Sunday, September 18, 2011

Buzzingstock

Buzzingstock

Stock Market for Beginners

Posted: 18 Sep 2011 12:01 AM PDT

Before entering stock market it is advisable to know all the basics of investing in equities and stock market and its risk factors.

First let us understand what is equity (shares) and stock market.

Equity :

In layman’s language, equity (shares) is a stock or any other security representing an ownership interest.

On a company’s balance sheet, it represents the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). It is also referred to as “shareholders’ equity”.

In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in financial planning and investment planning.

Stock Market or Stock Exchange :

It is the market in which shares are issued and traded either through exchanges or over-the-counter markets. It is also known as stock exchange, share market, equity market, etc.

The stock exchange is one of the most vital areas of a market economy as it is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market.

This market has two main sections: the primary and secondary market. The primary market is where new issues are first offered, with any subsequent trading going on in the secondary market.

The important stock exchanges in Indian are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Why to Invest ?

Posted: 17 Sep 2011 11:41 PM PDT

Why to Invest :

Many youngsters often ask why to invest, just saving is not enough? This question can be answered by example below.

Consider an example. A movie ticket was priced around 1 Rs. in my dad's time. Now it is worth Rs.100. At that time salaries were in range of Rs. 250 – 400 per month, which have now gone to Rs. 25,000 – 40,000 or more per month for same kind of job. This is what inflation is, the price of everything goes up. Because the price goes up, the salaries go up.

Now imagine if in those days, my dad would have saved one rupee thinking that he might use it when he gets older to watch a movie, then today with that one rupee I am sure he cannot buy anything more than a candy.

The moral of the story is that, the worth of one rupee has reduced dramatically. One rupee could buy a whole lot when my dad was a kid, but now nothing more than a candy. This is what is called inflation. This tells us two important things.

Firstly:

Do not keep your money stagnant. If you just save money by putting it in your safe, it will loose value over time. If you have Rs.1000 in your safe today and you keep it there for 10years or so, it will be worth a lot less after 10 years. If you can buy something for Rs.1000 today, you will probably require Rs.1500 to buy it few years from now. So do not keep money locked up in your safe.

Always Always Always invest money.

Secondly:

Investing money will be fruitful only when you get a positive real return. In other words, the aim of investment should be to provide a return above the inflation rate to ensure that the investment does not decrease in value.

Suppose rate of inflation is 8.50% and bank interest is 7.50% per annum, then your real return on your saving is -0.50%.
Posted by Suresh at 9:21 PM

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