The Investment Process

1. What is investing? Any time you invest, you are putting something of yours
into something else in order to achieve something greater. when you invest
your savings in a stock, bond, or mutual fund, you do so because you think its
value will appreciate over time.

2. Investing money is putting that money into some form of "security". Stocks,
bonds, mutual funds, certificates of deposit - all of these are types of
securities.

Time Value of Money

3. Is a Rupee always worth a rupee? Sometimes a rupee is only worth 80
paisas, and sometimes it is worth Rs1.20. How can it be? The value of a
rupee changes dramatically depending on when you can take control of the
rupee and invest it. The critical variable in the exact value of a rupee is time

4. With inflation consistently destroying the purchasing power of a rupee, a

year from now a rupee will be worth slightly less than it is today. "Inflation" is
an economic term used to describe the gradual tendency of prices to rise over
time.

The Miracle of Compounding

5. In fact, if you leave this rupee invested, its value will mushroom over time
through the miracle of compounding, as you earn investment returns, your
returns begin to gain returns as well, allowing you to turn a measly rupee into
thousands of rupees if you leave it invested long enough. The more money
you save and invest today, the more you'll have in the future.

Real Returns
6. In order to increase your money, how could you invest it so that it out
performs the market? Now, let's say your investments earned 10 percent last
year. How much did you really make? At any rate, the question of importance
for you is: "How much do I end up with at the end of the day?"

Planning and Setting Goals

7. Investing is like a long car trip. There's a lot of planning that goes into it.

A. How long is the trip? (What is your investing "time horizon"?)

B. What should you pack? (What type of investments will you make?)

C. How much gas will you need? (How much money will you need to
reach your goals?)

D. Will you need to stop along the way? (Do you have short-term
financial needs?)
 E. How long do you plan on staying? (Will you need to live off the
investment in later years?)

8. Running out of gas, stopping frequently to visit rest rooms and driving
without sleep can ruin your trip. So can saving too little money, investing
erratically, or, as we said earlier, doing nothing at all. You must answer the
following questions before you can successfully set about your investing
journey:

9. What are your goals? Is this money for: retirement? A down payment on a
house? Your child's education? A second home? Income to live on in the
proverbial Golden Years?

10.How much money can you devote to a regular investing plan? Investing is
a lot of numbers. You need to get used to that, and quickly. You can see
exactly what you need to get to your destination, and can be accountable to
yourself along the way. The more specific you can be, the more likely you are
to set and achieve reasonable goals. After you have a rough idea of how
much money you'll need and how much time you have to get there, you can
start to think about what investment vehicles might be right for you and what
kind of returns you can reasonably expect.

Determining Your Investment Style

12. What kind of investor are you? Are you a swing for the fences type, or are
you content hitting singles and doubles, racking up slow and steady gains?
Before you start investing, you should determine your investment style. There
are two major variables in figuring out your investment style - your risk
tolerance and the amount of time you can dedicate to investing.

Risk.
13. How comfortable will you be if you invest in something in which the price
changes every day - sometimes not the way you want it to change? There are
various degrees of risk across the investment spectrum, from government
bonds, which are considered risk-free as they are guaranteed by the
government, to commodities and options, where you can and often do lose all
of your money. For stock investing, there is no similar guarantee or insurance
that the ride will be smooth or that every investment will make your money,
but if you buy good shares and hold for the long term, the odds are in your
favor. Just remember that the safest road isn't always the best one.

15. At Sharman securities we believe that the biggest risk is not taking
enough risk, meaning not investing enough in stocks. It should also be said
that you can learn to increase your risk tolerance for investing in stocks. Once
you see the kind of returns you can generate over time, you'll come to realize
that it really doesn't matter if your stock drops or rises over the course of a few
hours or days or weeks or even months.

Time.
16. Speaking of the long term, time is another important element of your
investing profile. How much time do you want to spend on investing? Although
stocks have great long-term returns, the returns over periods of three years or
less can be downright scary. Luckily for you, as you have now determined
your goals and how much money you will need to get there, you also know
how soon you will need the money and will be able to make the appropriate
choices when you are ready to invest.

Active and Passive Strategies

17. The two main methods of investing in stocks are called active and passive
management. The distinction between active and passive investing is whether
you (or whoever manages your money) actively choose the companies in
which you invest or whether your investments are determined by some index
created by a third party. Active investing is what most people mean when they
talk about stock investing. Whether they do it, their broker does it, or a mutual
fund manager does it, the money is managed "actively."

18.Many people who just want a return equal to that of a major stock index
use passive investing as a way to do this. The most famous passive
investment strategy is investing in the strategic funds.

STOCKS

What Is a Stock?
19. Want to own part of a business without having to show up at its office
every day? Forever? Stock is the vehicle of choice for those who do. Dating
back to the Dutch mutual stock corporations of the 16th century, the modern
stock market exists as a way for entrepreneurs to finance businesses using
money collected from investors. In return for putting up the dough to finance
the company, the investor gets shares of stock - specialized financial
"securities," or financial instruments - that are "secured" by a claim on the
assets and profits of a company.

Types of Stock

Common Stock.
20. Common stock is aptly named, as it is the most common form of stock an
investor will encounter. It is an ideal investment vehicle for individuals
because anyone can own it; there are absolutely no restrictions on who can
purchase it. Common stock is more than just a piece of paper, represents a
proportional share of ownership in a company - a stake in a real, living,
breathing business.

21. By owning stock, you are a part owner of a business. Shareholders "own"
a part of the assets of the company and part of the stream of cash those
assets generate. As the company acquires more assets and the stream of
cash it generates gets larger, the value of the business increases. This
increase in the value of the business is what drives up the value of the stock
in that business. Because they own a part of the business, shareholders get
one vote per share of stock to elect the board of directors.
22.The board is a group of individuals who oversee major decisions made by
the company. Boards decide how the money the company makes is spent.
Decisions on whether a company will invest in itself, buy other companies,
pay a dividend, or repurchase stock are all the purview of the board of
directors. Top company Management, who the board hires and fires - will give
some advice, but in the end the board makes the final decision.

Different Classes of Stock.

23. Occasionally, companies find it necessary for various reasons to
concentrate the voting power of a company into a specific class of stock
where the majority is owned by a certain set of people. For instance, if a
family business needs to raise money by selling equity, sometimes they will
create a second class of stock that they control that has ten votes per share of
stock and sells a class of stock that only has one vote per share to others.
When there is more than one kind of stock, they are often designated as
Class A or Class B shares.

How Stocks Trade

24.Probably one of the most confusing aspects of investing understand how
stocks actually trade. Words such as "bid," "ask," "volume," and "spread" can
be quite confusing if you do not understand what they mean. There are two
different systems.

Listed Exchange.
25.The Karachi Stock Exchange, Lahore and the Islamabad Stock Exchange
are listed exchanges, meaning that brokerage firms contribute individuals
known as "specialists" who are responsible for all of the trading in a specific
stock. With the help of technology, the specialist quickly matches buyers with
sellers. Sometimes referred to as "an auction market," the specialist can see
who has blocks of stock to buy or sell at various prices and links them up.
over-the-counter Market.
27. In an over-the-counter market, brokerages (also known as broker-dealers)
act as market makers for various stocks. The brokerages interact over a
centralized computer system managed by the Exchanges, providing liquidity
for the market to function. One firm represents the seller and offers an ask
price (also called the offer), or the price the seller is asking to sell the security.
Another firm represents the buyer and gives a bid, or a price at which the
buyer will buy the security. For example, a particular stock might be trading at
a bid of Rs6 and an ask price of Rs6.50. If an investor wanted to sell shares,
he would get the bid price of Rs6 per share; if he wanted to buy shares, he
would pay the ask price ofRs6.50 per share. The difference is called the
spread, which is paid by the buyer.

Buying Stocks
28.Use a Brokerage. The most common way to buy stocks is to use a
brokerage. You can either use one of the many full-service brokers or a
discount broker to execute your trades. When you use a brokerage, you can
have a cash account or a margin account, meaning you can borrow money to
buy stocks.

29. Shorting Stocks. If you buy a security with the expectation that the price
will rise, you are "long" the stock. If you sell a stock you borrow from someone
else hoping that the share price will go down, you are "short" the stock. When
you short a stock, you hope to repurchase it later at a lower price and then
return the shares to the owner and keep the difference. Shorting not only
offers you a way to make money if a stock goes down but also acts as a
hedge against falling markets.

30.The basics of the shorting transaction are straightforward. You first contact
your brokerage in order to determine whether it can borrow shares of the
stock you want to short. When you receive the borrowed shares, you
immediately sell them and keep the cash,
promising to return the shares at some future time. The plan is to eventually
repurchase the shares at a lower price and return them, keeping the
difference your self. But, sellers beware, if the stock's price rises, you might
have to buy back the shares at the higher price and thus lose money. The
biggest danger of shorting stocks is that stocks that are shorted can keep
rising and rising, potentially costing a short-seller more than all the money put
at risk.

31. Cash vs. Margin. If you invest in stocks just with the money you have in
your brokerage account, you are using a cash account. If you borrow money
from the brokerage to invest in stocks, you are using a margin account. If you
borrow money in a margin account to buy stocks, keep in mind that this is not
at all "free" money. Your collateral for borrowing the money is the marginal
securities in your account, which means they are forfeit if you cannot
otherwise repay the margin loan. You also have to pay a fixed amount of
interest on the borrowed money on a monthly basis, which can reduce your
overall returns.

33. Margin Requirements. Both the SECP and the individual brokerage you
use limit the amount you can borrow on margin. There are two requirements,
how much margin you can initially use and then how much margin you can
have after you make the initial transaction. Although each brokerage is
different, as a general rule 50 percent of the purchase price of any security
can be margin. After you take the position, there is a maintenance margin
account requirement that is normally much lower, often around 25percent.
Check with your brokerage to find out your initial and maintenance margin
requirements.
34. Margin Call. Should you fall below the margin requirements, you may be
subject to a margin call. If so, you have three days to send in more cash or
securities to cover the deficiency or you will be forced to sell out of your
positions. How can you calculate how close you are to the requirement? If you
took the Rs6000 position described above using Rs3000 in margin and your
maintenance margin requirement was 25 percent, the position could fall as
low as a total value of Rs4000 before you risked a margin call.
(Rs1000 equity/(Rs1000 equity + Rs3000 margin) = Rs1000/Rs4000 = 25
percent).

35. Using Margin. Although very aggressive, experienced investors could

probably margin their accounts up to 20 percent without incurring a margin
call, the fact that your losses are exacerbated should give even the most
fearless investor pause. However, because most brokerages will let you short
stocks only if you have a margin account - even if you have the cash to cover
the short in your account - you may, nonetheless, end up signing that margin
agreement and sending it off to the brokerage.

39. Short Squeezes. When a number of short sellers all try to cover their short
positions at the same time, it can drive the stock price up very quickly. This is
called a short squeeze, as the upward movement of the price actually induces
more short-sellers to cover, pushing the stock price even higher. Although
most of the time news will start a short squeeze, occasionally traders who see
a company with a high number of days to cover will start buying the stock to
set off a short squeeze.

40. Why Short? Since you are betting that the stock price will go down
when you short a stock, many people believe that shorting is un-wise.
However, you shouldn't totally rule out selling short for long periods of
time, like the 1970s and the mid-1990s, almost the only way an investor
could have made money in the stock market was by short selling. The
long and the short of it is that those who oppose shorting don't
recognize that every transaction requires a buyer and a seller. Because\

ANALYSING

Introduction
41. Investing like most other things, requires that you have a general
philosophy about how to do things in order to avoid careless errors. Would
you make a soufflé without a recipe? And while investing is not nearly as
difficult as these are other challenges, you certainly need a considered plan
before investing your hard-earned savings.

Fundamental Analysis
Buying a Business (Value, Growth, Income, Quality)
42. Many people rightly believe that when you buy a share of stock you are
buying a proportional share in a business. As a consequence, to figure out
how much the stock is worth, you should determine how much the business is
worth. Investors generally do this by assessing the company's financials in
terms of per-share values in order to calculate how much the proportional
share of the business is worth. This is known as "fundamental" analysis by
some, and most who use it view it as the only kind of rational stock analysis.
43.Value. An investor's purpose should be to know both the price and the
value of a company's stock. The goal of the value investor is to purchase
companies at a large discount to their intrinsic value - what the business
would be worth if it were sold tomorrow. In a sense, all
investors are "value" investors - they want to buy a stock that is worth more
than what they paid. Some examples include:

a. Price/earnings ratios (P/E) below a certain absolute

limit

b. Dividend yields above a certain absolute limit

c. Book value per share at a certain level relative to the share price

d. Total sales at a certain level relative to the company's market

capitalization, or market value.

44. Growth. Growth investing is the idea that you should buy stock in
companies whose potential for growth in sales and earnings is excellent.
Growth investors tend to focus more on the company's value as an ongoing
concern. Many plan to hold these stocks for long periods of time. Growth
investors look at the underlying quality of the business and the rate at which it
is growing in order to analyze whether to buy it.

45. Income. Although today common stocks are widely purchased by people
who expect the shares to increase in value, there are still many people who
buy stocks primarily because of the stream of dividends they generate. Called
income investors, these individuals often entirely fore go companies whose
shares have the possibility of capital appreciation for high-yielding dividend-
paying companies in slow-growth industries. These investors focus on
companies that pay high dividends like utilities and MNC.

Quantitative analysis.

46. Quality. Most investors today use a hybrid of value, growth, and GARP
approaches. These investors are looking for high-quality businesses selling
for "reasonable" prices. Although they do not have any shorthand rules for
what kind of numerical relationships there should be between the share price
and business fundamentals, they do share a similar philosophy of looking at
the company's valuation and at the inherent quality of the company as
measured both quantitatively by concepts like return on equity (ROE) and
qualitatively by the competence of management.

47. Quantitative Analysis - Buying the Numbers, Pure quantitative analysts

look only at numbers with almost no regard for the underlying business. The
more you find yourself talking about numbers, the more likely you are to be
using a purely quantitative approach. Although even fundamental analysis
requires some numerical inputs, the primary concern is always the underlying
business, focusing on things like management's expertise, the competitive
environment, the market potential for new products, and the like.
48. In recent years as computers have been used to do a lot of number
crunching, many quants as they like to call themselves, have gone completely
native and will only buy and sell companies on a purely quantitative basis,
without regard for the actual business or the current valuation, a radical
departure from fundamental analysis. "Quants" will often mix in ideas like a
stock's relative strength, a measure of how well the stock has performed
relative to the market as a whole.

49. Company Size. Some investors purposefully narrow their range of

investments to only companies of a certain size, measured either by market
capitalization or by revenues. The most common way to do this is to break up
companies by market capitalization and call them micro-caps, small-caps,
mid-caps, and large-caps, with "cap" being short for "capitalization." Some
believe that because a company's market capitalization is as much a factor of
the market's excitement about the company as it is the size, revenues are a
much better way to break up the company universe.

50. Momentum. Momentum investors look for companies that are not just
doing well, but that are flying high enough to get nose bleeds. "Well" is
defined as either relative to what investors were expecting or relative to all
public companies as a whole. Momentum companies often routinely beat
analyst estimates for earnings per share or revenues or have high quarterly
and annual earnings and sales growth relative to all other companies,
particularly when the rate of this growth is increasing every quarter. This kind
of growth is viewed as a sign that things are really, really good for the
company. High relative strength is often a category in momentum screens, as
these investors want to buy stocks that have outperformed all other stocks
over the past few months.

Technical Analysis - Buying the Chart

51. What would you do if you truly believed that all information about publicly
traded companies was efficiently distributed and that nobody could get an
edge on anyone else by either understanding the business or analyzing the
numbers? You might consider simply giving up on beating the market's
returns by buying an index fund. Some investors have taken an alternate
route, attempting to create a set of tools that might tell them what other
investors thought about a stock at any given time, particularly looking for the
footprints of large Institutional investors that tend to cause the most extreme
price changes. Investors who focus on this kind of psychological information
call themselves technical analysts and believe that charts can sometimes
provide insight into the psychology surrounding a stock.
52.Although there are plenty of pure chartists, some investors just use charts
to time investments after looking at them from a fundamental or quantitative
perspective. There is no set of clearly defined approaches to technical
analysis, but there are a number of different tools. The most important
indicators seem to be specific chart formations that show certain price
movements at times when trading volume is at a certain level. The most
common kinds of charts include point and figure charts, logarithmic charts,
and Japanese candlesticks, to name a few.

PICKING A BROKER

What Does a Broker Do?

53. Brokers? Who needs 'em? Well, you do. In order to buy shares of stock,
you need a stockbroker to help you with the transaction. In the same way that
property agent is the "middleman" between you and sellers, the broker (also
called a stockbroker) is the link between you and the stock exchange.

54. To better understand what a broker is and how one operates, let's define
the broker's role.

A. A stockbroker is a salesperson.

B. She works for a stock brokerage house (like Merrill Lynch or Charles
Schwab).

C. The broker's job is to carry out your transactions.(If you like Chinese
food, the broker may also carry that out, but that's between the two of
you.)

55. Common Questions About Stockbrokers

Q. How does a stockbroker get paid?

A. Brokers are paid by salary, commissions on sales, or a mix of both.

Q. What qualifies someone to become a stockbroker?

A. The glamorous life of stockbroker is not for everyone.Stockbrokers
must pass two licensing examinations called the Series ---- and
 Series ---. Successfully completing these exams allows the broker
to advise you, to solicit business from you, and to execute
transactions on your behalf.

56. So, a broker is employed by a brokerage house to facilitate your

transactions and, in the case of full-service brokers, to advise you in making
your investment decisions. Although a broker may do his own research, he is
NOT a research analyst.

Research analysts are other folk’s people who work for brokerages, and it is
they who do that sort of enlightening, in-depth research of a company's
business and industry.

Full-Service vs. Discount

57. We are presented with many choices when shopping for a broker, just as
we are presented with many choices when shopping for a mate. There are at
least hundreds of discount brokerage houses and many, many full-service
brokerage houses. however, not all are suited to every taste, so you have to
be a bit discerning and choose what best suits you. The most important part
of the process is determining what you need. Below is a general description of
the services offered by full-service and discount brokers.

58. Full-Service. These brokers tend to offer a wider variety of financial

products, as well as investment advice and research, than do discount
brokers, and they charge considerably higher fees. They may offer stocks,
bonds, derivatives, annuities, and insurance. A full-service broker solicits
business and is paid mostly by commissions. This means that he is
compensated not according to how well your portfolio does, but by how often
you trade. This in turn means that it is in his interest to have you trade as
often as possible

59. Discount. Discount brokerages do not offer any advice or research - they
simply transact your trades with no frills. Because they manage fewer
products than their full-service counterparts, discounters charge considerably
lower fees. They also often offer online computer order entry services. Live
brokers at these brokerages are usually paid a fixed salary to execute your
trades. They don't solicit, and they aren't paid commissions. Discount
brokerages make money by doing business in volume, competing mostly on
price and "reliability" of the service: if they have the lowest prices and the best
service, they get the most trades.

60. So many brokers, so little time... which one should you choose? We
advocate do-it-yourself investing - we want everyone to do their own
homework and make their own decisions, so we think discount brokers are
the way to go. We think you're capable of learning whatever you need to know
to invest successfully, and you can save big commission rupees in the
process.
Placing an Order
61. You've picked a broker, done your stock research, and you are ready to
place an order. How do you do it? What types of orders can you place? In
general, and in keeping with our overall long-term buy-and-hold philosophy,
there are only two terms you need to know: "buy" and "sell.". You buy a stock
because you think it's a great long-term prospect, and you only sell it when
you either need the money or feel that there's a better place to put that
money. That said, there are different types of orders. let's look at the major
types of orders:

62. Buy order. The order you place when, obviously enough, you want to buy
shares. Simply tell the broker how many shares you want to purchase. There
are several types of buy orders.

A. Buy at market. You instruct the broker to buy a specified number of

shares at the prevailing market price.

B. Buy at a limit. You instruct the broker to buy a specified number of

shares, but only at a specified price or lower. For example, you might
say: "Buy 100 shares of Microsoft at a limit of Rs140." In this case, you
are only willing to purchase shares of Microsoft if you can do so at
Rs140 or less.

63. Sell order. An order you place when you want to sell shares.

A. Sell at market. An order to sell your shares at the prevailing market

price.

B. Sell at a limit. An order to sell your shares only at the price that you
specify or higher.

C. Sell at a stop limit. You instruct your broker to sell your stock if it
falls to a certain price. For example, you buy Microsoft at Rs140 and
you instruct your broker to sell if it falls to Rs130. This would be a Sell
Stop at Rs130.

Keys to Success!

64.You understand how to get your finances in order before investing and
have mastered basic investment lingo. At parties or festive family reunions
you can talk stocks, bonds, and mutual funds without looking at the cue cards,
and most importantly, you know the basic approaches to valuing each one.
Finally, you can select an affordable broker that will allow you to transact your
investment decisions. You've learned the investing basics. Now what do you
do next?

Building a Portfolio: Asset Allocation

65. Knowing how to analyze and select stocks, bonds, and mutual funds is
only half the battle. How much of each should be in your portfolio?
Complicated, contradictory, and confusing asset allocation models abound in
the investment world. Many times these models appear to be designed by a
committee of dueling economists who have agreed upon adding a small dash
of every investment option imaginable rather than to give investors guidance
in how to divvy up their investment pie. What is a poor investor to do?

66. The key to all asset allocation models is risk. What is "risk"? Well, when
capitalized - it's a board game, but it's more than that. risk is the measurement
of how willing you are to see the value of your investments decrease in the
near term, even while you know the chances that they will increase over the
long term. The higher the risk in an investment, the more likely it is to drop in
the short term as well as to rise.

Long-Term Returns
68.So, if you can lose money on stocks, stock and bond /mutual funds, over
short periods of time, why invest in them at all? Why not stick to the safe
alternatives and let it lie? Well, if you look at the long-term historical returns
that investment vehicles like stocks have generated, you should have second
thoughts about sticking with the low-risk, low-return vehicles that serve as
safe havens for parking your money. As you can see, over three pretty
significant periods returns from stocks walloped the returns from bonds or
money market funds

When to Sell
70. So you have bought some investments and you are wondering when
might be an opportune time to sell? As bonds really end up selling themselves
when they mature and you receive all of your principal back, the real selling
issues come up when you own stocks or stock mutual funds. Some investors
believe they can "time" the market, meaning that they think they can tell when
the market will go up and when it will go down. As a result, they counsel
selling all of your stocks when the market is going to go down and buying
them all back when the market is going to go back up. Unfortunately, if it were
that easy these same folks would be sunning themselves on beaches in Bali
and not trying to sell newsletters.

71. Certainly when the overall economic scenario gets bad enough to hurt
corporate earnings growth and companies start to flounder, you might
consider selling some of the lower quality companies that are overvalued - but
a system to consistently time the market as a whole has been about as
actively pursued as alchemy, and at this point is about as realized If you have
purchased a stock mutual fund, you have handed your money over to a
professional money manager or you have handed it over to passively follow
an index like the KSE100.
72. Selling a stock is slightly more complicated than selling stock mutual fund.
The two major reasons to sell a stock are

A. if the basic business changes in a way that was not anticipated, or

B. if the stock becomes overvalued enough that even after considering

the taxes you would have to pay on the capital gains you still believe
the company will under-perform.

73. When the business changes or management proves inept at handling the
business, all the patience in the world is seldom rewarded. Selling might make
sense if a company switches businesses to one you don't understand very
well. The most important risk you run in owning a company's stock is that you
don't understand the business.

74. Finally, if a stock becomes overvalued enough that the shares have a
substantial risk of decline, you should consider selling to preserve capital.
This is the "Sell high" portion of the "Buy low, sell high" cliche. Don't be too
eager though. If it is a quality company and the overvaluation could be cleared
up with a year or two's worth of financial results, you may actually be better off
holding. However, if the valuation is stratospheric and seems to assume that
all the news between here and the end of the world will be good, selling could
possibly be the better part of valor.

Bull, Bear and Volatile Markets.

75. The media pays an awful lot of attention to the market, though quite often
it only looks at a particular index and considers that representative of the
market as a whole. The market is considered to be bullish if it is going up,
bearish if it is going down and volatile if it is going up and down in quick
succession. Some investors, particularly those who use technical analysis,
like to look at charts of the market in order to assess investor psychology to
gauge whether or not the market can go higher. Foolish investors believe that
this is an exercise in futility and that focusing on individual companies and
their businesses is the only way to go. Bull market, bear market, or volatile
market aside, in order to get the kind of long-term returns on stocks that
investors have seen for the last two centuries, the buy and hold mantra is
the one that has served investors the best over time.

Review, Review, Review

76. Most important of all to the long-term success of your investment portfolio
is paying attention. Would you buy a plant and never water it? Would you buy
a dog and let him keep eating the curtains after you've explicitly and patiently
explained the reasons he shouldn't? Of course not. The same is true, to a
lesser degree, for a portfolio of investments. Any investment needs to be
checked up on regularly to see if it is matching or beating the market and
other substantially similar alternatives. Reviewing your investments,
particularly when you may have made mistakes offers a crucial opportunity to
learn from your mistakes rather than being doomed to repeat them. Everyone
makes errors on occasion, but most successful investors avoid making the
same errors more than once. Set aside time to review your portfolio at least
once every three months, if not weekly.

Conclusion
77. Congratulations! You've made it through all of Investing Basics. We
encourage you to make use of the many investing tools and resources
available here and add to your knowledge base. Finally, we'd like to stress
that all of what we've covered here - from compound returns to inflation to
bond yields to asset allocation - is more than simply numbers and
philosophies. Investing is what enables us to buy homes, pay for our kids
education, retire early, We wish you luck.

THANK YOU
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Book Value. The current value of an asset on a company’s balances sheet

according to its accounting conventions. The shareholders' equity on a
company's balance sheet is the book value for that entire company. Many
times when investors refer to book value, they actually mean book value per
share, which is the shareholder's equity (or book value) divided by the number
of shares outstanding. As the book value is theoretically what a company
could be sold for (liquidation value), this book value number is sometimes
used as a rough guide as to whether or not the shares are undervalued.

Capital Appreciation. One of the two components of total return, capital

appreciation is how much the underlying value of a security has increased. If
you bought a stock at Rs10 and it has risen to Rs13, you have enjoyed a 30
percent return from the appreciation of the original capital you invested.
Dividend yield is the other component of total return.

Dividend Yield. A ratio of a company's annual cash dividends divided by its

current stock price expressed in the form of a percentage. To get the
expected annual cash dividend payment, take the next expected quarterly
dividend payment and multiple that by four. For Many newspapers and online
quote services will include dividend yield as one of the variables. If you are
un-certain whether the current quoted dividend yield reflects a recent increase
in the dividend a company may have made, you can call the company and
ask them what the dividend per share they expect to pay next quarter will be.

Earnings Per Share (EPS). Earnings, also known as net income or net profit,
is the money that is left over after a company pays all of its bills. For many
investors, earnings are the most important factor in analyzing a company. To
allow for apples-to-apples comparisons, those who look at earnings use
earnings per share (EPS). you calculate the earnings per share by dividing
the rupee amount of the earnings a company reports over the past 12 months
by the number of shares it currently has outstanding.
Market Capitalization. The current market value of all of a company's shares
outstanding. To calculate market value, you take the number of shares
outstanding and multiply them by the current price of each share. You can find
information about shares outstanding from the company's last quarterly report
or any online quote service.

Price/Earnings Ratio (P/E). Earnings per share alone mean absolutely

nothing. In order to get a sense of how expensive or cheap a stock is, you
have to look at those earnings relative to the stock price. To do this, most
investors employ the price/earnings (P/E) ratio. The P/E ratio takes the stock
price and divides it by the last four quarters' worth of earnings.

Relative Strength. Relative strength, also known as relative price strength,

rates the performance of a stock versus the performance of the market as a
whole over a given time period. The rating system gives a numerical grade -
just like the ones Mr. Spicer used to scrawl in bright red ink on your algebra
quizzes - to the performance of a stock over a given period, normally the past
12 months. Thus, relative strength is a momentum indicator.
The most popular form of relative strength ratings are those published in
Investor's Business Daily, which go from 1 to 99. A relative strength of 95, for
example, indicates a wonderful stock, one that has outperformed 95 percent
of all other U.S. stocks over the past year. However, given that relative
strength is only a mathematical relationship between the stock's performance
and an index's performance, many others have created their own relative
strength measures.

Revenues. Also known as sales, revenues are how much the company has
sold over a given period. Annual revenues would be the sales for a given
year, whereas quarterly revenues would be the sales for a given quarter.
Sales. Also known as revenues, sales are literally how much the company
has sold over a given period. Annual sales would be the sales for a given
year, whereas quarterly sales would be the sales for a given quarter.

Utilities. A business that provides a service essential to almost everyone is

called a utility. These businesses are almost always under some form of
regulation by the government and normally have a monopoly position in a
certain region. Electric companies, natural gas providers, and local phone
companies are often referred to as utilities.

Volume. The amount of shares traded on a given day is known as the

volume. Many investors look at volume over a month or a year to come up
with average daily volume. Market watchers will say a company has traded at
a certain number of times the average daily volume, giving the investor a
sense of how active the stock was on a certain day relative to previous days.
When major news is announced, a stock can trade as much as 20 or 30 times
its average daily volume, particularly if the average daily volume is very low.
Liquidity. The average number of shares traded gives an investor an idea of
a company's liquidity - how easy it is to buy and sell a particular stock. Highly
liquid stocks trade easily in large batches with low transaction costs. Liquid
stocks trade Infrequently and large sales often cause the price to rise or fall
Dramatically. Illiquid stocks on the NASDAQ also tend to carry the largest
spreads, the difference between the buying price and the selling price.