PRECAUTIONS WHILE INVESTING
MANAGE YOUR RISKS
RISKS OF INVESTMENT :
EXERCISE CAUTION WHILE INVESTING
LOOK BEFORE YOU LEAP , WH ILE SUBSCRIBING TO IPOS IN THE BULL MARKET
We feel that time has come to be cautious for investors and to look before we leap in to IPO Market .
1. When wind is blowing , we not only get cool wind , but also dust . Try to segregate
2. We should not participate in euphoria , but after doing analysis of the issues coming up .
3 . Do some home work on company , promoters , sectors and track record .
4. If you are unable to study yourself , take help of neutral analysts who have no interest in the issues . Better if they are not arrangers , managers or undertakers of the issue concerned .
5. Even if a company is growing and making decent profits , check whether it can sustain issue price .
6. Try to avoid such companies which have no good track records and profits are boosted up before issue dates .
After go through all the above factors , you can go through some of the Reviews of good & Reputed analysts and gather their opinions . Finally decide whether the issue is worth investing and how much you can invest in the particular issue .
AVOID SWAYING YOUR DECISION FROM GLOSSY ADVERTISEMENTS OF THE ISSUERS AND CHERRY PICK NEW ISSUES .
GOOD LUCK
PRECAUTIONS BEFORE INVESTING IN AN IPO :
WHAT IS AN IP0 ( INITIAL PUBLIC OFFER )
An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. ( The stock of a corporation constitutes the equity stake of its owners. It represents the residual assets of the company that would be due to stockholders after discharge of all claims on the corporation . Stockholders' equity cannot be withdrawn from the company in normal course . )
With markets going up in recent months , many companies are planning to go public with an eye on realization of higher prices on their stocks in the boom period . However investors have to be cautious before putting in their money to avoid shocks after issue . Some of the precautions we recommend to our readers :
1. WHO ARE THE PROMOTERS ? Check on their back ground , expertise and track record . Integrity of the promoters , which is difficult to find out , plays a major role on the future of the company . Remember saga of SATYAMS
2. WHERE MY MONEY IS GO TO BE SPENT ? Check on the end use of the issue price collected . Whether it is for expansion of business , new venture , off loading of existing debts or just promoters taking back their investment ?
3. IN WHICH SECTOR COMPANY OPERATES ? Know about the operations of the company , its business , its competitors . Whether company can withstand in the environs of the market ?
4. TRACK RECORD OF THE COMPANY : If the company is existing one , check track record of the company and its financials over a period . Is company making consistent profits ? What is the history of dividend payments . Some times company would have already distributed as dividend to the existing promoters , all its reserves before going public . Study its present financial status
5. ISSUE PRICE : Even when all other parameters look good , check on the pricing of the issue .
FOR EXISTING COMPANIES The price to earnings ratio (this is price that the issue is offered upon earnings per share) which would throw light on the pricing of the issue.
operating margins (this is the income from operation less expenses from operation),
Market capitalization (it is the number of share multiplied by the price at which it is offered) with the current companies in the sector that are listed in the market.
FOR THE NEW COMPANIES , as there is no track record , check on the projections , feasibility of projections and status of existing players in the field . You have to be double cautious about new companies
After go through all the above factors , you can go through some of the Reviews of good & Reputed analysts and gather their opinions . Finally decide whether the issue is worth investing and how much you can invest in the particular issue .
AVOID SWAYING YOUR DECISION FROM GLOSSY ADVERTISEMENTS OF THE ISSUERS
PRECAUTIONS BEFORE INVESTING
in a stock market
Risks of an investment in shares is losing at the extreme of all the money invested while rewards are also unlimited . It is a high risk investment as entire money invested can be lost . It is like being a sleeping partner in partnership where business is managed by active partner and sleeping partner's gains depend up on the ability of active partners to generate profit . Only difference is sleeping partner has unlimited liability in a partnership while share holder's liability is limited to shares bought and money invested .
In spite of such a a risk , investors are attracted to Share market . Firstly because of their greed to make more money and secondly lured by the history of the market where many investors have gained with their prudent investments . While risk is a possibility of loss , history of the market shows better yield on share investment than many other modes of investments .
Before investing in shares , one has to study his own financial position , loss bearing ability and the greed he has for the money . A prudent investor will invest only that much funds which he is comfortable to invest in a risky venture . He allocates such a portion of his invest-able surplus which will not make him lose his good night sleep. Further he diversifies his investment in shares to various sectors and sub-sectors of economy so that his risk is not concentrated .
You are parting with your hard earned money , with an intention to make good profit , to a risky investment when you are buying shares . Please remember that there is no guarantee of profit or avoidance of loss , whatever a share broker may promise . Before taking risky adventure , you have to have safety guard to protect your self from huge losses in the venture . Some of the precautions we recommend :
1. TIME & ENERGY : Before parting your money , be prepared to spend your Time and energy to know about the shares that you are going to invest in . Try to understand the business of the company and the market for its share . Knowledge , Time , Effort and DISCIPLINE is necessary to be successful .
2. DIVERSIFY : Do not put all your money in single a basket . Distribute your investment in various sectors and various stocks . Not to invest , say more than 5 % , in any single stock .
3. PATIENCE : Once you have zeroed on any share , have patience to wait for the price you want to pay . Do not go by euphoria of the market .
4. PLAN : Have a plan when to buy , hold up to what price and a stop loss for your trade .
5 . BE READY FOR LOSS : All our knowledge and expertise may not yield desired results in all the time . If you can not afford LOSS , do not enter the market . LOSS is an essential component of the market .
Investment Decisions on stocks :
As a new investor , one requires some advise from the knowledgables and gurus in the absence of personal experience . Each one of the advisors will have his own favorites and he/ she would dish out few selections for action . However it will be prudent for the investor to independently study the company , its promoters , their track record , financial position of the company and the business of the company and be satisfied before investing . In fact it would be better to study various opinions available in the media on the stock and decide for himself to invest what percentage of excess fund reserved for stock investment in to this stock . One can make a short list of " his would be investing shares " for final selection . Investment can be done gradually over the period waiting for the dips to improve the buying cost . One should be careful about the advisors who have personal vested interest in making you to buy a particular stock .
One can think of investing in equity mutual funds before actually start investing in individual shares , as that will give glimpse of how the market movement affects our investment . Equity mutual funds are managed by professionals and would be more diversified than investing in individual stock . However risk level continues to be High Only .
