stockviz getting started investing

8/6/2019 StockViz Getting Started Investing

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Getting Started SeriesInvestinggetting started ........................................................................................................................ 2

Enterprise Valuation ............................................................................................................................... 4

Stock Valuation Metrics .......................................................................................................................... 5

Technical vs. Fundamental investing ...................................................................................................... 6

Why Charts? ............................................................................................................................................ 7

Fundamental strategies .......................................................................................................................... 8

Candlestickslight my fire ..................................................................................................................... 10

How not to use technical indicators ..................................................................................................... 13

Dollar Cost Averaging or Systematic Investment Plan .......................................................................... 155 Measures to Ignore ............................................................................................................................ 16

Staying Alert .......................................................................................................................................... 17

Value Traps ........................................................................................................................................... 19

What are ETFs? ..................................................................................................................................... 21

Market Pundits on Twitter .................................................................................................................... 22

Pundit predictions and coin-toss comparisons ..................................................................................... 23

2011 in IPOsthe story so far ............................................................................................................... 24

GDP Growth vs. Stocks .......................................................................................................................... 25

The best place for cash is in my pocket ................................................................................................ 27

FD returns better than debt funds over a year .................................................................................... 29

The changing landscape of Indias equity markets the bots are here ............................................... 29

Inflation ................................................................................................................................................. 30

Deflation................................................................................................................................................ 32


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Investinggetting started

MA Y 22 , 2011

We instinctively know that to build wealth,we need to take control of our finances.

But to get started investing is a daunting

task. Frompunditsshilling stocks to

brokers selling themselves on CNBC, it is

easy to conclude that the deck is stacked

against the individual investor. However,

not all is lot. A volatile market like ours

rewards patience; something that I see is

in very short supply. Theretail investor,

and this is true across different markets,

gets in too late and gets out too early. Call

it the itchy trigger finger or the lack of courage in ones conviction, retail investors often

end up being contrarian statistics to institutional money. If retail is buying, sell, sell, sell!

Not all is lost. The waters might seem treacherous, but are navigable. The first step is to

be in the right frame of mind. If you think of making money as a zero sum game, i.e., for

you to make money, someone else has to lose it, then you will never make money!

Wealth is created by the value creation process. So the first step is to understand that an

infinite amount of wealth can be created because human ingenuity will always figure out

a way to create value.

The second step is to distance yourself from what you can do with money, to what it

actually is. It is nothing more than a piece of paper with a dead mans picture on it. It is

not really backed by anything other than your faith in its value (this is an entirely different

post altogether). So try to be even minded whether you are making money or losing it.

The third thing is to write down 4-5 lines on how much risk you can take. Capital comes

in two forms, one that is in your pocket and the other is mental. Mental capital is much

more expensive than the notes in your pocket. If you cant take the heat, stay away from

the stove! Once you figure out what yourrisk appetiteis, you can then start looking for

investments that fit your profile.

Number four: valuation matters. Well get to what valuation are in future posts, but leave

momentum chasing to the machines. Make sure that you buy stocks when they are

cheap (fundamental) and have bottomed out (technical). Analyse, analyse, analyse.
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Make sure you understand what the company makes (how does it create value?), the

regulatory backdrop and be prepared to change your stance if the situation demands.

And lastly, remember this: In good times, even errors are profitable; in bad times

even the most well researched trades go awry. Be nimble, be smart and rely on processrather than luck.

Good luck and stay tuned!


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Enterprise Valuation

JUNE 1 , 2011

We discussed some key equity metrics in ourprevious post. Multiples like PE, PB, etc.

help you focus on the equity part of the capital structure while valuing a company.However, in order to get a true picture of the financial health of the company, an investor

needs to focus on the Enterprise Multiples as well. Some of the key enterprise multiples

are:

Revenue: A business has to finally sellsomething. The revenue number gives an

idea about scale and is more or less independent of accounting treatment.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): Give an

approximate measure of a companys operating cash flow. By ignoring capital

investments and taxes, it allows investors to do apples-to-apples comparisonbetween companies in the same industry.

OpFCF (Operating Free Cash Flow): It is a modified version of EBITDA that includes

the effects of CapEx (Capital Expenditure) into the calculation. It is cash-based,

forward looking and unaffected by accounting.

For readers who are interested in a thorough treatment of valuation metrics, a good

primer from UBS is can be foundhere. Happy investing!
http://stockviz.biz/index.php/page/3/index.php/2011/06/01/enterprise-valuation/http://stockviz.biz/index.php/2011/05/29/stock-valuation-metrics/http://stockviz.biz/index.php/2011/05/29/stock-valuation-metrics/http://stockviz.biz/index.php/2011/05/29/stock-valuation-metrics/http://www.scribd.com/fullscreen/50425904?access_key=key-c9a35x6n1znw16ph4rchttp://www.scribd.com/fullscreen/50425904?access_key=key-c9a35x6n1znw16ph4rchttp://www.scribd.com/fullscreen/50425904?access_key=key-c9a35x6n1znw16ph4rchttp://www.scribd.com/fullscreen/50425904?access_key=key-c9a35x6n1znw16ph4rchttp://stockviz.biz/index.php/2011/05/29/stock-valuation-metrics/http://stockviz.biz/index.php/page/3/index.php/2011/06/01/enterprise-valuation/


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Stock Valuation Metrics

MA Y 29 , 2011

Every company is different; they have

their own culture, target market,

processes, etc. In order to make relative

value comparisons between them, it is

useful to have a common set of metrics.

Here are some of the key numbers and

rations:

PE Ratio: thePrice-to-Earnings Ratiosimply divides the stocks price by its earningsper share. It basically shows what investors are willing to pay for each Rupee of the

companys earnings. In inverse ratio: Earnings Yield indicates how much the

company yielded in earnings for each invested dollar.

PB Ratio: the Price-to-Book Ratio divides the stocks price by its net assets (less any

intangibles like goodwill.) It basically indicates what investors are willing to pay for

each Rupee of a companys tangible assets.

Free Cash Flow: FCF tells the investor how much cash the company is left with after

capital investments.

PEG Ratio:Price/Earnings to Growthratio is a modified version of the PE ratio that

takes the growth of the company into account. It is calculated by dividing the P/E

ratio by the expected earnings growth rate in %.

So what would be an ideal investment? To get you started, you should aim for a PB = 80 and over-sold: RSI


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There are no short-cuts when it comes to investing and technical indicators are no

different. Spend time learning different investment styles, adopt one that suites your

attitude and be prepared to stick with for the long-term. Robot-style investing is not for

humans.

Related articles How To Use Basic Concepts In Forex Technical Evaluation(pro2sell.com)

Oil is About To Hit a Key RSI Level(businessinsider.com)
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Dollar Cost Averaging or Systematic Investment Plan

JUNE 29 , 2011

While discussing the buy &

holdfundamental investingstrategy, I had

indicated that a constant, fixed investment

into a broad-basedETFwould perhaps be

the best way for new investors to build a

diversified portfolio. The NIFTYBEES is

perhaps the oldest ETF listed in the NSE:

it has been tracking the Nifty 50 index

since 2002.

How does a do-it-yourself SIP work? Well, its pretty simple actually. You just set aside a

fixed amount every month (say, Rs.10,000) and buy the same stock or ETF every time.

To give you an example, say you started buying the NIFTYBEES on the first day of

every month, since the time it was listed in 2002, it would look something like this:

As you can see, the lower the price, the more units you will actually buy and hence the

nameDollar Cost Averaging: you are averaging your buying price of the unit over a

period of time.

Now say you did this irrespective of whether the market was down or up, how much

would you have gained till date? My calculations show that an SIP on the NIFTYBEES

would have netted an IRR of 18%. Thats not bad at all! For those who want to have a
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look at the actual cashflow and returns, they can hop over to thespreadsheeton Google

Docs.

Happy Investing!

Related articles Five ETF flaws you shouldnt overlook(theglobeandmail.com)

Exchange Traded Funds(hedgingcorner.wordpress.com)

5 Measures to Ignore

JULY 2 , 2011

Previously, we had discussed what to look for while buying stocks. Irrespective of

whether you arefundamentalortechnicalinvestor, there are some keymetricsthat you

should follow to screen stocks. However, even though some metrics have complicated

math, they can be completely misleading when it comes to their predictive power.

Measures like Beta, Analyst Recommendations, P/E and PEG typically have very little

bearing to how the stock eventually performs. To read more about the 5 measures to

ignore while screening stocks, hop on over to Smart Moneyhere.
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Staying Alert

JUNE 13 , 2011

Most of investing literature revolves around buying

decisions. However, in order to truly profit from themarkets, it is important to know when to sell as well.

An important part of knowing when to sell is keeping

informed of actionable market actions in your

portfolio, mainly done through what are known as

trailing alerts.

A trailing alert typically gets triggered when a stock

hits a price level that is relative to its previous close. For example, in order to protect my

profits, I could set a trailing stop of 2% on DLF. Now if DLF drops below 2% from the

previous close, you automatically exit out of the stock, thus monetizing whatever profit

you had in that position or preventing more losses.

The trick is setting the percentage at a level that will pick up a true price drop as

opposed to normal daily price fluctuations.

You can setup to receive alerts on SMS/email on StockViz by

visitinghttp://stockviz.biz/alerts.Heres how Ive setup mine:
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As you can see, Ive set both up and down trailing alerts forDLFso that I can monitor

the stock closely, whereas Im interested in only drops more than 5% in a day

forRelianceandONGC.

Stay alert & Stay sharp!

Related articles You: 3 simple ways to protect your profits(menafn.com)
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Value Traps

JUNE 20 , 2011

One of the fundamental strategies we had discussedbeforewas value investing. While

looking for value plays, it is important to understand the stage at which the rest of themarket is with regard to the specific stock. While you may recognize value in a stock

(value opportunity) and decide to invest in it, it might take a while for the market to

recognize value and bid up its stock price (value in action). Sometimes, you may just be

too early and get trapped in a long position while the rest of the market continues to

hammer the stock price down, a la, value trap.

For example, let us take a look atInfosys. Given its strong cash position, professional

management and brand, a typical value investor could be easily drawn to the stock.

However, investing at any point since the beginning of this year wouldve trapped the

investor in a dog stock, with every single pop turning out to be an opportunity for the

market to sell.

To take another example, this time ofCisco.
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There is no doubt that there is a good value opportunity. It has a ton of overseas profits,

it is paying out dividends and buying back its stock, it is a market leader in most of its

product categories and has an M&A track-record like you hear about. However, the

market has yet to recognize it and just like Infosys, buying the stock at any point since

the beginning of the year wouldve been a trap.

As the John Maynard Keynes once said, the markets can be irrational longer than you

can remain solvent. Value investors will do good to heed that advice.

Related articles Infosys Financial Results Disappoint Analysts(pcworld.com)

Tech giants that still offer a bang for your buck(theglobeandmail.com)
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What are ETFs?

JUNE 15 , 2011

ETFsare fast becoming a popular choice for passive investors who would like to stay

invested in the stock market without having to paying large fees to investmentmanagers. One can think of an ETF as

amutual fundthat can be traded on the stock exchange as any stock

anindex fundthat tracks a popular index (Nifty 50, Junior Nifty, etc)

apassive investmentvehicle that doesnt depend on a managers stock-picking

ability

Essentially, an ETF will be a basket of stocks, much like a mutual fund. It will typically

track an index with much lower fees compared to a mutual fund. And investors can trade

in and out of ETFs on the stock market through their trading accounts.

Some of the popular ETFs in India are theNIFTYBEES(tracking the Nifty 50

index),JUNIORBEES(tracking the Junior Nifty) and the Bank

ETFsKOTAKPSUBK&BANKBEES.

The three things to look out for while investing in ETFs is the total annual expense ratio

(should be < 1%),tracking error(< 0.5% annualized) and liquidity (there should a fair

amount of daily trading activity).

In the recent past, fund houses have tried to capitalize on sector specific ETFs withvarying degree of success. For example, there are more than a dozen Gold ETFs listed

in theNSE. However, the primary problem with commodity ETFs that dont hold the

physical underlying is that the tracking error tends to get compounded over a period of

time and may not reflect the price actions accurately.

ETFs have traditionally worked great at tracking broad, liquid indexes and remain the

preferred way to get passivemarket exposure.

Related articles Who Sneaked These High-Risk Stocks Into Your Portfolio?(fool.com)

John Nyaradis ETF Edge: Will the bear bite us again?(marketwatch.com)

Five ETF flaws you shouldnt overlook(theglobeandmail.com)

Chuck Jaffe: Mutual funds lose their battle with ETFs(marketwatch.com)
http://stockviz.biz/index.php/page/2/index.php/2011/06/15/what-are-etfs/http://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Passive_managementhttp://en.wikipedia.org/wiki/Passive_managementhttp://en.wikipedia.org/wiki/Passive_managementhttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://en.wikipedia.org/wiki/Tracking_errorhttp://en.wikipedia.org/wiki/Tracking_errorhttp://en.wikipedia.org/wiki/Tracking_errorhttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://en.wikipedia.org/wiki/Market_exposurehttp://en.wikipedia.org/wiki/Market_exposurehttp://en.wikipedia.org/wiki/Market_exposurehttp://www.fool.com/investing/etf/2011/06/14/who-sneaked-these-high-risk-stocks-into-your-portf.aspxhttp://www.fool.com/investing/etf/2011/06/14/who-sneaked-these-high-risk-stocks-into-your-portf.aspxhttp://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.marketwatch.com/story/mutual-funds-lose-their-battle-with-etfs-2011-06-08?siteid=rss&rss=1http://www.marketwatch.com/story/mutual-funds-lose-their-battle-with-etfs-2011-06-08?siteid=rss&rss=1http://www.marketwatch.com/story/mutual-funds-lose-their-battle-with-etfs-2011-06-08?siteid=rss&rss=1http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/five-etf-flaws-you-shouldnt-overlook/article2045102/http://www.marketwatch.com/story/will-the-bear-bite-us-again-2011-06-14?siteid=rss&rss=1http://www.fool.com/investing/etf/2011/06/14/who-sneaked-these-high-risk-stocks-into-your-portf.aspxhttp://en.wikipedia.org/wiki/Market_exposurehttp://maps.google.com/maps?ll=19.0602777778,72.8597222222&spn=0.01,0.01&q=19.0602777778,72.8597222222%20(National%20Stock%20Exchange%20of%20India)&t=hhttp://en.wikipedia.org/wiki/Tracking_errorhttp://stockviz.biz/StockDive.aspx?TICKER=BANKBEEShttp://stockviz.biz/StockDive.aspx?TICKER=KOTAKPSUBKhttp://stockviz.biz/StockDive.aspx?TICKER=JUNIORBEEShttp://stockviz.biz/StockDive.aspx?TICKER=NIFTYBEEShttp://en.wikipedia.org/wiki/Passive_managementhttp://en.wikipedia.org/wiki/Index_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://stockviz.biz/index.php/page/2/index.php/2011/06/15/what-are-etfs/


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Market Pundits on Twitter

MA Y 7 , 2011

There is a growing trend of market pundits hopping on to Twitter to spread their favourite

stock picks. StockViz has collated tweets since the April of this year and put together a

leader-board of sorts. The largest twitterer was StocksTips, with a whopping 3140

tweets:

With India Shining and all, is it any wonder that most of them were buys?

And lastly the sells:
http://stockviz.biz/index.php/page/4/index.php/2011/05/07/market-pundits-on-twitter/http://stockviz.biz/index.php/page/4/index.php/2011/05/07/market-pundits-on-twitter/


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To the active investor, the question is how many of them foretold the most recent market

rout? The leader-board for the number of sells after April 25th:

Get a round-up of all the tipsters atwww.StockViz.biz/tips

Pundit predictions and coin-toss comparisons

MA Y 4 , 2011

Most prognosticators are not very accurate predictors, few offer reliably accurate

predictions, but even fewer are wrong more than half of the time most barely hoverabove the dreaded ugly line.

Source:FT Alphaville Pundit predictions and coin-toss comparisons.
http://www.stockviz.biz/tipshttp://www.stockviz.biz/tipshttp://www.stockviz.biz/tipshttp://stockviz.biz/index.php/page/5/index.php/2011/05/04/pundit-predictions-and-coin-toss-comparisons/http://stockviz.biz/index.php/page/5/index.php/2011/05/04/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://ftalphaville.ft.com/blog/2011/05/03/557966/pundit-predictions-and-coin-toss-comparisons/http://stockviz.biz/index.php/page/5/index.php/2011/05/04/pundit-predictions-and-coin-toss-comparisons/http://www.stockviz.biz/tips


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2011 in IPOsthe story so far

JUNE 8, 2011

About 33 companies have listed in the NSE so far, on an average, they have yielded 0%

return.

Congratulations to the winners:

JUBLINDS 19%LOVABLE 31%SUDAR 33%

AANJANEYA 71%HFCL 74%KBIL 93%

TCIDEVELOP 100%KICL 110%

CMAHENDRA 130%INDTERRAIN 200%
http://stockviz.biz/index.php/page/2/index.php/2011/06/08/2011-in-iposthe-story-so-far/http://stockviz.biz/index.php/page/2/index.php/2011/06/08/2011-in-iposthe-story-so-far/http://stockviz.biz/StockDive.aspx?TICKER=JUBLINDShttp://stockviz.biz/StockDive.aspx?TICKER=LOVABLEhttp://stockviz.biz/StockDive.aspx?TICKER=LOVABLEhttp://stockviz.biz/StockDive.aspx?TICKER=SUDARhttp://stockviz.biz/StockDive.aspx?TICKER=AANJANEYAhttp://stockviz.biz/StockDive.aspx?TICKER=AANJANEYAhttp://stockviz.biz/StockDive.aspx?TICKER=HFCLhttp://stockviz.biz/StockDive.aspx?TICKER=KBILhttp://stockviz.biz/StockDive.aspx?TICKER=TCIDEVELOPhttp://stockviz.biz/StockDive.aspx?TICKER=KICLhttp://stockviz.biz/StockDive.aspx?TICKER=CMAHENDRAhttp://stockviz.biz/StockDive.aspx?TICKER=INDTERRAINhttp://stockviz.biz/wp-content/uploads/2011/06/image1.pnghttp://stockviz.biz/StockDive.aspx?TICKER=INDTERRAINhttp://stockviz.biz/StockDive.aspx?TICKER=CMAHENDRAhttp://stockviz.biz/StockDive.aspx?TICKER=KICLhttp://stockviz.biz/StockDive.aspx?TICKER=TCIDEVELOPhttp://stockviz.biz/StockDive.aspx?TICKER=KBILhttp://stockviz.biz/StockDive.aspx?TICKER=HFCLhttp://stockviz.biz/StockDive.aspx?TICKER=AANJANEYAhttp://stockviz.biz/StockDive.aspx?TICKER=SUDARhttp://stockviz.biz/StockDive.aspx?TICKER=LOVABLEhttp://stockviz.biz/StockDive.aspx?TICKER=JUBLINDShttp://stockviz.biz/index.php/page/2/index.php/2011/06/08/2011-in-iposthe-story-so-far/


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GDP Growth vs. Stocks

MA Y 25 , 2011

Quite often, the reasons that investors

give to be bullish on Indian stocks are:millions of people are rising above poverty

and are experiencing the joys of

consumerism for the first time. Almost all

of India is connected via mobile phones

and cable TV is making inroads in the

remotest of towns. So in effect, what they

are saying is that the stock-market is

going to rise with IndiasGDP. Is that really the case? Are stock-market returns

correlated with GDP growth?

A study by Peter Henry and Prakash Kannan seems to indicate not:

This only reconfirms the theory that stock-markets are leadingindicators of the

economy, not the other way around. And somewhat counter-intuitively, investing in low

growth countries actually yielded higher returns!

So what does this mean for Indian investors? The key take-away is to not get swayed by

all the India Shining callouts and focus on the fundamentals ofindividual stocks. A
http://stockviz.biz/index.php/page/3/index.php/2011/05/25/gdp-growth-vs-stocks/http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://stockviz.biz/wp-content/uploads/2011/05/image.pnghttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://stockviz.biz/index.php/page/3/index.php/2011/05/25/gdp-growth-vs-stocks/


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The best place for cash is in my pocket

JUNE 22 , 2011

The purpose of any business is, at the end of the day, to

make money. It could be through providing a service, selling

a product, acting as an intermediary or investing in other

companies. All of these activities should lead to free cash-

flow being generated. At some point, companies have to

decide what to do with the excess cash.

What shouldInfosysdo with Rs. 2,42,14,00,00,000 ($5.38 Billion) in cash?

Acquisitions

Infosys could try and grow bigger by acquiring smaller companies. However, IT services

are a cashflow business; a bigger company will end up stock-piling more cash. For

exampleOFSS(Oracle Financial Services) has more than $1B in cash.

Alternatively, it could buy or fund IT product companies. However, that would mean that

Infosys knows more about running or funding IT product companies than the stock

holder. Also, what if stock holders dont want to invest in product companies at all?
http://stockviz.biz/index.php/index.php/2011/06/22/the-best-place-for-cash-is-in-my-pocket/http://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/wp-content/uploads/2011/06/image6.pnghttp://stockviz.biz/StockDive.aspx?TICKER=OFSShttp://stockviz.biz/StockDive.aspx?TICKER=INFOSYSTCHhttp://stockviz.biz/index.php/index.php/2011/06/22/the-best-place-for-cash-is-in-my-pocket/


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Stock buy-backs

Infosys could also buy back its stock. Companies that pay their employees instock

optionstypically need to buy back their stock to avoid dilution. Infosys cash hoard can

buy back nearly 25% of its public float and investors benefit from the capital appreciation

(higher stock price) that the move would entail. The capital appreciation would result in a

tax event for the investor as well.

However, what would Infosys do with all the stock it now owns? It could use it as

currency to acquire other companies (pay in equity rather than cash). Or it could start

paying out stock options to its employees, etc.

Dividends

Infosys could choose a third, simpler alternative: distribute the cash asdividends.

Dividends are perhaps the most straight-forward, investor friendly way to return cash tothe stock holder. It allow the investor maximum flexibility in deciding what to do with the

cash. And since dividends are actual checks that need to get sent out, it means that the

accounting profits are actually real profits. In September, Infosys paid out Rs. 40 per

share, which is close to $339 million to its public shareholders.

I personally prefer dividends to other forms of returning cash to the stock holder. Its

simple, it doesnt expect the management to work miracles trying to diversify and its

cash in the pocket.

Related articles Look beyond the numbers(parthasarathyarjun.wordpress.com)

Infosys gets a new name(hindu.com)
http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dividendhttp://parthasarathyarjun.wordpress.com/2011/04/16/look-beyond-the-numbers/http://parthasarathyarjun.wordpress.com/2011/04/16/look-beyond-the-numbers/http://www.hindu.com/2011/05/01/stories/2011050160230100.htmhttp://www.hindu.com/2011/05/01/stories/2011050160230100.htmhttp://www.hindu.com/2011/05/01/stories/2011050160230100.htmhttp://parthasarathyarjun.wordpress.com/2011/04/16/look-beyond-the-numbers/http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Option_%28finance%29http://en.wikipedia.org/wiki/Option_%28finance%29


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FD returns better than debt funds over a yearMAY 19 , 2011

If you are looking to make deposits of a year or so, you should choose fixed deposits

(FDs) over debt funds.

Source:FD returns better than debt funds over a year livemint.com.

The changing landscape of Indias equity markets the bots are here

APR I L 26 , 2011

About 60% of orders into the countrys main exchange are coming from co-located

servers shows that high-frequency trading has come onshore in a big way. High-

frequency traders tend to stick to liquid stocks and liquid derivatives contracts. Hence,

they havent yet contributed meaningfully in enhancing liquidity of the other stocks and

illiquid derivatives contracts such as stock options while greatly increasing the volatility

of the most liquid names.

Combined with the dismantling of SEBIs existing team, the market is at risk of being

swarmed by the bots.

Source:The changing landscape of Indias equity markets livemint.com.
http://stockviz.biz/index.php/page/3/index.php/2011/05/19/fd-returns-better-than-debt-funds%e2%80%99-over-a-year/http://stockviz.biz/index.php/page/3/index.php/2011/05/19/fd-returns-better-than-debt-funds%e2%80%99-over-a-year/http://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://stockviz.biz/index.php/page/5/index.php/2011/04/26/the-changing-landscape-of-india%e2%80%99s-equity-markets/http://stockviz.biz/index.php/page/5/index.php/2011/04/26/the-changing-landscape-of-india%e2%80%99s-equity-markets/http://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://www.livemint.com/2011/04/25205858/The-changing-landscape-of-Indi.htmlhttp://stockviz.biz/index.php/page/5/index.php/2011/04/26/the-changing-landscape-of-india%e2%80%99s-equity-markets/http://www.livemint.com/2011/05/18215208/FD-returns-better-than-debt-fu.htmlhttp://stockviz.biz/index.php/page/3/index.php/2011/05/19/fd-returns-better-than-debt-funds%e2%80%99-over-a-year/


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Inflation

JUNE 3 , 2011

According toWikipedia, inflation is a rise

in the general level of prices of goods andservices in an economy over a period of

time. When the general price level rises;

each unit of currency buys fewer goods

and services. Consequently, inflation also

reflects an erosion in the purchasing

power of money a loss of real value in

the internal medium of exchange and unit of account in the economy.

In order to understand where inflation comes from,lets

begin something that we allintuitively understand: demand & supply. As demand for a good goes up, for the same

level of supply, the price goes up.

Here, S is the supply curve, D is the demand curve,

P is the price level and Q is the quantity of the

product sold.

So if Demand increases from D1 to D2, priceincreases from P1 to P2.

What causes the shift in the Demand and Supply

curves?

In India, as recently as Nov/Dec 2010, we had a

supply-side shock in onions. In a matter of weeks, prices of onions shot up 3x-4x the

regular price. This is typical in local food supplies (happens to tomatoes and sugar on a

regular basis as well.) Typically, supply-side shocks are acts of nature and can behandled by warehousing enough supplies to tide over bouts of disruption. For example, if

we had sufficient food-processing capabilities, we should not be seeing seasonal spikes

and cliffs in food prices.

Typically, supply-side shocks also come from herding behaviour of suppliers: seeing

onion prices hit Rs. 50, they may plant more onions for the next season, resulting in a

glut and collapsing price. The glut causes them to reign-in onion growing for the next

season resulting in shortages and higher prices. It also comes from distortion in pricing
http://stockviz.biz/index.php/page/3/index.php/2011/06/03/inflation/http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://stockviz.biz/wp-content/uploads/2011/06/500px-Supply-and-demand.svg_.pnghttp://en.wikipedia.org/wiki/Inflationhttp://stockviz.biz/index.php/page/3/index.php/2011/06/03/inflation/


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signals. For example, the government sets a floor-price for most grains. The floor-price

typically has more to do with favouring a particular demographic than with market levels.

This distortion in pricing signals means that the farmer is now forever dependent on the

government both as his largest customer and as a price setter.

Another way inflation gets embedded is when there is a shortage in labour market that

leads to increasing wages that in turn leads to increasing end prices. And seeing end

prices increase, labour starts demanding higher wages, leading to an inflationary spiral.

TheNREGAprogram has been accused of

stoking such a spiral by setting a floor on rural

wages. Higher NREGA wages meant land-

owners had to compete with the government for

labour, resulting in higher input costs which werethen compensated by higher floor prices for

grains. Higher food prices meant that NREGA

wages had to increase to keep up.

Inflation also goes up when the government

increases the amount of money in the system

either by running huge deficits or by just printing money (Quantitative Easing, in the US

Feds words). When you have more money chasing the same amount of goods, inflation

has nowhere to go but up. In fact, currency debasement has been the preferred choice

of governments to tide over funding gaps when tax hikes are no longer feasible. For

example, Roman coins the silver denarius, was 95% silver when they were first

introduced. By 117 AD, it was 85% silver, in 180 AD it was 75% and by 211 AD

(Caracallas reign) it was 50%. But the real crisis came after Caracalla, between 258 and

275, in a period of intense civil war and foreign invasions. The emperors simply

abandoned, for all practical purposes, a silver coinage. By 268 there was only 0.5%

silver in the denarius. The fascinating account of the fall of the Roman empire can be

readhere.

To summarize, the most common reasons for inflation are:

Supply-side shocks

Increasing Demand

Disruption of pricing signals

Shortage of labour

Currency debasement
http://nrega.nic.in/netnrega/home.aspxhttp://nrega.nic.in/netnrega/home.aspxhttp://nrega.nic.in/netnrega/home.aspxhttp://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easinghttp://mises.org/daily/3663http://mises.org/daily/3663http://mises.org/daily/3663http://stockviz.biz/wp-content/uploads/2011/06/image.pnghttp://mises.org/daily/3663http://en.wikipedia.org/wiki/Quantitative_easinghttp://nrega.nic.in/netnrega/home.aspx


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Related articles Feds Lockhart: Long-Term Infl Expectns Are Reasonably Stable(forexlive.com)

SocGen: The China Domino Has Fallen!, Big-Time Inflation Coming All Around The

World(businessinsider.com)

Inflation in India: central bank battles government(ft.com)

Deflation

JUNE 6, 2011

Any discussion oninflationis incomplete without calling out its

counterpart: deflation. According toWikipedia, deflation is a

decrease in the general price level of goods and services.

Deflation occurs when the annual inflation rate falls below 0% (a

negative inflation rate). Inflation reduces the real value of money

over time; conversely, deflation increases the real value of money the currency of a

national or regional economy. This allows one to buy more goods with the same amount

of money over time.

One can argue that deflation is the natural state of an advanced economy given the up-

and-to-the-right advancement in technology. Technology is a natural deflator: itincreases productivity (allows the same number of employees to produce

more),Moores lawgives us more processing power for the same dollar, it reduces

communication costs (reducing the need to travel as much) and makes globalization

more efficient (allowing businesses to shift production to lower wage/more productive

regions). It also has the effect of making certain commodities irrelevant, for example, the

invention of plastic tooth brushes caused a total collapse in the boars hair market.

However, technology deflation is a function of economies of scale and is more or less

independent ofmonetary policy. New technologies and products come down in priceover time, regardless of the state of the economy, monetary policy, or income

distribution.

Another view of deflation is that it is caused a collapse in final demand. A fall in demand

causes businesses to liquidate inventory and cut production. A cut in production would

lead to cuts in workforce. Unemployment would further destroy demand, thereby

creating a deflationary cycle. Since the same rupee can now buy more goods, it
http://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stablehttp://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stablehttp://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stablehttp://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.ft.com/cms/s/3/58104a6a-508d-11e0-9e89-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/3/58104a6a-508d-11e0-9e89-00144feab49a.html?ftcamp=rsshttp://stockviz.biz/index.php/page/2/index.php/2011/06/06/deflation/http://stockviz.biz/index.php/2011/06/03/inflation/http://stockviz.biz/index.php/2011/06/03/inflation/http://stockviz.biz/index.php/2011/06/03/inflation/http://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Moore%27s_lawhttp://en.wikipedia.org/wiki/Deflationhttp://stockviz.biz/index.php/2011/06/03/inflation/http://stockviz.biz/index.php/page/2/index.php/2011/06/06/deflation/http://www.ft.com/cms/s/3/58104a6a-508d-11e0-9e89-00144feab49a.html?ftcamp=rsshttp://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.businessinsider.com/societe-generale-on-the-dominos-teetering-in-china-that-will-lead-to-an-innevitable-increase-in-world-inflation-2011-5http://www.forexlive.com/186886/all/feds-lockhart-long-term-infl-expectns-are-reasonably-stable


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negatively affects people/companies who are in debt (youll have to repay todays Rs. 90

debt a year from now with todays Rs. 100, given a deflation of 10%.)

Given the high-debt loads of important industries, deflation is a bigger nightmare for

governments andcentral banksthan inflation. Given the recent actions of the US Fedand the UK Bank of England, it appears that there is no limit to what central banks will

do to prevent deflation: set short-term rates to zero, print copious amount of new money,

buy debt that nobody else wants and influence sentiment by fudging statistics.

To summarize: just like how inflation is the rise in general levels of prices of goods,

deflation is a fall in price levels, usually brought on by a collapse in demand. Inflation

tends to favour debtors while deflation favours savers.

Related articles Monetary Policy Week in Review 4 June 2011(benzinga.com)

A Visual Guide to Deflation(mint.com)

The deflation dilemma: Why falling prices remain a threat(theglobeandmail.com)

Last chapter in Japans deflation saga?(ft.com)

Hayek on Deflation(coordinationproblem.org)
http://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Central_bankhttp://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://www.mint.com/blog/finance-core/a-visual-guide-to-deflation/http://www.mint.com/blog/finance-core/a-visual-guide-to-deflation/http://www.theglobeandmail.com/report-on-business/the-deflation-dilemma-why-falling-prices-remain-a-threat/article1959034/http://www.theglobeandmail.com/report-on-business/the-deflation-dilemma-why-falling-prices-remain-a-threat/article1959034/http://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.coordinationproblem.org/2011/05/hayek-on-deflation.htmlhttp://www.coordinationproblem.org/2011/05/hayek-on-deflation.htmlhttp://www.coordinationproblem.org/2011/05/hayek-on-deflation.htmlhttp://www.ft.com/cms/s/0/50d7640c-5c9c-11e0-ab7c-00144feab49a.html?ftcamp=rsshttp://www.theglobeandmail.com/report-on-business/the-deflation-dilemma-why-falling-prices-remain-a-threat/article1959034/http://www.mint.com/blog/finance-core/a-visual-guide-to-deflation/http://www.benzinga.com/etfs/currency-etfs/11/06/1138866/monetary-policy-week-in-review-4-june-2011http://en.wikipedia.org/wiki/Central_bank

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