Please Read !! Stock Market Calls India's View On Investing

Please Read!! This helps you to get better idea on investing. 

1) Is it Better to Invest the money in stocks rather than saving it in a bank??

One must know that when they buy stocks of a company they are part owners of the company, The money that you pay to buy the shares is the Capital for the company. Companies will invest your money and earn profits which are up nearly 15-25% every year. This just means that the money you have invested is growing about 15-25% per year, but if you save it in the bank then you will be paid interest of 6-8% p.a 

Here is an example:

Lets say Ramu and Raju both earn 500000 per year. Here Ramu kept all his money in the bank at 8% p.a and Raju invested all the money in company which grew 20% every year. 

Now after 20 years. Ramu will only have around 25 Lakh but Raju will have around 1.9 Crores which is about 8 times more than Ramu even though both have invested for the same period of time.

While investing one should not focus on Intraday and Short Term volatility in the market. The markets in the short term are just driven by sentiments. Benjamin Graham one of the best value investors, tells- In the Stock prices are moved my Traders Sentiments. If good companies are available at a lesser price then be the first to buy it as the companies will definitely catch up to its intrinsic value over a period of time.

2) Why Small Caps and Mid Caps Stocks Give you More Returns Than Large Caps??

Many experts say that invest in a Mid-Cap or a Small Cap company. have you every wondered why the returns given by the Mid Caps and Small Caps are higher than that of Large Caps??. Lets explain it with an example.

This example may make no sense but it will definitely help you to understand the concept better.

Lets say, There are 4 people. 1) Ram, 2) Lakshman, 3) Govind and 4) Gopal. Age of these 4 men are: 

Ram (10 Years)

Lakshman (15 Years)

Govind (30 Years)

Gopal (60 Years)

Now If I will tell you to invest your money on any two out of these 4 men and if they grow by 1-Feet (1 foot Taller) I will be paying you 100000 Rs.

It is obvious that most of them will invest their money on Ram And Lakshman, because they are still Small (Small Caps) and they have the maximum probability of growing tall, where as Govind and Gopal are Big (Large Caps) and they have completed their growth phase and they can no longer grow at the rate of Ram And Lakshman.

- Similarly this holds good for stocks also. Small cap and Mid Cap stocks have more growth prospects than the Large Cap stocks and Investing in them can offer you better returns. In the below example it is explained why Small Caps And Mid Caps Have probability of growing more??:

Lets compare TCS(Indias Largest Company) with small IT-Company say MindTree. The Total Revenues of TCS is around 60000 crore where are that of MindTree is only about 3000 crore.

Now Lets say both the companies won a order of 6000 crore. for TCS their net revenues went up  10% but for MindTree the net revenues will go up up 200%. Therefore for the same order of 6000 crores MindTree's profit may go up around 140%(PAT), where as profit of TCS can go up by 6%

Therefore as you were told earlier that money what you pay for the stock is invested by the company in their business activities (Ans. To Q.1). You can assume that even you have managed to get a return of 140% on your investment.

3) How To Select Good Mid Cap And Small Cap Stocks:

MidCaps and Small Caps will offer good returns but it is necessary to pick the right stocks with good fundamentals. Here is an example: While Selecting Mid Cap and Small Cap Stock why you need to be extremely conservative when it comes to fundamentals.

   

(By.Ans to Q.2) We got to know that it is best to depend on Young People (Small Caps) to deliver Better Performance than the Big People (Large Caps). But how to you select best among so many young people?

It is quite easy, you need to see Who eats well, Who Exercise Well, Who has balanced Diet, Who is Fit. So all these qualities in a youth are like good fundamentals of a stock.

Or here is  a much easier answer. Imagine you are the employer of the company and you have to appoint 2 employees among the four who have come to attend the interview. As an employer you will first look at his past performance, communication skills, etc. And you will be appointing one the with good history and better skills because you expect him to perform better.

Similarly your investment is your company. For this company you have to appoint employees which are stocks. Like how employers see your past performance in your exam. Yearly results are like exams for stock and you will need to select the one which performs better and has consistency.

Therefore if you bet on stocks with good fundamentals you can definitely expect good return.

4) Is It Worth Investing in a Penny Stock?? 

Penny Stocks are stocks which quote at a very low price(Ex. 2Rs. 7Rs, etc) 

The biggest mistake while people are investing is they believe that penny stock which quote(2 Rs. , 3Rs, 5Rs.) can easily go up by 5-10Rs. and double or tipple their money and if they don't they will just losing about 2-3 Rs, But What they fail to understand is, one should never measure the risk and reward by the amount but it has to be measured in '%'. Here is an Example:

Say there are 2 sisters 1) Sita and 2) Gita. Both once earned 100000Rs.

Sita Invested all her money in a penny stock which quoted 2Rs (Price: 2Rs, Quantity: 50000) and

Gita Invested her Money in fundamentally good stock which quoted 1000Rs (Price: 1000Rs, Quantity:100)

Now after 1 year Sita's Penney Stock went down by 1Re. Where as Gita's Stock Fell by 200Rs.

But If they both sell the stock at the Current Market Price: Sita would only get 50000 where as Gita will get 80000.

 Even though the Sita's stock just lost 1Re by percentage it had lost 50% where as Gita's stock fell by 200Rs. but by percentage it was only 20%.

5) (Penny Stock):- Why do Stocks Trade at such a Low price??

Here Are Few Reasons Why They Trade At Such a Low Price:

1) Very Very Small Business (But can have good Fundamentals).

2) Extremely Under Valued 

3) Bad Management

4) Very Bad Fundamentals

5) Reporting Net Losses For Many Years.

Among These reasons, If the stocks is quoting low because it is undervalued or it is a small business with good fundamentals (Reason No.1 and No.2)  then you need to be the first one to grab it. If in case it is quote at a low price because of any other 3 reasons mentioned above then there is no point in investing in such businesses.