GW strategy

1992 Mr. GW කියල investor කෙනෙක් මට හම්බ වෙනවා. මේ තැනැත්තා Marine Engineer කෙනෙක්. ඒ නිසා එයා වැඩි පුර ඉන්නෙ මුහුදෙ. නෝනා දරුවො දෙන්න බලා ගෙන ගෙදර ඉන්නවා. දවසක් මෙයා ගෙදර ආවම දැන ගන්නවා නෝන ට අනියම් සම්බන්ධයක් තියෙනවා කියල. වයස 10 ක් විතර දුවයි 7ක් විතර පුතයි මෙයාගේ භාරයට ඇර ගෙන නෝන ගෙන් මෙයා වෙන් වෙනවා.
ඊට පස්සෙ මෙයා නැවේ වැඩට යන එක නතර කරනවා. නතර කරලා දරුවො දෙන්නව බලාගෙන ගෙදර ඉන්නවා. දරුවන් දෙන්නව ඉස්කොලේ යවලා (රටේ තියෙන සුපිරි ඉස්කෝල දෙකක), එයා යනවා මු⁣හුදේ beach run එකකට. ඊට පස්සෙ wash එකක් දාලා උදේ 10 ට විතර එනවා අපේ office එකට. ඒ වෙන කොට market එකේ busy time එක ඉවර වෙලා, ගොඩක් අය rest කරනවා. මේ වෙලාවට ගොඩක් දෙනා උදේ තේ එක බොන වෙලාව. ගොඩක් දෙනාගේ අවදානම shares වලින් වෙන දේවල් වලට ගිහින්. මෙයත් තේ එකක් තොල කටගා ගෙන shares ගන්න හා විකුණන්න පටන් ගන්නවා. එතුමාගේ Investment strategy එක අපි කාටත් වටින නිසා පහතින් සටහන් කරනවා. ඊට පලමුව කියන්න ඕනෙ මෙයා හොඳට සල්ලි තියෙන කෙනෙක්. ඒත් සල්ලි නිකන් වීසි කලේ නැහැ.

GW strategy

1. තමන්ගෙ මාසික වියදමට සරිලන විදියට ඔහුගේ වත්කමෙන් ප්‍රමාණයක් fd එකක දානවා.
2. ඉතිරි ප්‍රමාණය කොටස්වල invest කරනවා.
3. Market එකේ එයාට ආවෙනික සමාගම් වලට ආයොජනය කරන එක තමයි එයා කැමති. වෙන අය මොනවා ගත්තත්, ඒ කියන්නෙ රැල්ලට යන අය මොන කොටසක් ගත්තත්, එයා ගන්නෙ එයාගේ list එකෙ shares විතරයි.
4. සමාගමක කොටස් දහස් ගනන් ගන්න පුළුවන් හැකියාවක් තිබුනත්, ගන්නෙ 50,100,200 හෝ වැඩිම වුනොත් 300.
5. ඉන් පස්සේ ඒ ගත්ත සමාගමෙ කොටස් එක්කහු කරනවා.
5. දාන්නේ GTC orders. සහා market price එකට වඩා අඩුවෙන් ඒ orders දානවා. නිතරම shares 50 හෝ 100 එක order එකට දානවා. උදාහරණයක් හැටියට ඒයා UBC එකතු කරනවා නම්. Share එකක market price එක 12.30 නම්, 11/90 ගණනෙ 50, 11/70 ගානේ 50, 11/50 ගානේ 50, 11/00 ගනනේ 100 වගේ orders දානවා. ඒ buy orders.
6. Sell orders දාන්නෙත් මේ විදිහටමයි. එයාගේ Sampath average එක 140/= නම්, 155 ගානේ 50, 158/= ගානේ 50, 160/= ගානේ 50ක්, 165 ගානේ 100ක් වගේ orders දානවා.

එතුමා මට හම්බවෙනකොට අවු 47, අද අවු 74. පුතා කොටිපති ව්‍යාපාරිකයෙක්. ඔහුගේ business එක පටන් ගන්න මුදල් ආයෝජනය කලේ මේ තාත්තයි. දුව professional banker කෙනෙක්. ඇයට ගෙදර හදන්න මුදල් වලින් උදව් කලේ මේ අපූරු මිනිසායි.

වයසින් මුහුකුරා ගිය මේ අනර්ග ආයෝජකියින්ට සාපේක්ෂව අද ඉන්න අයගෙන් මෙවැනි අය මුන ගැසීම හරි විරලයි. මම අදටත් හොයන්නෙ මේවගේ ආයොජකයින්. අඩු ගානේ මේ ලිපියෙන් කවුරු හරි ප්‍රයෝජනයක් ඇරගෙන consistent strategy එකක් එක්ක දිගුකාලීන ආයොජනයට අවතීර්ණ වන්න කියා පතනවා.
අවසානය දක්වා ලිපිය කියෙව්ව ඔයාට මම සුභ පතනවා එවැනි කෙනෙක් වේවායි කියා.

STOP LOSS, and How Much to Buy to STOP LOSS

Many of the short term Traders are still going behind Rumours and Tips. They do not want to think of the negative side of a trade.Traders love to talk of take overs at Present. They think that taking a company over is why the Prices are shooting up. Many want various types of information to float around, for them to trade. Despite the fact that this approach on relying on other people's stories are not right, Traders want to do their trading based on rumours, tips and information.

Trading be it with Charts, Rumours, Tips or information needs to be done with knowing that a trade can go against you. The moment we talk of Stop Loss many think it's to do with Technical Analysis. Which is far from the truth. Stop Loss is Stopping Your Loss. Hence it is not only for Chartists, it applies to every one who are Trading.

The most difficult part that applies to Stop Loss is the number of shares you need to buy in order to sell out easily. You should not buy a sizable number of shares expecting to stop loss. You must be smart in knowing the volume in order to exit without getting stuck.

It is also wise to recognize a Price Range to Stop Loss. that will help you to prepare yourself to exit without a struggle.

The idea of the stop loss is to take your emotions out of your trading. This is very important. The biggest enemy of your trading success will be your emotions. Have a predefined Stop Loss Range before you think of your entry. Give yourself some time to design your trade, for which you need to have patience. Else you are not suitable for trading.

Finally let me reiterate that the Stop Loss is not only for Technical Analysts. It must be followed by All Traders.

Strategies of RETAIL INVESTORS - BLIND YET INVESTS Part 3

 The Investor I am talking today is in his early 80's, and due to glaucoma he is totally blind. I repeat TOTALLY BLIND.
He had been a brilliant Engineer upto 1983, He was 48 years. He was completely shattered when he saw how people got massacred in 1983 riots, right in front of his eyes. He never entered His office ever since. Instead He decided to stay at home and make a living. His living was so successful that he had built 3 houses for His children and gave them all the best of education, as they are now well established. Why I say that he is brilliant is because he just keep the records of his share dealings in his brains. As he can't see his wife helps him to write them and keep the accounts, whilst reading financial reports and announcements so that he could study the stocks to invest into. His strategy is simple. He swaps his funds between Fd's and Stocks. Also he is buying in stages way below the present Price when he believes that the market is coming down, whilst selling way above the Selling price when the market is going up. Even if he could pump in millions of cash, he will always buy and sell in 100's,200's,300's or max 500's. Is this a simple strategy or not!!!

A&D Strategy (ADS) - Please read if you like trading

Despite the theory and real lessons teach participants in the Stock Market, that the real gainers are the INVESTORS who take a long term view, the truth is that over 90% of them want returns in the short term.

Trading and Short term gains are very important factors in a market come rain or shine. There are many Strategies you could follow when you are in the game. That too is important. You can have numerous strategies, as long as you stick to them. That is something that one should train one's self to adhere to.

One Strategy that can be used is called the A&D Strategy or ADS. ADS stands for Accumulation and Distribution Strategy. Some might think that this refers to the accumulation and distribution line created by Mark Chaikin. It is not, I have used the 2 words as they are relevant to this strategy. Also it is useful to combine the A/D line to analyse the accumulation and distribution phases in the stock. But there are many indicators or oscillators that can be usefully combined.

Why am I sharing this strategy? the reason is that this technique is being followed by many veterans in our market with gut feelings, before and after the charts were introduced. As they have been successful doing the hard way, we are now so fortunate as charts and indicators are at our disposal to be used.

As in the case of any Strategy if you want to test this you need to follow RULES. If you don't want to follow rules then no point following any strategy in the first place. Hence worthless reading this any further. DON'T WASTE TIME READING THIS. DO SOMETHING USEFUL INSTEAD.

Ok! now that you are interested to read further let's look at the guidelines:

1. Select a stock or a sector which has a promising future.
2. Pick the winners in the sector.
3. Know the key performance indicators relevant to those stocks.
4. Short list them to a manageable number.
5. Study the charts.

Thereafter you need to spot the up and down trends and keep accumulating little at a time, and distribute also the same way.

In the ADS Strategy we consider the price increase as DISTRIBUTION, whilst the Side way movement, aka consolidation as ACCUMULATION. The challenging part in this strategy is the decrease/down trend in the price. As such you need to be bold in applying stop loss rules.

Say that a stock's price go up from 10 to 15 it is the range in which the Distribution took place, then when the stock moved down from 15 to 13 you wait until the side way movement/consolidation takes over. Once you spot the consolidation you start the Accumulation. Can the price fail to move higher once the consolidation is over? Yes ofcourse it can, hence the stop loss. This happens mostly in very high overbought areas. If you patiently postpone your accumulation until the price move into an oversold area, you will have more success in this strategy. This is common to any strategy right?

One might have different ideas about it, BUT REMEMBER THIS IS ONLY 1 STRATEGY OUT OF MANY STRATEGIES AVAILABLE OUT THERE IN THE MARKET.

Classic example will be the Stocks in the Plantation Sector. As we can see this sector is coming out of a slumber of 4 years. It got battered so much that no one cared or dared to look at it. But then it is history now. We can expect the sector to perform well in the next few quarters or more.

Balangoda Plantations is one leading company in this sector. With a decent earnings record, we can assume that the stock could test the historical highs in the uptrend that it had gotten into.

By looking at the chart below let's see how the DISTRIBUTION and ACCUMULATION Takes place in Balangoda weekly chart.

1st the Distribution takes place from the week ending 27th of March 2017 to the week ending 15th May. The price from a swing low of 10.60 to a swing high of 17.50.  Stock falls from 17.50 to 14.20, thereafter the Accumulation takes place from the week ending 12th of June to 26th of June, between 14.20 and 15.70. As the price move higher during the next week, the distribution takes place for 2 weeks until the week ending on the 10th of July. Price moved from 14.80 to 18.90 during this period. Again the price fails and come down to 17.20 on the week ending 17th of July. At this point the accumulation takes place till the 31st of July between 17.20 and 18.50. Thereafter the Distribution took place from 17.90 to 29.30. This rally lasted for 6 weeks at a stretch.

The Seven Golden Rules of Investing

Being successful at anything requires following a set of rules. Good rules are the accumulation of decades of wisdom summed up into the few components that really matter. This course will teach you the basics of investing in a way anyone can understand.

 Here's what you'll learn in 16 MIN
 Rule #1: Think Long Term
 Rule #2: Good Companies Make Good Investments
 Rule #3: Buy With a Margin of Safety
 Rule #4: Do Your Own Homework
 Rule #5: Don't Follow the Herd
 Rule #6: Don't Put All Your Eggs in One Basket
 Rule #7: Never Stop Learning  

Successful football players win because they avoid penalties and because of the way they train. Successful students get A's because of the way they study. Investing in the stock market is no different, except that when you succeed in investing you make money, a lot of money.

 Rule #1: Think Long Term

Trying to time the stock market or taking big risks to "double your money in a year" is at best speculating, and at worst gambling.

Some one said that "what happens in Vegas, stays in Vegas" A fitting tribute for Stock Market Gamblers too.

Those who are able to successfully navigate the stock market are not speculators or gamblers, they are investors. Investors know they can beat the market because they think differently, they think smarter, and they think long-term.

Believe it or not, this long-term thinking advantage is known as "time horizon arbitrage", and it means that if investors learn to think long-term and can see beyond the daily and quarterly noise, they can gain a real upper hand.

 As per Warren Buffet “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

 Rule #2: Good Companies Make Good Investments

 nvesting is not like placing a bet on whether the Cowboys will cover the spread against the Packers in the big game.

Investing is not trying to get the quarterly press release a microsecond before the other person. It is not even about trying to predict which stock that you think will go up the most.

The most consistent way to generate returns is through the principles of Fundamental Investing.

What is Fundamental Investing?

It is buying a tangible piece of a business, also called a share of that business and adding it to your portfolio.

Your investment portfolio (the collection of all the different shares you own) is only as good as the sum of the companies in that portfolio.

Its kind of like building a team. Not every player is going to have a good year, but together they can make it happen.

So how do you build an effective team?

Buy shares of high quality companies at reasonable prices, and you'll end up with a high quality portfolio with less risk. It's as simple as that.

Good companies are ones that have a unique advantage that others can't copy. They generate high returns on capital and don't need to borrow a lot because their business is self financing.

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Rule #3: Buy With a Margin of Safety

In investing, a margin of safety is formed when one buys an investment at less than its value, while using conservative assumptions.

The idea of a margin of safety is that you want to buy a business at a price that is low enough that your assessment could be completely wrong and you wouldn't lose much.

Its almost like rigging a coin flip so that it goes "Heads I win; tails, I don’t lose much"

 

 Rule #4: Do Your Own Homework

 There is no substitute for your own work.

 Buying a stock because Your Boss recommended it, or because your uncle recommended it, or the stock chart looks good is a sure way to lose money.

 Successful investors know what they own. They buy stocks of companies with products they believe in and they go the extra mile to analyze the financials of the company to make sure they're not missing anything.

 Remember, most of the extraordinary gains made in the stock market come after a stock is punished or after it has already risen a lot, but you're not going to have the conviction to stick with it unless you really know the company.

 Its not enough to just buy stocks because they were recommended to you, "You have to know what you own, and why you own it."

Rule #5: Don't Follow the Herd

The typical buyer's decision is usually heavily influenced by those around him. Thus, he ends up buying when others are buying, and selling when others are selling.

But that's just not the way its done. In fact, following others is a recipe that is bound to backfire.

 Investors thought Stocks would never lose value in 2010 - 2011, and went crazy. Don't be that guy!

 As much as we'd like to think that individual investors are rational human beings, the truth is, the market can sometimes be a fanatical mess of everyone trying to get in on the next big thing.

 Then when the bubble bursts everyone loses their shirts because they didn't take the time to do the research themselves.

 he best investors are ones that can fight this urge remain calm through a storm, and remain on the sidelines through a bubble.

 ”Be fearful when others are greedy, and be greedy when others are fearful!”

  Rule #6: Don't Put All Your Eggs in One Basket

Diversification is one of the most critical strategies for your portfolio so that if one stock blows up, it won't sink the entire ship.

As much as we think we won't make a mistake, we will. Even the masters do and that is why we can't put all our eggs in one basket. There's power in diversification.

However, research suggests that 90% of diversification benefits can be obtained in most markets with a portfolio of just over 20 stocks. The more you diversify beyond that, the less you know about each investment (Rule #4: Do Your Own Homework).

Your first and second best ideas are always better than your 100th best idea, so while diversifying is crucial, make your best ideas count!

 "Try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts”.

 In other words, go big or go home!

  Rule #7: Never Stop Learning

 Perhaps the most important rule is learn, learn more, and then keep learning.

What makes investing fun is that the markets are always different and companies are constantly changing.

 Never stop learning about businesses, never stop learning from other great investors, and never stop learning from your own mistakes.

Humility and an eagerness to learn are two traits found in all of the great investors.

Course 4 - Prices of Stocks....Why are they going up and down

Stock prices aren’t like the prices of items at your local grocery store. They are constantly changing, with dramatic results. Imagine going to the store and paying Rs.120/- for a loaf of bread that was Rs. 30.00 a week ago.  This course will teach you what goes into to the price of a stock.

Bread: Rs. 120/00. Jeans:Rs.6000.00. Gym membership:Rs. 10,000.00. One-way ticket to North Korea: Rs. 45000.00  (If you really want to go…)

Those are all real prices from the real world. But how exactly are those prices determined?

Well, there are a lot of things that go into a price. In the case of bread, for example, there are all those inputs that go into making bread: flour, water, labor.

And then there are all those intangibles that go into selling bread: packaging, marketing, advertising. And of course the grocery store needs to take its cut for stocking the bread on its shelves. In fact, when you think about it—how on earth can a loaf of bread cost only Rs. 120.00.

The Pyramids, the Bermuda Triangle and Prices: Three Great Mysteries of Life

Pricing can sometimes seem like a bit of a mystery. Sometimes things are way cheaper than you think they “should” be—and sometimes they’re way more expensive. But thanks to the magic of the free market, prices for everything—whether it’s loaves of bread or jet aircraft or even things like Vehicle insurance—are set so that sellers are willing to sell, and buyers are willing to buy.

But there’s one thing that even economists sometimes find baffling: the price of stocks.

How do you price a stock? After all, there are no physical inputs. There’s no package design. There’s no marketing, or advertising, or displaying the stock on shelves. In fact, a stock is…well…it’s not even a THING!

Mystery Explained (sort of)

In this course, we’ll take that mystery on. We’ll look at the factors that go into making a stock price. We’ll look at how a price can change. And we’ll give you the preliminary tools for evaluating a price.

At the end, the mystery won’t be fully explained…but it will definitely be a little less mysterious.

Market Economics

In a free-market economy, price is set by the market without any intervention by the government. (That’s why it’s called “free market.”) And the way the market sets the price is by matching supply and demand.

Imagine a Wheat flour Importer . He orders Flour and have it shipped and get it delivered to his warehouse. His customer is the bread company.

When the bread company shows up at the Importers shop, He states his asking price; and if the bread company agrees to it, It will write him a cheque, take the Flour and bring it back to the bakery.

But what happens if they don’t agree? What happens if the bread company says, “Hold on, Sam —Rs. 200.00 a kilo?? Are you crazy?? Are you smoking something?? The next door Peter is asking Rs. 195/- a kilo. Either you match his price OR YOUR FLOUR WILL ROT IN THE STORE HOUSE AND YOU WILL NEVER BE HAPPY AGAIN!!!!”

 (Whew. Bread-making is a nasty, nasty business. Don’t go into it.)

Anyway, if Peter really is asking Rs. 195/-, Sam really does have to match the price.

But if the bread company is just bluffing, and Peter is also asking Rs. 200.00 a kilo, Sam has the upper hand. He’ll say: “You don’t scare me, Bread Man. I know Peter. He’s my brother, you idiot! And I know he’s asking Rs. 200.00. Pay that amount, or YOU WILL NEVER MAKE ANY BREAD THIS YEAR, AND YOU’LL BE OUT OF BUSINESS AND YOU WILL NEVER BE HAPPY AGAIN!!!!”

(A lot of Importers are crazy and violent. Don’t go into that either.)

Market Equilibrium: How We All Get Along

That, in a nutshell (and with a lot less drama), is how the market works. Suppliers ask a price. Buyers offer a price. If they agree, a sale is made. If they don’t, the buyer has to offer more or the seller has to ask less—until they reach a point where they’re asking and offering the same price.

And it’s like that all along the supply chain: from farmer, to bread maker, to supermarket, to consumer. And for every good and service. When buyers and sellers agree on a price, the market reaches what is called market equilibrium. The price is stable, and everyone gets along….

Stock Prices and Market Cap

Now obviously a lot of things can happen to disrupt market equilibrium. Let’s say there’s a drought and farmers have only half the wheat to sell that they had last year. Bread makers will be scrambling to find enough wheat for their bakeries. They’ll offer higher prices—and farmers will willingly accept them. The market equilibrium price of wheat (and ultimately of bread) will go up.

And of course the reverse can also happen. If the farmers have such a fantastic crop they can’t find enough bread companies to buy all their wheat, they’ll ask for lower prices—and bread companies will willingly accept them. The price will go down.

OK, that’s bread. What about stocks?

This basic rule of the market—the price is determined when buyers and sellers agree—applies to everything: clothes, food, housing, life insurance, whatever.

But does it apply to stocks?

In a word, yes. It’s true that stocks are different from just about everything else in the market. You can’t wear them, eat them, drive them or make them pay for repairing a flooded basement. But the price of a stock is determined by buyers and sellers agreeing in the market.

Prices determine market cap

The price of a stock is really important. For one thing, it lets you calculate a company’s market cap. Market cap is short for “market capitalization,” and it tells you how much the market thinks a company is worth. To figure it out, all you do is multiply the price of one share by the issued Capital, like this:

P (share price) x N (Issued Capital) = Market Cap

Of course, it’s a great thing to know how much a company is worth. But if you’re like most people, you still have a nagging question: how do buyers and sellers decide what they think a share (and by extension, the whole company) is worth?

Earnings

Yeah, figuring out what a stock price should be is a nagging question for just about everyone—including investment experts. And a big part of the reason is that when you buy a stock, you’re not just putting a value on the company today. You’re estimating the value of it tomorrow—and maybe 10, 20 or 30 years from now.

Back to bread

And that will show you right away why this is a nagging question. Take bread, for example. When you buy a loaf, you do so based on what you think it’s worth. 120 rupees? A steal!300 rupees? What?? Do I look like a banker?

The thing is, you decide what it’s worth based on its value to you today. You don’t decide based on what its value will be to you in six weeks, six months or six years.

Unlike stocks.

Making bread from stocks…

You own stocks to make money—now and in the future.

There are a couple different ways in which stocks do that. One is capital appreciation—the stock goes up in price. Another is dividends—the stock pays you cash on a regular basis. But given that not all stocks appreciate, and not all stocks pay dividends, that raises a big question: how do you know how much money a stock will make you?

Yup, that’s the million rupee question in investing. Because you need to know how much a stock will make you in order to decide how much you should pay for it. And while we won’t go into ALL the different factors that go into that decision, we’ll touch on one of the most important: earnings per share.

Earnings per share (or EPS) is just what it says: the amount of money the company earned in a year, divided by the number of shares outstanding. Finding that figure is easy: in a company’s annual report—or your brokers research reports you can find it under “EPS.” (Convenient, huh?)

And understanding it is almost as easy. When it comes to earnings, more are better than fewer. Earnings that grow from year to year, rather than decline—that’s better too. And earnings that are predictable, rather than yo-yoing up and down every year—that’s also a good sign.

Comparing Earnings to Price

And that brings us to how investors decide what a company (and therefore a single share) is worth. They look at a whole bunch of things—the quality of management, the company’s finances, the prospects for growth—but arguably the most important is earnings. Are they high? Have they been growing steadily? Is it likely they’ll keep growing?

If the answers to those questions are all positive, investors will then compare those earnings to the price of a share using another important number: the P/E ratio.

The P/E ratio is the share price divided by earnings per share. Say a company’s share is 50. And say that each share earned 5.00 last year (that’s the EPS). Then the P/E ratio is 50/5 = 10.

Investors use P/E ratio as the best guide to determining whether or not a share is cheap or expensive. (There’s a lot of debate about whether it is the best guide—but there’s no debate that it’s the one that’s most commonly used.) In simple terms, it answers this question: how much are you willing to pay for the future earnings of this company?

This is a VERY complicated topic, so we’ll examine it in greater depth in other courses. But here’s what you need to know for now: comparing P/E ratios between companies in the same industry is a  good way to compare their stocks. It’s only the beginning of the stock-picking process, but it’s the starting point for you as an investor.

Investor Behavior

OK, trying to explain a stock price in one lesson is like trying to explain the entire plot of Game of Thrones in 60 seconds. There’s just too much to digest in one sitting. Ain’t gonna happen.

But we do want to introduce you to one aspect of stock pricing that you should know about now. And that’s something called investor behavior.

Consumers? Predictable. Investors? Not so much.

Consumer behavior is generally pretty predictable. Take Washing Machines, for example. While inexplicable crazes sometimes occur, it’s a pretty safe bet that households will only have one Washing Machine at a time—and they’ll only get a new one because they need to, not because they’re bored with the one they now have. And that applies to the vast majority of consumer goods.

Investor behavior is quite different, however. It’s really not that predictable. Sometimes—often, in fact—people get really excited about a company or sector. (Like the Plantation Stocks of the 1990s?) They go nuts for its stocks. They buy, buy and buy again. And the price shoots through the roof.

And then it sinks like a stone.

There’s no knowing what will cause investors to suddenly get really hot about a company. Or what turns them really cold. Scientists can’t explain it. Nor can psychologists. And certainly not economists. It’s a mystery.

Investor Sentiment—Buyer Beware!

But “investor sentiment,” as it’s called, is really, really important in determining a share price. If an Aluminium company makes a big breakthrough, that’s a good reason for its price to rise: future earnings will likely be bigger than expected. But should the price double? Triple? Go up by 20 times?

In theory the rise in price should be proportional to the likely change in future earnings for the company. But in practice, people can get so excited that they push the price WAY above that level. And then because the price is rising, more investors start piling in. And that pushes the price even higher.

It can go on and on like that. (When that occurs in entire sectors of the market you have what is called a “market bubble”—so named because it’s guaranteed to burst.)

Investor sentiment can be positive or negative. It can have a small effect on share prices, or it can be huge. It can be based on rational factors, like a change in earnings; or it can be based on things that make no sense, like a belief that a stock will keep rising because it has been rising steadily for a year.

However it manifests itself, investor sentiment plays a significant role in determining the price of a stock. And it’s so complex that there’s no sure way of guessing which way it will move next.

Conclusion

The price of a stock is determined the same way the price of anything is determined: by agreement between sellers and buyers. But how do sellers judge what is a good price at which to sell? And how do buyers know what is a good price at which to buy? If there’s one thing you’ve learned from this course, it should be that that is a very complicated process.

As we noted, there are a lot of things that influence investors’ decisions about the value of a company, from the quality of the management to the quality of the competition. Buyers and sellers make judgments about those factors—and probably the most important is the company’s earnings.

Is the market always right?

In theory, there is a correct value for a company. And if a company’s share price is too high—if the company is overvalued—then the market will adjust the price. Sellers will have to lower their asking price, and the market equilibrium price will drop until the company is correctly valued.

That’s in theory.

In practice, a company can be over- or undervalued for a long time. Maybe investors are so excited about the Media hype created on a Company  that they overlook the terrible sales figures month after month. Maybe they’re so discouraged by sales figures that they overlook the dull but brilliant Mangement. Investors are funny that way.

The purpose of this course is to get you to remember that. Smart investors look at all the factors that go into a price. They invest for the long term. They recognize the importance of earnings, but take into account other things, like the global economy.

And they always remember that there’s something called investor sentiment. It can affect stock prices in a major way—and sometimes create undervalued stocks that are every investor’s dream.

Previous Courses:

Course 1- Learn basics of stock market
Course 2 - So what are stocks
Course 3 - Let's Talk Dividends - Almost everything about Dividends you need to know

My Valentine gift for you......ASI - 4 year cycles

ASI have had lows and peaks within 4 year cycles in the past. The year 2017 is the beginning of the present 4 year cycle. The stocks you need to buy to benefit from this expected rally will be the biggest companies who are the leaders in their respective sectors. The chart that explains the performance is given below.

Let's Talk Dividends - Almost everything about Dividends you need to know - Course 3

1. Introduction
2. Terms To Know And Other Basics
3. Investing In Dividend Stocks
4. Doing your homework
5. Conclusion

Introduction

A dividend is a distribution of a portion of a company's earnings to its shareholders. Dividends can be in the form of cash, and stocks. Most stable companies offer dividends to shareholders.

Investing in dividend-paying stocks can be an effective method of building long-term wealth. 

Terms To Know And Other Basics

Cash Dividend Cash payments made to stockholders, paid on a per share basis, quoted as a rupee amount. Cash dividends are typically paid out of the company's current earnings or accumulated profits.

Date of Announcement : This is the Day the Company makes the Announcement of the Dividend

Rate of Dividend : The Amount of Dividends paid per share.

Financial Year : Fiscal Year to which the Dividend is applicable.

Shareholder Approval : whether or not the Shareholders need to approve the dividend.

XD : The date on which the Dividend will be excluded for the Purchasers.

For example, stock ABC recently announced a cash dividend with an ex-dividend date of December 7. If you purchase 100 shares of ABC stock on December 7 (on or after the ex-dividend date) you will not receive the dividend; the person from whom you bought the shares will receive the dividend. If, however, you purchase the shares on December 6 (before the ex-dividend date) you will be entitled to receive the next dividend. The ex-dividend date for stocks is typically set one business day before the date of record. A stock's price may increase by the rupee amount of the dividend as the ex-date approaches. On the ex-dividend date, the exchange may reduce the price per share by the rupee amount of the dividend.

Payment : The Date on which the Dividend will be paid

Scrip dividends : Shares are offered in place of Cash. Ex. 1 for 50 shares of ABC company. Here you will get 1 share for every 50 shares you own. The cash equivalent per share is calculated at the closing price on the last day before the XD date. Let's say the closing price is 10, then you divide 10 by 50 = =/20 cents.                             

Investing In Dividend Stocks

Many people invest in dividend-paying stocks to take advantage of the steady payments and the opportunity to reinvest the dividends to purchase additional shares of stock. Since many dividend-paying stocks represent companies that are considered financially stable and mature, the stock prices of these companies may steadily increase over time while shareholders enjoy periodic dividend payments. In addition, these well-established companies often raise dividends over time. For example, a company may offer a Rs. 2.50 dividend one year, and the next year pay a Rs. 3.00 dividend. It's certainly not guaranteed; however, once a company has the reputation of delivering reliable dividends that increase over time, it is going to work hard not to disappoint its investors.

A company that pays consistent, rising dividends is likely to be a financially healthy firm that generates consistent cash flows (this cash, after all, is where the dividends come from). These companies are often stable, and their stock prices tend to be less volatile than the market in general. As such, they may be lower in risk than companies that do not pay dividends and that have more volatile price movements

Because many dividend-paying stocks are lower in  risk ( Specially the Large Long Standing Companies), the stocks are an appealing investment for both younger people looking for a way to generate income over the long haul, and for people approaching retirement - or who are in retirement - who desire a source of retirement income.

Contributing further to investor confidence is the relationship between share price and dividend yield. If share prices drop, the yield will rise correspondingly.

Doing Your Homework And Taxes

Similar to any other investments, it is important to perform due diligence prior to making any dividend-related decisions. There are several factors to consider when researching and selecting dividend stocks, including the dividend yield, dividend coverage ratio and the company's history of dividends.

Dividend YieldAs mentioned previously in this tutorial, the dividend yield shows how much a company pays in dividends each year relative to its share price. It is calculated by dividing the annual dividends per share by the price per share.  It is calculated as follows:






Dividend Yield = (Dividend Per Share/Share Price)*100


It would make sense that the higher the dividend yield, the better the investment, but this financial ratio can be deceptive. Remember that this ratio increases as share prices drop. A dividend yield that is unusually higher than other stocks in the same industry may indicate that the stock's price may drop, or that future dividends will be cut or eliminated. This can spell double-trouble for investors who will lose money both on the falling stock price and the loss of any future dividend income.

Dividend Coverage Ratio The ratio between a company's earnings and its net dividend to shareholders is known as dividend coverage. This ratio helps investors measure if a company's earnings are sufficient to cover its dividend obligations. Dividend coverage is calculated by dividing earnings per share by the dividend per share:




Dividend Coverage = Earnings Per Share/Dividends Per Share
For example, a company that has earnings per share of Rs. 7 and pays a dividend of 2.5 would have dividend coverage of 2.8 (7 ÷ 2.5 = 2.8).

In general, a coverage ratio of 2 or 3 shows adequate coverage and that the company can afford to pay a dividend. If the ratio falls below 2, it could indicate that a dividend cut is on the horizon. If the ratio falls below 1, the company is likely using last year's retained earnings to cover this year's dividend. A ratio that is high, such as greater than 5, may indicate that the company is "holding out" on investors and could have paid a larger dividend to shareholders.

Continuous RecordsCompanies that boast consistent dividends, particularly if dividends increase over time, are typically financially stable and well-managed. While a good track record does not guarantee future results, a company that has performed well in the past may be less risky than one with a spotty or inconsistent history.

Taxes - 

Generally Dividends has a withholding tax of 14%, but certain companies are partly or fully exempted from taxes. 

Conclusion - 

Many investors seek dividend-paying stocks as a means of generating income and growing wealth. As with any investment, it is important to do your homework and find investments that are suitable to your investing style, time horizon, financial situation and financial objectives

.

So What are Stocks - Course No. 2

Hope you read the earlier post on the Stock Market - Course 1

Let’s now move on to the Course 2…….

So, What Are Stocks?

I do not want to complicate things and like to give it to you straight. I am not into the whole textbook thing - what with all the jargon and formulas. Let’s keep it simple. Today, you're here to learn about stocks. And learn about stocks you will...

So, what are stocks anyway?

A company is made up of thousands, hundreds of thousands and even millions of small pieces of ownership, called shares. Management, employees and outside investors can buy shares in companies they believe to be GOOD INVESTMENTS.

Like an investment pizza pie, each share represents a percentage ownership of the entire company. Shares are also commonly called equity.

When companies are publicly traded on a stock exchange (typically only the largest of companies do), shares become known as stocks. Through the stock market, investors can buy and sell their ownership stakes in companies to one another.

Did you know?...You just covered 13% of all what want to know about stocks, read on…..

You'll learn:

·         more about what stocks are

·         why companies sell their stocks to investors

·         how investors stand to gain by buying shares in companies

Case Study: Who Owns People’s Insurance?

To understand more about how stock ownership works, let’s take a look at People’s Insurance as an example. When People’s Insurance was a private company (before it entered the public stock exchange) it was totally owned by People’s Leasing and Finance Plc, owning 150 million shares totaling 100% of the shares issued.

But when they went Public, and gave 50 million shares to the Public, a lot of investors managed to own bits and pieces of the Company other than the Major Share Holder. The following lists show you how it was then and now:

Before going Public

After going Public

This means that the shares of the company were owned by one entity i.e. People’s Leasing and Finance Plc before. But when People’s Insurance went public in 2016, it allowed any and all investors to own small pieces of the company in the form of stocks.

The takeaway here is: owning a company’s stock is like being a partial owner of the company itself.

We have covered 25% of getting to know about a Stock so far.

The Case for Owning Stocks

Ok, so you get what stocks are. But why are all these people putting their money in stocks? Why would you want to own a piece of a company?

Well, the answer is pretty simple. There are loads of investments out there – many of them good. Bank deposits, bonds, gold, and real estate have all performed well throughout history, but nothing (and we mean nothing!) has performed as well throughout history as stocks.

Don't believe us? We'll show you...

93.00 invested in the Cheveron Lubricants on the 2^nd of January 2009 would be worth over 636 at the end of 2016 plus 279.50 received as dividends, and the 1 share bought is now 4 shares due to splits . As your stock holding from 1 share to 4 shares you have earned a massive return of 884% for 7 years or 126.3% per annum. Just take a careful look at the chart below:

So that's one reason why you should invest some money in stocks...but not the only reason.

Why else should you invest in stocks?

·         It's easy: INVESTING IN STOCKS is easy. Real estate has also proved to be a good investment over the long term, but there’s a reason it’s called sweat equity: it’s hard! We’ll show you just how easy it is to research and buy stocks.

·         It's cheap: With online investing, you can buy and sell stocks. Even the cost of professional advice is zero (think about it...even this lesson your reading right now is FREE!). here's no minimum

·         investment: Unlike investing in real estate or private companies, there is no real minimum investment requirement when investing in stocks. That means everyone can get in on the action.

·         You (can) get free money for retirement: The above chart shows you how the dividends can earn you free money when you retire. Especially if you plan to enjoy a comfortable  retirement.

·         You get tax advantages: The fee imposed in the transaction cost is so innovative, that only some stupid guy would change it.

Given all this, there is probably no better way to grow your assets over time than partly through the stock market.

38% covered thus far keep going……

How to Make Money Buying Stocks

Stocks are the best way to grow a small investment into a much bigger one over time.

There are 3 ways you can earn money when buying stocks:

1. Your stocks go up in price

·         If you buy a stock at 10 per share and it goes up to 20 per share, you’ve doubled your money (on paper, anyway -- you’ll need to actually sell the stock to lock in your profits). These profits are known as capital gains. Over the long term (like 10 - 25 years), the stock market tends to go up, especially due to the Countries potential for development and economic growth.

2. You get paid to own stocks

·         Many public companies pay out a quarterly or yearly dividend to the owners of their stock. They do this in order to share their profits with investors. Sort of like a "thanks for believing in us" gift. It's not uncommon to make 2%-5% or more like in the above chevron example per year on an investment in a stock, just by collecting dividend payments. You own the stock? Pass ‘Go’ and collect your dividend. It’s that easy.

·         Companies Split shares into 2 more times. So when you own 1 share and the company splits it into 2 times on 2 occasions your 1 share becomes 4 shares( 1 splits into 2 = 2, then again splits into 2 =4 like the above chevron case)

So, your total returns from owning stocks will be based on both capital gains (your stocks going up in price) and dividend payments (you getting paid to own stocks). And when the share gets split both CG and Div is paid or the total shares you own.

A Little About Risk and Stocks:

·         In the SHORT term (say, less than a few years), it’s entirely conceivable that your investment in a stock could be worth less than what you paid for it. Bummer, but that’s the way the market works: it rewards long-term investors. Stocks can go up and down a lot during the course of that time.

·         With the potential for growth comes risk (risk and return are two sides of the same coin).

·         Stocks are certainly risky, too. But for patient investors, this risk typically pays off.

50% covered do you want to go the next half? Read on won’t take you long…..

Buy Your First Stock

With more than 200 companies trading on the stock exchange, it’s hard to know where to begin.

Good thing famed investors have simplified this early decision making for us...

They say to buy what you know. By buying what you know, they recommend that investors begin buying stocks for their portfolios by starting with their interests.

This idea of 'buying what you know' has 2 main benefits:

·         People make money in the stock market by knowing more than the next guy. If you've got more information or knowledge on a subject, chances are you're going to make better investment decisions when it comes to these sorts of stocks over others. If they are in fact better decisions, the stocks' prices will eventually reflect that. And you'll make money. 

·         If you're following stocks of companies you're interested in, you'll have an easier time keeping up with the news you need to keep yourself informed. If you're really into Banks, reading about healthcare stocks won't be as interesting as seeing what Com Bank and Sampath  have been up to lately. As with most things in life: if you're having fun with it, chances are you'll do better.

2 STEPS TO PICKING YOUR FIRST STOCKS:

·         Start by looking at yourself: In order to buy what you know, you got to...well...know yourself. Start by taking a good hard look at the things you're passionate about. Are you spending more and more money on something in particular? What consumer trends are you following? Do you have any hobbies? Play sports? What industry do you work in?

·         Buy stocks that match your interests: Find suitable stocks that match your interests, spending habits, or business experience. Why wait any longer? Let's do that right now...

63% done, only the last few steps, go on……

Is one Stock enough

One stock just isn’t enough. No successful sports team has one player at each position—they have multiple people with star potential to step up if someone gets hurt.

The same goes for your portfolio. You need multiple stocks to prevent catastrophe from having its way with your investments. If one investment fails, hopefully another part of your portfolio will be rocking its way upwards making you money and softening the blow of that dud investment.

Diversification

Of course you are familiar with the saying “don’t put all your eggs in one basket”. Well the same goes for your portfolio. Holding a diversified portfolio will lower your overall risk.

Here’s an example:

Imagine your entire portfolio is made up of 100 shares of Commercial Bank. Presently the Banking Sector is going through some tough times. This will, of course, hurt the value of your investment. Because your portfolio is made up of 100% of Commercial Bank stock, you are going to lose a lot of money.

If instead your portfolio is made up of a smaller percentage of Commercial Bank, as well as small percentages of stock in Access Engineering, The Construction Company, and Alumex and so forth. When Commercial goes through the rough, only a small percentage of your overall investments take a hit, rather than the whole thing.

Now you are well on your way to a diversified portfolio of stocks.

The course about knowing what Stocks are is complete……..Let’s meet for the Course No 3 soon

 For more information you can call me on 0773219506(whatsApp and Viber too), or mail on saliya@capitaltrust.lk.