This is the curated list of my Quora trendy short answers. These answers are selected on the basis of some parameters (views/upvotes) and are bit modified to make it reader friendly.
You’ll enjoy reading them. Have a read and let me know what you think. (Get in touch on Quora here)
Biggest myth – small investors should invest in low-priced shares.
It’s the outcome of the myth that this type of questions keeps springing up on the screen time to time.
Quantity doesn’t matter in the stock market. Keeping all things constant, the returns will be same from both, low and high prices shares.
Whether you buy a single stock for 5000 Rs or 50 stocks of 100 Rs, the overall returns are equal.
High priced shared attract more unit fluctuation and low price shares are less fluctuating. However, percent change is more or less same, if keeping all other things constant.
Have a look:
TCS – 1.5% change in price tends to change the unit price by 40.
And in case of NMDC, it hardly put a dent:
But if you invested the amount equal to TCS in NMDC then the overall difference will be negligible for both stocks.
Therefore, quantity didn’t matter.
Hunt for quality.
It’s not terribly hard to earn 50%, 70%, 80% and even 100% return on your investment.
…… but simply asking a question on quora and praying for a miraculous answer that will change your life is totally a waste of time.
Even if anybody knows how to do it, why in the world s/he will waste time to answer the question of a random person instead of implementing the strategy in the real world.
Exposing the strategy to the general public will dilute the effectiveness of the strategy.
Think of it this way: there was only 1 tea shop in your locality. As it’s the only one, he can charge as much as he wants from the customers because they have no other alternative to choose from.
But many other vendors discover the fact and started opening their own tea shops.
Now the profitability of the existing tea shop will decline. This will force him to decline the prices. No more he can enjoy the benefits of high prices.
In the same way, an effective strategy attracts entrance of many strategy seekers which in turn decline the profitability of the strategy. Therefore, nobody will be interested in exposing their strategy to the general public.
The only way is to find your circle of competence, create an ethical behavior, limits your emotional barriers and discover your own strategy that can make your multifold return in a short span.
A strategy can be of anything – start your own business, analyze and invest in the stock market (by far the best way), do your passion related work or whatever value addition you can do to the world.
Again I’m saying, there are ways to get high returns in a short span of time. Be determined and disciplined to figure it out.
It’s easy to say that people are buying or selling because buying will always be equal to selling.
It’s a simple sense of humor if a stock is bought then definitely there would be someone who sold it.
SO, selling = buying.
However, demand and supply can be different.
Demand is how many people are willing to buy the stock at a certain price, time & quantity and supply is how many people are willing to sell the stock at a certain price, time & quantity.
These both can be different but still not enough to predict how many people are buying or selling the stock.
But your question is – How can we predict that people are buying or selling on the basis of volume and price?
No, we can’t.
There’s no hard and fast rule for this. None of the above 2 elements would be helpful to fulfill your needs.
Because volume will be equal to the transaction executed throughout the trading period which means how many buyers and sellers are met during the period. And hence seller are always equal to the buyer, so no prediction needed here.
And the price is also not the criteria to meet your purpose because price can go high even if the willingful sellers are more than willingful buyers.
And the price can go down even if the willingful buyers are higher than willingful sellers.
For example, there’s a security XYZ quoted at 100 Rs.
20 people are willing to sell XYZ stocks at 120 Rs and only 1 person is willing to buy the stock at 110.
As the (willingful) sellers are higher than (willingful) buyer so price should go down, right?
Of course, but not in all the case.
If one of the sellers put a market order of the stock then the order will get executed at 110 Rs. That means the price will hike to 110 from 100.
And still, the seller will be 19 and no buyers.
Hence, above 2 factors are not enough to reach a conclusion.
However, we can estimate the trend over a certain period of time by Moving Averages.
If the moving averages of 10, 30, 50, 100, 150 days are lower than its current price then it depicts that the willingful buyers are more than willingful sellers.
The business which pays dividends is considered as good companies. They don’t give a shit to what market is thinking about their company. They concentrate on their operational activity.
There’s a quote from Warren Buffett:-
“Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.”
In the stock market, the companies which concentrate on their business operation govern the market, not by one who concentrate on their day to day price.
That is why dividends are distributed on the basis of the amount infused at the time of incorporation i.e. face value of the share.
However, you can also compare the dividends with current market price by “dividend yield ratio”.
Learn everything about Why? How? What? Where? of dividends.
No. Not even a tinge.
Increase or decrease in spot price doesn’t affect the company’s operations. What company retains with them is just the initial money raised at the time of IPO.
There are 2 types of market:
The primary market is where the company issues its shares for first time aka Initial Public Offering (IPO). The money retained here will remain with the company forever.
After listing of share (secondary market), investors who buy at low & sell at high, gains and who buys at high & sell at low, loses.
The company just focus on their playfield without giving a shit to the scoreboard. (click to tweet)
However, the company gets some indirect benefits from the activity in the secondary market. The company with a good image in the secondary market get privilege in his day to day operation from suppliers, creditors, customers etc.
And in addition to it, if the company initiate its second public offering (aka FPO, Followup Public Offering), then it also gots a good response from retail investors.
That’s the direct and indirect benefits from price fluctuations.
Justdail product is somewhat well known to everyone.
It provides information of a wide network of small and big business all over the India through messaging, call and internet. They had also expanded their business in the US, Uk etc.
How did it earn revenue? – this is the question for which I also struggled for a long period. it earns money from the listings. Businesses can pay them for listing their business at the top.
For example, Google also had a listing revenue through ads. I searched “stock tips” on google and here are the results:
You can see the top 4 results are the promoted ads from which Google earns. They are given priority and that’s the revenue source for google. Same applies with JustDail.
That’s the current business model of the business. However, it is also thinking to expand their business with other sources of revenue.
I heard about its fluctuating nature of stock that what afraid me to invest in this stock. From time to time Justdail had dazzled investors with different scenarios.
Once Amitabh Bachchan invested in the stock which highlighted the stock. It had also given a good revenue and profit growth.
It had even stuck a price of above 1800 and currently trailing around one-third because of low margins of 20–22% as compared to before 30%.
So it’s quite an uncertain business, I prefer to stay away from this kind of businesses.
It had only been 3 years of its IPO. In my opinion, one should have a track of last 5 years of business before investing.
Of course, YES but in theory.
If we look at the whole macro element of stock market then the above rule doesn’t apply.
Because Loss = Profit will only be true when we assume the exact amount of funds and the perfect period of time (like sense will stay open for only next 10 years) of trading but that’s not possible.
And that will always imbalance the fund’s availability in the market. In bullish market funds availability is very high and in bearish, the case is the opposite.
Even there are many other factors which continuously maintain the inflow and outflow of cash.
Like brokerage, taxes, depository charges etc leads to outflow, new participants in the market whereas the reduction in trade barriers, the increment in FDI, existing partner discourage etc increase the inflow of cash.
But why in the world that denies the fact that one profit is equal to one loss?
Because in the practical world, funds availability increases like now in India due to relaxation in FDI norms, implementation of GST Bill etc together contributed the excess infusion of funds which leads to increase in the prices so increment in price never let the investors lose as much as they gain.
Even the market fall down doesn’t compete for the overall hike. That’s why the returns from equity are highest as compared to other sources like MF, FD, deposits etc.
So no doubt there is volatility in the market but the overall downturn will always be less than overall upturn. And as there is an upward trend in the long run so overall profit is always less than the overall loss.
That is why, practically, one’s loss is not always equal to other’s profit but if we assume the exact availability of fund at certain time frame then the fact can be accepted theoretically.
After 5 years of publishing the book, Joel Greenblatt wrote an “afterword” at the end of the book.
He clearly stated in the book that the formula has only experimented in US market. It doesn’t guarantee other markets.
But there is major confusion with the people that Is formula is enough to beat the market?
And if it so then why wouldn’t everybody use the formula and beat the market.
Of course, the formula is enough to beat the market. The formula does not look for the cheapest business. It does look for best business. The magic formula tries to but those companies that provide the best combination of being cheap and good.
Magic Formula only concentrate on only 2 factors:
- Return on capital employed (ROCI) to find good business
- Earning Yield to find a cheap business.
(Read it carefully) Beating the market is not the same thing as making money.
- If the Sensex return for the year 2015 is 20% and now if you earned 21% in 2015 then you’re supposed to call that you best the market.
- And just imagine for a sec, that Sensex will return 100% in 2016 and if you get even 99% return in 2016 then you didn’t beat the market.
- Again just imagine that the Sensex will return -10% in 2017 and if you got a return of -5% in that year, still you will be called the hero who beat the market, no matter if you lose the money.
Beating the market simply means that you’re ahead of market overall returns. It’s that simple and it’s that hard.
So don’t simply rely on magic formula to take decisions in Indian Market. Either you’ll end up losing money or will get stinky results but the book is a great resource to understand the basic of Value Investing. It plays a great role to lay down the base for other great investing goods.
This book will take readers on a step-by-step journey so that they can learn the principles of value investing in a way that will provide them with a long-term strategy that they can understand and stick with through both good and bad periods for the stock market.
It’s written in plain English and 6th-grade math to make it easy to follow along. This is the strong point of the Magic Formula theme.
So at least consider reading the magic formula book at least once. It’s good to understand the mind of successful value investors to shape your own investment decision.
But still be cautious – Don’t fully rely on the Magic formula in Indian Stock Market.
PE was highly used by many analyst and fellow investors but there is a huge flaw in this ratio.
It doesn’t consider the growth of the company and high growth companies attract expensive P/E rating.
Therefore, you can see that Tyre/Textile companies have a low PE as compared to Tech companies.
There is low growth in the former sector and high growth in later sectors.
So to create a base ratios for all the listed company, PEG ratio was introduced. It index all the companies to a common base.
Formula = PE/Growth rate
Here’s the conclusion:
- PE ratio can be used to compare companies in the same sector.
- PEG ratio can be used to compare all the listed companies.
Have you heard this famous saying?
In short run, stock market is voting machine and in long run, weighing machine.
Let me tweak it.
In short run, the market works on expectations and in long run, it works on reality.
Former is the case with SBI.
Have a look? How the SBI share price climbed up just after the bad news at around 12:30 pm.
Img – Google search engine
The stock hiked about 8% today (12th August) despite 31% Year on Year reduction in Net Profit.
Img – Bloomberg
I had heard that market reacts to the news. Green on positive news and red on negative.
You’ve heard this too, right?
But why the case is opposite with SBI?
As I said, in short run market runs on expectations.
People were expecting more worst performance than its current results.
Now here comes the crux: (pay attention)
The price before the news (i.e. around 230) was the price which reflecting the investor’s expectations.
People were expecting a super-duper worst result so the Mr. Market discounted the price to their expectations.
(Mr. Market is term coined by Benjamin Graham in his books Intelligent Investor which means nothing more than term denoting the aggregate behavior of the market participants)
And as per their expectations, the price should have to be 230 but the stock performs better than the market expectations.
Traders got amazed – “why in the world the stock is performing better than my expectations?”
They called their broker – “Buy this stock on best possible next order available”
Executed an order – “Order complete at higher price because buyers were more than sellers”
That’s how the market works where dumb investors lose their money and clever one wins.
Kudos! My friend. You just completed reading 10 answers right now. I’ll keep publishing awesome answers from Quora regularly. Get in touch on Quora.