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21 myths investment

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21 myths investment

  1. 1. 21 Essential In Investment www.bazaaredge.com/blog
  2. 2. Welcome Welcome to Bazaaredge.com “21 Essential In Investment” Presentation. This presentation will provide you with information to quickly and effectively plan, build, maintain and analyze your investment. History of Stock Market has repeatedly proved that investors are not always rational. Just as they can bid up the price of a growth stock too high because they are so enthusiastic about its prospects, they can also pummel a good stock that has momentarily slipped to unrealistically low prices. That’s where bargain hunters swoop in. www.bazaaredge.com/blog
  3. 3. 1. Diversify Your Investment Portfolio Maintaining a diverse investment portfolio is a relatively simple way to continue to make investments while taking steps to insure that you're not going to loose everything should certain stocks or sectors of the stock market drop in value. Despite the usefulness of diversification, many people still maintain a very limited number of investments in very similar stocks... often because the stocks are given as part of a stock-option plan from their employer or because the individual simply doesn't know how to take advantage of diversifying their portfolio. www.bazaaredge.com/blog
  4. 4. 2. How to Choose an Investment Setting your Investment Goals Ask yourself, “What do I want to accomplish through my investments?” For most investors, the following investment goals or objectives, or some combination of these, provide an initial answer to that question: Safety This objective reflects a conservative investment philosophy with minimal risk of loss of the original investment (the “principal”). Income An “income” objective is achieved by purchasing investments that provide a stream of income through regular payments, which may or may not decrease the invested principal. Growth This category refers to investing for long-term growth or appreciation in market value. Growth investments carry a higher risk than either safety or income oriented investments. Growth investments generally provide little or no dividend income. Speculation Speculative investments carry a higher-than-average possibility of loss. This strategy often includes short-term trading of new or unproven companies’ stocks or options. Although there is the possibility of higher and faster rewards, speculative investments also are high risk, meaning there is also the possibility of larger and faster losses of some, or your entire principal. www.bazaaredge.com/blog Balancing “Risk” and “Return” to meet your goals As an investor, you choose your investment goals with an emphasis on one or more of the above categories. You may also wish to allocate portions of your investment portfolio to more accurately express your investment goals.
  5. 5. 3. Investment in property Starting off with a small investment property can also help you become a better property manager. It is easier to adequately address the needs of just one tenant than it is trying to solve the problems of several tenants at once. Part of making an investment property successful is adding value to the rental. If you can learn how to please one tenant, then you will be in a better position to extend what you have learned and please all the tenants in a larger complex. Indeed, experience is priceless. www.bazaaredge.com/blog
  6. 6. 4. Dividends and Reinvestment Reinvesting dividends is an easy way to make more money off of a particular stock or investment... after all, the investment is doing well enough to be paying dividends, and the reinvestment means that you have more of the stock or investment than you did before. If the dividends that you receive are paid to a money market account, you may also choose to reinvest them into other stocks or investments than the one that originally paid them... this can be especially useful if you are receiving dividends from one of your investments that you have a lot of shares in, but you have another investment that you don't have much of. www.bazaaredge.com/blog
  7. 7. 5. Remember these investment basics: Rule one: No matter how you choose to invest your money there will always be a degree of risk involved. Rule two: Risk and return go hand-in-hand. Higher returns mean greater risk, while lower returns promise greater safety. Rule three: Do not invest in anything you do not fully understand. www.bazaaredge.com/blog
  8. 8. 6. Stock Tracking Many financial sites offer stock and investment tracking services free of charge, which enable you to get recent quotes from stocks and other potential investments of your choice. In addition to simply being able to track the current prices of these investments, you are also generally able to view the history of the stock or investment for the past month or longer, sometimes viewing the performance of specific stocks for the past one to five years or more. By signing up with websites that offer stock and investment tracking, you can also have sudden changes in the stocks that you're tracking e-mailed to you or sent to your PDA or similar electronic device. www.bazaaredge.com/blog
  9. 9. 7. Diversify into no more than twelve different companies. Owning shares in twelve companies is plenty. It would provide the diversity to sleep well at night, and provide a cash dividend every week of the year. Start by owning three companies, and build from there. Determine how many shares you want of each company before moving on to the 4th, 5th, and 6th. Invest in sets of three different companies at a time, until twelve are owned. www.bazaaredge.com/blog
  10. 10. 8. Persevere Success in the stock market is not so much derived by buying a company’s stock at the lows, but is almost guaranteed successful through rupee-cost- averaging over the years. One of the most powerful methods of investing in the stock market is having the perseverance to continue adding shares to your stock positions over the years, through reinvested dividends and quarterly infusion of funds, be it 50 rupees, or 100 rupees a month. Persistence, persistence, persistence, and your stock market investment philosophy will become unbeatable! www.bazaaredge.com/blog
  11. 11. 9. Investment Plan that never lets you down Let us find out why companies that give ever-increasing cash dividend income are a good choice for investment Your Share Holding Goes Up And So does Your Dividend Income. Your Dividend Income Increases Even If Stock Prices don't. You are not hit by Inflation. Start Young. www.bazaaredge.com/blog
  12. 12. 10. Economical Retirement Investment Plan A forethought example: I want every stock market investment to supply me with ever-increasing cash for the rest of my life. I want my retirement investment portfolio income to grow until the income from my portfolio replaces the income from my job when I retire. A patience example: I will make quarterly investments into each security owned to raise the cash dividend supplied by each stock market investment. I will start by owning three companies which will supply me with cash dividends every month of the year. I will also add the cash dividends to the quarterly investments. I will build this stock market retirement investment plan up until I own 500 shares of all three companies. Once 500 shares of each company are owned, I will begin investing in three more companies. Owning six companies will provide ever-increasing cash dividends twice a month, until I retire. My patience will eventually acquire 12 companies, providing me with income every week of the year. A wisdom example: I will only purchase those companies that have a historical record of raising their dividend each year. I know that a low 2% dividend paying stock is not necessarily bad. It means the company in question is a growth stock, using most of its profits to expand. A growth stock makes up for the lower dividend yield by faster stock appreciation in the marketplace (however, the company will still show a historical record of raising their dividend each year). I will diversify into 3 stocks, right from the get-go, even if it means I start off with as little as 5 shares of each company. I will not pay commission-fees. I will place emphasis on increasing the cash income paid to me from all my stock market retirement investments. www.bazaaredge.com/blog
  13. 13. 11. Choose Investments That Pay Off 1. The stock market is risky business Generally, most people believe that buying stocks are as easy as 1-2-3. Of course, it can and in fact anybody is capable of doing it. But the problem lies on the fact that few people only know when to sell. And that is, in its greatest sense, the heart of stock market. So, the best advice for people to get the best stock market investment, it is best not to gamble everything that they have on it, especially if they don't have a good understanding of how it works. It's better to loose a little than loose really, really big. 2. The "trailing stop strategy." Most experts incorporate this when getting stocks. What they usually do is to "ride" their stocks really high, and maintain an exit strategy in the event that things get out of hand. This is where the liquidity of their investment is extremely vital to one's business. That is, they should know that whatever liquidity they have can be easily converted into cash. 3. Invest only in what you are comfortable with. Even if particular investment opportunity, say, an exciting IPO of a big company, looks very attractive, it is a must for every investors not to invest on it if they are not prepared to risk losing their money on it. In this way, people will be able to get the best stock market investment by following this very important advice. www.bazaaredge.com/blog
  14. 14. 12. Learn the Art of Timing Stock Market Investments Market timing determines whether a stock seller or a buyer will benefit monetarily or otherwise from his purchases or sales. Most stock holders hold their stocks up and wait for the value to increase. When the value of these stocks increase in the market, this is the time when they plan to sell because it is at this time that profits are projected to be high. However, peaks and lows in the stock markets are unpredictable and irrational. But this does not mean that timing stock market investments is not good. It is not advisable to ignore the times when there is significant undervaluation and overvaluation in the stock market. This is the importance of timing stock market investments. To buy stocks which are guaranteed to peak while they are still selling low; and to sell high value stocks which are expected to fall. If an investor ignores these important market movements, then he is bound to lose instead of gaining huge profits from overvaluation in the stock market. www.bazaaredge.com/blog
  15. 15. 13. Biggest Mistakes Made When Designing Investment Portfolios 1. OMITTING APPROPRIATE ASSET CLASSES AND ASSET SUBCLASSES. 2. SELECTING INAPPROPRIATE ASSET CLASS WEIGHTINGS 3. UNDERESTIMATING THE IMPACT OF INFLATION 4. NEGLECTING THE EFFECTS OF PORTFOLIO MANAGEMENT EXPENSES. 5. MAKING INACCURATE RETURN FORECASTS. 6. OVERESTIMATING THE LEVEL OF PORTFOLIO DIVERSIFICATION. 7. MISJUDGING THE IMPACT TAXES HAVE ON NET RETURN. 8. CONFUSING DIVERSIFICATION WITH ASSET ALLOCATION www.bazaaredge.com/blog
  16. 16. 14. Financial tools for investment decisions PRICE EARNINGS RATIO: The most important ratio that investors should look at is the Price Earnings (P/E) Ratio. In layman’s terms this is the share price divided by the profit per share. The P/E Ratio of a Company should be compared against other companies in the sector and against the market as a whole. I also believe a good test is to compare the P/E Ratio of a company with other similar companies quoted on stock exchanges. NET ASSET VALUE (NAV): Though there are many strategies that investors should follow, I tend to follow a strategy where I would buy investment companies if they were at a discount to their NAV of at least 20%. I tend to find that the downside is restricted if investors follow such a policy. If the market were in a bear market phase (i.e. falling market), I would widen the discount to say 30%. If in a bull market then the discount could be narrowed to say 15%. EARNINGS PER SHARE (EPS): Another tool that should be used by investors is to look at the track record of the company concerned. By this I mean the growth (or lack of it) in Earnings per share. A good management team should be able to register a solid annual increase in EPS of say 15% per annum. It should be able to do this on a consistent basis. www.bazaaredge.com/blog
  17. 17. 15. Avoid Dumb Investment Mistakes ? Don't Forget to Diversify Have Patience Invest Regularly Don't Ignore Investment Expenses Don't Get Greedy Don't Get Fancy www.bazaaredge.com/blog
  18. 18. 16. Things To Consider Always set aside some of your money for emergencies before you invest. Ask for advice from a trained and licensed professional. Be selective in your investment choices. Exercise your right to say “No.” Develop a sensible investment plan and follow it. Judge each company on its own merits. Do not invest on a company just because it is part of a fast growing and successful industry. Never invest based on information obtained from an unsolicited telephone call. www.bazaaredge.com/blog Check the credentials of anyone you do not know who offers to sell you an investment.
  19. 19. 17. Improving Your Financial Situation With Investments ? Stocks can be very risky but if you start small and give yourself time to get the hang of it, you may enjoy it and may even discover that you have the gift of foresight. Bonds on the other hand may have modest returns but they are probably the best and most secure of financial investments. Currencies are trickier to deal with as their value are affected by so many forces, local or within the country involved, regional and global. Debt is perhaps the single worst thing that you can do to damage your financial portfolio. Do not get the wrong idea, debt can be good when used the right way. In fact, successful businessmen have debts too. It will be risky but the fastest way you can earn big money is to venture on a business. Even something as small as operating a cafeteria in a factory or school or engage in buying and selling of goods over the Internet, can be a great start. www.bazaaredge.com/blog
  20. 20. 18. Insure Your Investment You insure your home. You insure your life and the lives of your loved ones. Why not insure your investments? With current market conditions tossing most portfolios around, it would make sense to protect your portfolio. After all, the work we do significantly lowers the risk of losing money in an investment we choose to get involved in. But we never completely eliminate all the risk in the market. Buying a protective put will help protect your new stock purchases in the market. This can be really helpful when you want to buy a particular stock, but the overall bias in the market is down. What is a put? A put is a contract that gives the buyer the right to sell stock at a certain price and during a defined period of time, up to the expiration of the contract www.bazaaredge.com/blog
  21. 21. 19. It’s Stocks, Not Markets, that Bring Investment Success 1. Invest regularly, regardless of the present outlook for the economy or stock market. 2. Reinvest all earnings, letting the power of compounding work for you. 3. Discover growing companies so that your wealth can grow as their sales and earnings grow over the years. 4. Diversify your holdings, and don't put all your eggs in one basket, regardless of how carefully you watch that basket. www.bazaaredge.com/blog
  22. 22. 20. What is Arbitrage Investment?? In the simplest of terms, Arbitrage means to exploit price differential. Usually it meant looking at differing sources of an investment, and if there was a price difference between Source A and Source B - then the investor / dealer / broker / manager would buy from the lower priced source, and sell on the higher priced source. Example:- The price of Stock ABC was Rs 20 per share on Exchange XYZ The price of the same Stock ABC on another Exchange 123 - was Rs 15 The dealer would buy the stock from Exchange 123 for Rs 15 - then sell on Exchange XYZ for Rs 20 - making Rs 5 per share profit (minus costs). Typically the price differential was very small - and trading had to be extremely quick and liquid - otherwise the markets could go against you in a very short time. This method is often enhanced by the use of leveraging (gearing up / borrowing) (remember LTCM?) - and sometimes using Derivative Structures such as Options - or hedging methods such as selling short. www.bazaaredge.com/blog
  23. 23. 21. Strategies-for-long-term- investment 1. Review asset allocation 2. Maintain liquidity 3. Selection of stocks 4. Stagger purchases 5. Don’t Fly Blind; Have a Financial Plan 6. Do control what you can 7. Do pay as little attention as possible to the financial media. 8. Don’t fall into “Invest and Ignore” www.bazaaredge.com/blog
  24. 24. Congratulations Congratulations! After reading the information in this guide, you should be better informed about the overall planning of your investments. The best advice may be to start slowly and grow your investment to meet the needs of your retirement. We hope that you feel well informed about investments for your wealth creation. We would like to invite you to see how Bazaaredge.com blog can help you to create a winning invesment plan. Disclaimer : This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. And not soliciting any action based upon it. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. We or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report www.bazaaredge.com/blog

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