Investments

Patience Important for Investment

One moment of patience may ward off great disaster. One moment of impatience may ruin a whole life. ...Chinese Proverb

Lots of moment in the Business comes, when you do require patience. Only expected things do not come always, and sometimes we react because of lack of patience in our self. But have you ever thought, by being impatience you loose your own personal and monetary growth. Its affects your business directly. If you are planning to invest somewhere and if you take decisions without doing the exercise you will certainly make wrong decisions.

Negative consequence of impatience –

Slow pace of business growth and change
Always being dissatisfied, upset and angry
Discarding relationship, people, jobs
Withdraw permanently, because your effort does not pay off immediately
Become pessimist and ignore all positive gains

Impatience brings –

Ignorance
Frustration
Irritation
Tension
Anxiousness
Agitation

You can see all these bring poor health too for you.

How to develop patience in yourself –

Concentration
Systematic planning
Develop certain philosophy of life
Develop flexibility
Break larger goals down
Be ready to face challenges and fears of life
Understand the reality of life

Investing

Investing means money invested to earn more money. There are several different ways to invest money. You can invest in a bond, bonds are secure investments they give fixed rate of return after a specific period. You could also invest in a capital investment, where the returns are higher as the risk is also high. If you are ready to take high risk for higher gain you can and must invest in capital markets. In capital markets you can directly by shares i.e., equities or you can buy mutual funds. The basic of investment is the relationship between risk and returns. Risk has a direct relationship with return. Higher the risk higher the return. It is also significant to assess the firm's history, how secure it is, etc. because if the firm goes out of business chances are you might not be able to recover your money. Its imperative to bear in mind that, as a novice in the investment world, you are sure to make mistakes. Everyone does, but it's your capability to gain knowledge of from these mistakes that will give you the knowledge indispensable to clutch on and boost up your outcome. The only rational technique to learn from your mistakes is to write down everything you do, and assess it comprehensively. This way you will be able to recognize what mistakes you make, and help you steer clear of repeating them.

Invest in mutual funds

Mutual fund investments are trouble-free and simple. What we always articulate is that since you cannot foresee the stock market, the superlative technique is to stop thinking where the market will be next month or by the end of the year. As an alternative, maintain investing small amounts frequently. This method will help you to purchasing equities at higher as well lower levels of the markets over the period of time. And your cost per unit will get averaged out, rather than being very high or very low. No one can foresee how the markets will perform in the coming months? As a result, it is better not to assign a hefty amount of money to the market at a particular point of time, but keep investing small amounts often.

How to single out the right shares

Want to know how to make the right stock picks. View varies on whether or not you should be buying shares at this time when the market is moreover high to buy shares now and it may go even higher. Here is some information to make sure you select the ones that will make money over a period of time.

Stock valuations pass on to the value you put on a particular stock. This means you establish the value of a company's stock based on the company's earnings and the price the stock commands in the market. If you find the price of the stock is much higher than its worth, the stock is over-valued. If you find the price of the stock is lower than its actual worth, the stock is undervalued. You should look to choose the undervalued stocks.

Theses are some key ratios you must be aware of at the beginning

EPS (Earning Per Share) = net profit/ number of shares

Earnings per Share are the net profit of a company makes divided by the total number of its shares. The purpose of this ratio is to tell you how well the company is doing.

If a company's EPS has grown over the years, it means the company is doing well, and the price of the share will go up. If the EPS declines, that's a bad sign, and the stock price falls.

Companies are required to publish their quarterly results. Keep an eye out for these results; check for the trend in their EPS.

PE (price earning) = market price/ EPS

The Price Earnings ratio of a stock is the market price divided by its EPS. This tells you how other investors view the stock.

A company will have a high PE if investors hope their earnings from the stock will increase; this is is why they buy the share. This increase in demand will result in the share's market price rising.

A sound way to invest in undervalued companies is by make the most of an instrument described as PEG ratio. A Price Earnings Growth ratio compares the PE ratio to the growth rate. The PEG ratio, also known as the Lynch ratio, divides the PE ratio by the growth in EPS. In the case of EPS, it is not so much a high or low EPS that matters as the growth in the EPS. The company's PE reflects investors' expectations of future growth in the EPS. A high PE company is one where investors have hopes that earnings will rise, which is why they buy the share.

Sometimes, investors look out for a low PE stock, expecting that its price will rise in the future. But sometimes, low PE stocks may remain low PE stocks for ages, because the market doesn't fancy them. Keep tab on the business news to check out the company's prospects in the future.

PEG = PE ratio/ projected earnings growth rate

Let's take an example to understand it better

XYZ Industry Ltd

Market price = Rs. 800

Estimated EPS for FY 2007 = Rs. 60.00

Forward PE (PE based on the share's projected earnings in FY 2007) = Rs 13.33 (Rs. 800/ Rs. 60.00)

Now, XYZ Industry Ltd EPS is expected to grow from Rs. 50.00 (for FY 2006) to Rs. 60.00 (for FY 2007). This means a growth of 20.00%.

PEG ratio = 0.6665 (13.33/ 20.00)

The rule of thumb is that, so long as the PE is below earnings growth, or the PEG ratio is less than 1, the stock is not over-valued.

Smart Articles

INTRODUCTION

Having been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.
I have seen paupers become millionaires overnight…
And
I have seen millionaires become paupers overnight…
One story told to me by my option trading mentor is still etched in my mind:
“Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market’s direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!’”
The point of this illustration is that it was the trader who was wrong. In today’s stock and option trading market, people can have different opinions of future market direction and still profit. The differences lay in the stock picking or options strategy and in the mental attitude and discipline one uses in implementing that strategy.
I share here the basic stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to profitability. These principles will help you decrease your risk and allow you to assess both what you are doing right and what you may be doing wrong.
You may have read ideas similar to these before. I and others use them because they work. And if you memorize and reflect on these principles, your mind can use them to guide you in your stock and option trading.
PRINCIPLE 1
SIMPLICITY IS MASTERY
When you feel that the stock and option trading method that you are following is too complex even for simple understanding, it is probably not the best.
In all aspects of successful stock and option trading, the simplest approaches often emerge victorious. In the heat of a trade, it is easy for our brains to become emotionally overloaded. If we have a complex strategy, we cannot keep up with the action. Simpler is better.
PRINCIPLE 2
NOBODY IS OBJECTIVE ENOUGH
If you feel that you have absolute control over your emotions and can be objective in the heat of a stock or options trade, you are either a dangerous species or you are an inexperienced trader.
No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock market storm can still unnerve and sink a trader very quickly. Therefore, one must endeavor to automate as many critical aspects of your strategy as possible, especially your profit-taking and stop-loss points.
PRINCIPLE 3
HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES
This is the most important principle.
Most stock and option traders do the opposite…
They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains too soon only to see the price go up and up and up. Over time, their gains never cover their losses.
This principle takes time to master properly. Reflect upon this principle and review your past stock and options trades. If you have been undisciplined, you will see its truth.
PRINCIPLE 4
BE AFRAID TO LOSE MONEY
Are you like most beginners who can’t wait to jump right into the stock and options market with your money hoping to trade as soon as possible?
On this point, I have found that most unprincipled traders are more afraid of missing out on “the next big trade” than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and options trades when your strategy signals to do so and avoid taking trades when the conditions are not met. Exit trades when your strategy says to do so and leave them alone when the exit conditions are not in place.
The point here is to be afraid to throw away your money because you traded needlessly and without following your stock and options strategy.
PRINCIPLE 5
YOUR NEXT TRADE COULD BE A LOSING TRADE
Do you absolutely believe that your next stock or options trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what usually happens after that? It isn’t pretty, is it?
No matter how confident you may be when entering a trade, the stock and options market has a way of doing the unexpected. Therefore, always stick to your portfolio management system. Do not compound your anticipated wins because you may end up compounding your very real losses.
PRINCIPLE 6
GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY
You know by now how different paper trading and real stock and options trading is, don’t you?
In the very same way, after you get used to trading real money consistently, you find it extremely different when you increase your capital by ten fold, don’t you?
What, then, is the difference? The difference is in the emotional burden that comes with the possibility of losing more and more real money. This happens when you cross from paper trading to real trading and also when you increase your capital after some successes.
After a while, most traders realize their maximum capacity in both dollars and emotion. Are you comfortable trading up to a few thousand or tens of thousands or hundreds of thousands? Know your capacity before committing the funds.
PRINCIPLE 7
YOU ARE A NOVICE AT EVERY TRADE
Ever felt like an expert after a few wins and then lose a lot on the next stock or options trade?
Overconfidence and the false sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the proper steps of their stock or options strategy before entry. Treat every trade as the first trade you have ever made in your life. Never deviate from your stock or options strategy. Never.
PRINCIPLE 8
YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE
Ever followed a successful stock or option trading strategy only to fail badly?
You are the one who determines whether a strategy succeeds or fails. Your personality and your discipline make or break the strategy that you use not vice versa. Like Robert Kiyosaki says, “The investor is the asset or the liability, not the investment.”
Understanding yourself first will lead to eventual success.
(To understand what kind of trader you are, here is a fun and easy to use psychometric test )
PRINCIPLE 9
CONSISTENCY
Have you ever changed your mind about how to implement a strategy? When you make changes day after day, you end up catching nothing but the wind.
Stock market fluctuations have more variables than can be mathematically formulated. By following a proven strategy, we are assured that someone successful has stacked the odds in our favour. When you review both winning and losing trades, determine whether the entry, management, and exit met every criteria in the strategy and whether you have followed it precisely before changing anything.
In conclusion…

I hope these simple guidelines that have led my ship out of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.

(Check Out The Most Objective, Simple, Systematic and Profitable Trading System Incorporating ALL of the above principles at www.MastersoEquity.com )