For last three months I am taking lot of interest in the World of High Finance. Somehow problems, issues, disorganization, failures attract me more than success stories. Today was Black Friday for BSE. Only one script gained 6 paise rest all down. I think this is the time to step in.
Several people told me to wait as the market will go down further. I am not starting the actual investment; I'll involve my brain first, learn things, develop my logic. And by December I'll start using my DMAT account which is blank for last two years.
I am neither an investment banker nor a broker who manage huge sum of money (of others ofcourse). There is no way I can change anything. I'll be managing my small amount thats it. Do not think of investing in MANDY Holding Pvt. Ltd. It has a credit rating of ZZZ--
I need few things from few people. They are so high profile that they can not deny giving it
Courage to take responsibilities and challenges
Some real talents in democratic world
Keeping Humor alive over all success and failures
Mistakes and Yet Arrogance ...
A vision and out of box thinking
And above all ... patience
et cetera et cetera .. Hope you all don't mind giving it.
Lets see how it goes. Hope I'll find some place in the list above.
Best of Luck to Me !!!! :-)
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5 comments:
Quick question, the only one that matters when it comes to stocks: Why does the price (not value) of a stock go up or down? And relatedly, what is the value of a stock? :)
Hi Sameer,
In terms of stock market studies, I am still a beginner and have lots of doubts. I tried asking similar questions to some of my friends in this domain but didn't get satisfactory answers. Being an IITian, you or me ask 'fundamental' questions only and try to derive everything based on that. So this fundamental question is welcome from you.
Let me try answering them.
The stock price and value of the company are two different things. Analysts claim they are functions of each other, but I believe the stock price is based on value and lot of other factors. These factors include amount of money available in the market, politics, mass psychology of investors and few other known / unknown factors.
In this system of markets, everything is sellable. Value of a share decides at what price you can sell the company. Now, the actual value of the company may be more or less than that, but with the current market conditions one can buy the company at that price.
More complex calculation is the price of 'future'. This is a measure of 'expectation of value of the company'.
I have NOT copy pasted this from any site, this is purely my understanding and hence it can be completely wrong. Let me know what you think. Your questions will help me in clearing my fundamentals.
Replied to your comment via email ... the reply was quite big, enough to warrant a new entry on my blog. But won't put it up until I have done a bit more soul searching!
Got your mail Sameer. nice info.
By the way, I started applying my knowledge and earned 1500 rs today. yesterday bought 8 shares of RIL at 1155 and today sold at 1360 earning approx 1500 rs. considering brokerage.
Not a bad start :-)
Here is Sameer's mail :-
A nice info. Even I have similar views. A long post, hopefully blogger will allow me to post it.
1) Value: The value of anything is determined solely by the holder. Gold has value because people like to flaunt it, while others use it in manufacturing. Property has value because people live on it, do business, rent it out, etc. What is the value of a share? Nothing! Absolutely nothing!
Forget buying and selling a company. If you hold a share, what do you actually get from it? Nothing. Some companies give dividends, but consider this. Suppose Reliance announced a 10% dividend. The face-value of a Reliance share is 10 rupees, so you get a dividend of 1 rupee ... against an investment of 1375 rupees! (today's price). Other than that, what can you get? Nothing, really.
Companies can't be bought by acquiring shares from the public market, they can only be acquired from the promoters ... so no, you don't actually "own" any part of the company. If the company goes bankrupt, the public gets a share of the sell-off only if anything is left after clearing all debts and also the promoter's investments. So no luck there either!
So bottom line? Shares are just pieces of paper that everyone "thinks" are valuable. That is their only value ... a virtual one.
2) Price: Now that brings us to the second part. Since everyone "thinks" that a share has value, the price goes up because when someone buys a share at a high price, he/she thinks that someone else will buy it at a still higher price. That's all there is to the market. Stupid, irrational sentiment. Prices of shares rise because people think they will rise more! Inversely, prices fall because someone is selling a share at a low price because he thinks someone else will sell it later at an even lower price!
Based on these observations, my current opinion is that the share market is just a bunch of morons, and a good opportunity to make money if you are patient. Company fundamentals, financial policies, etc etc are all just bullshit. All you have to do is select a good company that won't suddenly go bust, and buy its shares when they fall, and sell them when they rise.
That last sentence is damn interesting. If you buy when the shares are low, it implies that you buy when everyone else is selling, and vice versa! In Buffett's own words, "be greedy when everyone is fearful, be fearful when everyone is greedy".
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