Wednesday, December 31, 2008

Investing Term of the Day: equities


Term of the Day - equities

For Wednesday, December 31, 2008


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Term of the Day - equities

An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation's assets and profits. A person holding such an ownership in the company does not enjoy the highest claim on the company's earnings. Instead, an equity holder's claim is subordinated to creditor's claims, and the equity holder will only enjoy distributions from earnings after these higher priority claims are satisfied. also called equities or equity securities or corporate stock.


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Inflation and Interest Rates

Discover how inflation works and the affect it can have on the market. Also, learn about interest rates, what causes them to rise or drop, and why you should care.


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Taxes and golf are alike, you drive your heart out for the green, and then end up in the hole. - Source unknown


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Investing Term of the Day: equities


Term of the Day - equities

For Wednesday, December 31, 2008


Featured Sponsor

Today's issue is sponsored by ACM:

Join the thousands of investors who have discovered the Forex Market!
ACM is a Swiss online Forex Trading Company offering 2-3 pip spreads
on main currency pairs, instant, real-time one-click execution and
full price transparency. ACM is the most competitive online fx broker
in the world offering the lowest forex spreads on the market,
commission-free, tax-free, guaranteed fills, a free fluid real-time
trading price feed, graphs, analysis and news.


Click Here to Start Trading Today


Term of the Day - equities

An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation's assets and profits. A person holding such an ownership in the company does not enjoy the highest claim on the company's earnings. Instead, an equity holder's claim is subordinated to creditor's claims, and the equity holder will only enjoy distributions from earnings after these higher priority claims are satisfied. also called equities or equity securities or corporate stock.


Featured Article from InvestorGuide University

Inflation and Interest Rates

Discover how inflation works and the affect it can have on the market. Also, learn about interest rates, what causes them to rise or drop, and why you should care.


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Taxes and golf are alike, you drive your heart out for the green, and then end up in the hole. - Source unknown


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Tuesday, December 30, 2008

Investing Term of the Day: HMO


Term of the Day - HMO

For Tuesday, December 30, 2008


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Take a look at the amusing takes we found for a number of popular terms!


Term of the Day - HMO

Health Maintenance Organization. A form of health insurance combining a range of coverages in a group basis. A group of doctors and other medical professionals offer care through the HMO for a flat monthly rate with no deductibles. However, only visits to professionals within the HMO network are covered by the policy. All visits, prescriptions and other care must be cleared by the HMO in order to be covered. A primary physician within the HMO handles referrals.


Featured Article from InvestorGuide University

Mutual Funds and Your Portfolio

How can you choose the best mutual funds? Here we explore selection techniques, including performance, fees, services, diversification, and manager evaluation. We also examine how to decide what role mutual funds should play in your overall portfolio.


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Quote of the Day

The highest use of capital is not to make more money, but to make money do more for the betterment of life - Henry Ford


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Investing Term of the Day: HMO


Term of the Day - HMO

For Tuesday, December 30, 2008


Featured Sponsor

Today's issue is sponsored by Funny Definitions:

Our premiere glossaries, www.InvestorWords.com and www.BusinessDictionary.com, have received high acclaim for providing the most clear, concise, and comprehensive financial and business terms and definitions online. We realize, however, that many of these definitions still have room for interpretation.
Take a look at the amusing takes we found for a number of popular terms!


Term of the Day - HMO

Health Maintenance Organization. A form of health insurance combining a range of coverages in a group basis. A group of doctors and other medical professionals offer care through the HMO for a flat monthly rate with no deductibles. However, only visits to professionals within the HMO network are covered by the policy. All visits, prescriptions and other care must be cleared by the HMO in order to be covered. A primary physician within the HMO handles referrals.


Featured Article from InvestorGuide University

Mutual Funds and Your Portfolio

How can you choose the best mutual funds? Here we explore selection techniques, including performance, fees, services, diversification, and manager evaluation. We also examine how to decide what role mutual funds should play in your overall portfolio.


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Quote of the Day

The highest use of capital is not to make more money, but to make money do more for the betterment of life - Henry Ford


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Power Sector: A bundle of opportunities lying ahead

Our outlook towards the Indian Power sector (the generation and transmission
companies) remains buoyant, and we believe that the sector is well positioned to grow
significantly. The ability to pass on the cost to the end user and generate fixed returns
makes the Indian Power sector a safe investment opportunity. In addition, the recent
bear run has put most of the power generation and transmission companies’ stocks
within an attractive price range, which provides potential capital appreciation
opportunities.
􀂃 Government looking to stimulate demand through infrastructure spending
Infrastructure spending has been the focal area of the Government of India (GoI) in
the past few years. With the Indian economy slowing down, the GoI is looking at
stimulating demand with increased infrastructure spending to achieve a GDP
growth rate of 6–6.5% over the next few years. Correspondingly, we expect the
Indian power sector to grow at 12–13% annually during the XIth five-year plan. A
capacity addition of more than 78,000 MW has been envisaged during the XIth fiveyear
plan by the GoI. The installed capacity has already increased from about
132,000 MW at the end of the Xth five-year plan to about 146,000 MW as in
October 2008.
􀂃 Current power deficit – a good opportunity for expansion
The excessive demand scenario for power in the country also implies significant
growth potential for the power sector. India has historically been a power-starved
country, with the peak power deficit standing at 16% in FY07-08. The GoI has
charted out its mission of ‘Power for All by 2012’, which calls for a YoY capacity
addition of 18,000–20,000 MW during the ongoing five-year plan. The mission also
targets an increase in the per capita consumption of electricity from 631 Kw/hr in
2006 to more than 1,000 Kw/hr by 2012.
􀂃 Long-term coal linkages to improve Plant Load Factor (PLFs) of power plants
The profitability of the power generating companies is expected to improve in the
coming quarters as the GoI is well on track to provide long-term fuel linkages to the
power plants. Coal India Ltd. (CIL), which mines about 85% of the coal produced in
the country, is expected to sign a fuel supply agreement (FSA) with certain PSUs,
with an assurance to supply coal for 90% PLF. In the current scenario of fuel
shortages, the power generating companies should benefit extensively from this
development. With reliable fuel linkages, the Peak Load Factor of the power plants
should improve and correspondingly result in better margins for the power
generating companies.
􀂃 Conducive regulatory environment
The assured returns structure enjoyed by the generation and transmission
companies, along with their strong balance sheet positions and GoI’s support,
should help these utility companies to grow appreciably and enhance the
shareholders’ value.

Power Sector: A bundle of opportunities lying ahead

Our outlook towards the Indian Power sector (the generation and transmission
companies) remains buoyant, and we believe that the sector is well positioned to grow
significantly. The ability to pass on the cost to the end user and generate fixed returns
makes the Indian Power sector a safe investment opportunity. In addition, the recent
bear run has put most of the power generation and transmission companies’ stocks
within an attractive price range, which provides potential capital appreciation
opportunities.
􀂃 Government looking to stimulate demand through infrastructure spending
Infrastructure spending has been the focal area of the Government of India (GoI) in
the past few years. With the Indian economy slowing down, the GoI is looking at
stimulating demand with increased infrastructure spending to achieve a GDP
growth rate of 6–6.5% over the next few years. Correspondingly, we expect the
Indian power sector to grow at 12–13% annually during the XIth five-year plan. A
capacity addition of more than 78,000 MW has been envisaged during the XIth fiveyear
plan by the GoI. The installed capacity has already increased from about
132,000 MW at the end of the Xth five-year plan to about 146,000 MW as in
October 2008.
􀂃 Current power deficit – a good opportunity for expansion
The excessive demand scenario for power in the country also implies significant
growth potential for the power sector. India has historically been a power-starved
country, with the peak power deficit standing at 16% in FY07-08. The GoI has
charted out its mission of ‘Power for All by 2012’, which calls for a YoY capacity
addition of 18,000–20,000 MW during the ongoing five-year plan. The mission also
targets an increase in the per capita consumption of electricity from 631 Kw/hr in
2006 to more than 1,000 Kw/hr by 2012.
􀂃 Long-term coal linkages to improve Plant Load Factor (PLFs) of power plants
The profitability of the power generating companies is expected to improve in the
coming quarters as the GoI is well on track to provide long-term fuel linkages to the
power plants. Coal India Ltd. (CIL), which mines about 85% of the coal produced in
the country, is expected to sign a fuel supply agreement (FSA) with certain PSUs,
with an assurance to supply coal for 90% PLF. In the current scenario of fuel
shortages, the power generating companies should benefit extensively from this
development. With reliable fuel linkages, the Peak Load Factor of the power plants
should improve and correspondingly result in better margins for the power
generating companies.
􀂃 Conducive regulatory environment
The assured returns structure enjoyed by the generation and transmission
companies, along with their strong balance sheet positions and GoI’s support,
should help these utility companies to grow appreciably and enhance the
shareholders’ value.

Monday, December 29, 2008

Investing Term of the Day: fundamental analysis


Term of the Day - fundamental analysis

For Monday, December 29, 2008


Term of the Day - fundamental analysis

A method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental analysis takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data.


Featured Article from InvestorGuide University

Types of Retirement Plans

There are almost too many retirement plans to keep track of. Here we explain them all. Government-sponsored plans, personal plans, annuities, employer-sponsored plans, qualified and non-qualified plans, defined-benefit and defined-contribution plans, pensions, 457 plans, and more.


Special Offers

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Quote of the Day

I buy when other people are selling. - John Paul Getty


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  • BusinessDictionary.com features over 20,000 definitions and over 115,000 links between related terms providing a clear and concise description of any and all business terms.

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  • Our Other Newsletters
  • The InvestorGuide Daily summarizes important financial news and commentary of the day, and the InvestorGuide Stock of the Day provides comprehensive research and information about a stock that is making news in the markets.





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Investing Term of the Day: fundamental analysis


Term of the Day - fundamental analysis

For Monday, December 29, 2008


Term of the Day - fundamental analysis

A method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental analysis takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data.


Featured Article from InvestorGuide University

Types of Retirement Plans

There are almost too many retirement plans to keep track of. Here we explain them all. Government-sponsored plans, personal plans, annuities, employer-sponsored plans, qualified and non-qualified plans, defined-benefit and defined-contribution plans, pensions, 457 plans, and more.


Special Offers

ACM
Trading Currencies Can Be Easy As 1, 2, 3. Try a Free Practice Account Today.

Click Here to View This Offer...

E*TRADE
99¢ Futures Trades for your first 90 days, $2.99 thereafter at E*TRADE Securities

Click Here to View This Offer...

FX Solutions
Trade Forex with the most advanced charting and platform. Register now for a FREE $10K practice account!

Click Here to View This Offer...

Barron's Online
Subscribe to Barron's and get investing insights before others do. Plus, 4 weeks free!

Click Here to View This Offer...


Quote of the Day

I buy when other people are selling. - John Paul Getty


Search for a term in our comprehensive investing dictionary


More links to important investing resources

  • Business Dictionary
  • BusinessDictionary.com features over 20,000 definitions and over 115,000 links between related terms providing a clear and concise description of any and all business terms.

  • InvestorGuide Stock Research
  • Our powerful, comprehensive stock research tool covers thousands of tickers. It provides everything you need to know about a stock including charts, news, profile, earnings data, analysis and much more. Try it Today!

  • Our Other Newsletters
  • The InvestorGuide Daily summarizes important financial news and commentary of the day, and the InvestorGuide Stock of the Day provides comprehensive research and information about a stock that is making news in the markets.





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Or send a message to investor.13@remove.ms00.net
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India: Opening Up The Cash Till, Seeking Growth

The GOI inspite of its fiscal weakness is keen to push up economic activity. Going into 2009, we should see more CRR, Repo Cuts which should effectively bring down interest rates by atleast 3-4 per cent across the board. At lower rates the chances of increased NPAs would be lesser than at rates closer to 20 per cent per annum. Most smaller private banks now fetch PEs in low single digits and can turn out to be the outperformers for 20009. These include City Union Bank, Karur Vysya, Ing Vysya and DCB.

Three weeks ago the RBI initiated monetary cuts that have effectively rolled back three years of tightening. The most positive move has been the surprise SLR cut-the first in nearly a decade accompanied by overt rupee support and liquidity re-injection measures through the buyback announcements.

Consequently lending and borrowing rates are moving down and are likely to reduce further by 300-400 bp in the coming months with likely re-acceleration in credit growth. Hopefully, asset quality problems will reduce as banks, particularly those from public sector, help re-liquefy the system.

More credit flows should alleviate working capital related concerns and stabilise the economy quickly. However, income and wealth pressured borrowers are unlikely to borrow heavily for long duration assets/projects just because of low interest rates. Thus sectors like Real Estate may not benefit much, nor would the Automobile producers but Retail and Consumer Durables can.

Inspite of year-end selling by FIIs and war mongering by the media all over, markets should stabilise and rebound near-term as India goes ahead of most peers on policy easing. At current levels, market valuations do not factor in even an economic stabilization which is a good medium-term support for the market. We should see a progressively better Q1 CY09, as investors shrug off weak financial results and look beyond towards 3rd and 4th quarter earnings for CY09. The second quarter will however be a wash-out because of the ensuing General Elections.

What should not be ignored is that valuations are at historical lows in absolute terms, and if as expected, the World comes to terms with its current problems this will be an opportunity similar to the Year 2002 for investors to take a longer view and rake-in gains in a possibly multi-year bull market that would ensue. While investors will see short term negative swings they should not ignore the following:

Valuation parameters have reached close to their historical lows achieved in last 10 years.

The consensus forward P/E has slipped into the single digit territory, a level below which it has not spent much time ever in the past.

Trailing price-to-book levels have collapsed to within 10 per cent of the lowest levels seen since at least 1995. Interest rate relative measures, like implied risk premia or earnings yield gap too, have re-touched their worst levels in ten years.

Relative valuations are not as historical because of the severe market falls elsewhere but the market has come to a point where long-term, value investors that are not interested in timing the bottom should begin to invest heavily.

While valuation lows could again be re-tested in 1H09 amid extremely high level of political uncertainties. At least in late 2000 to mid-2003, the market spent over two years at the bottom of the range, but downsides remain limited because of the valuation correction though a sharp and sustainable upside would need growth momentum to return.

Growth is a high probability event over the next 18 months as Governments world over realise that Growth and Only Growth will provide succor to Civilian population and Investors all over.

Saturday, December 27, 2008

MFs get poorer by Rs 1,50,000 crore

For years, they used to be a means of gains for investors in both good and bad times. But 2008 was different. Mutual funds became poorer by about Rs 1,50,000 crore, or about one-third of their total size this year.

Such has been the impact of these losses — which accounted for nearly three-fourths of the overall gains in 2007 — that investor confidence was shattered in just a few months of the downturn.

In contrast, it had taken five years to gauge the success of the world’s first mutual fund, launched by Massachusetts Investment Trust, in 1925, and to gain the confidence to grow beyond a single fund. This confidence came only after the first fund survived the stock market crash of 1929 and came out with positive returns for investors.

The mutual fund industry in India, with nearly 36 members, was regarded as a safe avenue of mutual gains for investors till 2007 — when their total wealth grew by more than Rs 2,30,000 crore to Rs 5,50,000 crore.

However, the stock market downturn, beginning early in 2008, wiped off close to Rs 1,50,000 crore this year, bringing its asset size to nearly Rs 4,00,000 crore and leaving the industry shattered with a huge liquidity crunch.

But, the industry where players operate with catchlines like “Let’s plan to get rich” and “Reaching new heights”, hopes its fortunes will revive in 2009. It hopes to regain retail and corporate investors’ confidence.

“We believe 2009 will be a better year and the mutual fund industry would bounce back with general improvement in liquidity and economy as government measures would promote growth, while the overall market sentiment is likely to change from January onwards,” Association of Mutual Funds in India (Amfi) Chairman A P Kurien said.

Mutual funds are likely to resume growing in a robust manner by April-June 2009 as equity markets are expected to improve by then, Kurien said, adding that the Rs 20,000-crore support given by the government helped in avoiding a crisis situation for the industry.

“We started the year on a extremely optimistic note and are ending it on an extremely pessimistic edge. It has been the worst calendar year for the market as the magnitude of losses have been huge,” Mutual Fund tracking firm ValueResearch Online CEO Dhirendra Kumar said.

However, the weak close to the year could provide an excellent ground for rebuilding “as this is the appropriate time for investors to buy for the long term”, he added.

“The fallout from the downtrend is positive as the investor attitude is changing gradually, which would transform the mutual fund industry,” Kumar said. Market regulator Sebi has issued guidelines to protect mutual funds and investors from sudden redemptions, like asking funds to list close-ended schemes and disallowing exit from schemes before maturity.

The decision came in the wake of a liquidity crisis faced by the industry two months ago as investors pulled out from fixed-income funds fearing a liquidity crunch.

Probably on account of this, the industry saw new fund houses entering or planning to enter the space this year. These included Bharti AXA, Edelweiss Mutual Fund, India Infoline, Religare, Aegon and Peerless.

Global majors BlackRock and Fortis also entered the space through the inorganic route at international level. ABN Amro Mutual Fund changed its name to Fortis Mutual Fund following the global integration of ABN Amro Asset Management with Fortis Investments, and DSP Merrill Lynch MF has been renamed as DSP Black Rock Mutual Fund.

In StanChart Mutual Fund has been sold to IDFC, while Lotus MF was acquired by Religare Aegon Mutual Fund. Later, Religare and Aegon decided to end their partnership, with Religare gaining control of the Lotus MF business.

Experts believe the coming year could see much more consolidation on the back of declining assets under management and the rising cost of services, when a number of small fund houses could be sold to their bigger rivals.

“The industry might see an uptrend in the second half of 2009. As of now the first 6-8 months would be quite difficult for the industry, but after August there could be revival,” Taurus Mutual Fud director R K Gupta said.

Moreover, as investor interest is shifting from equity to money market schemes, it is unlikely that a major surge would be seen in fresh inflows immediately in the equity schemes.

Lessons from 2008

Five mistakes that you should not repeat in the coming year.

For many investors, 2008 was a nightmare that came true. After four years of boom, when the tables turned, it wiped out lakhs of crores of investors' wealth.

Last December, there would have been a smile on everyone's face. While the US had started feeling the pinch of the sub prime crisis, many experts claimed that India was decoupled from what was happening there. Well, it took just one month to change the scenario.

On January 21, in a matter of hours the benchmark indices, Sensex and Nifty, hit the lower circuits. And in the next 11 months, there have been few moments of pleasure for the stock market investor. Both the indices are down over 50 per cent. But depending on portfolio, some investors have even lost 80-85 per cent.

As the year-end approaches, let's look at some of the mistakes that many investors made during the last year and hopefully, refrain from making them again.

OVER LEVERAGING: Buying stocks with borrowed money is leveraging. And it is a crime that many investors committed last year.

Typically, a broker either lends or allows the investor to have a larger position than the money that has been deposited. The interest rate on such lending is higher. Consider this, often an investor has Rs 1 lakh and has positions in the market four to five times of that.

When things are good and stock prices are rising to dizzying levels, everyone is happy. The return on investment outstrips the interest cost. But when the market falls, it is a complete disaster.

For instance, when Reliance Industries was trading at Rs 2,500, you bought stocks worth Rs 4 lakh on an initial capital of Rs 1 lakh. If the stock moves to Rs 2,700, it has gone up by only 8 per cent, but the return on investment (Rs 1 lakh) is 32 per cent.

Now if the stock dips to Rs 2,000, down 20 per cent, you stand to lose 80 per cent. Now if you add the interest cost to the total capital loss, then the initial capital might have been wiped out.

LESSON: Multiplier effect has both sides. Use the loan facility very responsibly and with stringent limits to it.

AVERAGING EFFECT: Whenever stock markets start falling, the initial reaction from investors is to buy more. The idea being that there would be cost averaging.

However, when a slide like this happens, this should be the last thing on your mind. It's because while you may have brought down the acquisition cost, a lot of money has gone into this process. It is almost like throwing good money after bad money.

Often, this happens when one refuses to believe that things are turning sour and the recovery would take a long, long time.

LESSON: Emotional attachment to a stock can be very damaging. If you have made the mistake of buying shares at higher price, don't multiply it by buying them at every low.

INVESTING ON TIPS OR RUMOURS: Many investors can be accused of this one. But things can go real bad sometimes. This is especially true with mid- and-small-cap stocks.

There are hundreds of examples where tips are given for penny stocks or Z category stocks. Initially, it may give you some money. In the long run, however, such investing tactics can be fatal.

LESSON: Just ignore.

DERIVATIVES PLAY: For a lay investor, this is a definite no. As investing guru Warrant Buffet had once said, derivatives are 'financial weapons of mass destruction'.

A large number of small investors used the derivatives route to invest rather than the cash segment. It was easy since futures and options allowed them to take positions on either side (long or short) with little over 20 per cent margin or little option premium.

But since they have to pay only 20 per cent, bigger risks are taken. That is, small losses are not booked. Instead, positions are rolled on in the hope that ultimately things would favour them.

No wonder, losses keep mounting and can really hurt sometimes. For example, it is better to buy futures at Rs 25 and book profits around 25.5 or 26 levels, effectively earning 10-20 per cent return on the margin amount. However, keeping the position open even while losing can be disastrous.

LESSON: Derivatives are not an investment tool but a hedging mechanism. So either don't use it or use only after you equip yourself with its pros and cons.

IPO INVESTMENT: On an average, during boom times, initial public offerings (IPOs) of companies are oversubscribed by 40-50 times. As a result, investors use the IPO route to make quick money.

That is, on the day of listing they simply book profits. For many, it is a sure shot mantra for quick money.

But when the scrip lists lower than the offer price, getting stuck is very much possible. And if someone has taken a loan and applied for the IPO then things could get real bad. Investors who invested using IPO funding facility get hurt the most. Long-term IPO investors may still make a decent return over a long run, but subscribe and sell on first day is out of sight at the moment.

LESSON: Invest in IPOs only when you believe in the company. Otherwise, just stay away.

Investors should realise that making money is a long-term process. However, in their attempt to make a quick buck, many suffer. In 2009, make sure that these mistakes will not be repeated.

Lessons from 2008

Five mistakes that you should not repeat in the coming year.

For many investors, 2008 was a nightmare that came true. After four years of boom, when the tables turned, it wiped out lakhs of crores of investors' wealth.

Last December, there would have been a smile on everyone's face. While the US had started feeling the pinch of the sub prime crisis, many experts claimed that India was decoupled from what was happening there. Well, it took just one month to change the scenario.

On January 21, in a matter of hours the benchmark indices, Sensex and Nifty, hit the lower circuits. And in the next 11 months, there have been few moments of pleasure for the stock market investor. Both the indices are down over 50 per cent. But depending on portfolio, some investors have even lost 80-85 per cent.

As the year-end approaches, let's look at some of the mistakes that many investors made during the last year and hopefully, refrain from making them again.

OVER LEVERAGING: Buying stocks with borrowed money is leveraging. And it is a crime that many investors committed last year.

Typically, a broker either lends or allows the investor to have a larger position than the money that has been deposited. The interest rate on such lending is higher. Consider this, often an investor has Rs 1 lakh and has positions in the market four to five times of that.

When things are good and stock prices are rising to dizzying levels, everyone is happy. The return on investment outstrips the interest cost. But when the market falls, it is a complete disaster.

For instance, when Reliance Industries was trading at Rs 2,500, you bought stocks worth Rs 4 lakh on an initial capital of Rs 1 lakh. If the stock moves to Rs 2,700, it has gone up by only 8 per cent, but the return on investment (Rs 1 lakh) is 32 per cent.

Now if the stock dips to Rs 2,000, down 20 per cent, you stand to lose 80 per cent. Now if you add the interest cost to the total capital loss, then the initial capital might have been wiped out.

LESSON: Multiplier effect has both sides. Use the loan facility very responsibly and with stringent limits to it.

AVERAGING EFFECT: Whenever stock markets start falling, the initial reaction from investors is to buy more. The idea being that there would be cost averaging.

However, when a slide like this happens, this should be the last thing on your mind. It's because while you may have brought down the acquisition cost, a lot of money has gone into this process. It is almost like throwing good money after bad money.

Often, this happens when one refuses to believe that things are turning sour and the recovery would take a long, long time.

LESSON: Emotional attachment to a stock can be very damaging. If you have made the mistake of buying shares at higher price, don't multiply it by buying them at every low.

INVESTING ON TIPS OR RUMOURS: Many investors can be accused of this one. But things can go real bad sometimes. This is especially true with mid- and-small-cap stocks.

There are hundreds of examples where tips are given for penny stocks or Z category stocks. Initially, it may give you some money. In the long run, however, such investing tactics can be fatal.

LESSON: Just ignore.

DERIVATIVES PLAY: For a lay investor, this is a definite no. As investing guru Warrant Buffet had once said, derivatives are 'financial weapons of mass destruction'.

A large number of small investors used the derivatives route to invest rather than the cash segment. It was easy since futures and options allowed them to take positions on either side (long or short) with little over 20 per cent margin or little option premium.

But since they have to pay only 20 per cent, bigger risks are taken. That is, small losses are not booked. Instead, positions are rolled on in the hope that ultimately things would favour them.

No wonder, losses keep mounting and can really hurt sometimes. For example, it is better to buy futures at Rs 25 and book profits around 25.5 or 26 levels, effectively earning 10-20 per cent return on the margin amount. However, keeping the position open even while losing can be disastrous.

LESSON: Derivatives are not an investment tool but a hedging mechanism. So either don't use it or use only after you equip yourself with its pros and cons.

IPO INVESTMENT: On an average, during boom times, initial public offerings (IPOs) of companies are oversubscribed by 40-50 times. As a result, investors use the IPO route to make quick money.

That is, on the day of listing they simply book profits. For many, it is a sure shot mantra for quick money.

But when the scrip lists lower than the offer price, getting stuck is very much possible. And if someone has taken a loan and applied for the IPO then things could get real bad. Investors who invested using IPO funding facility get hurt the most. Long-term IPO investors may still make a decent return over a long run, but subscribe and sell on first day is out of sight at the moment.

LESSON: Invest in IPOs only when you believe in the company. Otherwise, just stay away.

Investors should realise that making money is a long-term process. However, in their attempt to make a quick buck, many suffer. In 2009, make sure that these mistakes will not be repeated.

Friday, December 26, 2008

Investing Term of the Day: capital turnover


Term of the Day - capital turnover

For Friday, December 26, 2008


Term of the Day - capital turnover

A company's annual sales divided by its average stockholders' equity. Capital turnover is used to calculate the rate of return on common equity, and is a measure of how well a company uses its stockholders' equity to generate revenue. The higher the ratio is, the more efficiently a company is using its capital. also called equity turnover.


Featured Article from InvestorGuide University

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Quote of the Day

If you can run one business well, you can run any business well. - Richard Branson


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Investing Term of the Day: capital turnover


Term of the Day - capital turnover

For Friday, December 26, 2008


Term of the Day - capital turnover

A company's annual sales divided by its average stockholders' equity. Capital turnover is used to calculate the rate of return on common equity, and is a measure of how well a company uses its stockholders' equity to generate revenue. The higher the ratio is, the more efficiently a company is using its capital. also called equity turnover.


Featured Article from InvestorGuide University

Calculating Your Taxes

Do you understand how your taxes are actually calculated? This article explains and gives examples of credits, deductions, and gifts. Also includes information on how family, marriage, children, and education can affect your taxes.


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Quote of the Day

If you can run one business well, you can run any business well. - Richard Branson


Search for a term in our comprehensive investing dictionary


More links to important investing resources

  • Business Dictionary
  • BusinessDictionary.com features over 20,000 definitions and over 115,000 links between related terms providing a clear and concise description of any and all business terms.

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Thursday, December 25, 2008

Investing Term of the Day: audited financial statements


Term of the Day - audited financial statements

For Thursday, December 25, 2008


Term of the Day - audited financial statements

A company's financial statements which have been prepared and certified by a Certified Public Accountant (the auditor). In the U.S., the auditor certifies that the financial statements meet the requirements of the U.S. GAAP. An auditor can have an unqualified opinion, in which he or she agrees with how the company prepared the statements, or a qualified opinion, in which he or she states which aspects of the company's statements he or she does not agree with. In extreme cases, the auditor may express no opinion on financial statements at all, in the case that the scope of the audit was insufficient.


Featured Article from InvestorGuide University

Annuities

Learn all you need to know about annuities. Includes a description of fixed, variable, and equity-indexed annuities, with emphasis on taxes, distributions, payments, and fees of each.


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Quote of the Day

"This planet [earth] has "or rather had" a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small green pieces of paper, which is odd because on the whole it was not the small pieces of paper that were unhappy." - Douglas Adams


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Investing Term of the Day: audited financial statements


Term of the Day - audited financial statements

For Thursday, December 25, 2008


Term of the Day - audited financial statements

A company's financial statements which have been prepared and certified by a Certified Public Accountant (the auditor). In the U.S., the auditor certifies that the financial statements meet the requirements of the U.S. GAAP. An auditor can have an unqualified opinion, in which he or she agrees with how the company prepared the statements, or a qualified opinion, in which he or she states which aspects of the company's statements he or she does not agree with. In extreme cases, the auditor may express no opinion on financial statements at all, in the case that the scope of the audit was insufficient.


Featured Article from InvestorGuide University

Annuities

Learn all you need to know about annuities. Includes a description of fixed, variable, and equity-indexed annuities, with emphasis on taxes, distributions, payments, and fees of each.


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Quote of the Day

"This planet [earth] has "or rather had" a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small green pieces of paper, which is odd because on the whole it was not the small pieces of paper that were unhappy." - Douglas Adams


Search for a term in our comprehensive investing dictionary


More links to important investing resources

  • Business Dictionary
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  • The InvestorGuide Daily summarizes important financial news and commentary of the day, and the InvestorGuide Stock of the Day provides comprehensive research and information about a stock that is making news in the markets.





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Wednesday, December 24, 2008

Investing Term of the Day: buy-side analyst


Term of the Day - buy-side analyst

For Wednesday, December 24, 2008


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Term of the Day - buy-side analyst

An analyst employed by an entity, such as a mutual fund, that invests on its own accounts. Unlike that of the sell-side analysts employed by brokerage firms, research produced by buy-side analysts is usually unavailable outside of the firm that hired the analyst. A sell-side analyst's focus when analyzing possible investments is to see whether the investment should be recommended to the firm's clients, while a buy-side analyst would only be interested in analyzing whether the investment is suitable for the firm's investment strategy and portfolio. Thus, sell-side analysts structure their research such that it is usable for a wider audience than buy-side research. Buy-side analysts often source research from sell-side analysts, and then use this information as a base for their own research.


Featured Article from InvestorGuide University

Retirement

Will you be finally secure during your retirement? You can increase the chances that the answer will be yes by careful retirement planning. This article describes techniques you can use to estimate how much you'll need and offers numerous tips to put you on the path to getting there. We also discuss how asset allocation should change with age, applying for social security benefits, and tax-efficient withdrawals of retirement income.


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Quote of the Day

It's a kind of spiritual snobbery that makes people think they can be happy without money. - Albert Camus


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