Put your Money to work

We often listen and use the term “Money Grows” or “Money Multiplies”.

Is it actually the money that grows?

No. In fact money’s only characteristic is that it reduces (depreciates) in price over a period of time.

Let’s take an example. One could buy 1 litre of Milk in Rs 8 in 1980. Today, if I go to the grocer, give him Rs. 8 and ask for 1 Litre of milk. He will either laugh at me or throw me out.   Rs 8 have depreciated in its value. Today milk costs around Rs 48 a litre. The value of Rs 8 is depreciated to one sixth in last 30 years or so.

In literal sense money depreciates if it is kept idle. Years back people did not have many alternatives to invest their money. They used to store the cash or coins in their lockers. What has happened to that cash when it was found years later by their next generation? The money was much less worth (or worthless) than what it was when it was stored.

So why we say that money grows?

Let’s take same example. Suppose, people who had stored coins or notes in their locker would have, instead, bought the gold worth that amount and kept in their lockers. Their next generation would have appreciated the ancestors pretty much than in earlier case. Consider the period of keeping the gold to be around 1950s. The value would have been appreciated 280 times today.

It is not the money that grows. It is the asset or service bought in exchange of money that grows in value.

Put your money to work. Don’t let it lie idle.

Either buy assets with the money you have. You will gain the appreciated returns. Assets will grow in price. You will sell it at higher cost to earn profit. Lend (put on rent) your money to someone (let’s say a Bank) and they will pay you periodical rent for using your money. The rent paid is known as interest.

The next task is to choose the asset class (which assets to be bought) or investment class (whom to rent the money). Here the risk reward ratio comes into picture. The more the risk you are willing to take with your money, the more the chance of your money growing faster.

Suppose you have Rs 2 Lac on an average (average balance) lying in your savings account for last 2 years. You would have earned interest of around 28000 with 4.5% compounded ROI in 2 years.

Instead, if you would have bought a piece of land or would have invested in shares or would have bought even a Fixed Deposit, your chances of earning more returns on Rs 2 Lac were far greater. If you would have sold the asset for Rs 3 Lac after 2 years, you would have earned returns with ROI of 14.5%. So as compared to investing in assets or putting it in better asset class, money was lying as good as unused in savings account for last 2 years.

Of course, there is little extra risk involved in all these options. But, as per rule, even the bank does not guarantee your capital beyond amount of Rs 1 Lac. So the risk is everywhere. We are exposed to life threat every time we move on road. It’s the difference in the amount of risk depending on which mode of travel we move by or which road we travel on.

Even in a family or office everyone has some or other task. We do not want a member of family or of office to sit idle. Why let our money sit idle.

So, the next job is to check and identify, which portion of your money is not working for you. Which investment or asset is not earning you the expected returns.It may call for redefining your portfolio.

Market(Nifty) View for period 11^th to 16^th Aug

Last week Nifty continued to fall for 3 days and touched a low of 5486 but managed to close at 5519. Nifty managed to hold this psychological level of 5500.  From here it started its pullback rally on Thursday, which was last session of the week. The closing on Thursday was 5565.

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Recommendations of the Week

BhartiAirtel: Has taken support at 325 and shown signs of strong rally upward. In the week to come expect Bharti to touch 350-355. Buy Bharti at current level of 337 for target of 350. Maintain Stoploss at 322.

Biocon: Biocon broke out with convincing volumes on Thursday. It will touch the next level of resistance which is at 380. Buy Biocon at 337-340 and expect target of 380 in next few days. Maintain Stoploss at 325.

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Disclaimer: Nifty view and recommendations are given to the best of our analysis and data available with us. No one should understand these recommendations as advice. There is substantial amount of risk involved. Bonvista Financial Planners is in no way responsible for any loss occurring out of any transactions.

How is trading different than investing?

Difference between Trading and Investing

After I wrote my last post, many readers were interested in understanding the difference between Trading and Investing.

This post is an attempt to understand how trading is different than investing (in stock market).

Cricket being most popular game in our country, let me use the same analogy here. All of us know the difference between T20 Vs One day. One is short term form while another is little longer. T20 offers its own thrills while One day has its own charm.

Similarly both, investing and trading have their ‘good’ and ‘bad’.

Let’s understand them one by one-

Investing:

Investors usually choose Value Stocks (stocks which are available today at a cheaper rate and are expected to grow in value in next few years) after doing research.  The research can include fundamentals about company. Investors buy these stocks and keep them in their kitty for long term. Investors put limited amount of time in researching the stocks. The holding period usually spans from 1 year to several years. Investors are not bothered about short term fluctuations in stock prices. Investors can earn good returns when the markets are rising. Limited buying selling transactions take place. Investors may buy these stocks by aiming specific life goals like retirement.  

Let’s take an example. One share of HDFC Bank was costing at Rs.200 in 2008. Today one share of HDFC Bank is costing approximately Rs.650. So this stock has generated return of 225% in 5 years. Per year return are approximately 45%. So to earn the return of 225% only two transactions took place. Buying in 2008 and selling in 2013.  

Trading:

Trading, on the other hand, is short term buying or short selling activity to earn profit. The span of a trade is usually from 1 day to six months. Traders use tools like Technical Analysis to predict short term moves of the stock. Traders believe in booking the profit in decided time span. If the stock is not moving in the expected direction, traders exit that stock and enter into another trade. Large number of buying-selling transactions are executed. Traders can earn profit in rising as well as falling markets. (Read my article ‘Investing in Futures’ to understand how you can earn in falling markets). Traders spend lot of time every day to analyse the market moves for coming days or hours.

You may not trade with an amount which is kept for specific goals in life, but the one which is a buffer and you would like to earn better than best returns at the cost of some extra risk. It is like generating extra income source through trading of stocks.

Let’s take an example. A Trader was bullish on Tata Motors which was trading at 270 on 27 June 13. Trader decides to buy Tata Motors as his research tells that it would move higher at or around 300. The stock achieves desired price on 25 July 2013. Here trader decides to book profit. The profit is 11% in the period one month. Immediately after this period, trader’s analysis tells him that the stock would move down to 280 in next few days. Here a trader would short sell the stock on 25^th July and buy it back once the stock achieves price of 280 on 31 July, thus earning 6.6% profit in duration of 4 days.

Trading is strongly supported by advancement in Technology like online terminals, various technical analysis tools, trading advisory services, margins offered by brokers, lot of information on internet etc. 

Finally, you need to decide which one suits you. 

Difference between Trading and Investing

After I wrote my last post, many readers were interested in understanding the difference between Trading and Investing.

This post is an attempt to understand how trading is different than investing (in stock market).

Cricket being most popular game in our country, let me use the same analogy here. All of us know the difference between T20 Vs One day. One is short term form while another is little longer. T20 offers its own thrills while One day has its own charm.

Similarly both, investing and trading have their ‘good’ and ‘bad’.

Let’s understand them one by one-

Investing:

Investors usually choose Value Stocks (stocks which are available today at a cheaper rate and are expected to grow in value in next few years) after doing research.  The research can include fundamentals about company. Investors buy these stocks and keep them in their kitty for long term. Investors put limited amount of time in researching the stocks. The holding period usually spans from 1 year to several years. Investors are not bothered about short term fluctuations in stock prices. Investors can earn good returns when the markets are rising. Limited buying selling transactions take place. Investors may buy these stocks by aiming specific life goals like retirement.  

Let’s take an example. One share of HDFC Bank was costing at Rs.200 in 2008. Today one share of HDFC Bank is costing approximately Rs.650. So this stock has generated return of 225% in 5 years. Per year return are approximately 45%. So to earn the return of 225% only two transactions took place. Buying in 2008 and selling in 2013.  

Trading:

Trading, on the other hand, is short term buying or short selling activity to earn profit. The span of a trade is usually from 1 day to six months. Traders use tools like Technical Analysis to predict short term moves of the stock. Traders believe in booking the profit in decided time span. If the stock is not moving in the expected direction, traders exit that stock and enter into another trade. Large number of buying-selling transactions are executed. Traders can earn profit in rising as well as falling markets. (Read my article ‘Investing in Futures’ to understand how you can earn in falling markets). Traders spend lot of time every day to analyse the market moves for coming days or hours.

You may not trade with an amount which is kept for specific goals in life, but the one which is a buffer and you would like to earn better than best returns at the cost of some extra risk. It is like generating extra income source through trading of stocks.

Let’s take an example. A Trader was bullish on Tata Motors which was trading at 270 on 27 June 13. Trader decides to buy Tata Motors as his research tells that it would move higher at or around 300. The stock achieves desired price on 25 July 2013. Here trader decides to book profit. The profit is 11% in the period one month. Immediately after this period, trader’s analysis tells him that the stock would move down to 280 in next few days. Here a trader would short sell the stock on 25^th July and buy it back once the stock achieves price of 280 on 31 July, thus earning 6.6% profit in duration of 4 days.

Trading is strongly supported by advancement in Technology like online terminals, various technical analysis tools, trading advisory services, margins offered by brokers, lot of information on internet etc. 

Finally, you need to decide which one suits you. 

I am too busy to trade stocks!

I am busy- how do I Trade stocks?

While most of us have one or more Demat and Trading accounts. You primarily open this account because someone has insisted you to open an account. Or you heard that investing in share market gives good returns. Or may be, just because your peers have one.

Once you are done with account opening formalities, you are eager to trade actively. Your broker is more interested in the transactions done by you, as each transaction generates him brokerage. 

He starts recommending you the stocks which are expected to move up. You are exited and you start buying as per his recommendations. 

Initial few days/months are full of excitement. You track all you shares closely. You also create a portfolio on one of the free websites to track the prices closely.

This goes on for a while.  Your schedule hardly allows you to track the portfolio regularly. 

One fine day you hear the markets are falling. You rush and check your portfolio. This is when you realize that prices of shares you bought are falling badly.

You are panic and ring up you broker. He tells you to wait in the anticipation of prices to come up. 

As the time elapses, you realize that the prices are falling further. Now, you are worried. You feel that you have been given wrong recommendations. 
If broker recommends you to buy further, you reject to do so! 

By now you lose faith in broker and eventually shares market. Slowly and steadily you start losing interest in your Trading/Demat account and eventually you loose interest in investing in stocks.

This is not unique. This happens with most of us, when we start investing in stock market.

Lets try and understand why this has happened and how this can be avoided-

Try and answer following questions-
Did you really want to invest in shares?

Did you know what time frame you are buying for?

Did you have time/patience to understand more about the companies you are investing in?

Did you have ‘proper’ resources to study the companies, the broader market, the economic cycle, the market phase?

Have you thought whether you wanted to ‘Invest’ or you wanted to ‘Trade’?

Did you have a mentor to guide you to all above?

Here is a brief attempt to throw some light on all issues above. 
We need to accept the fact that, be it investing or be it trading, you need to know, much deeper than just knowing names of few scrip’s. 

You are willing to enter the market, but are not willing (or you don’t have time) to gain knowledge about it, you will not go anywhere, but ‘northward’. Try and put exclusive time and efforts in learning the basic what, why, when and how of market.

Learn how much of your total savings to be invested in share market, how much risk you can take, what is the time frame you want to be in,  do you have psyche to trade yourself.

Finally find someone who can help you in all these things.

If you do not have time, you need to believe someone. There are many people who are extending their services at a nominal cost, it is worth the returns and learning. There are others who do the research and give you trading calls or long term investing ideas.

There is huge information available on internet, if you want to learn. You can start doing things on your own. 
Here is a list of some good books, you may find worth reading-
http://www.amazon.com/Investment-Books-for-Beginners/lm/RFRGY456GQTJF

Have questions- put me a mail. Your comments are welcome.

http://bonvista.in/index.php

Trading Education and Update The week gone by is a learning for the ones who want to understand what the word choppy market means. The only consistency was being inconsistent. Finally Nifty failed to hold above 6050. The giant Reliance results are out & are in line with the expectations. Now what do we expect here onward?  Bank Nifty is not willing to cooperate and has seen huge pressure. Unless Bank Nifty supports, Nifty can not move up. Next week Thursday is expiry of this series. More companies will be announcing their results. Some them will down the index and some will try to pull it up. The choppy nature is expected to continue in the week to come. How there are many stock which have kept their loyalty to Trend.  Ranbaxy, after retracing 50%, started it downward journey. Safe to assume that will continue to slide till 305 and can be good short sell idea. Read for More Ideas...................... Trading Tip for the Week: Trend is your Friend. Trade by the side of trend.

Investment Services  Stock Trading Advisory Portfolio Management Portfolio Design Financial Planning Comprehensive Goal Based Module Based

Investing in Futures

                                     Investing in Futures

In equity market we invest by purchasing shares of certain company. The money grows when the the price of the share grows and we book profit by selling these shares. This is called as cash segment of equity market. Most of us know this.

There are more instruments in equity market where we can invest or 'trade' for earning profit. These instruments are usually derived from a Company's Stock (Share) as a base instrument. These are called as Derivative and the segment is called as derivative segment. The types of derivatives are Futures and Options. 

Lets talk about futures for the time being. To put it simply, in futures, the investors or traders predict the future price of a security (share). 

The Futures are traded in lots. The volume (No. of shares) in One Lot are so adjusted that the price  of one lot comes between  2.25 L to 3 L (approx).  But while trading in Futures we do not have to pay all the amount (Price of a lot). Instead we pay a margin to the broker. For instance in May 213 series one lot of TCS is of 250 shares. Price of TCS is currently at 1470. So the price of lot comes to 250*1470= 367500. But the broker ask us a margin of around 62000. It means we buy share worth Rs367500  in 62000. The profit or is to be adjusted on daily basis.

The futures trade in 3 monthly series and the series expires on last Thursday of the month. If we are holding a position, we have to compulsorily square off the position on the day of expiry. 

You can earn money in rising market as well as falling market. How? We know that we can buy futures (consider a lot of shares) and sell it at higher price to earn profit. But the 'news' is that we can 'Sell" futures at a higher price (before buying it), and later 'Buy' (square off) the futures at a lower price, to earn profit.  

Now, why do we trade in futures?

The beauty is that it offers two big advantages over Cash Market-

1. For buying one lot of Futures, you just have to pay 15-20% of total cost of the lot.

2. You can earn money in rising market as well as falling market.

Based on our Research and Analysis we invest either on Long (Buy) or Short (Sell) side to earn profit for our customers.

The risk reward ratio is quite favorable in Futures, though there is risk involved, if the discipline is not followed.

I tried to make it as simple as possible. Hope I am clear in what I wanted to convey.

Please get back on anything that I can help you on. (bonvistaplanners@gmail.com)

Check our performance for April Series:

Technical Analysis to design suitable trading strategy!

Workshop on Technical Analysis and designing of suitable strategy.

Technical Analysis is like a powerful map in deep jungle. It guides us through the jungle of shares in very simplified manner. 

The name Technical Analysis seem to be very complicated, but believe me the fact is oppoisite. Any one can learn and implement the Technical Analysis to reduce losses and increase profits.

Being Financial Planners we feel that literacy about the equities in Indian Markets need to improve. We feel the common man should participate in equity market to earn good returns. 

We are coming up with a 2 days workshop on Technical Analysis for equity market

This workshop will enable you to enter the market confidently. If you are already in the market, TA will be powerful weapon with you to deal with bulls and bears of the market.

Anyone who knows what is Share can participate in the workshop.

To know more about the program, just fill up inquiry form on this site or write to us on unmesh@bonvista.in or call us on 9371444875

Hey,
We shall formally launch our website www.bonvista.in by 15th Feb.

Bonvista Financial Planners is plan and implement organization

Financial Planning

In simple language, financial planning is management of financial resources & its deployment to take care of ‘current’ and ‘future’ needs of an individual or a family.

At Bonvista Financial Planner’s, we believe that successful financial planning process should have a perfect blend of theory and practical issues.

Financial Planning  involves analysis and planning in following areas.

Networth Analysis:

This involves analysis of your assets (something which you have) and liabilities (something which you owe). In this exercise we help you to understand your current financial standing (worth).

Cash Flow Analysis :

The process of cash flow analysis helps measuring current position on money ‘coming in’ and money ‘going out’. This process also helps in finding future financial requirements. Cash flow analysis helps you in understanding your current expenses and saving structure. This exercise also gives you an idea of future expenses and money that you will be able to save for your future.

Financial Ratios :

You can co-relate this exercise with Blood Sugar Check-up or Blood Pressure Check-up.

We help you understand whether your current loans are within the limits, whether your current savings are adequate, whether you have sufficient funds available with you in case of an emergency.

Risk Appetite :

We help you understand your thinking towards risk taking in context of investments.

We help you understand in what asset class, should you invest.

Goal Analysis and Goal Planning :

    

This part is “core” of a financial plan. We help you get clarity of various goals in your life, the period required for each goal and money required for each goal.

The next part of this exercise involves helping you understand the current funding available for each goal, how much more to be saved each month, how inflation will affect this goal, in which assets or in how many installments you should save money for each goal.

Insurance Planning : 

We help you understand current situation of your insurance policies, how much insurance you need, and what kind insurance policies you should buy.

Taxation :

With the help of our associates who are ‘Tax Experts’ we help you planning your taxation.

Succession Planning (“Will” writing) :

This is most important area, but usually most neglected. We help you creating you succession plan.