What is ' BULL market ' and ' BEAR market ' ?
An extended period of time when majority of investors are buying stocks and the stock prices are rising is referred to as a ' Bull Market '. An extended period of time when majority of investors are selling stocks and the stock prices are falling is considered a ' Bear Market '.
What is dividend and bonus shares ?
' Dividend ' is the portion of company's profits which is paid out to its shareholders ( remember if you own a share of a company then you are legally associated with its profits and losses ). So if you own more shares then you get more money in the form of dividends. The amount of the dividend is decided by the board of directors of the company. So suppose SBI informs that it is paying dividend of 10 rupees per share and you hold 500 shares of SBI. Then after a pre-decided record date you will get 5000 rupees ( 500 * 10 = 5000 ). Also the price of its share will be adjusted accordingly and will drop by 10 rupees. Similarly ' Bonus shares ' means dividend paid to shareholders in the form of shares. Sometimes a company is not in a position to pay dividend in the form of cash. So it issues bonus shares to its share holders. One of the reason why this happens is due to unsatisfactory cash position of the company. The number of the bonus shares is decided by the board of directors of the company. Now consider you have 500 shares of SBI at current market price of 1000 rupees per share. Now SBI announces bonus shares at a ratio of 1 : 1 ( it means 1 share free for every one share held ). Then after a pre-decided record date you will get 500 extra shares. Also the price of its share will be adjusted accordingly and will become 500 rupees per share. So now you will have 1000 shares of SBI at a price of 500 each. But if a company has some expansion plans or some other reason, it can decide not to issue bonus shares and/or dividends instead of huge profits. In such a situation, the company keeps large cash position with itself for future investment and the price of share is not adjusted.
Why are stocks categorized in different sectors ?
There are so many companies which offer different kind of products or services. E.g. SBI is a bank, INFOSYS is an IT company, DLF is a real estate and infrastructure company etc. These companies are categorized in different sectors according to their business. This way its for everyone to know the basic business of any company and compare it among other competing companies.
What kind of stock broker should I choose ?
To buy shares you should have a broker who will buy shares on your behalf. Since we are in an era of internet it is advisable to choose a broker which provides facility to trade via internet. A broker should be well established in this field, should have a good team of research analysts to provide you with good stock buying tips and should be the one who charges less brokerage fees. This fees is charged by the broker whenever you make a transaction i.e. buy or sell.
How to find out profit making stocks ?
Finding out good stocks is not an easy thing to do. But there are some useful points which should be considered before choosing a stock. These are :
1. The company should be among the leaders in its group.
2. The company should be under good & smart management.
3. The company must have a strong brand value.
4. It should promote innovative ideas and technology for the future.
5. The amount of debt should be very small for a company. ( Debt-equity ratio not more than 0.5 )
6. The owners must have a high stake ( at least 30 % ) in the company.
7. The company must have expansion plans for the future.
8. The company must have a solid and scam free background.
9. The company must have sufficient cash reserves for future investment.
10. It should have high profit margins as compared to its competition.
11. The company must be growing at a good pace.
12. It should have a higher average return ( at least 15 % on equity).
Read : How To Identify A Multibagger Stock ?
It may seem very difficult to find good stocks which meet all the above criteria but actually its not. Its just a matter of doing proper research. These days internet offers so many websites by the help of which it easy to carry out a research. All the information mentioned earlier can be found in the annual report of a company and its profiles. But to actually be able to carry out a research you must have good knowledge and understanding of the stock market and for that you must trade. Remember, no matter how much somebody explains still you cannot learn how to drive a car unless you actually sit on the driver's seat and drive it. So research and research more because the main reason why people lose money in the markets is because they don’t carry out proper research before investing. Some people say that investing in the stock market is like gambling but if you carry out a proper research then I am sure that you will earn handsome profits.
Read : 10 Mistakes That Causes You To Lose Money In Stock Market
An extended period of time when majority of investors are buying stocks and the stock prices are rising is referred to as a ' Bull Market '. An extended period of time when majority of investors are selling stocks and the stock prices are falling is considered a ' Bear Market '.
What is dividend and bonus shares ?
' Dividend ' is the portion of company's profits which is paid out to its shareholders ( remember if you own a share of a company then you are legally associated with its profits and losses ). So if you own more shares then you get more money in the form of dividends. The amount of the dividend is decided by the board of directors of the company. So suppose SBI informs that it is paying dividend of 10 rupees per share and you hold 500 shares of SBI. Then after a pre-decided record date you will get 5000 rupees ( 500 * 10 = 5000 ). Also the price of its share will be adjusted accordingly and will drop by 10 rupees. Similarly ' Bonus shares ' means dividend paid to shareholders in the form of shares. Sometimes a company is not in a position to pay dividend in the form of cash. So it issues bonus shares to its share holders. One of the reason why this happens is due to unsatisfactory cash position of the company. The number of the bonus shares is decided by the board of directors of the company. Now consider you have 500 shares of SBI at current market price of 1000 rupees per share. Now SBI announces bonus shares at a ratio of 1 : 1 ( it means 1 share free for every one share held ). Then after a pre-decided record date you will get 500 extra shares. Also the price of its share will be adjusted accordingly and will become 500 rupees per share. So now you will have 1000 shares of SBI at a price of 500 each. But if a company has some expansion plans or some other reason, it can decide not to issue bonus shares and/or dividends instead of huge profits. In such a situation, the company keeps large cash position with itself for future investment and the price of share is not adjusted.
Why are stocks categorized in different sectors ?
There are so many companies which offer different kind of products or services. E.g. SBI is a bank, INFOSYS is an IT company, DLF is a real estate and infrastructure company etc. These companies are categorized in different sectors according to their business. This way its for everyone to know the basic business of any company and compare it among other competing companies.
What kind of stock broker should I choose ?
To buy shares you should have a broker who will buy shares on your behalf. Since we are in an era of internet it is advisable to choose a broker which provides facility to trade via internet. A broker should be well established in this field, should have a good team of research analysts to provide you with good stock buying tips and should be the one who charges less brokerage fees. This fees is charged by the broker whenever you make a transaction i.e. buy or sell.
How to find out profit making stocks ?
Finding out good stocks is not an easy thing to do. But there are some useful points which should be considered before choosing a stock. These are :
1. The company should be among the leaders in its group.
2. The company should be under good & smart management.
3. The company must have a strong brand value.
4. It should promote innovative ideas and technology for the future.
5. The amount of debt should be very small for a company. ( Debt-equity ratio not more than 0.5 )
6. The owners must have a high stake ( at least 30 % ) in the company.
7. The company must have expansion plans for the future.
8. The company must have a solid and scam free background.
9. The company must have sufficient cash reserves for future investment.
10. It should have high profit margins as compared to its competition.
11. The company must be growing at a good pace.
12. It should have a higher average return ( at least 15 % on equity).
Read : How To Identify A Multibagger Stock ?
It may seem very difficult to find good stocks which meet all the above criteria but actually its not. Its just a matter of doing proper research. These days internet offers so many websites by the help of which it easy to carry out a research. All the information mentioned earlier can be found in the annual report of a company and its profiles. But to actually be able to carry out a research you must have good knowledge and understanding of the stock market and for that you must trade. Remember, no matter how much somebody explains still you cannot learn how to drive a car unless you actually sit on the driver's seat and drive it. So research and research more because the main reason why people lose money in the markets is because they don’t carry out proper research before investing. Some people say that investing in the stock market is like gambling but if you carry out a proper research then I am sure that you will earn handsome profits.
Read : 10 Mistakes That Causes You To Lose Money In Stock Market
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