the captain, I relax and let him and his team sufficient time to deliver results!!!
So, all I do to pick a stock for investment is
- look for emerging business opportunities
- read hell lot of interviews and anecdotes and stories about budding businessmen."
--------------
"I hope I have not bored you dear, you haven't finished your coffee!" he said.
I was awe-struck!
I just got rid of a mountain of books!!!
Sunday, August 22, 2010
A pin for the balloon (When to short?)
Shorting is profitable but highly risky & nerve wrecking game!
Often timing of shorting blows in our face!
Like shorting bank nifty as on last week!
So, what is the best and the safest point to short a stock or index futures?
The answer lies in the nature!
When do volcanoes erupt?
When do Earthquakes come?
When does an Avalanche start?
When does a cloud burst?
When does the pendulum reverse?
When does the tide turn?
When does a war break out?
....
All of these happen when two conditions are satisfied
1. Excess over a limit
2. A trigger to start it all
Excess of everything is bad, including a rally.
Every rally extends into the "excess" zone.
Smart money sets the ball in motion.
Dumb money follows in heaps and herds and doesn't know when to stop.
Smart money enters on logic. Dumb money keeps coming on frenzy!
Sentiments take over and they don't know when to stop!
After all, the late enterants also want to make money.
The people who buy from the late comers want to make money too!
This chain reaction (called distribution) reaches too far till everyone left feels like a fool except the part of smart money which is still their in some corner!
The funny part is that nobody is willing to admit the folly even now.
They close their eyes to the deep fall below and hope against the hope!
They all wait for the frist one to fall!
Even then they keep living in the fools paradise, ignore the first signs and buy some more!
Heights!!!
This causes the lower high on the graph!
That is the time the Avalanche starts to gather momentum!
That is the time to go short!
Stampede is about to start!!!
Everything will start falling under its own weight!
Everything will crumble down like a pack of cards!!
Latest examples of this
Sugar & Metal stocks' mad bull run followed by the crash
So, if yours is the smart money, don't worry about the crash amidst the rally
keep riding
till the two conditions are met
- excess over the limit
- the trigger punctuated by a lower high.
Till then, let the ridiculous distribution game continue
Let the excess happen!
As someone said "A pin is waiting for every inflated balloon!"
Often timing of shorting blows in our face!
Like shorting bank nifty as on last week!
So, what is the best and the safest point to short a stock or index futures?
The answer lies in the nature!
When do volcanoes erupt?
When do Earthquakes come?
When does an Avalanche start?
When does a cloud burst?
When does the pendulum reverse?
When does the tide turn?
When does a war break out?
....
All of these happen when two conditions are satisfied
1. Excess over a limit
2. A trigger to start it all
Excess of everything is bad, including a rally.
Every rally extends into the "excess" zone.
Smart money sets the ball in motion.
Dumb money follows in heaps and herds and doesn't know when to stop.
Smart money enters on logic. Dumb money keeps coming on frenzy!
Sentiments take over and they don't know when to stop!
After all, the late enterants also want to make money.
The people who buy from the late comers want to make money too!
This chain reaction (called distribution) reaches too far till everyone left feels like a fool except the part of smart money which is still their in some corner!
The funny part is that nobody is willing to admit the folly even now.
They close their eyes to the deep fall below and hope against the hope!
They all wait for the frist one to fall!
Even then they keep living in the fools paradise, ignore the first signs and buy some more!
Heights!!!
This causes the lower high on the graph!
That is the time the Avalanche starts to gather momentum!
That is the time to go short!
Stampede is about to start!!!
Everything will start falling under its own weight!
Everything will crumble down like a pack of cards!!
Latest examples of this
Sugar & Metal stocks' mad bull run followed by the crash
So, if yours is the smart money, don't worry about the crash amidst the rally
keep riding
till the two conditions are met
- excess over the limit
- the trigger punctuated by a lower high.
Till then, let the ridiculous distribution game continue
Let the excess happen!
As someone said "A pin is waiting for every inflated balloon!"
Forget about the legs!
The front left leg is going back
the front right leg is going forward
the rear right leg is going back
the rear left leg is going forward
what is happening?
- the elephant is moving forward!
Forget about the legs, always concentrate on the bigger picture.
Unfortunately traders concentrate on the legs rather than on the elephant
and thus, get trampled under its feet!
the front right leg is going forward
the rear right leg is going back
the rear left leg is going forward
what is happening?
- the elephant is moving forward!
Forget about the legs, always concentrate on the bigger picture.
Unfortunately traders concentrate on the legs rather than on the elephant
and thus, get trampled under its feet!
When to square-off and reverse?
When to square-off and reverse?
A. If the rsi-run from lower to higher extreme or that from higher to lower extreme is stepped and not straight, it has been a rally and not a sell-off or buy-in.
B. If the rsi-run from lower to higher extreme or that from higher to lower is NOT stepped but straight, it has been a sell-off or buy-in and NOT a rally (unless it is coming out of a ranging/consolidation period, in which case it can be a rally)
square-off and take reverse positon
at the first lower high (in case of long unwinding)
at the first higher low (in case of short covering)
But in case A
do this after the divergence between rsi and priceline
and in case B
divergence is not likely to happen, so no need to wait for it.
Pl note: 1) Play with strict stoploss. You can always retake position.
2) When the market or stock is ranging/consolidating, you can square-off even before lower high or higher low, at the time of rsi touching extreme.
3) Only those graphs should be used which give high resolution tickers. The above mentioned observations have been derived using Google Finance charts. 1month chart with 30 min ticker and 3-6 month chart using 1 day ticker. I have seen that many other chart sources use much biger ticker and hence low sentivity.
A. If the rsi-run from lower to higher extreme or that from higher to lower extreme is stepped and not straight, it has been a rally and not a sell-off or buy-in.
B. If the rsi-run from lower to higher extreme or that from higher to lower is NOT stepped but straight, it has been a sell-off or buy-in and NOT a rally (unless it is coming out of a ranging/consolidation period, in which case it can be a rally)
square-off and take reverse positon
at the first lower high (in case of long unwinding)
at the first higher low (in case of short covering)
But in case A
do this after the divergence between rsi and priceline
and in case B
divergence is not likely to happen, so no need to wait for it.
Pl note: 1) Play with strict stoploss. You can always retake position.
2) When the market or stock is ranging/consolidating, you can square-off even before lower high or higher low, at the time of rsi touching extreme.
3) Only those graphs should be used which give high resolution tickers. The above mentioned observations have been derived using Google Finance charts. 1month chart with 30 min ticker and 3-6 month chart using 1 day ticker. I have seen that many other chart sources use much biger ticker and hence low sentivity.
Saturday, August 21, 2010
Doing a SAR with RSI and William%R
See the peak on the left of A?
That was the peak when rsi 14/30min on 1 month chart was at the upper extreme.
Should U have squared-off at that time?
I suggest you don't. nobody knows whether Nifty rally will be stretched to more height.
In such cases, always sell on the lower high.
In this case peak A is the lower high after the peak rsi.
This is the clear hint that nifty is going to correct.
So at this point square off the longs and take fresh short position.
========
At point B, rsi has reached the lower extreme. Should you cover your shorts at this point?
Had it been a sell-off, u should have squared the shorts here.
But this has been a small rally.
What's the difference between a rally and a sell-off?
Sell-off is generally straight line, rally is a stepped fall or rise.
since this fall has been a rally (though small), u r likely to see a divergence between rsi and nifty before the rise starts again.
so, hold your shorts till that point.
That point comes at C when rsi is rising and nifty is falling (divergence).
Cover shorts here (profit of 70 points) and initiate fresh long position.
========
At X, rsi touches the higher extreme.
Should we square off long here?
But, as mentioned in case of point A, we are not sure whether the nifty may rally further.
so, here again we will square-off at the lower high during retreat (rsi already having touched the upper extreme).
Our "hold" decision proves good when we see the rsi falling but the nifty holding on.
This is a clear signal that rsi is making space for nifty ot climb further.
Then the nifty climbs to D.
So should we now unwind longs at D?
Again, we don't know whether nifty will rally even further.
(Although there is clear divergence between rsi and nifty. rsi has fallen, nifty has climbed)
However, we wait.
But the nifty falls and we unwind longs at Y (lower high) and go short.
(profit in this 2nd leg = 100 points, total profit so far in around 15 days = 170)
=================
We get some anxious moments when nifty climbs to Z after the william%r gives buy signal at J.
We hold the shorts with stop loss equal to height of D (anticipating double top).
Fortunately, nifty starts falling after Z all the way to E.
Notice that this fall is straight and not stepped, meaning thereby that this is a sell-off and not a rally.
This means that divergence is unlikely to happen between rsi adn nifty (as i mentioned earlier, divergence happens after rally and not sell-off)
So we cover shorts at E (profit in this 3rd leg=100 points, total profit so far in around 3 weeks= 270) and initiate fresh longs.
Notice that we have been always in the market, just like SAR.
We have been going long immediately when we cover shorts
and go short immediately when we unwind longs!
This milks the market to max!
=================
At F, rsi reaches near upper extreme and we unwind our longs as this is not a rally but a sharp buy-in (as the rise is straight and not stepped).
We unwind our longs and intiate fresh short.
Profit in this 4th leg = 60 points. total profit till now = 330 points.
=================
Nifty then falls to G when rsi reaches lower extreme.
Notice that william%R is always confirming the right points of buying and selling.
We cover shorts at G and initiate fresh longs.
Profit in this 5th leg = 50. Total profits so far in around 20 days = 380.
=================
From here rsi rises till nifty reaches H.
Since this has not been a straight rise but a stepped one, we should be expecting divergence to appear between rsi and nifty.
so we hold the longs.
Profit so far in this 6th leg =120 points.
total profit in 1 month since start of this analyses = 500.
For one lot this would have given Rs.25000/-.
=================
We have milked the market fluctuation to the max while always being in the market, using rsi supported by william%r.
Friday, August 20, 2010
How rich are you?
A very rich trader died at the age of 51 and went to God's visa office.
"Want visa for Heaven", he said to the old lady at the counter.
"Pl give your finger prints here", she said pointing to a screen.
"What's that!" he asked.
"The machine will rate you on a scale of 10 on richness. If you score more than 7, you go to Heaven!"
"No problem!" said teh beaming trader who was sure to score 10 out of 10.
He put his palm on the screen
Pop came out the result
"2½/10 : The gentleman may kindly be trasported to Hell.
- By order
Secretary,
Home Affairs,
Kingdom of God"
"How can it be?" shouted the effluent trader.
"Your data is wrong.
I am one of the most successful trader in my generation.
And your machine has given me 2½ out of 10 on richness scale!!!" he protested.
whent the martials were about to catch him from arms
the old lady said
"Wait, Martials!"
"Here is the detailed score card for you, Mr.Trader" said the lady, handing over the scoresheet to the agitated trader.
The trader snatched it in a flash and read
"Richness by wealth = 1/1
Richness by Health = 0/1
Richness by character = 0/1
Richness by spiritual solace = 0/1
Richness by Family & Social ties = 0/1
Richness by Self Realisation = 1/1
Richness by Mannerisms, Behaviour & Cultural Refinement = 0/1
Richness by Fragrance of Wisdom = 0/1
Richness by Apathy = 0/1
Richness by Luck = 0.5/1
Total = 2½/10
Trader's eyes and mouth went wide open!
...and suddenly he woke up!
..and found himself sweating like hell!
"Thank God, I still have time!" he murmured!
"Want visa for Heaven", he said to the old lady at the counter.
"Pl give your finger prints here", she said pointing to a screen.
"What's that!" he asked.
"The machine will rate you on a scale of 10 on richness. If you score more than 7, you go to Heaven!"
"No problem!" said teh beaming trader who was sure to score 10 out of 10.
He put his palm on the screen
Pop came out the result
"2½/10 : The gentleman may kindly be trasported to Hell.
- By order
Secretary,
Home Affairs,
Kingdom of God"
"How can it be?" shouted the effluent trader.
"Your data is wrong.
I am one of the most successful trader in my generation.
And your machine has given me 2½ out of 10 on richness scale!!!" he protested.
whent the martials were about to catch him from arms
the old lady said
"Wait, Martials!"
"Here is the detailed score card for you, Mr.Trader" said the lady, handing over the scoresheet to the agitated trader.
The trader snatched it in a flash and read
"Richness by wealth = 1/1
Richness by Health = 0/1
Richness by character = 0/1
Richness by spiritual solace = 0/1
Richness by Family & Social ties = 0/1
Richness by Self Realisation = 1/1
Richness by Mannerisms, Behaviour & Cultural Refinement = 0/1
Richness by Fragrance of Wisdom = 0/1
Richness by Apathy = 0/1
Richness by Luck = 0.5/1
Total = 2½/10
Trader's eyes and mouth went wide open!
...and suddenly he woke up!
..and found himself sweating like hell!
"Thank God, I still have time!" he murmured!
The ghost under the lamp post no.5000!
A ghost was sitting under the lamp post no. "5000".
On 18th September 2009, a bulldozer named "Nifty", while going up the hill, crossed the ghost sitting under lamp post no.5000.
"Good Bye, Mr.Nifty"! said the ghost assuming that the bulldozer will never return from uphill!
But he again saw the bulldozer Nifty return across his lamp post 5000 while going down the hill on 22 September!
with lot of blood of traders in its track!
"Why did you go up if you were to return, Mr.Nifty?" asked the ghost!
"Many tricked the traders!"
The bulldozer smiled and continued its journey down the hill below lamp post 5000.
On 29th September, the ghost was shocked to see the bulldozer again cross his lamp post on upward journey!
"This time it won't come back", thought the ghost!
But he was wrong!
The bulldozer again rolled down the lamp post 5000 on 7th October, this time caryying lot many more shrieking spirits of dead traders!
"You are bluffing, Mr.Nifty! This is blatant betrayal!!!"
The bulldozer was unfazed!
On 9th October the bulldozer Nifty again crossed the lamp post and went uphill!
On 23rd October, it crossed downhill!
On 11th Novemeber, it went again up cross lamp post 5000.
On 12th Novemeber, down!
On 13th November, up!
On 19th November, down!
On 20th November, up!
On 27th November, down!
On 1st December, up!
On 18th December, down!
On 22nd December, up!
On 25th January, down!
On 2nd March, up the hill across the lamp post 5000!
On 19th March, again down!
On 28th March, up!
On 19th March, down!
On 28th May, up!
On 1st June, down!
On 2nd June, up!
On 8th June, down!
On 9th June, up!
The ghost, still sitting under the lamp post no. 5000, is again waiting for the bulldozer to now cross him again while returning from uphill!
The ghost has become a god-fearing man by now!
He has learnt to pray.....
He prays for the increasing number of traders being killed by the real ghost
the bolldozer Nifty
every time it crosses lamp post 5000!
(The bulldozer has already crossed the same lamp post 24 times again and again and again and poor unsuspecting traders believe him, ride him only to be crushed at the next bend!)
On 18th September 2009, a bulldozer named "Nifty", while going up the hill, crossed the ghost sitting under lamp post no.5000.
"Good Bye, Mr.Nifty"! said the ghost assuming that the bulldozer will never return from uphill!
But he again saw the bulldozer Nifty return across his lamp post 5000 while going down the hill on 22 September!
with lot of blood of traders in its track!
"Why did you go up if you were to return, Mr.Nifty?" asked the ghost!
"Many tricked the traders!"
The bulldozer smiled and continued its journey down the hill below lamp post 5000.
On 29th September, the ghost was shocked to see the bulldozer again cross his lamp post on upward journey!
"This time it won't come back", thought the ghost!
But he was wrong!
The bulldozer again rolled down the lamp post 5000 on 7th October, this time caryying lot many more shrieking spirits of dead traders!
"You are bluffing, Mr.Nifty! This is blatant betrayal!!!"
The bulldozer was unfazed!
On 9th October the bulldozer Nifty again crossed the lamp post and went uphill!
On 23rd October, it crossed downhill!
On 11th Novemeber, it went again up cross lamp post 5000.
On 12th Novemeber, down!
On 13th November, up!
On 19th November, down!
On 20th November, up!
On 27th November, down!
On 1st December, up!
On 18th December, down!
On 22nd December, up!
On 25th January, down!
On 2nd March, up the hill across the lamp post 5000!
On 19th March, again down!
On 28th March, up!
On 19th March, down!
On 28th May, up!
On 1st June, down!
On 2nd June, up!
On 8th June, down!
On 9th June, up!
The ghost, still sitting under the lamp post no. 5000, is again waiting for the bulldozer to now cross him again while returning from uphill!
The ghost has become a god-fearing man by now!
He has learnt to pray.....
He prays for the increasing number of traders being killed by the real ghost
the bolldozer Nifty
every time it crosses lamp post 5000!
(The bulldozer has already crossed the same lamp post 24 times again and again and again and poor unsuspecting traders believe him, ride him only to be crushed at the next bend!)
Thursday, August 19, 2010
Is fundamental stock picking difficult?
Is fundamental stock picking difficult?
Think again!
In his international bestseller
"One up on the Wall Street"
legendary Peter Lynch said
"Twenty years in this business convinces me that any normal person using the customary 3% of the brain can pick stocks just as well, if not better, than the average Wall Street expert".
"You can know it (a great stock pick for investment) before Wall Street knows it"
"....I stumble onto the big winners in extra-curricular situations..."
These words made me 10 times more alert in day-to-day life about the signals around me which could throw up possible multibagger winnercandidates for investment before it becomes "talk of the town" in business channels!
I successfully picked Jubilant Foodworks Limited when I noticed that Domino's were renovating their outlet in Shimla, were opening another one in solan and many more.
"They must be growing pan-India if they are into tier-3 cities like Shimla and Solan!" I thought.
I bought the shares @282 and today it is at near 500! I am sure it is going to grow as their number of outlet grows!
This success has made me sit up and keep my eyes wide open in search of silent loud signals around me of the emerging winners.
So many times we are so blindly dependent on the TV channels and print media and brokers that we miss big winners right under our nose.
Earlier I used to mute the TV when ads came!
Now I don't.
I carefully enjoy every ad!
Ads are nothing but the fashion parade of the emerging winners in the business arena.
Though not all ads are from the winners, but winners are in those ads!
Character of ads hints at the winners.
Rest is common-sense followed by some googling - fundamental and technical!
Think again!
In his international bestseller
"One up on the Wall Street"
legendary Peter Lynch said
"Twenty years in this business convinces me that any normal person using the customary 3% of the brain can pick stocks just as well, if not better, than the average Wall Street expert".
"You can know it (a great stock pick for investment) before Wall Street knows it"
"....I stumble onto the big winners in extra-curricular situations..."
These words made me 10 times more alert in day-to-day life about the signals around me which could throw up possible multibagger winnercandidates for investment before it becomes "talk of the town" in business channels!
I successfully picked Jubilant Foodworks Limited when I noticed that Domino's were renovating their outlet in Shimla, were opening another one in solan and many more.
"They must be growing pan-India if they are into tier-3 cities like Shimla and Solan!" I thought.
I bought the shares @282 and today it is at near 500! I am sure it is going to grow as their number of outlet grows!
This success has made me sit up and keep my eyes wide open in search of silent loud signals around me of the emerging winners.
So many times we are so blindly dependent on the TV channels and print media and brokers that we miss big winners right under our nose.
Earlier I used to mute the TV when ads came!
Now I don't.
I carefully enjoy every ad!
Ads are nothing but the fashion parade of the emerging winners in the business arena.
Though not all ads are from the winners, but winners are in those ads!
Character of ads hints at the winners.
Rest is common-sense followed by some googling - fundamental and technical!
3 enemies of a trader
In his all-time classic "Think and Grow Rich"
author Napoleon hill has identified 3 enemies (of a trader) as
- Indecision
- Doubt
- Fear
Indecision is "not pulling the trigger despite verdict by the indicators and method"
Doubt is "not trusting the indicators and method"
Fear is "letting lose the destructive imagination to blackmail the weak points of your financial position."
Indecision causes doubt to grow.
Growing doubt creates fear.
Fear leads to wrong decision.
Wrong decision results in loss.
Loss causes pain.
Pain validates fear.
Fear strengthens doubt.
Doubt justifies indecision.
Want to trade....then go ahead and trade.
Don't want to trade...then don't.
but for heaven's sake...be decisive!
If the decision turns out to be wrong,
everything in this world has something called Emergency Switch called
Stop Loss!
author Napoleon hill has identified 3 enemies (of a trader) as
- Indecision
- Doubt
- Fear
Indecision is "not pulling the trigger despite verdict by the indicators and method"
Doubt is "not trusting the indicators and method"
Fear is "letting lose the destructive imagination to blackmail the weak points of your financial position."
Indecision causes doubt to grow.
Growing doubt creates fear.
Fear leads to wrong decision.
Wrong decision results in loss.
Loss causes pain.
Pain validates fear.
Fear strengthens doubt.
Doubt justifies indecision.
Want to trade....then go ahead and trade.
Don't want to trade...then don't.
but for heaven's sake...be decisive!
If the decision turns out to be wrong,
everything in this world has something called Emergency Switch called
Stop Loss!
"No lollipop please!" (Understanding Balancesheet-II)
If you are an Investor
who is about to invest hard-earned money in a company
would you be interested in the lollipop talk of the company or its advertisers or agents?
or
would you be interested to know
* How much cash the company has? Is it too less? Why? Consequences? Is it too much? Why? Consequences?
* How much money it is due to receive including credit? Is it too high? Why? Consequences?
* How much bad loan it is carrying? Why? Consequences?
* How much inventory it is carrying? Why? Consequences? What is its Inventory Turnover (cost of goods sold divided by average inventory)? Why? Consequences?
* What is the cost of fixed assets (property,plant, equipment etc.) it has? Market value? Replacement Value? Implications? What portion can act as buffer for any contingency? Is the value of the fixed assets correctly assessed? Why? consequences?
* What are its short-term liabilities? Why? How much? Consequences? How manageable these are?
* What are its long-term liabilities? Why? How much? Consequences? How manageable these are?
* How manageable these are?
* Are these less than or more than the cash flows? Consequences? What is the companies Quick Ratio (current assets without inventory divided by current liabilities)? Consequences?
* Are these less than or more than the assets? Consequences?
* Are total assets of the company more or less than the total liabilities? Why? Consequences?
* What intangible assets (like patents, trademarks, copyrights, technology, processes, brands etc.) does the company have?
If you are interested in the answers to the above questions before you write the cheque, you are within your rights and wisdom.
Where to find all this info?
Balance Sheet!
Do you need a Accountant to understand it?
If you have a good one whose abilities you trust, then great!
Otherwise, it is easier than learning to ride a bicycle
provided you have fun playing with it!
Reading a balance sheet is like playing hide and seek! A treasure hunt game!
The real info is hidden somewhere there!
One of my friends doesn't solve crossword puzzles!
Instead, he amuses himself by reading one balance sheet with evening tea everyday!!
There are plenty available on the net!!!
who is about to invest hard-earned money in a company
would you be interested in the lollipop talk of the company or its advertisers or agents?
or
would you be interested to know
* How much cash the company has? Is it too less? Why? Consequences? Is it too much? Why? Consequences?
* How much money it is due to receive including credit? Is it too high? Why? Consequences?
* How much bad loan it is carrying? Why? Consequences?
* How much inventory it is carrying? Why? Consequences? What is its Inventory Turnover (cost of goods sold divided by average inventory)? Why? Consequences?
* What is the cost of fixed assets (property,plant, equipment etc.) it has? Market value? Replacement Value? Implications? What portion can act as buffer for any contingency? Is the value of the fixed assets correctly assessed? Why? consequences?
* What are its short-term liabilities? Why? How much? Consequences? How manageable these are?
* What are its long-term liabilities? Why? How much? Consequences? How manageable these are?
* How manageable these are?
* Are these less than or more than the cash flows? Consequences? What is the companies Quick Ratio (current assets without inventory divided by current liabilities)? Consequences?
* Are these less than or more than the assets? Consequences?
* Are total assets of the company more or less than the total liabilities? Why? Consequences?
* What intangible assets (like patents, trademarks, copyrights, technology, processes, brands etc.) does the company have?
If you are interested in the answers to the above questions before you write the cheque, you are within your rights and wisdom.
Where to find all this info?
Balance Sheet!
Do you need a Accountant to understand it?
If you have a good one whose abilities you trust, then great!
Otherwise, it is easier than learning to ride a bicycle
provided you have fun playing with it!
Reading a balance sheet is like playing hide and seek! A treasure hunt game!
The real info is hidden somewhere there!
One of my friends doesn't solve crossword puzzles!
Instead, he amuses himself by reading one balance sheet with evening tea everyday!!
There are plenty available on the net!!!
Wednesday, August 18, 2010
"Dearest Papa!" (Understanding Balancesheet)
This is a letter by a daughter to her Business Tycoon father explaining why she was turning down her marriage engagement with the son of a top-shot business house.
-------------------------------------------------------
Dearest Papa,
This may come as a rude shock to you but I have decided to cancel my engagement with Kartik.
Papa, this is the question of my future.
You had said that I shall have a great future with this family, but when I had a closer look at their Balance Sheet I was shocked to find their true financial status and moral ethics.
I am sharing below my findings from the balance sheet so that you can understand what I am saying!
- short term receivables are very low
- too much of credit is being extended to the supply chain
- NPAs are high
- advance credit retail has been shown to jack up sales figures
- too less cash in hand (how are they managing the payments to suppliers etc.? Employees, Suppliers etc. must be highly dissatisfied!)
- in last year's balance sheet they had too much of cash-in-hand. This shows that either they had no idea of how to deploy the excess cash or they had no plans! All that excessive cash has evaporated from balance sheet this year without any meaningful asset creation this year!
- they are carrying too much of inventory. Their inventory turnover (=sale/avg.inventory) is too low. I am surprised at the inefficiency! They must be paying a lot of interest on this inventory pile! How can they be managing their lives efficiently?
- they have calculated their fixed assets (land holdings, plant, machinery etc.) at market value instead of at cost. they have given highly inflated figures for these not-meant-to-be-sold-till-distress assets. why have they done that? obviously, their actual financial position is not as healthy as they have made out to be - by inflating these non-current assets. Had they used genuine 'at cost' figures for these assets, their net assets would have nose-dived even further!
- they have huge current liabilities. how come they didn't manage their debt?
- their current liabilities are almost equal to their cash flows! As exposed by their quick ratio i.e. (current assets without inventory)/current liabilities, which is less than 1, how are they going to save their company from debt trap? they are likely to default soon on their interest payments. Even if they go for debt restructuring, this will result in decline in their credit-worthiness which will further make debt hard and costlier to come.
- the most shocking thing is that they have almost zero net assets! Their liabilities are almost equal to their assets!
- surprisingly, they have no intellectual property by way of any good brand, patents, trademarks, copyrights, technology, processes, etc.. They have no core strength!
- I have a strong feeling that they have a considerable hidden off-balancesheet debt due to some large capital expenditures
In light of my above findings from their balance sheet, I am really shaken at even the thought of marrying into that family of hollow financials and weak ethics!
I hope my darling papa understands me and allows me to snap this relationship.
Your loving daughter
Chiki
-------------------------------------------------------
Dearest Papa,
This may come as a rude shock to you but I have decided to cancel my engagement with Kartik.
Papa, this is the question of my future.
You had said that I shall have a great future with this family, but when I had a closer look at their Balance Sheet I was shocked to find their true financial status and moral ethics.
I am sharing below my findings from the balance sheet so that you can understand what I am saying!
- short term receivables are very low
- too much of credit is being extended to the supply chain
- NPAs are high
- advance credit retail has been shown to jack up sales figures
- too less cash in hand (how are they managing the payments to suppliers etc.? Employees, Suppliers etc. must be highly dissatisfied!)
- in last year's balance sheet they had too much of cash-in-hand. This shows that either they had no idea of how to deploy the excess cash or they had no plans! All that excessive cash has evaporated from balance sheet this year without any meaningful asset creation this year!
- they are carrying too much of inventory. Their inventory turnover (=sale/avg.inventory) is too low. I am surprised at the inefficiency! They must be paying a lot of interest on this inventory pile! How can they be managing their lives efficiently?
- they have calculated their fixed assets (land holdings, plant, machinery etc.) at market value instead of at cost. they have given highly inflated figures for these not-meant-to-be-sold-till-distress assets. why have they done that? obviously, their actual financial position is not as healthy as they have made out to be - by inflating these non-current assets. Had they used genuine 'at cost' figures for these assets, their net assets would have nose-dived even further!
- they have huge current liabilities. how come they didn't manage their debt?
- their current liabilities are almost equal to their cash flows! As exposed by their quick ratio i.e. (current assets without inventory)/current liabilities, which is less than 1, how are they going to save their company from debt trap? they are likely to default soon on their interest payments. Even if they go for debt restructuring, this will result in decline in their credit-worthiness which will further make debt hard and costlier to come.
- the most shocking thing is that they have almost zero net assets! Their liabilities are almost equal to their assets!
- surprisingly, they have no intellectual property by way of any good brand, patents, trademarks, copyrights, technology, processes, etc.. They have no core strength!
- I have a strong feeling that they have a considerable hidden off-balancesheet debt due to some large capital expenditures
In light of my above findings from their balance sheet, I am really shaken at even the thought of marrying into that family of hollow financials and weak ethics!
I hope my darling papa understands me and allows me to snap this relationship.
Your loving daughter
Chiki
Profit by chance!
What is the probability of heads in a coin toss?
50% (because there is just 2 options - head and tell)
If you were to bet repeatedly on 'head' you will be winning approx. 50% of the time!
If it rains for 70 days in 100 days of monsoon what is the chance of it raining on any day in those 100 days?
70%.
If you were to bet in favour of rain day after day in those days, you will be winning 70% of the time!
If Sachin makes a half-century 8 times in every 10 innings he plays, what is the chance of his hitting a half-century in the next inning?
80%
If you were to bet on his half-century, you will be winning 80% of the time!
If the stock turns down 8 out of 10 times when the rsi on 1 month chart hits 85, what is the chance of the stock turning down next time the rsi hits 85?
80%
If you were to bet on the shorting position every time rsi on 1 month hits 85, you will be winning 80% of the time.
If for the balance 20% trades you have strict stop loss, you don't even lose!!
Trading is a probability game.
Trading is taking high-probability chances!
Nothing is sure!
But chances of certain things at certain times (expecially extremes) are very high.
For good traders, trading is nothing but taking those chances
coolly and boldly
with a smile!
And when they lose, they are happier!
Because they know that the odds of profiting just improved!
50% (because there is just 2 options - head and tell)
If you were to bet repeatedly on 'head' you will be winning approx. 50% of the time!
If it rains for 70 days in 100 days of monsoon what is the chance of it raining on any day in those 100 days?
70%.
If you were to bet in favour of rain day after day in those days, you will be winning 70% of the time!
If Sachin makes a half-century 8 times in every 10 innings he plays, what is the chance of his hitting a half-century in the next inning?
80%
If you were to bet on his half-century, you will be winning 80% of the time!
If the stock turns down 8 out of 10 times when the rsi on 1 month chart hits 85, what is the chance of the stock turning down next time the rsi hits 85?
80%
If you were to bet on the shorting position every time rsi on 1 month hits 85, you will be winning 80% of the time.
If for the balance 20% trades you have strict stop loss, you don't even lose!!
Trading is a probability game.
Trading is taking high-probability chances!
Nothing is sure!
But chances of certain things at certain times (expecially extremes) are very high.
For good traders, trading is nothing but taking those chances
coolly and boldly
with a smile!
And when they lose, they are happier!
Because they know that the odds of profiting just improved!
Fundamental difference
Technicals = When to buy.
Fundamentals = What to buy.
==============================
Technicals = This thing is tempting!!!
Fundamentals = Is the tempting thing poisonous?
==============================
Technicals = Logical
Fundamentals = Magical
==============================
Technicals = Visible
Fundamentals = Hidden
==============================
Technicals = This is too much!
Fundamentals = Nothing is too much!
Fundamentals = What to buy.
==============================
Technicals = This thing is tempting!!!
Fundamentals = Is the tempting thing poisonous?
==============================
Technicals = Logical
Fundamentals = Magical
==============================
Technicals = Visible
Fundamentals = Hidden
==============================
Technicals = This is too much!
Fundamentals = Nothing is too much!
To eat or not to eat the cake!
If you had the power that the cake in front of you
- will always stay fresh
- and if you did not eat it, it will keep growing (till you eat it!)
what would you do?
Similarly, would u like the company (whose stock u have invested in)
to pay out their surplus cash as dividend
or
plough back the surplus cash into the business to grow it?
If they infuse it into the business as capital
they are doing good by keeping the debt down and hence interest costs also!
Besides, they are growing the business and thus ensuring bigger profits and better dividend promise in future besides ensuring safety from competition by increasing the market share!
As an investor, you may want the company to grow and capture market share
and thus unlock the hidden potential of the business
besides zooming the share value of the company!
While dividend is instant gratification of the share holder's taste buds
share price rise is the sweetest thing for the investor.
In these days of Mergers and Acquisitions, companies need cash "warchest" to acquire the target companies. This cash can come from the surplus or from fresh debt.
Investors are generally less comfortable with debt.
(Ofcourse, investors will not be too happy if the company is debt-free, as this indicates that either company has no or weak future plans or is not taking the benefit of the loan facility available. Share holders don't want too many share holders around to share the dividend. So they want the company to take loan for short term requirements. Once these loans are repayed, the original share-holders are happy to be alone in the ownership space!)
When I entered stock market world many years back I had heard that majority people trade for share price rise rather than for dividend.
However, if you are lucky you can get both as in case of Sesa Goa, Hero Honda, Yes Bank etc.
On the other hand, there is a big segment of investors including FIIs and retail investors (directly or thru specific Mutual Funds etc.) which invest in anticipation of regular income in the form of dividends!
To book profit generated due to share price rise, you have to sell the share, but for dividend you don't have to sell the shares. Investors can thus stay with the company in its growth journey while having regular cashflow as well.
Also, dividend is a feel-good factor for investing public. Good and growing companies which are not paying dividend are looked at with synicism by a segment of the public. Dividend is seen as an incentive for the investor to wait for the ultimate reward - share price bloom!!! However, too much of dividend payout is also not a good indicator of companies state of affairs.
Every company wants funds for future growth. Fresh equity floating is a cheap and easy way out. Companies want to keep retail investors as well as Dividend Mutual Fund Managers happy so that they are ready to invest next time company needs their money.
To eat or keep the cake (which always remain fresh) is a tempting question depending upon the appetite of teh investor.
- will always stay fresh
- and if you did not eat it, it will keep growing (till you eat it!)
what would you do?
Similarly, would u like the company (whose stock u have invested in)
to pay out their surplus cash as dividend
or
plough back the surplus cash into the business to grow it?
If they infuse it into the business as capital
they are doing good by keeping the debt down and hence interest costs also!
Besides, they are growing the business and thus ensuring bigger profits and better dividend promise in future besides ensuring safety from competition by increasing the market share!
As an investor, you may want the company to grow and capture market share
and thus unlock the hidden potential of the business
besides zooming the share value of the company!
While dividend is instant gratification of the share holder's taste buds
share price rise is the sweetest thing for the investor.
In these days of Mergers and Acquisitions, companies need cash "warchest" to acquire the target companies. This cash can come from the surplus or from fresh debt.
Investors are generally less comfortable with debt.
(Ofcourse, investors will not be too happy if the company is debt-free, as this indicates that either company has no or weak future plans or is not taking the benefit of the loan facility available. Share holders don't want too many share holders around to share the dividend. So they want the company to take loan for short term requirements. Once these loans are repayed, the original share-holders are happy to be alone in the ownership space!)
When I entered stock market world many years back I had heard that majority people trade for share price rise rather than for dividend.
However, if you are lucky you can get both as in case of Sesa Goa, Hero Honda, Yes Bank etc.
On the other hand, there is a big segment of investors including FIIs and retail investors (directly or thru specific Mutual Funds etc.) which invest in anticipation of regular income in the form of dividends!
To book profit generated due to share price rise, you have to sell the share, but for dividend you don't have to sell the shares. Investors can thus stay with the company in its growth journey while having regular cashflow as well.
Also, dividend is a feel-good factor for investing public. Good and growing companies which are not paying dividend are looked at with synicism by a segment of the public. Dividend is seen as an incentive for the investor to wait for the ultimate reward - share price bloom!!! However, too much of dividend payout is also not a good indicator of companies state of affairs.
Every company wants funds for future growth. Fresh equity floating is a cheap and easy way out. Companies want to keep retail investors as well as Dividend Mutual Fund Managers happy so that they are ready to invest next time company needs their money.
To eat or keep the cake (which always remain fresh) is a tempting question depending upon the appetite of teh investor.
Just sit on the mushroom!
Whenever I want to relax
I just pick up kids' books and comics or watch cartoon channels like a kid!
Yesterday I picked up my daughter's fairy tale book
and read a amuzing story.
In the story the kids with magical power used to go to the courtyard outside their home
where each of them would sit on a mushroom
say some words
and zoom grows the mushroom up
taking them to the fairy land in the sky!
Typically like investing in small caps.
When you trade in a stock on the basis of technicals
it gives you some profit!
But if you want 50% or 100% or 200% or even 1000% in some months or years
investing is the answer!
But the million dollar question is
which company to pick for investment?
As in the kids story, not every mushroom has the power, only special ones!
While I am going to take up fundamental analyses in my forthcoming posts, i wish to discuss the general points.
I have found that a majority of small caps which cross 2 crore turnover generally do rise till 50 crore turnover after which they find it difficult to rise further.
That is the point when they meet the roof be it financials or ethics or management etc.
So, I keep looking for 2-3 year old ventures with turnover of around 1-3 crores and then try to get my hand on as much info about it, as much about the management, as much out of the managements' mouth as possible.
I make sure that I read between the lines and find out what is hidden.
Very often I am able to come across a company which is being driven by able management and is sure to clock double digit or tripple digit turnover in next few years.
Every average investor has enough brains to see thru.
Once you have found the magical mushroom just sit on it and zoom!
I just pick up kids' books and comics or watch cartoon channels like a kid!
Yesterday I picked up my daughter's fairy tale book
and read a amuzing story.
In the story the kids with magical power used to go to the courtyard outside their home
where each of them would sit on a mushroom
say some words
and zoom grows the mushroom up
taking them to the fairy land in the sky!
Typically like investing in small caps.
When you trade in a stock on the basis of technicals
it gives you some profit!
But if you want 50% or 100% or 200% or even 1000% in some months or years
investing is the answer!
But the million dollar question is
which company to pick for investment?
As in the kids story, not every mushroom has the power, only special ones!
While I am going to take up fundamental analyses in my forthcoming posts, i wish to discuss the general points.
I have found that a majority of small caps which cross 2 crore turnover generally do rise till 50 crore turnover after which they find it difficult to rise further.
That is the point when they meet the roof be it financials or ethics or management etc.
So, I keep looking for 2-3 year old ventures with turnover of around 1-3 crores and then try to get my hand on as much info about it, as much about the management, as much out of the managements' mouth as possible.
I make sure that I read between the lines and find out what is hidden.
Very often I am able to come across a company which is being driven by able management and is sure to clock double digit or tripple digit turnover in next few years.
Every average investor has enough brains to see thru.
Once you have found the magical mushroom just sit on it and zoom!
Tuesday, August 17, 2010
When u miss the train...
Afraid of missing the train of the new trend about to start?
And thus losing when the new trend doesn't start immediately when u enter, rather the old one is still continuing?
Just like the Bank nifty where correction hasn't started as yet despite the indicators suggesting that it is severely over bought as of now (17th Aug 2010 closing)!
While there is no way to exactly pin point the start of the new trend when indicators are hinting
here is a simple way to avoid the pitfall of jumping into the trade, expecting the new trend, too early!
"When the new trend finally and mercifully starts
and if you are not on it
don't worry
it will retreat a good distance to pick you up."
This way you will not lose the train of the next trend except for a few yards!
e.g. just have a look at the CNX IT chart for 1 month. Here you will notice that from 12.30noon 14th Aug'2010 till 2pm the next day, both rsi as well as william%R were at overbought extremes and you could have erroneously and prematurely entered the short trade much earlier anticipating the down move.
Here, if you were to go as explained above,
though u would have seemingly missed the train at 2 pm on 15th Aug, it would have retreated
to pick u up at around 12.30pm on 16th Aug with hardly any loss of opportunity.
Also, note that by that time both rsi and william%R have started on the new journey (which incidently ended at 9.30am on Aug12th when both rsi and William%R met again at the other extreme.
So, when you missed the train of the new train, don't worry!
Just walk a few steps forward and expect the train to retreat to pick its most valuable commuter...
You!!!
And thus losing when the new trend doesn't start immediately when u enter, rather the old one is still continuing?
Just like the Bank nifty where correction hasn't started as yet despite the indicators suggesting that it is severely over bought as of now (17th Aug 2010 closing)!
While there is no way to exactly pin point the start of the new trend when indicators are hinting
here is a simple way to avoid the pitfall of jumping into the trade, expecting the new trend, too early!
"When the new trend finally and mercifully starts
and if you are not on it
don't worry
it will retreat a good distance to pick you up."
This way you will not lose the train of the next trend except for a few yards!
e.g. just have a look at the CNX IT chart for 1 month. Here you will notice that from 12.30noon 14th Aug'2010 till 2pm the next day, both rsi as well as william%R were at overbought extremes and you could have erroneously and prematurely entered the short trade much earlier anticipating the down move.
Here, if you were to go as explained above,
though u would have seemingly missed the train at 2 pm on 15th Aug, it would have retreated
to pick u up at around 12.30pm on 16th Aug with hardly any loss of opportunity.
Also, note that by that time both rsi and william%R have started on the new journey (which incidently ended at 9.30am on Aug12th when both rsi and William%R met again at the other extreme.
So, when you missed the train of the new train, don't worry!
Just walk a few steps forward and expect the train to retreat to pick its most valuable commuter...
You!!!
Monday, August 16, 2010
Yesterday was Independence Day!
As a trader we can prosper only if economy is prospering.
Economy can prosper only when the nation is free and prospering.
Yesterday was our Independence Day.
Now when the anniversary euphoria is over, wish to share my hidden thoughts!
This day 63 years ago our country was free from the colonial rule.
We became Independent to rule ourselves.
It was and is an Independence Day.
"An"
What about the other Independence Days?
The remaining Independence Days?
Independence from Poverty, Hunger
Independence from Filth, Lack of orderliness & systems, lack of cleanliness
Independence from shabby quality everywhere and in every product and service,
Independence from lack of civic sense
Independence from inferiority complex, disrespect for mother toungue, mother culture, mental slavery
Independence from corruption, weak character and absent morality
Independence from intolerance, racism, casteism, fundamentalism
Independence from illiteracy and hollow education,
Independence from population explosion
Independence from poor infrastructure
Independence from injustice
Independence from poor or misgovernance
...and so on
Needed Gandhi, Bhagat Singh, Sardar Patel, Nehru, Ambedkar, Shivaji, Vivekananda, Subhash Chandra bose....
Not outside
but inside each one of us!
Unfortunately, after the successful struggle for one independence, that from colonial rule,
the struggle for the remaining independence fizzled out even before starting!
Once again,
Happy Independence Day
All the best for the remaining ones!
Inquilab Zindabad!
(Long live the revolution!)
Not just physical but mental also!
Economy can prosper only when the nation is free and prospering.
Yesterday was our Independence Day.
Now when the anniversary euphoria is over, wish to share my hidden thoughts!
This day 63 years ago our country was free from the colonial rule.
We became Independent to rule ourselves.
It was and is an Independence Day.
"An"
What about the other Independence Days?
The remaining Independence Days?
Independence from Poverty, Hunger
Independence from Filth, Lack of orderliness & systems, lack of cleanliness
Independence from shabby quality everywhere and in every product and service,
Independence from lack of civic sense
Independence from inferiority complex, disrespect for mother toungue, mother culture, mental slavery
Independence from corruption, weak character and absent morality
Independence from intolerance, racism, casteism, fundamentalism
Independence from illiteracy and hollow education,
Independence from population explosion
Independence from poor infrastructure
Independence from injustice
Independence from poor or misgovernance
...and so on
Needed Gandhi, Bhagat Singh, Sardar Patel, Nehru, Ambedkar, Shivaji, Vivekananda, Subhash Chandra bose....
Not outside
but inside each one of us!
Unfortunately, after the successful struggle for one independence, that from colonial rule,
the struggle for the remaining independence fizzled out even before starting!
Once again,
Happy Independence Day
All the best for the remaining ones!
Inquilab Zindabad!
(Long live the revolution!)
Not just physical but mental also!
Saturday, August 14, 2010
"Thank you"
Whenever I used to post articles
my reader friends wrote nice things about me and the article!
"Keep it up!" they used to say.
I understood all they wrote except "Keep it up!"
I was confused about what they meant by "Keep it up!"
First I thought they want me to "keep" my that post "up" on top of all other posts!
But soon I realised that they meant something else.
I then suspected that when they said "keep it up", they wanted me to keep my finger "up" on my lips and keep silent.
I stopped writing for a while till I again realised that I had got them wrong!
Then I thought "perhaps they wanted me to keep the champagne glass up!"
I was again proved wrong.
May be they had pointed out that I was wrong in predicting the bearish future which I needed to 'keep it up', that is - bullish.
Or, perhaps, they want me to keep "I.T." sector up. Afterall that is exactly what they always used to say - 'keep IT up!'
Till I realised that they were appreciating me and wanted me to keep the good work up!
They have inspired me to pen over 267 articles (and counting) being read in 34 countries (and counting) thru Mudraa.com and my blog "thebestbusinessintheworld.blogspot.com"
Wish to say from the bottom of my heart
"Thank you!"
"I will surely keep it up"
"This 'it' is my passion"
my reader friends wrote nice things about me and the article!
"Keep it up!" they used to say.
I understood all they wrote except "Keep it up!"
I was confused about what they meant by "Keep it up!"
First I thought they want me to "keep" my that post "up" on top of all other posts!
But soon I realised that they meant something else.
I then suspected that when they said "keep it up", they wanted me to keep my finger "up" on my lips and keep silent.
I stopped writing for a while till I again realised that I had got them wrong!
Then I thought "perhaps they wanted me to keep the champagne glass up!"
I was again proved wrong.
May be they had pointed out that I was wrong in predicting the bearish future which I needed to 'keep it up', that is - bullish.
Or, perhaps, they want me to keep "I.T." sector up. Afterall that is exactly what they always used to say - 'keep IT up!'
Till I realised that they were appreciating me and wanted me to keep the good work up!
They have inspired me to pen over 267 articles (and counting) being read in 34 countries (and counting) thru Mudraa.com and my blog "thebestbusinessintheworld.blogspot.com"
Wish to say from the bottom of my heart
"Thank you!"
"I will surely keep it up"
"This 'it' is my passion"
"any amount, my child!"
I am going to put you into a situation
but it will be useful only if you face it brutally honestly
pl give your 100% attention before you read the text after the double line below.
in case something else is simultanoeusly catching your attention at this moment, pl revisit this article after a while when you are totally free.
==================================
Suppose in your dream
God appears before you
and puts a blank cheque in front of you
and says
"put any amount in the cheque, child!
any amount you fill here will be given!
but remember,
you have been given just this one cheque...
none more will be given, ever!
not even a single penny will be given to you by your fate or hardwork in this entire life after the amount in this cheque!
you will have to live your entire life with this amount only.
whatever you fill in here will be given.
any amount, my child!
but all your seen unforeseen expenses till you are alive will have to be met out of this amount only.
no compensation ever will be given if there is any unexpected huge inflation!
no compensation ever will be given if there is any devaluation of this currency.
no compensation ever will be given whatever contigency pops up.
no compensation will be given by me beyond the amount you fill in this cheque today.
not even a penny.
come what may.
no special extraordinary situation how-so-ever emotional or emergency, will be considered.
no second chance...
no appeal...
fill in the amount in this blank cheque and your rendezvous with money is over for this life.
you have just 10minutes (600 seconds) to fill this cheque otherwise this chance will stand withdrawn forever!
any amount, my child!"
======================================
What amount will you fill?
How will you spend it?
======================================
(write your amount on a piece of paper within 600 seconds before you read further)
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
=======================================
Chances are you were caught in a big big dilemma!
Nobody knows how much he wants!
If 1 million, then why not 2?
If 2, then why not 20?
100? 101? 1000?
Everyone is in a blind race without the other end!
Nodoubt charity is difficult till we are ourselves are financially secure and satisfied!
....pity majority of us don't know our threshold of satisfaction.
Nodoubt we are living distorted lives
dictated by fear, greed and insecurity!
Nodoubt money is our master
Nodoubt life and relations are deep down the agenda if not out!
but it will be useful only if you face it brutally honestly
pl give your 100% attention before you read the text after the double line below.
in case something else is simultanoeusly catching your attention at this moment, pl revisit this article after a while when you are totally free.
==================================
Suppose in your dream
God appears before you
and puts a blank cheque in front of you
and says
"put any amount in the cheque, child!
any amount you fill here will be given!
but remember,
you have been given just this one cheque...
none more will be given, ever!
not even a single penny will be given to you by your fate or hardwork in this entire life after the amount in this cheque!
you will have to live your entire life with this amount only.
whatever you fill in here will be given.
any amount, my child!
but all your seen unforeseen expenses till you are alive will have to be met out of this amount only.
no compensation ever will be given if there is any unexpected huge inflation!
no compensation ever will be given if there is any devaluation of this currency.
no compensation ever will be given whatever contigency pops up.
no compensation will be given by me beyond the amount you fill in this cheque today.
not even a penny.
come what may.
no special extraordinary situation how-so-ever emotional or emergency, will be considered.
no second chance...
no appeal...
fill in the amount in this blank cheque and your rendezvous with money is over for this life.
you have just 10minutes (600 seconds) to fill this cheque otherwise this chance will stand withdrawn forever!
any amount, my child!"
======================================
What amount will you fill?
How will you spend it?
======================================
(write your amount on a piece of paper within 600 seconds before you read further)
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
=======================================
Chances are you were caught in a big big dilemma!
Nobody knows how much he wants!
If 1 million, then why not 2?
If 2, then why not 20?
100? 101? 1000?
Everyone is in a blind race without the other end!
Nodoubt charity is difficult till we are ourselves are financially secure and satisfied!
....pity majority of us don't know our threshold of satisfaction.
Nodoubt we are living distorted lives
dictated by fear, greed and insecurity!
Nodoubt money is our master
Nodoubt life and relations are deep down the agenda if not out!
Try this out - IV
Sometimes we learn so much that we forget the basic diamond methods.
Here is the first, simplest and back-to-basics positional trading method especially for trading in index futures or good company stocks without fundamental issues.
This never fails, gives flood of profits but requires strong seat-belts and silent minds.
On a 6-month chart
buy when rsi(14) is at the lower extreme (20 or below, lower the better)
and hold tight till rsi reaches the upper extreme (80 or above, higher the better)
Conversely, you can short when rsi has exhausted at the top and hold tight till it reaches the lower extreme.
You will get a clean sweep.
(Those who can hold on till the rsi "exhausts" (discussed in detail in my earliest posts) can take their profits to the extreme and time the trade reversals to near perfection.)
The fillip side of this method is that
it is boring
you will have nothing to do for around 1-3 months (sometimes even more)
your itch to "do something" will test your nerves
your sense of achievement will be low as it will seem that the tremendous profits have come without your smart vibrations!
Here is the first, simplest and back-to-basics positional trading method especially for trading in index futures or good company stocks without fundamental issues.
This never fails, gives flood of profits but requires strong seat-belts and silent minds.
On a 6-month chart
buy when rsi(14) is at the lower extreme (20 or below, lower the better)
and hold tight till rsi reaches the upper extreme (80 or above, higher the better)
Conversely, you can short when rsi has exhausted at the top and hold tight till it reaches the lower extreme.
You will get a clean sweep.
(Those who can hold on till the rsi "exhausts" (discussed in detail in my earliest posts) can take their profits to the extreme and time the trade reversals to near perfection.)
The fillip side of this method is that
it is boring
you will have nothing to do for around 1-3 months (sometimes even more)
your itch to "do something" will test your nerves
your sense of achievement will be low as it will seem that the tremendous profits have come without your smart vibrations!
it shows in the results
Violence is the surest sign of weakness!
and manifestation of failure!!
How?
Lack of control on a person or situation causes weakness.
Weakness threatens loss, pain and uncertainty.
Fear of loss, pain and uncertainty gets expressed in violence.
Therefore, violence is the surest sign of weakness!
Violence can be physical, verbal, mental, visual, tactical, spiritual, financial...
Hidden or Visible...
Expressed or Implied...
Intended or Accidental...
Too much of nervous trading is also a sign of violence
financial and mental violence
and hence a sign of lack of control.
True strength, whether in trading or life
needs no exhibition
it shows in the results.
and manifestation of failure!!
How?
Lack of control on a person or situation causes weakness.
Weakness threatens loss, pain and uncertainty.
Fear of loss, pain and uncertainty gets expressed in violence.
Therefore, violence is the surest sign of weakness!
Violence can be physical, verbal, mental, visual, tactical, spiritual, financial...
Hidden or Visible...
Expressed or Implied...
Intended or Accidental...
Too much of nervous trading is also a sign of violence
financial and mental violence
and hence a sign of lack of control.
True strength, whether in trading or life
needs no exhibition
it shows in the results.
Friday, August 13, 2010
Who stole my time?
Many of my friends ask me
"How do you get time for all this? Writing, Trading, Photography, Tourism, Job etc.."
Well, while there can be a lot of nice-to-hear answers, but the real ones are my following tips which I developed over a period of time to "get time" for the things I love!
90% of the task-hurdles in our life are nuisance but unavoidable.
These 90% tend to leave little or no time for the balance 10% which are full of life but not high on the agenda of mechanical life!
Here are my no-more-secret "Best Time Management Tips" to manage mountains of tasks in fistful of time!
* Don't do that task!
Unless heavens will fall. There is maximum chance that nobody will be tracking it far enough!
* Delegate it!
Don’t do it yourself unless it is disposing of the bomb you assembled!
Don't keep the dog and bark yourself!
* Put the ball back in the other's court!
Only the serious task will survive the volley.
Encourage self service.
It's so easy to just order a task.
Answer question with a question!
* Don't give it "done" on a platter!
Never give a solution better than the problem.
* Take hell of a lot time…and demand for more!
…and nobody can blame you; you are still doing it!!
* Don't touch it before the 11th hour!
…chances are it won't be required by that time without any side-effects!
…and by delaying, you can check whether the bugger really needed it!
…90% of the tasks started are nothing more than noise, dust and tranquiliser pills to cover up
for real thinking.
* Start it with a lot of advertisement big-bang and park it silently behind the first bend!
Majority of the times, all the task-giver wants is to see action-initiation. That's all!
* Manage the expectations of the task-giver
Put water on it!
* Drag in the task-giver
He will forget about it! (That's what he wanted when he gave it to you!!)
* Postpone it
Useless tasks are balls which come back to remind you automatically!
All this is to separate the necessary from the unnecessary. Task generation has become the favourite passtime of the planet.
As Philip says in his masterpiece book 'Life Strategies' - "Do what works, do what matters!!!"
Only the task which matters should be done. Every other task is an overhead!
Reduce your stress, live longer, get promoted!
"How do you get time for all this? Writing, Trading, Photography, Tourism, Job etc.."
Well, while there can be a lot of nice-to-hear answers, but the real ones are my following tips which I developed over a period of time to "get time" for the things I love!
90% of the task-hurdles in our life are nuisance but unavoidable.
These 90% tend to leave little or no time for the balance 10% which are full of life but not high on the agenda of mechanical life!
Here are my no-more-secret "Best Time Management Tips" to manage mountains of tasks in fistful of time!
* Don't do that task!
Unless heavens will fall. There is maximum chance that nobody will be tracking it far enough!
* Delegate it!
Don’t do it yourself unless it is disposing of the bomb you assembled!
Don't keep the dog and bark yourself!
* Put the ball back in the other's court!
Only the serious task will survive the volley.
Encourage self service.
It's so easy to just order a task.
Answer question with a question!
* Don't give it "done" on a platter!
Never give a solution better than the problem.
* Take hell of a lot time…and demand for more!
…and nobody can blame you; you are still doing it!!
* Don't touch it before the 11th hour!
…chances are it won't be required by that time without any side-effects!
…and by delaying, you can check whether the bugger really needed it!
…90% of the tasks started are nothing more than noise, dust and tranquiliser pills to cover up
for real thinking.
* Start it with a lot of advertisement big-bang and park it silently behind the first bend!
Majority of the times, all the task-giver wants is to see action-initiation. That's all!
* Manage the expectations of the task-giver
Put water on it!
* Drag in the task-giver
He will forget about it! (That's what he wanted when he gave it to you!!)
* Postpone it
Useless tasks are balls which come back to remind you automatically!
All this is to separate the necessary from the unnecessary. Task generation has become the favourite passtime of the planet.
As Philip says in his masterpiece book 'Life Strategies' - "Do what works, do what matters!!!"
Only the task which matters should be done. Every other task is an overhead!
Reduce your stress, live longer, get promoted!
The price u pay!
We buy stocks of companies which sell products and services.
As the price goes up, the stock price generally goes up in anticipation of increase in profitability.
Ever wondered how these companies decide the price of their product and services?
Generally we think it is just the cost price plus the profit margin.
However, it is rarely that simple. Given below the influencing factors:-
* Price is what the customers can or will be willing to pay!!!
- Every company will ask for the highest price customers will pay!
* Competition and Availability
- Lack of competition gives the company liberty to jack up the price!
* Image, Quality-perception, Branding
- Higher the quality and brand perception, higher will be the perceived price and hence the price-lable!
* Size of the market at that price
- More the price beyond a level, lesser the sales. Every company decides on how much it can
produce and how much it should produce. After deciding this number, the company decides on the highest price that will still ensure that much of sales!
* Sales Price = Cost Price + Profit
- This traditional and theoretical formula is rarely followed as it is.
* Strategy, Tactics
- Sometimes a product or service is priced strangely. It surprises you. Like Kabir Mulchandani shocked everyone by offering colour television below Rs.10000/- or Reliance offered cell phones in Rs.500/-!! But that is a strategy! A tactic!!
* Milking
- Generally every product or service is priced in a way to milk the market the most. In the beginning of the life cycle of any product, the customer is willing to pay the highest.
Gradually, the price is reduced to expand the circle of buyers more and more. The reduction (with bouts of rejouvenation and refreshing of the product) in price reaches to astonishing level to milk the most.
* Psycho pricing
- Many a times price of the product is decided to influence the psychological reaction of the customer. That explains why Bata priced its product as 299.95 or many others prefer 29 to 30 or 99 to 100!
* Cost v/s Price
- The real cost of a product can be much different (read higher) than the initial price. A Rs.500/- airline ticket costs you more than double after taxes and many additional charges!
As the price goes up, the stock price generally goes up in anticipation of increase in profitability.
Ever wondered how these companies decide the price of their product and services?
Generally we think it is just the cost price plus the profit margin.
However, it is rarely that simple. Given below the influencing factors:-
* Price is what the customers can or will be willing to pay!!!
- Every company will ask for the highest price customers will pay!
* Competition and Availability
- Lack of competition gives the company liberty to jack up the price!
* Image, Quality-perception, Branding
- Higher the quality and brand perception, higher will be the perceived price and hence the price-lable!
* Size of the market at that price
- More the price beyond a level, lesser the sales. Every company decides on how much it can
produce and how much it should produce. After deciding this number, the company decides on the highest price that will still ensure that much of sales!
* Sales Price = Cost Price + Profit
- This traditional and theoretical formula is rarely followed as it is.
* Strategy, Tactics
- Sometimes a product or service is priced strangely. It surprises you. Like Kabir Mulchandani shocked everyone by offering colour television below Rs.10000/- or Reliance offered cell phones in Rs.500/-!! But that is a strategy! A tactic!!
* Milking
- Generally every product or service is priced in a way to milk the market the most. In the beginning of the life cycle of any product, the customer is willing to pay the highest.
Gradually, the price is reduced to expand the circle of buyers more and more. The reduction (with bouts of rejouvenation and refreshing of the product) in price reaches to astonishing level to milk the most.
* Psycho pricing
- Many a times price of the product is decided to influence the psychological reaction of the customer. That explains why Bata priced its product as 299.95 or many others prefer 29 to 30 or 99 to 100!
* Cost v/s Price
- The real cost of a product can be much different (read higher) than the initial price. A Rs.500/- airline ticket costs you more than double after taxes and many additional charges!
A dog in the Metro!
A dog accidently boarded a metro train!
At every station he saw the door opening.
On seeing the door open he would rush out on seeing people getting down.
After getting down the train on to the platform
he would see a lot of new people getting into the train.
On seeing them, he would again climb onto the train
just in time before the automatic doors closed.
This way he kept on shuttling in and out of the train at every station
and towards and away from the door!
Reason?
He didn't know which station to which station he was travelling from.
He was not clear which station he was supposed to get down irrespective of what others were doing.
He was simply getting anxious on seeing a lot of people going both ways turn by turn.
Just like what happens to traders who board a train at a specific station with just a vague idea of where they should be deboarding.
But on the way they lose their sense of direction, their sense of destination, their sense of reason for being with the stock!
On the way, like that innocent pet, their decision is constantly swayed by what others are doing. They keep on getting in and out of the stock on the basis of fear factor caused by what is happening in front of their eyes instead of some trade-journey plan as per some indicators.
Perhaps this is what Rakesh Jhunjhunwala meant when he said
"Choose right, sit tight"
At every station he saw the door opening.
On seeing the door open he would rush out on seeing people getting down.
After getting down the train on to the platform
he would see a lot of new people getting into the train.
On seeing them, he would again climb onto the train
just in time before the automatic doors closed.
This way he kept on shuttling in and out of the train at every station
and towards and away from the door!
Reason?
He didn't know which station to which station he was travelling from.
He was not clear which station he was supposed to get down irrespective of what others were doing.
He was simply getting anxious on seeing a lot of people going both ways turn by turn.
Just like what happens to traders who board a train at a specific station with just a vague idea of where they should be deboarding.
But on the way they lose their sense of direction, their sense of destination, their sense of reason for being with the stock!
On the way, like that innocent pet, their decision is constantly swayed by what others are doing. They keep on getting in and out of the stock on the basis of fear factor caused by what is happening in front of their eyes instead of some trade-journey plan as per some indicators.
Perhaps this is what Rakesh Jhunjhunwala meant when he said
"Choose right, sit tight"
Understanding Hedging - I
A farmer's wheat crop was almost ready for harvesting.
Almost...but not yet....
He knew that it would take around 2 weeks for the crop to be fully ready, cut, thrashed and transported to the market.
"If only I could sell my entire crop today!", the farmer thought with a sigh.
Reason?
The price for wheat in the market that day was "mouthwatering and unsustainably high".
This was probably due to the reason that the harvesting season had just started and the demand in the market was much higher than the amount of crop arrival in the Mandi in those initial days.
"I know I can't sell today. Can't do anything about the missed opportunity!" the farmer consoled himself.
If only he knew that he could ensure today's price without selling his crop - by just selling wheat futures lots in the commodity market!
(One of the reasons why farmers and their families should be educated!)
If the quantity of his crop was expected to be equivalent to 10 lots of wheat futures, then he should have shorted (sold) 10 lots of wheat futures in the commodity exchange.
If after 15 days, when his crop would have entered the market, the price of wheat falls, his spot loss will be offset by his equivalent profit in the futures lots (because he had shorted the lots).
(Similarly, if the price of wheat in the market rises, his spot profit would have been offset by his equivalent loss in the futures lots.)
This way the farmer can rest with peace of mind till his crop is actually ready for sale!
He is assured of today's excellent price and protected against wild unexpected swings in the price.
Similar situation generally occurs for medium term investors who don't want to sell the stocks they have in their portfolio before 365 days (to become eligible for long term capital gains tax).
But they are often faced with a dilemma when the price of the stock in their portfolio has already run up a lot, is severely overbought and is likely to fall.
In this case, the investor sees no fun in saving the tax while losing the earning (probably much more than the tax savings)!
Another situation may arise when the investor wants to hold the stock in anticipation of dividend or bonus shares etc. but is afraid of profit booking of market crash.
Fortunately, he has the option to short (sell) equal lots of stock futures. This way any decline in the spot price of his stocks will be offset by the increase in the value of the shorted lots of stock futures.
This is known as Hedging against future loss by locking the profits today!
Almost...but not yet....
He knew that it would take around 2 weeks for the crop to be fully ready, cut, thrashed and transported to the market.
"If only I could sell my entire crop today!", the farmer thought with a sigh.
Reason?
The price for wheat in the market that day was "mouthwatering and unsustainably high".
This was probably due to the reason that the harvesting season had just started and the demand in the market was much higher than the amount of crop arrival in the Mandi in those initial days.
"I know I can't sell today. Can't do anything about the missed opportunity!" the farmer consoled himself.
If only he knew that he could ensure today's price without selling his crop - by just selling wheat futures lots in the commodity market!
(One of the reasons why farmers and their families should be educated!)
If the quantity of his crop was expected to be equivalent to 10 lots of wheat futures, then he should have shorted (sold) 10 lots of wheat futures in the commodity exchange.
If after 15 days, when his crop would have entered the market, the price of wheat falls, his spot loss will be offset by his equivalent profit in the futures lots (because he had shorted the lots).
(Similarly, if the price of wheat in the market rises, his spot profit would have been offset by his equivalent loss in the futures lots.)
This way the farmer can rest with peace of mind till his crop is actually ready for sale!
He is assured of today's excellent price and protected against wild unexpected swings in the price.
Similar situation generally occurs for medium term investors who don't want to sell the stocks they have in their portfolio before 365 days (to become eligible for long term capital gains tax).
But they are often faced with a dilemma when the price of the stock in their portfolio has already run up a lot, is severely overbought and is likely to fall.
In this case, the investor sees no fun in saving the tax while losing the earning (probably much more than the tax savings)!
Another situation may arise when the investor wants to hold the stock in anticipation of dividend or bonus shares etc. but is afraid of profit booking of market crash.
Fortunately, he has the option to short (sell) equal lots of stock futures. This way any decline in the spot price of his stocks will be offset by the increase in the value of the shorted lots of stock futures.
This is known as Hedging against future loss by locking the profits today!
Wednesday, August 11, 2010
Squaring-off too early or too late?
Do you book profit too early?
or too late?
I had been facing this dilemma for a long long time till I developed a rule -
"Unwind Long positions only when there is clear signal to short!
And cover short positions only when there is a clear signal to go long!"
This means being in the trade all the time!!!
Either you will be long or you will be short.
But you will always be in the market!
This requires IIIrd degree confidence on your system, guts and a lot of practice.
But once mastered, this is the fastest way up in stock market.
How I do it?
I use this 2-tier test
a) Have both rsi and william % r (both 14/30min on 1 month chart) touched the other extreme?
b) Has the outer rsi touched the extreme? (e.g. if rsi 14/30min on 1 month chart has touched extreme, has the rsi 14/1day on 6 month chart touched the extreme?)
If the answer to both the above questions is "yes" I reverse my position, otherwise I wait.
===========================================
How to get these charts (e.g. for Nifty):-
A) go to website (http://www.google.com/finance?q=NSE:.NSEI)
for stock pl search stock in the column before "Get Quotes". These google finance charts give almost live quotes for NSE (BSE is delayed).
B) click on '1m' inside graph window
C) click on "technicals" below graph window.
D) Click on "add technical"
E) Select Relative Strength Index (14/30min will appear automatically)
F) Select period as 14 instead of default 10
G) click on "add technical"
H) select "William % R" from the drop box.
I) Set the period as 14 instead of 10 (default)
J) You are ready!
or too late?
I had been facing this dilemma for a long long time till I developed a rule -
"Unwind Long positions only when there is clear signal to short!
And cover short positions only when there is a clear signal to go long!"
This means being in the trade all the time!!!
Either you will be long or you will be short.
But you will always be in the market!
This requires IIIrd degree confidence on your system, guts and a lot of practice.
But once mastered, this is the fastest way up in stock market.
How I do it?
I use this 2-tier test
a) Have both rsi and william % r (both 14/30min on 1 month chart) touched the other extreme?
b) Has the outer rsi touched the extreme? (e.g. if rsi 14/30min on 1 month chart has touched extreme, has the rsi 14/1day on 6 month chart touched the extreme?)
If the answer to both the above questions is "yes" I reverse my position, otherwise I wait.
===========================================
How to get these charts (e.g. for Nifty):-
A) go to website (http://www.google.com/finance?q=NSE:.NSEI)
for stock pl search stock in the column before "Get Quotes". These google finance charts give almost live quotes for NSE (BSE is delayed).
B) click on '1m' inside graph window
C) click on "technicals" below graph window.
D) Click on "add technical"
E) Select Relative Strength Index (14/30min will appear automatically)
F) Select period as 14 instead of default 10
G) click on "add technical"
H) select "William % R" from the drop box.
I) Set the period as 14 instead of 10 (default)
J) You are ready!
Don't get them wrong!
Who is the best friend of a trader?
A loss which leaves the trader with a lesson.
Who is the worst enemy of a trader?
A profit which makes the trader forget the lesson.
A loss which leaves the trader with a lesson.
Who is the worst enemy of a trader?
A profit which makes the trader forget the lesson.
Sunday, August 8, 2010
Crouching Trader, Hidden Chameleon!
Chameleons are known for their ability to change color to mingle with their surroundings and thus go unnoticed by the prey!
But few people know that Chameleons have very long ballistic tongues (in some species longer than their own body) which can hit the prey in about 30 thousandths of a second.
It can travel at accelerations exceeding 400 m/sq.sec, or about 41 G force (many fighter jets can break at half that G force)!!!
The Chameleon's tongue (thanks to catapult motion) accelerates from 0 to 6 meters per second speed in about 20 milliseconds - many times faster acceleration than the most sophisticated missile on Earth!
At the tip of the elastic tongue there is a muscular, club-like structure covered in thick mucus that forms a suction cup.
Once the tip sticks to a prey item, it is drawn quickly back into the mouth, where the chameleon's strong jaws crush it and it is consumed.
Where do you find chameleons?
In jungle?
Think again.
In financial jungle?
You got it!!!
---------------------------------------------
Once I put a buy order for one lot of CNX-IT at 4264.
It got executed at 4274.
I was confused!
I checked the live quotes.
It was still 4264 !
I couldn't digest a loss of 1000 bucks even before the start of the trade for no apparent fault of mine! (In those days one CNX-IT lot was of 100 units)
I checked and checked and checked.
Everything seemed right!
What had gone wrong that had caused that gap of 10 points?
Finally I spotted it - the Chameleon!
I had placed a "market order" instead of "limit order"!
When you place a "market order" the terminal computer executes your order at whatever price is on offer in the order queue!
And when you place a "limit order" the terminal computer executes the order within the limit ordered by you!
When I had placed the market order for one lot of CNX-IT at 4264, a seller with Limit order at 4274 must have lopped up my poor market order with its 10-point long tongue without a deserving "Thank you!".
Later I found out that an army of such professional chameleon computer trading terminals play this game with full seriousness throughout the trading day!
All they are progammed to do is - keep placing Limit buy orders few notches below the constantly moving spot and keep placing Limit sell orders few notches above constantly moving spot price!!!
If their "predator" order is not executed in a few seconds and the spot has moved by that time, the order is automatically revised!!!
This way the broker terminal is not just a broker but a trader too!
That seems foul !
The referee is playing too!!!
But that's the way it has been happening! Albeit - the Chameleon hidden way!
These computer chameleon terminal programmes do this at lighening speed in stocks and indices where volumes/liquidity is very high to keep their game going!
They keep lopping up the "insects" sitting lame duck with "market order"!
Like Chameleons they can't be spotted as they keep appearing in the garb of "a trader in the queue"!
End of the day, they go home with a truck full of pennies!
Remember, you just need 4 million quarter pennies to make a million dollars!
Since that day I have made it a habit to stay away from these Chameleons by placing only "Limit order" except when I want to get out of a Frothy Frenzy or a stampede!
But few people know that Chameleons have very long ballistic tongues (in some species longer than their own body) which can hit the prey in about 30 thousandths of a second.
It can travel at accelerations exceeding 400 m/sq.sec, or about 41 G force (many fighter jets can break at half that G force)!!!
The Chameleon's tongue (thanks to catapult motion) accelerates from 0 to 6 meters per second speed in about 20 milliseconds - many times faster acceleration than the most sophisticated missile on Earth!
At the tip of the elastic tongue there is a muscular, club-like structure covered in thick mucus that forms a suction cup.
Once the tip sticks to a prey item, it is drawn quickly back into the mouth, where the chameleon's strong jaws crush it and it is consumed.
Where do you find chameleons?
In jungle?
Think again.
In financial jungle?
You got it!!!
---------------------------------------------
Once I put a buy order for one lot of CNX-IT at 4264.
It got executed at 4274.
I was confused!
I checked the live quotes.
It was still 4264 !
I couldn't digest a loss of 1000 bucks even before the start of the trade for no apparent fault of mine! (In those days one CNX-IT lot was of 100 units)
I checked and checked and checked.
Everything seemed right!
What had gone wrong that had caused that gap of 10 points?
Finally I spotted it - the Chameleon!
I had placed a "market order" instead of "limit order"!
When you place a "market order" the terminal computer executes your order at whatever price is on offer in the order queue!
And when you place a "limit order" the terminal computer executes the order within the limit ordered by you!
When I had placed the market order for one lot of CNX-IT at 4264, a seller with Limit order at 4274 must have lopped up my poor market order with its 10-point long tongue without a deserving "Thank you!".
Later I found out that an army of such professional chameleon computer trading terminals play this game with full seriousness throughout the trading day!
All they are progammed to do is - keep placing Limit buy orders few notches below the constantly moving spot and keep placing Limit sell orders few notches above constantly moving spot price!!!
If their "predator" order is not executed in a few seconds and the spot has moved by that time, the order is automatically revised!!!
This way the broker terminal is not just a broker but a trader too!
That seems foul !
The referee is playing too!!!
But that's the way it has been happening! Albeit - the Chameleon hidden way!
These computer chameleon terminal programmes do this at lighening speed in stocks and indices where volumes/liquidity is very high to keep their game going!
They keep lopping up the "insects" sitting lame duck with "market order"!
Like Chameleons they can't be spotted as they keep appearing in the garb of "a trader in the queue"!
End of the day, they go home with a truck full of pennies!
Remember, you just need 4 million quarter pennies to make a million dollars!
Since that day I have made it a habit to stay away from these Chameleons by placing only "Limit order" except when I want to get out of a Frothy Frenzy or a stampede!
Thursday, August 5, 2010
3 to choose from
How many of you have got a chance to see Delhi Metro?
It is, no doubt, Delhi's and India's pride.
Who could imagine underground railway below Chandni Chowk!!!
Er.E.Sreedharan and his team has been successful in knocking off the "Im" from the word "Impossible" and thus rekindling self-confidence in fellow countrymen!
Delhi, so rich in history, has now got the link to future!
I first saw this engineering marvel in early 2006. I was moving around in Cannaught place with my family when it hit upon us that we were near the CP Metro station and should "have a look"!
As we started getting down the stairs into the earth, I could never imagine that I was about to see a huge huge world below the Palika Bazaar!
It was almost like a city below a city!
Metro trains were criss-crossing, from what it seemed, from every direction and that too, at different heights (on elevated tracks)!
It was so swanky! so futuristic! straight out of a fiction novel!
India's first rendezvous with dream infrastructure after the Golden Quadrilateral!
We travelled from CP to the second last station and back.
The train was less of a train and more of a speeding hi-tech tube!
The whole experience was full of breathless pride as a countryman.
If you miss one train, don't worry. Just look far around your shoulder and you would get the glimpse of another one coming!
------------------------------------------
I fondly remembered all this last evening when I was wondering whether I had to satisfy myself by just having the choice to travel in only one train in the stock market - Nifty?
As I have shared earlier as well, I prefer trading only index futures.
CNX-IT as well as Bank Nifty were the only other indices that were up for trade but the lot size was over 5 lacs for both.
This increases the risk for an experimenting trader like me!
But to my utter surprise, I found out that CNX-IT as well as Bank Nifty lots had been halved!!!
I was thrilled!
Somehow I had skipped this crucial change!
Now, I had 3 choices of "metro" trains.
Nifty, CNX-IT and Bank Nifty.
While I.T. sector is dollar sensitive, Banking sector is rate and sentiment sensitive (especially after Lehmann and Greece!)
Nifty, on the other hand, is more subdued!
Therefore, cycles of all these three are offset from each other.
So when one is at the peak, the second may be quite down while the third may be somewhere in the middle!
You miss one, there is second one coming, followed by the third!
You get three times the opportunities.
You don't need to wait, just like the Delhi Metro!
I hope they build more metros and allow more sectoral indices for trade!
-----------------------------------------
It is, no doubt, Delhi's and India's pride.
Who could imagine underground railway below Chandni Chowk!!!
Er.E.Sreedharan and his team has been successful in knocking off the "Im" from the word "Impossible" and thus rekindling self-confidence in fellow countrymen!
Delhi, so rich in history, has now got the link to future!
I first saw this engineering marvel in early 2006. I was moving around in Cannaught place with my family when it hit upon us that we were near the CP Metro station and should "have a look"!
As we started getting down the stairs into the earth, I could never imagine that I was about to see a huge huge world below the Palika Bazaar!
It was almost like a city below a city!
Metro trains were criss-crossing, from what it seemed, from every direction and that too, at different heights (on elevated tracks)!
It was so swanky! so futuristic! straight out of a fiction novel!
India's first rendezvous with dream infrastructure after the Golden Quadrilateral!
We travelled from CP to the second last station and back.
The train was less of a train and more of a speeding hi-tech tube!
The whole experience was full of breathless pride as a countryman.
If you miss one train, don't worry. Just look far around your shoulder and you would get the glimpse of another one coming!
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I fondly remembered all this last evening when I was wondering whether I had to satisfy myself by just having the choice to travel in only one train in the stock market - Nifty?
As I have shared earlier as well, I prefer trading only index futures.
CNX-IT as well as Bank Nifty were the only other indices that were up for trade but the lot size was over 5 lacs for both.
This increases the risk for an experimenting trader like me!
But to my utter surprise, I found out that CNX-IT as well as Bank Nifty lots had been halved!!!
I was thrilled!
Somehow I had skipped this crucial change!
Now, I had 3 choices of "metro" trains.
Nifty, CNX-IT and Bank Nifty.
While I.T. sector is dollar sensitive, Banking sector is rate and sentiment sensitive (especially after Lehmann and Greece!)
Nifty, on the other hand, is more subdued!
Therefore, cycles of all these three are offset from each other.
So when one is at the peak, the second may be quite down while the third may be somewhere in the middle!
You miss one, there is second one coming, followed by the third!
You get three times the opportunities.
You don't need to wait, just like the Delhi Metro!
I hope they build more metros and allow more sectoral indices for trade!
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