What/Why we are discussing – its significance in terms of current affairs (Three four lines)
BackGround in detail
Argument
Counter-argument
Your point of view
Assignments:
Pakistan Politics
Assassination of Benazir, how it is going to impact Pak politics. Usually politics of Pak oscillates between democracy and dictatorship.
You can also discuss if Benazir was really that good a leader as well. Also include recent attack on a PPP leader. Its implications.
Stock Markets
The crisis.
How the value fell. Was it the worst month for markets in a long long time.
How common people were affected.
Solutions to prevent such crisis.
How small investors can feel secure.
Cricket
Test series. It was a test of Indian character in terms of what happened on the field, and in terms of racial row.
Challenges for India before the series. (Team of Veterans, Never won a series in Australia, Australians were baying for our blood)
Could we measure up to them.
During mid-series McGrath had predicted a 4-0 verdict. How we managed to change the form book upside down.
Modi
Importance of Gujarat Elections few months proceeding the elections
Exit polls predicting little majority for Modi, but he won big
Why he won. Was development the major issue.
Who is real Modi. His good and bad points.
What is the significance of his victory for BJP and its leadership.
Does his victory mean secular values are dead.
Did his victory lead to the postponement of polls.
Nano
Expectations before Nano came up
How Nano met public expectations
What kind of competition it will lead to in small car segment – Cut down on prices etc
Now how to tackle pollution and congestions which Nano will lead to
Sarkozy+Brown
Significance of the two visits for India.
Deal separately in about 500 words.
Do you think India deserves a place in the Security Council.
Female infanticide in Punjab
Can you link it with the Indian situation over all and then come to Punjab. Saying this all India trend is so dominant in Punjab. (If not then just start with Punjab Problem)
Recent putting of cradles/proposals to put cradles shows how serious the situation is
Solutions (you may agree or disagree)
Kidney racket
What this racket is
It is a racket of epic proportion in terms of money as well as reach
Who were the collaborators and history (Very small)
Solutions to prevent this kind of racket
Finish with responsibility of the society in such matters
Sania
She has refused to play for the time being in India will be the starting point
Her growth as a player
Sania as a personality
Sania as a player
Sania as symbol of excellence for Muslim women and women in general
Also highlight the issue of media scrutiny for sporting and film personalities (Yuvraj, Dhoni)
Internet
Recent cable problem showed how dicey things can be for internet. Your views on the pros and cons of internet.
Little bit of history and data on internet users in India will help. In 90s, many would wonder what kind of coffee one could get at Cybercafe. Now even a kid knows that surfing and sipping are different things.
Indo-China relations
Little bit of history especially trade and border
Some landmark agreements
Recent visit of Dr Manmohan Singh
Your suggestions on how trade and politics can be taken care of
Sikh issue on Pagdi – French + Bhagat Singh
Petition to Sarkozy
Discrimination against Sikhs world wide, including some killings in early 2001.
Recent pulling of a Sikh’s pagdi
Initiative to ensure that such incidents do not happen
On Bhagat Singh
A tremendous revolutionary
Making of Bhagat Singh
His philosophy
His courage
Bhajji Controversy
Race relations in World Sports
Race relations in cricket
Bhajji’s previous history
Is he guilty of racialism?
Has the verdict been handed out satisfactorily?
Journalists – attack on them
Year 2007. How bad it was.
Recent attack on Indian journalists
Culture of intolerance must be tackled strongly
Women issue – Is there a glass ceiling
What does a modern woman think about career and home
Her aspirations
Can she meet all her aspirations
Glass ceiling in corporate life, political life etc. BJP’s 33 per cent reservations in Party
Monday, February 4, 2008
Tuesday, January 29, 2008
Sunday, January 27, 2008
Taslima Nasreen as Political Football
Why Should Taslima stay in India and WB
India has enviable credential as place for refugees for people fighting for democracy and people rights. Some names are Dalai Lama, Faiz Ahmed Faiz, Nepali Congress, Sheikh Hasina Wazed, Nazibullah of Afghanistan.
We traditionally believe in Mehnamavahi. Since old times we have sheltered even people who might harm them. Even English traders were feted in Indian courts.
Her writings are for women issues and against communalism. Lajja
Left is politically aware. And progressive. It stands for women rights. It stands for rights of artists
Defensive tactics
Modi wanted Taslimabhen to live in Gujarat and his collegues in protect Taslima campaign. Now BJP is otherwise against Bangla refugees!
West Bengal is worried about Nandigram and and Rizawanur Haq incidents which has given Muslim community reasons to worry. So it seems more like a political move.
Muslim groups, unable to have UPA toe its line on things like Nuclear deals, are raking up issues from where they can draw mileage.
Defence of treatment to Taslima
Well to defend the government. Mukherjee’s statement that It is expected that the guest will refrain from activities that will hurt the sentiments of our people.’’
Exceptional circumstances call for exceptional remedy. Communal sitatuion in WB was getting bad
Allegations she deliberately courts controversies to be in the limelight. And being in West Bengal gives her a sense of security despite doing all this.
Why Should Hussain live in exile and Taslima become the darling of Media.
Is everybody addressing to its Vote Bank – various comments
Each one is addressing his vote bank. ‘’Her writings may be a subject of criticism, but the way she was sent out is certainly deplorable,’’ says Joy Goswami, noted writer.
All India’s progressive Women’s Association GS ‘’This is nothing but a witch hunt. How can creative people be used as political pawns’’
Writer Sunil gangapadhyay is stunned: ‘’Someone has to take the responsibility. How can an author be hounded like this.’’
Yechury: Centre gave Visa and their responsibility. (the statement should have been made with little more responsibility)
Left: Riots against her were culmination of simmering hostility over the years. Though many observers believe that riots were on Nandigram.
Writers Building: Taslima Welcome to return
Pranab Mukherjee: ‘’it is expected that
Tourcherd Journey of Taslima Nasreen 1993 Lajja was banned, 1994 leaves for Sweden after arrest warrents for blasphemy. Many other novels were banned. 2004, Head of Kolkatta Tipu Sultan Mosque puts a cash prize on anyone who blackens her face.
2007 A muslim body of Bareilly offers Rs 5 lakh for anyone who beheads her. She is attacked at Hyderabad Press Club.
As of now efforts are on to convince her to go to some Eurpean Country. She is afraid to leave for Sweden if demonstrations take place again and she is not allowed to come. French President too wants to confer the award in India!
India is also turning out to be a country of humourless people
Govt wants to avoid controversy, but may have no objection if the writer gets the award outside India.
(Piece on BS: A proposal by the French government to honour Bangladeshi writer Taslima Nasreen with the prestigious Simone de Beauvoir award during President Nicolas Sarkozy’s visit to New Delhi has been politely but firmly turned down by the Indian government.
France had named Nasreen as the recipient of the award on January 9 for her writings on women. The award was to have coincided with Beauvoir’s 100th birth anniversary and France thought it would be convenient to confer the award during Sarkozy’s visit. )
India has enviable credential as place for refugees for people fighting for democracy and people rights. Some names are Dalai Lama, Faiz Ahmed Faiz, Nepali Congress, Sheikh Hasina Wazed, Nazibullah of Afghanistan.
We traditionally believe in Mehnamavahi. Since old times we have sheltered even people who might harm them. Even English traders were feted in Indian courts.
Her writings are for women issues and against communalism. Lajja
Left is politically aware. And progressive. It stands for women rights. It stands for rights of artists
Defensive tactics
Modi wanted Taslimabhen to live in Gujarat and his collegues in protect Taslima campaign. Now BJP is otherwise against Bangla refugees!
West Bengal is worried about Nandigram and and Rizawanur Haq incidents which has given Muslim community reasons to worry. So it seems more like a political move.
Muslim groups, unable to have UPA toe its line on things like Nuclear deals, are raking up issues from where they can draw mileage.
Defence of treatment to Taslima
Well to defend the government. Mukherjee’s statement that It is expected that the guest will refrain from activities that will hurt the sentiments of our people.’’
Exceptional circumstances call for exceptional remedy. Communal sitatuion in WB was getting bad
Allegations she deliberately courts controversies to be in the limelight. And being in West Bengal gives her a sense of security despite doing all this.
Why Should Hussain live in exile and Taslima become the darling of Media.
Is everybody addressing to its Vote Bank – various comments
Each one is addressing his vote bank. ‘’Her writings may be a subject of criticism, but the way she was sent out is certainly deplorable,’’ says Joy Goswami, noted writer.
All India’s progressive Women’s Association GS ‘’This is nothing but a witch hunt. How can creative people be used as political pawns’’
Writer Sunil gangapadhyay is stunned: ‘’Someone has to take the responsibility. How can an author be hounded like this.’’
Yechury: Centre gave Visa and their responsibility. (the statement should have been made with little more responsibility)
Left: Riots against her were culmination of simmering hostility over the years. Though many observers believe that riots were on Nandigram.
Writers Building: Taslima Welcome to return
Pranab Mukherjee: ‘’it is expected that
Tourcherd Journey of Taslima Nasreen 1993 Lajja was banned, 1994 leaves for Sweden after arrest warrents for blasphemy. Many other novels were banned. 2004, Head of Kolkatta Tipu Sultan Mosque puts a cash prize on anyone who blackens her face.
2007 A muslim body of Bareilly offers Rs 5 lakh for anyone who beheads her. She is attacked at Hyderabad Press Club.
As of now efforts are on to convince her to go to some Eurpean Country. She is afraid to leave for Sweden if demonstrations take place again and she is not allowed to come. French President too wants to confer the award in India!
India is also turning out to be a country of humourless people
Govt wants to avoid controversy, but may have no objection if the writer gets the award outside India.
(Piece on BS: A proposal by the French government to honour Bangladeshi writer Taslima Nasreen with the prestigious Simone de Beauvoir award during President Nicolas Sarkozy’s visit to New Delhi has been politely but firmly turned down by the Indian government.
France had named Nasreen as the recipient of the award on January 9 for her writings on women. The award was to have coincided with Beauvoir’s 100th birth anniversary and France thought it would be convenient to confer the award during Sarkozy’s visit. )
BBC Article on Female Infanticide
The government in India's Punjab state is investigating the possible involvement of state officials in setting up illegal clinics and ultrasound centres accused of female foeticide.
Last week, a surprise raid by police and health officials in the town of Patran in Patiala district unearthed a 10-metre (30-foot) well - located behind a private clinic - which contained the remains of at least 50 female foetuses.
The discovery provoked the largest ever campaign against female foeticide across the state's 23 districts.
Punjab has the lowest sex ratio in the country and there are 776 girls for every 1,000 boys in the state up to the age of six years.
All district and local officials have been instructed by the government to carry out regular surprise checks on clinics and centres offering ultrasound testing, Dr Harinder Rana, the state's director of health services and family welfare, said. "We are very serious about sorting out this problem," she said.
The owners of Sahib Hospital in Patran were arrested last Wednesday.
They have been charged on various counts under laws prohibiting pre-natal sex-determination tests and termination of pregnancy, where the unborn child is known to be a girl.
Gory discovery
Galvanised into action by the horrifying spectacle of decomposing foetuses and subsequent reports in local newspapers and television channels, squads of police and health officials conducted simultaneous raids on dozens of private hospitals and ultrasound centres.
Officials found 50 foetal remains in this well
The raids are specifically targeting smaller clinics, many located in nondescript, small townships and settlements, like Sahib Hospital.
"I have directed my men to seal all unauthorised hospitals and diagnostic centres," the civil surgeon responsible for health services in the district, Virender Singh Mohi, said.
"Regular, monthly raids are being made mandatory so that we can remain on top of things."
And even though the raids - conducted across Punjab and a few locations in the neighbouring state of Haryana - have so far failed to yield any results, officials are firm on carrying the campaign forward.
Acting on information given by a midwife, Puja, who first blew the whistle on the allegedly illegal activities at Sahib Hospital, police and health officials excavated a second deep well on the premises of Sahib Hospital last Friday.
After digging for six hours, workers recovered what appeared to be numerous skeletal remains of babies and several pieces of blood-soaked cloth.
These have been collected and sent for analysis at a government medical college.
'Vested interests'
Meanwhile, some officials associated with this drive have received death threats.
Pritam Singh says clinics make profit out of people's demands
Mr Mohi told the police he received several phone calls in which people threatened to kill him if he continued the raids on private hospitals.
"There are very strong and influential vested interests in keeping this illegal practice going in Punjab," he said.
Darshan Kumar Singla, a local journalist in Patran, says "although everyone is aware this is illegal, most people do not think anything about aborting a female child and trying again for a boy.
"Female foeticide is rampant in all the small towns here. Most nursing homes do such work at night and everybody - the police, the health authorities and the civil administration - knows this is happening.
"Everyone is now sitting up and taking note only because the foetuses in the well became too public to ignore," he said.
Pritam Singh, the owner of Sahib Hospital who is under arrest, also agrees that people prefer boys and would do anything to ensure the birth of a son.
"The primary cause is the popular mindset. Ultrasound centres and nursing homes only respond to the people's need out of greed.
"The only thing that could really end this problem is a firm end to the system of dowry," Mr Singh said from his cell at the local police station.
'War'
People in Punjab have traditionally shown a preference for sons, which experts say is driven by both an intensely patriarchal mindset and the system of dowry. Adult men here substantially outnumber women. Experts say this sharply skewed trend is highly dangerous.
Pramod Kumar, who heads the Institute for Development and Communication in the capital, Chandigarh, says although the recovery of foetuses at Patran and subsequent raids across the state are significant, this cannot be a sustaining solution to the age-old problem.
"Enforcement without accompanying cultural and social interventions will merely serve to push the problem below the ground.
"The single-focus approach of widespread police action will only make sex determination tests and illegal abortions more surreptitious and expensive. This will not end the problem," he said.
The police raids are nevertheless continuing and Mr Mohi says he has declared a "war" on female foeticide.
Last week, a surprise raid by police and health officials in the town of Patran in Patiala district unearthed a 10-metre (30-foot) well - located behind a private clinic - which contained the remains of at least 50 female foetuses.
The discovery provoked the largest ever campaign against female foeticide across the state's 23 districts.
Punjab has the lowest sex ratio in the country and there are 776 girls for every 1,000 boys in the state up to the age of six years.
All district and local officials have been instructed by the government to carry out regular surprise checks on clinics and centres offering ultrasound testing, Dr Harinder Rana, the state's director of health services and family welfare, said. "We are very serious about sorting out this problem," she said.
The owners of Sahib Hospital in Patran were arrested last Wednesday.
They have been charged on various counts under laws prohibiting pre-natal sex-determination tests and termination of pregnancy, where the unborn child is known to be a girl.
Gory discovery
Galvanised into action by the horrifying spectacle of decomposing foetuses and subsequent reports in local newspapers and television channels, squads of police and health officials conducted simultaneous raids on dozens of private hospitals and ultrasound centres.
Officials found 50 foetal remains in this well
The raids are specifically targeting smaller clinics, many located in nondescript, small townships and settlements, like Sahib Hospital.
"I have directed my men to seal all unauthorised hospitals and diagnostic centres," the civil surgeon responsible for health services in the district, Virender Singh Mohi, said.
"Regular, monthly raids are being made mandatory so that we can remain on top of things."
And even though the raids - conducted across Punjab and a few locations in the neighbouring state of Haryana - have so far failed to yield any results, officials are firm on carrying the campaign forward.
Acting on information given by a midwife, Puja, who first blew the whistle on the allegedly illegal activities at Sahib Hospital, police and health officials excavated a second deep well on the premises of Sahib Hospital last Friday.
After digging for six hours, workers recovered what appeared to be numerous skeletal remains of babies and several pieces of blood-soaked cloth.
These have been collected and sent for analysis at a government medical college.
'Vested interests'
Meanwhile, some officials associated with this drive have received death threats.
Pritam Singh says clinics make profit out of people's demands
Mr Mohi told the police he received several phone calls in which people threatened to kill him if he continued the raids on private hospitals.
"There are very strong and influential vested interests in keeping this illegal practice going in Punjab," he said.
Darshan Kumar Singla, a local journalist in Patran, says "although everyone is aware this is illegal, most people do not think anything about aborting a female child and trying again for a boy.
"Female foeticide is rampant in all the small towns here. Most nursing homes do such work at night and everybody - the police, the health authorities and the civil administration - knows this is happening.
"Everyone is now sitting up and taking note only because the foetuses in the well became too public to ignore," he said.
Pritam Singh, the owner of Sahib Hospital who is under arrest, also agrees that people prefer boys and would do anything to ensure the birth of a son.
"The primary cause is the popular mindset. Ultrasound centres and nursing homes only respond to the people's need out of greed.
"The only thing that could really end this problem is a firm end to the system of dowry," Mr Singh said from his cell at the local police station.
'War'
People in Punjab have traditionally shown a preference for sons, which experts say is driven by both an intensely patriarchal mindset and the system of dowry. Adult men here substantially outnumber women. Experts say this sharply skewed trend is highly dangerous.
Pramod Kumar, who heads the Institute for Development and Communication in the capital, Chandigarh, says although the recovery of foetuses at Patran and subsequent raids across the state are significant, this cannot be a sustaining solution to the age-old problem.
"Enforcement without accompanying cultural and social interventions will merely serve to push the problem below the ground.
"The single-focus approach of widespread police action will only make sex determination tests and illegal abortions more surreptitious and expensive. This will not end the problem," he said.
The police raids are nevertheless continuing and Mr Mohi says he has declared a "war" on female foeticide.
Female Infanticide One
Last week in police uncovered over 50 discarded female fetuses at the bottom of a well in Punjab. It has sparked an aggressive statewide crackdown on at illegal clinics across the country and exposed how corrupt government officials have been helping protect illegal clinics. According to the article in the BBC, there are 776 girls born for every 1000 boys in the Punjab--it's a birthrate that is entirely attributable to female infanticide.Between female infanticide and illegal clinical trials (as in letrozol in 2003 and possibly cyclopamine) fertility clinics across India have become houses of death that are severely weakening the future of this country. While I am going to continue to search out problems in underground clinics in Chennai, I have an idea that could help Punjab out of its woes.
The response to female infanticide in the state government has been to "crack down" on clinics that provide the services and stop them from operating. They assume that if they cut off access to the technology then the practice will be forced to stop. It's a good plan except it does not take into account the myriad of other ways that women occupy a low social rung.
The problem basically stems from a dowry system that cripples families' incomes. The poor often have no other choice than to get rid of a child who they know will eventually cost them a lot of money. And if they can't have abortions, the might sell the child into slavery or kill her after birth. The answer can be found not in policing the problem, but by publicizing the extent of it.
Now that the gender disparity has shown up with so many more boys than girls, it seems logical that female children should be seen as valuable commodities. Since every girl will be able to find a partner, 1 out of every 5 men will go marriage-less (according to the statistics).
In fact, because the numbers are so drastic, it is possible that 10 years down the line women will be in a position to demand dowry from men, not the other way around. It comes down to economics. The supply of women is short, so their demand has to rise.I think there should be a massive public awareness campaign about the extent of the problem that doesn't only attack people for aborting female fetuses, but makes them aware that the problem is so advanced that in the future female children will be more valuable than boys. If enough people know that the birth ratio should right itself and women may even begin to occupy higher positions in the social milieu.
The response to female infanticide in the state government has been to "crack down" on clinics that provide the services and stop them from operating. They assume that if they cut off access to the technology then the practice will be forced to stop. It's a good plan except it does not take into account the myriad of other ways that women occupy a low social rung.
The problem basically stems from a dowry system that cripples families' incomes. The poor often have no other choice than to get rid of a child who they know will eventually cost them a lot of money. And if they can't have abortions, the might sell the child into slavery or kill her after birth. The answer can be found not in policing the problem, but by publicizing the extent of it.
Now that the gender disparity has shown up with so many more boys than girls, it seems logical that female children should be seen as valuable commodities. Since every girl will be able to find a partner, 1 out of every 5 men will go marriage-less (according to the statistics).
In fact, because the numbers are so drastic, it is possible that 10 years down the line women will be in a position to demand dowry from men, not the other way around. It comes down to economics. The supply of women is short, so their demand has to rise.I think there should be a massive public awareness campaign about the extent of the problem that doesn't only attack people for aborting female fetuses, but makes them aware that the problem is so advanced that in the future female children will be more valuable than boys. If enough people know that the birth ratio should right itself and women may even begin to occupy higher positions in the social milieu.
Wednesday, January 23, 2008
How to invest
So you've made up your mind to invest in the stock market. Having overcome initial inhibitions, you're now looking to become a millionaire overnight. After all, if your friend A or your cousin B could do it, why not you?
For investment-innocents, here's a shocker: It is not where you invest your money, but how you invest it that decides the profits. That is to say, stocks are only as good as the investor; they respond to the individual's abilities and acumen. In that sense, stocks are quite distinct from consumer durables. You can reasonably expect a washing machine to perform as well for you as for your neighbour, but that is not the case for stocks, which are a different breed altogether.
So, instead of investment tips, here are some attitude tips.
Don't commit large amounts of money or short-term money. Even if you can afford to take risks, we suggest you don't commit large sums of money - at least not in the initial stages. It would be wiser to start with small amounts and increase your investments as your confidence and grasp of the markets grows. It is not easy to pick up the right stocks or keep track of them when you are starting out.
Also, don't break FDs to invest in rising markets. Always invest the surplus, money for which you have no immediate plans. Equity, as an investment, carries in-built risk and volatility and investing short-term money may force you to quit at the wrong time.
Do be sceptical of self-proclaimed experts. As an investment ing avnue, stay away from self-proclaimed experts or overzealous advisers. The so-called 'hot tips' they offer to investors are largely short-term trading tips, which are very risky for a retail investor. Because the reaction time is limited, chances are you will end up losing wealth.
Similarly, TV gurus and the like are forever ready with "buy" recommendations; few, if any, come out with "sell" advisories for your advantage.
Further, expert recommendations often have vested interests. Recently, market regulator Securities and Exchange Board of India fined an expert for acting exactly contrary to his own recommendations. To curtail such rogue elements, the market regulator is planning a law to govern experts, who comment on the markets in the mass media.
Don't trade for short-term. Short-term trading or day trading is very risky and not recommended for retail and small investors for two reasons. First, it requires lot of time, which small investors can rarely spare since it is not their primary business. Second, retail investors may not have the necessary skills and tools required for short-term and day trading. Do not try to time the markets: it's one of the most difficult things to do.
Invest long-term in fundamentally strong companies. Our advice to retail investors is to invest long-term in fundamentally strong companies. Give your portfolio adequate time to grow. Do not panic in technical corrections. If you are invested in fundamentally strong companies, you are safe. We saw two sharp corrections in 2006, first in May-June and again in December. On both occasions, the market bounced back and crossed previous highs because the fundamentals were intact.
Don't ignore stock fundamentals. There is no set formula for fundamental analysis. You have to study various indicators like sectoral growth, company growth - both top and bottomlines - and various ratios like price to earning ratio, price earning to growth, dividend yield, book value, price to book value, price to sales ratio, debt-equity ratio, return on capital employed, to name just a few.
If number-crunching is not your cup of tea, you must still investigate the nature, business and size of the company and its growth in the last three years - sales, profit and earning per share - all of which are accessible on the websites of stock exchanges.
Do not be tempted to buy small caps and penny stocks. The risk involved in small companies is huge, but higher risk may not necessarily lead to higher gain. That is not to say that you should ignore small companies completely, but at the same time you must have solid reasons for buying into them. And when you do, make sure they are only a small portion of your portfolio.
Do be critical of media reports. It's tempting, when you are just about beginning to follow the jargon, to buy into glowing media reports about corporates. But they could be misleading. For instance, you may read of a company setting up a new plant. Such announcements usually push up prices in anticipation of earning growth.
Before you join the queue for their stocks, you need to understand the cost benefit of the new plant. Ask yourself a few questions: where is the money coming from equity or debt? If it's equity, how will it impact the EPS in the near future? If the source is debt, is the company in a position to leverage the increased debt? What will be the gestation period? When will the earnings really start coming in? What will be the return on capital employed?
Don't follow other investors blindly. People often talk about their success in the stockmarket, rarely of their failures. Your friend may have made money in the past, but there's no guarantee he will continue to do so in future.
If, however, he offers to share his stocks research with you, welcome the opportunity. It will help you build your own research, but remember it is not a substitute for your own investigation.
Do stay away from a large number of stocks. Investors generally hold a large number of stocks in the name of diversification. But this may not always be the case.
Harry Markowitz, known as the Father of the Modern Portfolio, warned investors: "Holding securities that tend to move in concert with each other does not lower risk." A truly diversified portfolio, he said, comprises non-correlated asset classes that could provide the highest returns with the least amount of volatility.
If you are still looking to diversify within equity, do not go in for stocks of more companies than you can track regularly. Seven to 10 would be ideal, though, of course, this is a highly individual call. The biggest disadvantage of holding a large number of stocks is failing to quit at the right time.
For investment-innocents, here's a shocker: It is not where you invest your money, but how you invest it that decides the profits. That is to say, stocks are only as good as the investor; they respond to the individual's abilities and acumen. In that sense, stocks are quite distinct from consumer durables. You can reasonably expect a washing machine to perform as well for you as for your neighbour, but that is not the case for stocks, which are a different breed altogether.
So, instead of investment tips, here are some attitude tips.
Don't commit large amounts of money or short-term money. Even if you can afford to take risks, we suggest you don't commit large sums of money - at least not in the initial stages. It would be wiser to start with small amounts and increase your investments as your confidence and grasp of the markets grows. It is not easy to pick up the right stocks or keep track of them when you are starting out.
Also, don't break FDs to invest in rising markets. Always invest the surplus, money for which you have no immediate plans. Equity, as an investment, carries in-built risk and volatility and investing short-term money may force you to quit at the wrong time.
Do be sceptical of self-proclaimed experts. As an investment ing avnue, stay away from self-proclaimed experts or overzealous advisers. The so-called 'hot tips' they offer to investors are largely short-term trading tips, which are very risky for a retail investor. Because the reaction time is limited, chances are you will end up losing wealth.
Similarly, TV gurus and the like are forever ready with "buy" recommendations; few, if any, come out with "sell" advisories for your advantage.
Further, expert recommendations often have vested interests. Recently, market regulator Securities and Exchange Board of India fined an expert for acting exactly contrary to his own recommendations. To curtail such rogue elements, the market regulator is planning a law to govern experts, who comment on the markets in the mass media.
Don't trade for short-term. Short-term trading or day trading is very risky and not recommended for retail and small investors for two reasons. First, it requires lot of time, which small investors can rarely spare since it is not their primary business. Second, retail investors may not have the necessary skills and tools required for short-term and day trading. Do not try to time the markets: it's one of the most difficult things to do.
Invest long-term in fundamentally strong companies. Our advice to retail investors is to invest long-term in fundamentally strong companies. Give your portfolio adequate time to grow. Do not panic in technical corrections. If you are invested in fundamentally strong companies, you are safe. We saw two sharp corrections in 2006, first in May-June and again in December. On both occasions, the market bounced back and crossed previous highs because the fundamentals were intact.
Don't ignore stock fundamentals. There is no set formula for fundamental analysis. You have to study various indicators like sectoral growth, company growth - both top and bottomlines - and various ratios like price to earning ratio, price earning to growth, dividend yield, book value, price to book value, price to sales ratio, debt-equity ratio, return on capital employed, to name just a few.
If number-crunching is not your cup of tea, you must still investigate the nature, business and size of the company and its growth in the last three years - sales, profit and earning per share - all of which are accessible on the websites of stock exchanges.
Do not be tempted to buy small caps and penny stocks. The risk involved in small companies is huge, but higher risk may not necessarily lead to higher gain. That is not to say that you should ignore small companies completely, but at the same time you must have solid reasons for buying into them. And when you do, make sure they are only a small portion of your portfolio.
Do be critical of media reports. It's tempting, when you are just about beginning to follow the jargon, to buy into glowing media reports about corporates. But they could be misleading. For instance, you may read of a company setting up a new plant. Such announcements usually push up prices in anticipation of earning growth.
Before you join the queue for their stocks, you need to understand the cost benefit of the new plant. Ask yourself a few questions: where is the money coming from equity or debt? If it's equity, how will it impact the EPS in the near future? If the source is debt, is the company in a position to leverage the increased debt? What will be the gestation period? When will the earnings really start coming in? What will be the return on capital employed?
Don't follow other investors blindly. People often talk about their success in the stockmarket, rarely of their failures. Your friend may have made money in the past, but there's no guarantee he will continue to do so in future.
If, however, he offers to share his stocks research with you, welcome the opportunity. It will help you build your own research, but remember it is not a substitute for your own investigation.
Do stay away from a large number of stocks. Investors generally hold a large number of stocks in the name of diversification. But this may not always be the case.
Harry Markowitz, known as the Father of the Modern Portfolio, warned investors: "Holding securities that tend to move in concert with each other does not lower risk." A truly diversified portfolio, he said, comprises non-correlated asset classes that could provide the highest returns with the least amount of volatility.
If you are still looking to diversify within equity, do not go in for stocks of more companies than you can track regularly. Seven to 10 would be ideal, though, of course, this is a highly individual call. The biggest disadvantage of holding a large number of stocks is failing to quit at the right time.
Journey from 1 to 20 k
The stock market barometer Sensex on December 11 won over the 20,000-point mark after flirting with it for as many as 45 days -- the third longest courtship for a thousand-point milestone.
The BSE's 30-share benchmark index settled at 20,290.89 points, its first ever close above the 20k level. After first crossing 20,000 points on October 29, the Sensex has traded above this mark in numerous sessions, but could not manage this mark at closing level until Tuesday.
The one-and-half-month period taken between touching and closing above 20,000 points is the third highest for any 1,000-point mark in the over two-decade history of the index.
The longest such period was of close to four years for the 6,000-point mark, touched by the Sensex first on February 11, 2000, but closing could happen on January 2, 2004.
The second longest courtship of 172 days for a thousand-point was seen with the 7,000-point level. Sensex first touched this mark on June 20 and closed above this on December 9, 2005.
The Sensex made history after it hit an all-time intra-day high of 20,024.87 points during the last five minutes of trading on October 29.The index had taken only 10 days to gain 1,000 points after it crossed the 19,000-mark on October 15.
(See below for the timeline)
Following is the timeline on the rise and rise of the Sensex through Indian stock market history.
1000, July 25, 1990
On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.
2000, January 15, 1992
On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.
3000, February 29, 1992
On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.
4000, March 30, 1992
On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.
5000, October 8, 1999
On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.
6000, February 11, 2000
On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.
7000, June 20, 2005
On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL [Get Quote], Reliance Energy [Get Quote] [Get Quote], Reliance Capital [Get Quote] [Get Quote], and IPCL [Get Quote] [Get Quote] made huge gains. This helped the Sensex crossed 7,000 points for the first time.
8000, September 8, 2005
On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.
9000, November 28, 2005
The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.
10,000, February 6, 2006
The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.
11,000, March 21, 2006
The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.
12,000, April 20, 2006
The Sensex on April 20, 2006 crossed the 12,000-mark and closed at a peak of 12,040 points for the first time.
13,000, October 30, 2006
The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000.
14,000, December 5, 2006
The Sensex on December 5, 2006 crossed the 14,000-mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark.
15,000, July 6, 2007
The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.
16,000, September 19, 2007
The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points. The Sensex finally ended with its biggest-ever single day gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732.
17,000, September 26, 2007
The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark . Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921.
18,000, October 09, 2007
The BSE Sensex crossed the 18,000-mark on October 09, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an all-time high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election.
19,000, October 15, 2007
The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670.
20,000, December 11, 2007
The Sensex actually crossed the 20,000-mark on October 29, 2007 during intra-day trading but closed at 19,977.67 points. However, it was on December 11, 2007 that it finally closed at a figure above 20,000 points on the back of aggressive buying by funds. The 30-share index spurted 360.21 points to fly-past the crucial level and closed at 20,290.89. The NSE Nifty closed at a record high of 6,097.25 points, up 136.65.
The BSE's 30-share benchmark index settled at 20,290.89 points, its first ever close above the 20k level. After first crossing 20,000 points on October 29, the Sensex has traded above this mark in numerous sessions, but could not manage this mark at closing level until Tuesday.
The one-and-half-month period taken between touching and closing above 20,000 points is the third highest for any 1,000-point mark in the over two-decade history of the index.
The longest such period was of close to four years for the 6,000-point mark, touched by the Sensex first on February 11, 2000, but closing could happen on January 2, 2004.
The second longest courtship of 172 days for a thousand-point was seen with the 7,000-point level. Sensex first touched this mark on June 20 and closed above this on December 9, 2005.
The Sensex made history after it hit an all-time intra-day high of 20,024.87 points during the last five minutes of trading on October 29.The index had taken only 10 days to gain 1,000 points after it crossed the 19,000-mark on October 15.
(See below for the timeline)
Following is the timeline on the rise and rise of the Sensex through Indian stock market history.
1000, July 25, 1990
On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.
2000, January 15, 1992
On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.
3000, February 29, 1992
On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.
4000, March 30, 1992
On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.
5000, October 8, 1999
On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.
6000, February 11, 2000
On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.
7000, June 20, 2005
On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL [Get Quote], Reliance Energy [Get Quote] [Get Quote], Reliance Capital [Get Quote] [Get Quote], and IPCL [Get Quote] [Get Quote] made huge gains. This helped the Sensex crossed 7,000 points for the first time.
8000, September 8, 2005
On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.
9000, November 28, 2005
The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.
10,000, February 6, 2006
The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.
11,000, March 21, 2006
The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.
12,000, April 20, 2006
The Sensex on April 20, 2006 crossed the 12,000-mark and closed at a peak of 12,040 points for the first time.
13,000, October 30, 2006
The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000.
14,000, December 5, 2006
The Sensex on December 5, 2006 crossed the 14,000-mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark.
15,000, July 6, 2007
The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.
16,000, September 19, 2007
The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points. The Sensex finally ended with its biggest-ever single day gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732.
17,000, September 26, 2007
The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark . Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921.
18,000, October 09, 2007
The BSE Sensex crossed the 18,000-mark on October 09, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an all-time high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election.
19,000, October 15, 2007
The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670.
20,000, December 11, 2007
The Sensex actually crossed the 20,000-mark on October 29, 2007 during intra-day trading but closed at 19,977.67 points. However, it was on December 11, 2007 that it finally closed at a figure above 20,000 points on the back of aggressive buying by funds. The 30-share index spurted 360.21 points to fly-past the crucial level and closed at 20,290.89. The NSE Nifty closed at a record high of 6,097.25 points, up 136.65.
Tuesday, January 22, 2008
Ten Biggest falls
Jan 21, 2008: The Sensex saw its highest ever loss of 1,408 points at the end of the session on Monday. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of the US recession.
May 18, 2006: The Sensex registered a fall of 826 points (6.76 per cent) to close at 11,391, following heavy selling by FIIs, retail investors and a weakness in global markets. The Nifty crashed by 496.50 points (8.70%) points to close at 5,208.80 points.
December 17, 2007: A heavy bout of selling in the late noon deals saw the index plunge to a low of 19,177 - down 856 points from the day's open. The Sensex finally ended with a huge loss of 769 points (3.8%) at 19,261. The NSE Nifty ended at 5,777, down 271 points.
October 18, 2007: Profit-taking in noon trades saw the index pare gains and slip into negative zone. The intensity of selling increased towards the closing bell, and the index tumbled all the way to a low of 17,771 - down 1,428 points from the day's high. The Sensex finally ended with a hefty loss of 717 points (3.8%) at 17,998. The Nifty lost 208 points to close at 5,351.
January 18, 2008: Unabated selling in the last one hour of trade saw the index tumble to a low of 18,930 - down 786 points from the day's high. The Sensex finally ended with a hefty loss of 687 points (3.5%) at 19,014. The index thus shed 8.7% (1,813 points) during the week. The NSE Nifty plunged 3.5% (208 points) to 5,705.
November 21, 2007: Mirroring weakness in other Asian markets, the Sensex saw relentless selling. The index tumbled to a low of 18,515 - down 766 points from the previous close. The Sensex finally ended with a loss of 678 points at 18,603. The Nifty lost 220 points to close at 5,561.August 16, 2007: The Sensex, after languishing over 500 points lower for most of the trading sesion, slipped again towards the close to a low of 14,345. The index finally ended with a hefty loss of 643 points at 14,358.
April 02, 2007: The Sensex opened with a huge negative gap of 260 points at 12,812 following the Reserve Bank of India [Get Quote] decision to hike the cash reserve ratio and repo rate. Unabated selling, mainly in auto and banking stocks, saw the index drift to lower levels as the day progressed. The index tumbled to a low of 12,426 before finally settling with a hefty loss of 617 points (4.7%) at 12,455.
August 01, 2007: The Sensex opened with a negative gap of 207 points at 15,344 amid weak trends in the global market and slipped deeper into the red. Unabated selling across-the-board saw the index tumble to a low of 14,911. The Sensex finally ended with a hefty loss of 615 points at 14,936. The NSE Nifty ended at 4,346, down 183 points. This is the third biggest loss in absolute terms for the index.
April 28, 1992: The Sensex registered a fall of 570 points (12.77 per cent) to close at 3,870, following the coming to light of the Harshad Mehta securities scam.
Mumbai (PTI): The BSE benchmark index Sensex, which plunged over 2,200 points in intra-day trading, managed to regain some loss to settle at 16,729.94. Tuesday's fall of 875.41 points from Monday's close is the second biggest drop.
Following are the 10 biggest falls in the lifetime of Sensex, according to data available with the Bombay Stock Exchange. In Absolute terms-
1. Jan 21, 2008 --- 1,408.35 points
2. Jan 22, 2008 --- 875.41 points
3. May 18, 2006 --- 826 points
4. Dec 17, 2007 --- 769.48 points
5. Oct 17, 2007 --- 717.43 points
6. Jan 18, 2007 --- 687.82 points
7. Nov 21, 2007 --- 678.18 points
8. Aug 16, 2007 --- 642.70 points
9. April 2, 2007 --- 616.73 points
10. Aug 1, 2007 --- 615.22 points
May 18, 2006: The Sensex registered a fall of 826 points (6.76 per cent) to close at 11,391, following heavy selling by FIIs, retail investors and a weakness in global markets. The Nifty crashed by 496.50 points (8.70%) points to close at 5,208.80 points.
December 17, 2007: A heavy bout of selling in the late noon deals saw the index plunge to a low of 19,177 - down 856 points from the day's open. The Sensex finally ended with a huge loss of 769 points (3.8%) at 19,261. The NSE Nifty ended at 5,777, down 271 points.
October 18, 2007: Profit-taking in noon trades saw the index pare gains and slip into negative zone. The intensity of selling increased towards the closing bell, and the index tumbled all the way to a low of 17,771 - down 1,428 points from the day's high. The Sensex finally ended with a hefty loss of 717 points (3.8%) at 17,998. The Nifty lost 208 points to close at 5,351.
January 18, 2008: Unabated selling in the last one hour of trade saw the index tumble to a low of 18,930 - down 786 points from the day's high. The Sensex finally ended with a hefty loss of 687 points (3.5%) at 19,014. The index thus shed 8.7% (1,813 points) during the week. The NSE Nifty plunged 3.5% (208 points) to 5,705.
November 21, 2007: Mirroring weakness in other Asian markets, the Sensex saw relentless selling. The index tumbled to a low of 18,515 - down 766 points from the previous close. The Sensex finally ended with a loss of 678 points at 18,603. The Nifty lost 220 points to close at 5,561.August 16, 2007: The Sensex, after languishing over 500 points lower for most of the trading sesion, slipped again towards the close to a low of 14,345. The index finally ended with a hefty loss of 643 points at 14,358.
April 02, 2007: The Sensex opened with a huge negative gap of 260 points at 12,812 following the Reserve Bank of India [Get Quote] decision to hike the cash reserve ratio and repo rate. Unabated selling, mainly in auto and banking stocks, saw the index drift to lower levels as the day progressed. The index tumbled to a low of 12,426 before finally settling with a hefty loss of 617 points (4.7%) at 12,455.
August 01, 2007: The Sensex opened with a negative gap of 207 points at 15,344 amid weak trends in the global market and slipped deeper into the red. Unabated selling across-the-board saw the index tumble to a low of 14,911. The Sensex finally ended with a hefty loss of 615 points at 14,936. The NSE Nifty ended at 4,346, down 183 points. This is the third biggest loss in absolute terms for the index.
April 28, 1992: The Sensex registered a fall of 570 points (12.77 per cent) to close at 3,870, following the coming to light of the Harshad Mehta securities scam.
Mumbai (PTI): The BSE benchmark index Sensex, which plunged over 2,200 points in intra-day trading, managed to regain some loss to settle at 16,729.94. Tuesday's fall of 875.41 points from Monday's close is the second biggest drop.
Following are the 10 biggest falls in the lifetime of Sensex, according to data available with the Bombay Stock Exchange. In Absolute terms-
1. Jan 21, 2008 --- 1,408.35 points
2. Jan 22, 2008 --- 875.41 points
3. May 18, 2006 --- 826 points
4. Dec 17, 2007 --- 769.48 points
5. Oct 17, 2007 --- 717.43 points
6. Jan 18, 2007 --- 687.82 points
7. Nov 21, 2007 --- 678.18 points
8. Aug 16, 2007 --- 642.70 points
9. April 2, 2007 --- 616.73 points
10. Aug 1, 2007 --- 615.22 points
18 trillion lost in seven days till Jan 22
On Wednesday morning, the Indian stock market may have opened high on the back of a 0.75% rate cut by the US Fed, giving some respite to market players. But investors on Dalal Street have lost a whopping Rs 18.05 trillion in the last seven days of market mayhem that included a fall of more than 4,000 points in the benchmark 30-share Sensitive Index or Sensex.
The Bombay Stock Exchange, which opened on a weak note Tuesday morning, managed to rebound from the day's low but finally ended the day at 16,729.94, a fall of 875.41 points. On Wednesday it has risen smartly, with major index stocks ruling high.
However, on Tuesday, within minutes of the market opening, investors had lost over Rs 6 trillion. Trading was immediately suspended for an hour after the 30-share barometer hit the circuit limit of 10 per cent.
On Tuesday alone investors lost over Rs 6 trillion. Add to it the over Rs 12 trillion loss suffered by investors on Dalal Street in the last six days.
"Retail investors should stay away from markets for the next few days. If they intend to invest they should go for mutual funds. Investors with a long-term perspective should however go for a stock specific approach," R K Gupta, managing director, Taurus Asset Management Co said.
The Bombay Stock Exchange, which opened on a weak note Tuesday morning, managed to rebound from the day's low but finally ended the day at 16,729.94, a fall of 875.41 points. On Wednesday it has risen smartly, with major index stocks ruling high.
However, on Tuesday, within minutes of the market opening, investors had lost over Rs 6 trillion. Trading was immediately suspended for an hour after the 30-share barometer hit the circuit limit of 10 per cent.
On Tuesday alone investors lost over Rs 6 trillion. Add to it the over Rs 12 trillion loss suffered by investors on Dalal Street in the last six days.
"Retail investors should stay away from markets for the next few days. If they intend to invest they should go for mutual funds. Investors with a long-term perspective should however go for a stock specific approach," R K Gupta, managing director, Taurus Asset Management Co said.
Do not panic
Remember, panic selling is taking place throughout the world with most of the global indices deep in the red.
Now let us take the basic fundamental issue of the Indian stock market. Is it the end of the Bull Run for the Indian market? The answer is clearly No.
We don't see any major change in the fundamental story of the Indian economy. There could be one percentage point decline in the growth of Indian GDP numbers, but otherwise India would continue to be the second fastest growing economy in the world after China.
The correction only indicates that the market is not willing to pay 21 times P/E multiple for the Indian stocks. Looking at the FY09 earnings projections, the market is trading at a forward P/E of 14 times. This is a very compelling reason for someone to buy into the Indian stock market. I am not saying that the market would surge in a hurry but senses are bound to prevail after this storm blows over and the dust settles down. In fact, those sitting on cash must buy now as this is a god sent opportunity to invest in the market. The only thing to keep in mind is that the selection of stock has to be really good.
Some of the momentum counters not backed by fundamentals have taken a huge beating and I doubt that they would surge in the next round of the rally. The reason is very simple: when frontline stocks are available at attractive valuations why would someone buy second rung companies? In fact, mid-cap as well as small-cap stocks would take their own sweet time to bounce back. I would suggest sticking to 'A' group companies where many of the stocks have taken a beating just because of the bad sentiment rather than due to any fundamental reason. My best picks in these tumultous times are Reliance Industries Rs 2330 L&T at Rs 3530 and Bharat Bijlee at Rs 2750.
So what should be the strategy in a market like this? There would be some pain in the market for some more time. We had seen some excesses during the bull run, similarly we would see some excesses in the bear run too. The art of making money in this market is not to panic but to do exactly the opposite of what the people are doing. Buy when everyone else is selling and you would make a great killing in the next 12 months.
Second, don't invest with a short-term horizon. Keep a long-term outlook for the scrip you have bought as there is a possibility that the good scrip you have bought may fall further for a short while.
Third, never chase the stock in this market. It does not make sense chasing stocks.
Fourth, don't borrow to invest in the stock market. In fact, if you have already borrowed, slowly reduce your leveraged position.
Fifth, cut your losses in the junk and small-cap stocks where there were no fundamental reasons for them to surge. It's better to lose 50-75 per cent than to lose 100 per cent as many of these stocks may not remain liquid in this kind of market.
Sixth, never panic in this market. There is no need to change your perception about the stock market. It's there to survive and one would make good profits provided you have the patience. Don't watch TV channels and don't listen to the so-called experts. This would unnecessarily create panic resulting in huge losses. Just stay put. Hold your blue chip stocks as sense would return to the market sooner rather than later.I am optimistic that equity would do well provided you have the patience and the courage to put money for the long-term. So don't panic. Now is the time to act sensibly and hold your blue chips to fetch good returns for you. Just reduce your expectations in terms of returns and you would have the last laugh.
Sunil Damania
Managing Editor
Dalal Street Investment Journal
Decided to watch tickers of various other channels and realized that we are better off compared to them, at least in this department.
Some samples:
NDTV (between 1230 and 1253):
United Nations offices closed in Pakistan after threats (note, no apostrophe in United Nations)
Fedex,Nadal march on (no spacing between , and Nadal)
India need to beat Sri Lanka to make it to finals (First, even if India had lost the match, they could still have qualified. Second, it is final and not finals)
CPM general secretary (G and S not in caps)
Congress (c in small)
US may slap UN sanctions on Mugabe regime (come on, US may mastermind UN sanctions. How can it impose sanctions which belong to UN even though nothing in this world moves without its will?)
Now CNN IBN (Just between 1253 and 1300)
Shadabdi express (no e in Caps)
12 militants, a jawan kill (proper structuring should have had it as 12 militants, one Jawan killed)
Super fours (when talking about Asia Cup. Or is it Super-four)
Third front (f in small, though it can be debatable)
Nationwide and nation-wide (one without hyphen and one with hyphen) in the same story.
TIMES NOW (1304 to 1340)
Stand in captain (no hyphen between stand and in)
Qaeda was recruting Kashmiris (not recruiting)
Army Chief:Expectations (not fears!) of militants creating trouble before elections. Then, no space after colon.
Dhoni top scored (with missing) 76 runs.
But what took the cake was the breaking news ‘’Markets also apprehensive about political instability). It ran over 20 times before the first part came about markets today losing about 5% due to eco-political uncertainties.
Now let us take the basic fundamental issue of the Indian stock market. Is it the end of the Bull Run for the Indian market? The answer is clearly No.
We don't see any major change in the fundamental story of the Indian economy. There could be one percentage point decline in the growth of Indian GDP numbers, but otherwise India would continue to be the second fastest growing economy in the world after China.
The correction only indicates that the market is not willing to pay 21 times P/E multiple for the Indian stocks. Looking at the FY09 earnings projections, the market is trading at a forward P/E of 14 times. This is a very compelling reason for someone to buy into the Indian stock market. I am not saying that the market would surge in a hurry but senses are bound to prevail after this storm blows over and the dust settles down. In fact, those sitting on cash must buy now as this is a god sent opportunity to invest in the market. The only thing to keep in mind is that the selection of stock has to be really good.
Some of the momentum counters not backed by fundamentals have taken a huge beating and I doubt that they would surge in the next round of the rally. The reason is very simple: when frontline stocks are available at attractive valuations why would someone buy second rung companies? In fact, mid-cap as well as small-cap stocks would take their own sweet time to bounce back. I would suggest sticking to 'A' group companies where many of the stocks have taken a beating just because of the bad sentiment rather than due to any fundamental reason. My best picks in these tumultous times are Reliance Industries Rs 2330 L&T at Rs 3530 and Bharat Bijlee at Rs 2750.
So what should be the strategy in a market like this? There would be some pain in the market for some more time. We had seen some excesses during the bull run, similarly we would see some excesses in the bear run too. The art of making money in this market is not to panic but to do exactly the opposite of what the people are doing. Buy when everyone else is selling and you would make a great killing in the next 12 months.
Second, don't invest with a short-term horizon. Keep a long-term outlook for the scrip you have bought as there is a possibility that the good scrip you have bought may fall further for a short while.
Third, never chase the stock in this market. It does not make sense chasing stocks.
Fourth, don't borrow to invest in the stock market. In fact, if you have already borrowed, slowly reduce your leveraged position.
Fifth, cut your losses in the junk and small-cap stocks where there were no fundamental reasons for them to surge. It's better to lose 50-75 per cent than to lose 100 per cent as many of these stocks may not remain liquid in this kind of market.
Sixth, never panic in this market. There is no need to change your perception about the stock market. It's there to survive and one would make good profits provided you have the patience. Don't watch TV channels and don't listen to the so-called experts. This would unnecessarily create panic resulting in huge losses. Just stay put. Hold your blue chip stocks as sense would return to the market sooner rather than later.I am optimistic that equity would do well provided you have the patience and the courage to put money for the long-term. So don't panic. Now is the time to act sensibly and hold your blue chips to fetch good returns for you. Just reduce your expectations in terms of returns and you would have the last laugh.
Sunil Damania
Managing Editor
Dalal Street Investment Journal
Decided to watch tickers of various other channels and realized that we are better off compared to them, at least in this department.
Some samples:
NDTV (between 1230 and 1253):
United Nations offices closed in Pakistan after threats (note, no apostrophe in United Nations)
Fedex,Nadal march on (no spacing between , and Nadal)
India need to beat Sri Lanka to make it to finals (First, even if India had lost the match, they could still have qualified. Second, it is final and not finals)
CPM general secretary (G and S not in caps)
Congress (c in small)
US may slap UN sanctions on Mugabe regime (come on, US may mastermind UN sanctions. How can it impose sanctions which belong to UN even though nothing in this world moves without its will?)
Now CNN IBN (Just between 1253 and 1300)
Shadabdi express (no e in Caps)
12 militants, a jawan kill (proper structuring should have had it as 12 militants, one Jawan killed)
Super fours (when talking about Asia Cup. Or is it Super-four)
Third front (f in small, though it can be debatable)
Nationwide and nation-wide (one without hyphen and one with hyphen) in the same story.
TIMES NOW (1304 to 1340)
Stand in captain (no hyphen between stand and in)
Qaeda was recruting Kashmiris (not recruiting)
Army Chief:Expectations (not fears!) of militants creating trouble before elections. Then, no space after colon.
Dhoni top scored (with missing) 76 runs.
But what took the cake was the breaking news ‘’Markets also apprehensive about political instability). It ran over 20 times before the first part came about markets today losing about 5% due to eco-political uncertainties.
Why Trading was suspended -- four earlier instances which show gravity of situation
The Bombay Stock Exchange benchmark Sensex on Tuesday (January 22, 2008) tumbled by 2,029 points, or 11.53 per cent, leading to suspension of trading on the bourse for an hour. This was the fourth time in the history of Indian stock market that the trading has been halted.
Why suspend trading?
According to norms, if the stock market witnesses a movement of 10 per cent on either side, the trading has to be suspended for an hour.
Based on the closing level of 20,286.99 points on December 31, the circuit limit is 2,028 points.
If the Sensex hits the 10 per cent circuit limit again, trading will be halted for another two hours.
Earlier meltdowns
This is the fourth instance that the market has hit 10 per cent lower circuit. The Sensex is down 25 per cent, Nifty, down 28 per cent and CNX Midcap is down 31 per cent from its life-time highs.
The first time was during the Harshad Mehta scam in 1992;
Then in 2004, when the NDA lost to the Congress ;
In October 2007, when the P-Note issue was on.
The 30-share barometer tumbled 2,029.05 points to 15,576.30 within minutes of start of trading. The 30-share barometer had yesterday (January 21, 2008) lost 1,408 to 17,605.35 points on concerns regarding the US economy going into recession. Similarly, the wide-based National Stock Exchange index Nifty plunged 12.10 per cent or 639.30 points to 4,569.50.
Cumulative losses
The Sensex has lost 25 per cent since January 10, 2008, when it hit its peak of 21,206.77 points. Nifty has come 28 per cent below its high of 6,357.10, reached on January 8, 2008
Why suspend trading?
According to norms, if the stock market witnesses a movement of 10 per cent on either side, the trading has to be suspended for an hour.
Based on the closing level of 20,286.99 points on December 31, the circuit limit is 2,028 points.
If the Sensex hits the 10 per cent circuit limit again, trading will be halted for another two hours.
Earlier meltdowns
This is the fourth instance that the market has hit 10 per cent lower circuit. The Sensex is down 25 per cent, Nifty, down 28 per cent and CNX Midcap is down 31 per cent from its life-time highs.
The first time was during the Harshad Mehta scam in 1992;
Then in 2004, when the NDA lost to the Congress ;
In October 2007, when the P-Note issue was on.
The 30-share barometer tumbled 2,029.05 points to 15,576.30 within minutes of start of trading. The 30-share barometer had yesterday (January 21, 2008) lost 1,408 to 17,605.35 points on concerns regarding the US economy going into recession. Similarly, the wide-based National Stock Exchange index Nifty plunged 12.10 per cent or 639.30 points to 4,569.50.
Cumulative losses
The Sensex has lost 25 per cent since January 10, 2008, when it hit its peak of 21,206.77 points. Nifty has come 28 per cent below its high of 6,357.10, reached on January 8, 2008
Who Won, Who Lost on Monday (one gainer for 20 people, 6 trillion lost
The BSE index's downslide of over 1,400 points was spread across the market, with just one stock ending in green for every 20 falling prey to the meltdown.
According to data available with the Bombay Stock Exchange, 139 stocks, or 4.94 per cent of all actively traded scrips, gained. In contrast, 2,657 stocks, or 94.52 per cent, ended in the red on the bourse.
The gainers did not include a single company from Sensex, 30-share index of blue-chip companies. Besides, there were just three gainers on the BSE 500 index as well.
The BSE 100 index also did not have any gainers, while there were two in the BSE 200 index.
Taking a cue from global markets, the benchmark Sensex on Monday tumbled by 1,408.35 points, biggest single-day loss, shaving off over Rs 6 trillion from investors' wealth.
However, shrugging off the overall weakness on the bourses, as many as 30 companies saw their share prices rising to new life-time highs, while 51 stocks got stuck at their upper circuit limit.
While the stocks scaling new peaks included some known names like Essar Shipping [Get Quote], Southern Ispat [Get Quote] and Usher Agro [Get Quote], the list of those hitting upper circuit limit were mostly penny stocks belonging to T and Z groups of the BSE.
A total of 15 stocks remained unaffected by the upheaval in the market and closed flat.
Biggest-ever loss: Sensex plunges 1,400 points
Why did the stock market crash?
The 10 biggest falls in Sensex history
Trading halted: BSE asked to clarify
Market crash: Have you been hit?
Investors lose over $300 bn in 6 days
Market correction? What's that?
These media stocks could make you
According to data available with the Bombay Stock Exchange, 139 stocks, or 4.94 per cent of all actively traded scrips, gained. In contrast, 2,657 stocks, or 94.52 per cent, ended in the red on the bourse.
The gainers did not include a single company from Sensex, 30-share index of blue-chip companies. Besides, there were just three gainers on the BSE 500 index as well.
The BSE 100 index also did not have any gainers, while there were two in the BSE 200 index.
Taking a cue from global markets, the benchmark Sensex on Monday tumbled by 1,408.35 points, biggest single-day loss, shaving off over Rs 6 trillion from investors' wealth.
However, shrugging off the overall weakness on the bourses, as many as 30 companies saw their share prices rising to new life-time highs, while 51 stocks got stuck at their upper circuit limit.
While the stocks scaling new peaks included some known names like Essar Shipping [Get Quote], Southern Ispat [Get Quote] and Usher Agro [Get Quote], the list of those hitting upper circuit limit were mostly penny stocks belonging to T and Z groups of the BSE.
A total of 15 stocks remained unaffected by the upheaval in the market and closed flat.
Biggest-ever loss: Sensex plunges 1,400 points
Why did the stock market crash?
The 10 biggest falls in Sensex history
Trading halted: BSE asked to clarify
Market crash: Have you been hit?
Investors lose over $300 bn in 6 days
Market correction? What's that?
These media stocks could make you
BBC News (Fear Factor, US steps, Chidambaram comments, Comments of experts like Bhalla, World Wide Situation
Share prices fell sharply on Tuesday at India's two main indices, amid fears that a recession in the US could lead to a global economic slowdown.
(Fear Factor Responsible)
Mumbai's main Sensex stock index fell 9.8% within minutes, triggering an automatic one-hour halt in trading. It recovered to close 4.97% down.
The rival National Stock Exchange closed 5.9% down.
Finance Minister P Chidambaram urged Indian investors to "remain calm" and ignore the turmoil in Western markets.
"There's no reason at all to allow the worries of the Western world to overwhelm us," he said. (PC Chidambaram)
He said the Indian economy was expected to grow at 9% this year and 8.5% next year.
Fears of a global recession have triggered falls in share prices on markets worldwide
.
Concern is growing that US plans for a $145bn (£76bn) package of tax cuts to encourage spending might not be enough be revive the economy.
The US is a major market for Indian exports and outsourcing contracts.
'Time to buy'
Tuesday's losses in Indian shares came after a fall of 7.4% on Monday.
It's mayhem, there is blood on the streets
Surjit BhallaOxus Research and Investments
Indian investors despair
Q&A: Stock market falls
Bear market may be looming
The Sensex initially fell 9.5% on Tuesday morning, causing an automatic one-hour halt in trading.
It recovered briefly and was at one point down no more than 3%. But at the end of trading, it had fallen further to close at 4.97%.
Despite assurances from the finance minister that enough liquidity would be provided to brokers, there were scenes of panic and confusion in Mumbai, with many investors expressing shock at the dramatic slide in prices.
"It's mayhem, there is blood on the streets," Surjit Bhalla, the head of Oxus Research and Investments told the CNN-IBN news channel.
The share slide took many in Mumbai by surprise
But he said he felt fears of a recession in the US were "overdone" and the steep falls had created new opportunities for investors.
"There is a lot of value now in the market. I don't know when the last time was that we saw such value in the market," he said.
Ali Asgar, an Indian businessman and investor in petrol, said he believed the economy would stay strong despite the stock market falls.
"This is also the time to buy more shares which I will do as soon as the market re-opens," he said.
Earlier, Asian markets tumbled with Japan's Nikkei index closing down 5.7%, taking its decline this year to 18%.
In China, the main Shanghai Composite Index closed down 7.2% at a five-month low, having lost 17% in the past six days of trading.
Trading was also suspended briefly in South Korea, where the market dropped more than 6%, while Hong Kong's Hang Seng index lost more than 8%.
First of all, let me make it very clear that I am greatly indebted to you all for continuing to consider me as part of your scheme of things for headlines today.
But there are some issues that need to be addressed for me to be effective, without which my presence will only be meaningless. I do join a job for money, but money no longer remains a motivating factor after sometime.
Of course, below is my wishlist for which I am prepared to pay a price. Just in case someone insinuates that you are being soft on me.
I am ready to remain on probation for two years beginning today (as compared to six months) which will allow you the flexibility to remove me as and when you want (with only 15-day notice). Also, I will lose out on many other benefits, including leaves, which is ok as long as I am not just adding to numbers.
I am ready not to request for any salary increase for next two years (except some increase on my official phone calls)
Now, the first request is that I will need to have total control over ticker operations and people working alongside me on ticker (for 24-hours). Partial control is meaningless. Having spent three months on most testing of HT operations, I do believe that I can really do a very decent job on ticker with total control. Of course, I will be listening to shift-supers and reporters, but the final call will be mine. That is not to undermine anybody’s authority – and I will be attentive and respectful to what shift-super says -- but to ensure that things are done the way they ought to be on ticker.
Second, I would like to have a role in preparing TV Today’s trainees for ticker operations. It is important as I do not want a situation where the last batch leaves the ticker and the new one joins without adequate understanding of how the job is to be done. I want them to be as prepared as the present batch. This will leave you with adequate reserves to man most sensitive of positions.
Third, I would like to remain on morning shift. There are two reasons for it.
a) Morning sets the tone for the rest of the day. More so at ticker. I am sure you would have observed that in last few days in my absence, unless that long list of Bihar Flood Relief contributors took the attention off the orange band.
b) Personal reason. After being in this job, I have realized that my constitution (due to a previous operation) and eye-sight does not allow me to be on evening shift. I get tired, fatigued and sleepy if I work in the evening. I did not know of this before I joined HT.
Now some people could object to it and to take care of that objection, I am ready to take a salary cut.
Trust me. In three months, I very well know what is best for ticker and you would like a professional to take the burden off you.
It is quite likely that you may not agree with some of my suggestions. So one option here is that you pack me off on leave-without-pay for a month or two.
If things work out well without me, kick me out. I will be too happy for you and HT.
But if they do not, you will still have the option of calling me back.
Believe me, this arrangement will see me losing a very substantial amount, and possibly a job considering these are times of recession, but it will be worth experimenting with if my wish list is not acceptable as of now.
Sorry, could not call you yesterday night. Was grappling with cough and cold for last three days.
As per my talk with Shantanu, I will be in office today. Then, whenever you have time, we can discuss this.
Regards
Atul Sondhi
(Fear Factor Responsible)
Mumbai's main Sensex stock index fell 9.8% within minutes, triggering an automatic one-hour halt in trading. It recovered to close 4.97% down.
The rival National Stock Exchange closed 5.9% down.
Finance Minister P Chidambaram urged Indian investors to "remain calm" and ignore the turmoil in Western markets.
"There's no reason at all to allow the worries of the Western world to overwhelm us," he said. (PC Chidambaram)
He said the Indian economy was expected to grow at 9% this year and 8.5% next year.
Fears of a global recession have triggered falls in share prices on markets worldwide
.
Concern is growing that US plans for a $145bn (£76bn) package of tax cuts to encourage spending might not be enough be revive the economy.
The US is a major market for Indian exports and outsourcing contracts.
'Time to buy'
Tuesday's losses in Indian shares came after a fall of 7.4% on Monday.
It's mayhem, there is blood on the streets
Surjit BhallaOxus Research and Investments
Indian investors despair
Q&A: Stock market falls
Bear market may be looming
The Sensex initially fell 9.5% on Tuesday morning, causing an automatic one-hour halt in trading.
It recovered briefly and was at one point down no more than 3%. But at the end of trading, it had fallen further to close at 4.97%.
Despite assurances from the finance minister that enough liquidity would be provided to brokers, there were scenes of panic and confusion in Mumbai, with many investors expressing shock at the dramatic slide in prices.
"It's mayhem, there is blood on the streets," Surjit Bhalla, the head of Oxus Research and Investments told the CNN-IBN news channel.
The share slide took many in Mumbai by surprise
But he said he felt fears of a recession in the US were "overdone" and the steep falls had created new opportunities for investors.
"There is a lot of value now in the market. I don't know when the last time was that we saw such value in the market," he said.
Ali Asgar, an Indian businessman and investor in petrol, said he believed the economy would stay strong despite the stock market falls.
"This is also the time to buy more shares which I will do as soon as the market re-opens," he said.
SITUATION WORLDWIDE
Shares in Karachi's benchmark KSE index closed 0.65% down.
Asian tumble Many analysts are predicting indexes worldwide could fall further in coming weeks.
Earlier, Asian markets tumbled with Japan's Nikkei index closing down 5.7%, taking its decline this year to 18%.
In China, the main Shanghai Composite Index closed down 7.2% at a five-month low, having lost 17% in the past six days of trading.
Trading was also suspended briefly in South Korea, where the market dropped more than 6%, while Hong Kong's Hang Seng index lost more than 8%.
First of all, let me make it very clear that I am greatly indebted to you all for continuing to consider me as part of your scheme of things for headlines today.
But there are some issues that need to be addressed for me to be effective, without which my presence will only be meaningless. I do join a job for money, but money no longer remains a motivating factor after sometime.
Of course, below is my wishlist for which I am prepared to pay a price. Just in case someone insinuates that you are being soft on me.
I am ready to remain on probation for two years beginning today (as compared to six months) which will allow you the flexibility to remove me as and when you want (with only 15-day notice). Also, I will lose out on many other benefits, including leaves, which is ok as long as I am not just adding to numbers.
I am ready not to request for any salary increase for next two years (except some increase on my official phone calls)
Now, the first request is that I will need to have total control over ticker operations and people working alongside me on ticker (for 24-hours). Partial control is meaningless. Having spent three months on most testing of HT operations, I do believe that I can really do a very decent job on ticker with total control. Of course, I will be listening to shift-supers and reporters, but the final call will be mine. That is not to undermine anybody’s authority – and I will be attentive and respectful to what shift-super says -- but to ensure that things are done the way they ought to be on ticker.
Second, I would like to have a role in preparing TV Today’s trainees for ticker operations. It is important as I do not want a situation where the last batch leaves the ticker and the new one joins without adequate understanding of how the job is to be done. I want them to be as prepared as the present batch. This will leave you with adequate reserves to man most sensitive of positions.
Third, I would like to remain on morning shift. There are two reasons for it.
a) Morning sets the tone for the rest of the day. More so at ticker. I am sure you would have observed that in last few days in my absence, unless that long list of Bihar Flood Relief contributors took the attention off the orange band.
b) Personal reason. After being in this job, I have realized that my constitution (due to a previous operation) and eye-sight does not allow me to be on evening shift. I get tired, fatigued and sleepy if I work in the evening. I did not know of this before I joined HT.
Now some people could object to it and to take care of that objection, I am ready to take a salary cut.
Trust me. In three months, I very well know what is best for ticker and you would like a professional to take the burden off you.
It is quite likely that you may not agree with some of my suggestions. So one option here is that you pack me off on leave-without-pay for a month or two.
If things work out well without me, kick me out. I will be too happy for you and HT.
But if they do not, you will still have the option of calling me back.
Believe me, this arrangement will see me losing a very substantial amount, and possibly a job considering these are times of recession, but it will be worth experimenting with if my wish list is not acceptable as of now.
Sorry, could not call you yesterday night. Was grappling with cough and cold for last three days.
As per my talk with Shantanu, I will be in office today. Then, whenever you have time, we can discuss this.
Regards
Atul Sondhi
Stock Markets -- How they operate (Taken from Website with important points in red)
The stock market appears in the news every day. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like "The Dow Jones Industrial Average rose 2 percent today, with advances leading declines by a margin of..."
Obviously, stocks and the stock market are important, but you may find that you know very little about them. What is a stock? What is a stock market? Why do we need a stock market? Where does the stock come from to begin with, and why do people want to buy and sell it? If you have questions like these, then this article will open your eyes to a whole new world!
Determining ValueLet's say that you want to start a business, and you decide to open a restaurant. You go out and buy a building, buy all the kitchen equipment, tables and chairs that you need, buy your supplies and hire your cooks, servers, etc. You advertise and open your doors.
Let's say that:
·
You spend $500,000 buying the building and the equipment.
· In the first year, you spend $250,000 on supplies, food and the payroll for your employees.
· At the end of your first year, you add up all of the money you have received from customers and find that your total income is $300,000.
Since you have made $300,000 and paid out the $250,000 for expenses, your net profit is:
$300,000 (income) - $250,000 (expense) = $50,000 (profit)
At the end of the second year, you bring in $325,000 and your expenses remain the same, for a net profit of $75,000. At this point, you decide that you want to sell the business. What is it worth?
One way to look at it is to say that the business is "worth" $500,000. If you close the restaurant, you can sell the building, the equipment and everything else and get $500,000. This is a simplification, of course -- the building probably went up in value, and the equipment went down because it is now used. Let's just say that things balance out to $500,000. This is the asset value, or book value, of the business -- the value of all of the business's assets if you sold them outright today.
But what if you keep it going? Read on to find out
Selling Shares
If you keep the restaurant going, it will probably make at least $75,000 this year -- you know that from your history with the business. Therefore, you can think of the restaurant as an investment that will pay out something like $75,000 in interest every year. Looking at it that way, someone might be willing to pay $750,000 for the restaurant, as a $75,000 return per year on a $750,000 investment represents a 10-percent rate of return. Someone might even be willing to pay $1,500,000, which represents a 5-percent rate of return, or more if he or she thought that the restaurant's income would grow and increase earnings over time at a rate faster than the rate of inflation.
The restaurant's owner, therefore, will set the price accordingly. You might price the restaurant at $1,500,000. What if 10 people come to you and say, "Wow, I would like to buy your restaurant but I don't have $1,500,000." You might want to somehow divide your restaurant into 10 equal pieces and sell each piece for $150,000. In other words, you might sell shares in the restaurant. Then, each person who bought a share would receive one-tenth of the profits at the end of the year, and each person would have one out of 10 votes in any business decisions. Or, you might divide ownership up into 1,500 shares and sell each share for $1,000 to make the price something that more people could afford. Or, you might divide ownership up into 3,000 shares, keep 1,500 for yourself, and sell the remaining shares for $500 each. That way, you retain a majority of the shares (and therefore the votes) and remain in control of the restaurant while sharing the profit with other people. In the meantime, you get to put $750,000 in the bank when you sell the 1,500 shares to other people.
Stock, at its core, is really that simple. It represents ownership of a company's assets and profits. A dividend on a share of stock represents that share's portion of the company's profits, generally dispersed yearly. If the restaurant has 10 owners, each owning one share of stock, and the restaurant makes $75,000 in profit during the year, then each owner gets a dividend of $7,500.
A large company like IBM has millions of shares of stock outstanding -- about 1.7 billion in February 2004 (see Quicken: International Business Machines for details). In this case, the total profits of the company are divided by 1.7 billion and sent to the shareholders as dividends.
One measure of the value of a company, at least as far as investors are concerned, is the product of the number of outstanding shares multiplied by the share price. This value is called the capitalization of the company.
Stock Exchange
If I am a private citizen who owns a restaurant, and I am selling my restaurant stock to other private citizens in the community, I might do the whole transaction by word-of-mouth, or by placing an ad in the newspaper. This makes selling the stock easy for me. However, it creates a problem down the line for investors who want to sell their stock in the restaurant. The seller has to go out and find a buyer, which can be hard. A "stock market" solves this problem.
Stocks in publicly traded companies are bought and sold at a stock market (also known as a stock exchange). The New York Stock Exchange (NYSE) is an example of such a market. In your neighborhood, you have a "supermarket" that sells food. The reason you go the supermarket is because you can go to one place and buy all of the different types of food that you need in one stop -- it's a lot more convenient than driving around to the butcher, the dairy farmer, the baker, etc. The NYSE is a supermarket for stocks. The NYSE can be thought of as a big room where everyone who wants to buy and sell shares of stocks can go to do their buying and selling.
The exchange makes buying and selling easy. You don't have to actually travel to New York to visit the New York Stock Exchange -- you can call a stock broker who does business with the NYSE, and he or she will go to the NYSE on your behalf to buy or sell your stock. If the exchange did not exist, buying or selling stock would be a lot harder. You would have to place a classified ad in the newspaper, wait for a call and haggle on a price whenever you wanted to sell stock. With an exchange in place, you can buy and sell shares instantly.
The stock exchange has an interesting side effect. Because all the buying and selling is concentrated in one place, it allows the price of a stock to be known every second of the day. Therefore, investors can watch as a stock's price fluctuates based on news from the company, media reports, national economic news and lots of other factors. Buyers and sellers take all of these factors into account. So, for example, when the FAA (Federal Aviation Administration) shut down the company ValuJet for a month in June 1996, the value of the stock plummeted. Investors could not be sure that the airline represented a going concern and began selling, driving the price down. The asset value of the company acted as a floor on the share price.
The price of a stock also reflects the dividend that the stock pays, the projected earnings of the company in the future, the price of tea in China (especially Lipton stock) and so on.
Corporations
Any business that wants to sell shares of stock to a number of different people does so by turning itself into a corporation. The process of turning a business into a corporation is called incorporating.
If you start a restaurant by taking your own money to buy the building and the equipment, then what you have done is formed a sole proprietorship. You own the entire restaurant yourself -- you get to make all of the decisions and you keep all of the profit. If three people pool their money together and start a restaurant as a team, what they have done is formed a partnership. The three people own the restaurant themselves, sharing the profit and decision-making.
A corporation is different, and it is a pretty interesting concept. A corporation is a "virtual person." That is, a corporation is registered with the government, it has a social security number (known as a federal tax ID number), it can own property, it can go to court to sue people, it can be sued and it can make contracts. By definition, a corporation has stock that can be bought and sold, and all of the owners of the corporation hold shares of stock in the corporation to represent their ownership. One incredibly interesting characteristic of this "virtual person" is that it has an indefinite and potentially infinite life span.
There is a whole body of law that controls corporations -- these laws are in place to protect the shareholders and the public. These laws control a number of things about how a corporation operates and is organized. For example, every corporation has a board of directors (if all of the shares of a corporation are owned by one person, then that one person can decide that there will only be one person on the board of directors, but there is still a board). The shareholders in the company meet every year to vote on the people for the board. The board of directors makes the decisions for the company. It hires the officers (the president and other major officers of the company), makes the company's decisions and sets the company's policies. The board of directors can be thought of as the brain of the virtual person.
Shareholders
From this description, you can see that a corporation has a group of owners -- the shareholders. The owners elect a board of directors to make the company's major decisions. The owners of a corporation become owners by buying shares of stock in the corporation. The board of directors decides how many total shares there will be. For example, a company might have one million shares of stock. The company can either be privately held or publicly held. In a privately held company, the shares of stock are owned by a small number of people who probably all know one another. They buy and sell their shares amongst themselves. A publicly held company is owned by thousands of people who trade their shares on a public stock exchange.
One of the big reasons why corporations exist is to create a structure for collecting lots of investment dollars in a business. Let's say that you would like to start your own airline. Most people cannot do this, because an airplane costs millions of dollars. An airline needs a whole fleet of planes and other equipment, plus it has to hire a lot of employees. A person who wants to start an airline will therefore form a corporation and sell stock in order to collect the money needed to get started.
A corporation is an easy way to gather large quantities of investment capital -- money from investors. When a corporation first sells stock to the public, it does so in an IPO (Initial Public Offering). The company might sell one million shares of stock at $20 a share to raise $20 million very quickly (that is a simplification -- the brokerage house in charge of the IPO will extract its fee from the $20 million, but let's ignore that here). The company then invests the $20 million in equipment and employees. The investors (the shareholders who bought the $20 million in stock) hope that with the equipment and employees, the company will make a profit and pay a dividend.
Another reason that corporations exist is to limit the liability of the owners to some extent. If the corporation gets sued, it is the corporation that pays the settlement. The corporation may go out of business, but that is the worst that can happen. If you are a sole proprietor who owns a restaurant and the restaurant gets sued, you are the one who is being sued. "You" and "the restaurant" are the same thing. If you lose the suit then you, personally, can lose everything you own in the process.
Stock Prices
Let's say that a new corporation is created and in its IPO it raises $20 million by selling one million shares for $20 a share. The corporation buys its equipment and hires its employees with that money. In the first year, when all the income and expenses are added up, the company makes a profit of $1 million. The board of directors of the company can decide to do a number of things with that $1 million:
· It could put it in the bank and save it for a rainy day.
· It could decide to give all of the profits to its shareholders, so it would declare a dividend of $1 per share.
· It could use the money to buy more equipment and hire more employees to expand the company.
· It could pick some combination of these three options.
If a company traditionally pays out most its profits to its shareholders, it is generally called an income stock. The shareholders get income from the company's profits. If the company puts most of the money back into the business, it is called a growth stock. The company is trying to grow larger by increasing the amount of equipment and the number of people who run it.
Stock Prices: Income vs. Growth
The price of an income stock tends to stay fairly flat. That is, from year to year, the price of the stock tends to remain about the same unless profits (and therefore dividends) go up. People are getting their money each year and the business is not growing. This would be the case for stock in a single restaurant that distributes all of its profits to the shareholders each year.
Let's say that the single restaurant decides, for several years, to save its profits, and eventually it opens a second restaurant. That is the behavior of a growth company. The value of the stock rises because, when the second restaurant opens, there is twice as much equipment and twice as much profit being earned by the company. In a growth stock, the shareholders do not get a yearly dividend, but they own a company whose value is increasing. Therefore, the shareholders can get more money when they sell their shares -- someone buying the stock would see the increasing book value of the company (the value of the buildings, equipment, etc.) and the increasing profit that the company is earning and, based on these factors, pay a higher price for the stock.
In a publicly traded company, all of the financial information about the company is public. The Securities and Exchange Commission (SEC) is in charge of collecting this information and making it available to investors. Shareholders also use a number of other indicators to determine how much a stock is worth. One simple indicator is the price/earnings ratio. This is the price of the stock divided by the earnings per share. There are all sorts of indicators like these, as well as a great deal of other financial information available on any stock. You can look up all of it on the Web in thousands of different places -- see the links at the end of this article for details.
Stock Averages and Brokers
Every day on the news you hear about the Dow Jones Industrial Average, and other averages like the S&P 500 or The Russell 2000. These are broad market averages designed to tell you how companies traded on the stock market are doing in general. For example, the Dow Jones Industrial Average is simply the average value of 30 large, industrial stocks. Big companies like General Motors, Goodyear, IBM and Exxon are the companies that make up this index. The S&P 500 is the average value of 500 large companies. The Russel 2000 index averages the values of 2,000 smaller companies.
What these averages tell you is the general health of stock prices as a whole. If the economy is "doing well," then the prices of stocks as a group tend to rise in what is referred to as a "bull market." If it is "doing poorly," prices as a group tend to fall in what is called a "bear market." The averages reveal these tendencies in the market as a whole.
There are three big stock exchanges in the United States:
· NYSE - New York Stock Exchange
· AMEX - American Stock Exchange
· NASDAQ - National Association of Securities Dealers
A company "lists" its stock on an exchange. For example, the NYSE has about 3,000 companies listed. According to the NYSE:
At the end of November, 1998, there were 3,104 companies with stock listed on the NYSE. These companies had over 236 billion shares worth a total of $10.1 trillion available for trading on the Exchange, giving the NYSE the world's largest market capitalization (in global market-value terms, the total global value of the NYSE-listed companies exceeded $12.8 trillion).
Anyone who wants to buy or sell stock in any of these 3,000 or so companies goes to the New York Stock Exchange to do it.
Of course, no one wants to fly to New York to buy or sell their shares. A person therefore calls a stock broker in a firm that is authorized to trade at the exchange. There are dozens of such brokerage houses, including such familiar names as Merrill Lynch, Charles Schwab and Morgan Stanley. When you call up a broker at one of these companies, he or she relays your trade to the floor of the appropriate exchange, and a representative of the company (or, more commonly, a computer representing the company) makes the trade on your behalf. You pay the broker a commission (generally $10 to $100 per trade, depending on the broker) to provide this service to you. Today, you can also trade stock online -- see this page to learn more.
Stocks that are not listed on an exchange are sold Over The Counter (OTC). OTC stocks are generally in smaller, riskier companies. Usually, an OTC stock is stock in a company that does not meet the requirements of an exchange.
For lots more information on stock, the stock market and related topics, check out the links on the next page.
Obviously, stocks and the stock market are important, but you may find that you know very little about them. What is a stock? What is a stock market? Why do we need a stock market? Where does the stock come from to begin with, and why do people want to buy and sell it? If you have questions like these, then this article will open your eyes to a whole new world!
Determining ValueLet's say that you want to start a business, and you decide to open a restaurant. You go out and buy a building, buy all the kitchen equipment, tables and chairs that you need, buy your supplies and hire your cooks, servers, etc. You advertise and open your doors.
Let's say that:
·
You spend $500,000 buying the building and the equipment.
· In the first year, you spend $250,000 on supplies, food and the payroll for your employees.
· At the end of your first year, you add up all of the money you have received from customers and find that your total income is $300,000.
Since you have made $300,000 and paid out the $250,000 for expenses, your net profit is:
$300,000 (income) - $250,000 (expense) = $50,000 (profit)
At the end of the second year, you bring in $325,000 and your expenses remain the same, for a net profit of $75,000. At this point, you decide that you want to sell the business. What is it worth?
One way to look at it is to say that the business is "worth" $500,000. If you close the restaurant, you can sell the building, the equipment and everything else and get $500,000. This is a simplification, of course -- the building probably went up in value, and the equipment went down because it is now used. Let's just say that things balance out to $500,000. This is the asset value, or book value, of the business -- the value of all of the business's assets if you sold them outright today.
But what if you keep it going? Read on to find out
Selling Shares
If you keep the restaurant going, it will probably make at least $75,000 this year -- you know that from your history with the business. Therefore, you can think of the restaurant as an investment that will pay out something like $75,000 in interest every year. Looking at it that way, someone might be willing to pay $750,000 for the restaurant, as a $75,000 return per year on a $750,000 investment represents a 10-percent rate of return. Someone might even be willing to pay $1,500,000, which represents a 5-percent rate of return, or more if he or she thought that the restaurant's income would grow and increase earnings over time at a rate faster than the rate of inflation.
The restaurant's owner, therefore, will set the price accordingly. You might price the restaurant at $1,500,000. What if 10 people come to you and say, "Wow, I would like to buy your restaurant but I don't have $1,500,000." You might want to somehow divide your restaurant into 10 equal pieces and sell each piece for $150,000. In other words, you might sell shares in the restaurant. Then, each person who bought a share would receive one-tenth of the profits at the end of the year, and each person would have one out of 10 votes in any business decisions. Or, you might divide ownership up into 1,500 shares and sell each share for $1,000 to make the price something that more people could afford. Or, you might divide ownership up into 3,000 shares, keep 1,500 for yourself, and sell the remaining shares for $500 each. That way, you retain a majority of the shares (and therefore the votes) and remain in control of the restaurant while sharing the profit with other people. In the meantime, you get to put $750,000 in the bank when you sell the 1,500 shares to other people.
Stock, at its core, is really that simple. It represents ownership of a company's assets and profits. A dividend on a share of stock represents that share's portion of the company's profits, generally dispersed yearly. If the restaurant has 10 owners, each owning one share of stock, and the restaurant makes $75,000 in profit during the year, then each owner gets a dividend of $7,500.
A large company like IBM has millions of shares of stock outstanding -- about 1.7 billion in February 2004 (see Quicken: International Business Machines for details). In this case, the total profits of the company are divided by 1.7 billion and sent to the shareholders as dividends.
One measure of the value of a company, at least as far as investors are concerned, is the product of the number of outstanding shares multiplied by the share price. This value is called the capitalization of the company.
Stock Exchange
If I am a private citizen who owns a restaurant, and I am selling my restaurant stock to other private citizens in the community, I might do the whole transaction by word-of-mouth, or by placing an ad in the newspaper. This makes selling the stock easy for me. However, it creates a problem down the line for investors who want to sell their stock in the restaurant. The seller has to go out and find a buyer, which can be hard. A "stock market" solves this problem.
Stocks in publicly traded companies are bought and sold at a stock market (also known as a stock exchange). The New York Stock Exchange (NYSE) is an example of such a market. In your neighborhood, you have a "supermarket" that sells food. The reason you go the supermarket is because you can go to one place and buy all of the different types of food that you need in one stop -- it's a lot more convenient than driving around to the butcher, the dairy farmer, the baker, etc. The NYSE is a supermarket for stocks. The NYSE can be thought of as a big room where everyone who wants to buy and sell shares of stocks can go to do their buying and selling.
The exchange makes buying and selling easy. You don't have to actually travel to New York to visit the New York Stock Exchange -- you can call a stock broker who does business with the NYSE, and he or she will go to the NYSE on your behalf to buy or sell your stock. If the exchange did not exist, buying or selling stock would be a lot harder. You would have to place a classified ad in the newspaper, wait for a call and haggle on a price whenever you wanted to sell stock. With an exchange in place, you can buy and sell shares instantly.
The stock exchange has an interesting side effect. Because all the buying and selling is concentrated in one place, it allows the price of a stock to be known every second of the day. Therefore, investors can watch as a stock's price fluctuates based on news from the company, media reports, national economic news and lots of other factors. Buyers and sellers take all of these factors into account. So, for example, when the FAA (Federal Aviation Administration) shut down the company ValuJet for a month in June 1996, the value of the stock plummeted. Investors could not be sure that the airline represented a going concern and began selling, driving the price down. The asset value of the company acted as a floor on the share price.
The price of a stock also reflects the dividend that the stock pays, the projected earnings of the company in the future, the price of tea in China (especially Lipton stock) and so on.
Corporations
Any business that wants to sell shares of stock to a number of different people does so by turning itself into a corporation. The process of turning a business into a corporation is called incorporating.
If you start a restaurant by taking your own money to buy the building and the equipment, then what you have done is formed a sole proprietorship. You own the entire restaurant yourself -- you get to make all of the decisions and you keep all of the profit. If three people pool their money together and start a restaurant as a team, what they have done is formed a partnership. The three people own the restaurant themselves, sharing the profit and decision-making.
A corporation is different, and it is a pretty interesting concept. A corporation is a "virtual person." That is, a corporation is registered with the government, it has a social security number (known as a federal tax ID number), it can own property, it can go to court to sue people, it can be sued and it can make contracts. By definition, a corporation has stock that can be bought and sold, and all of the owners of the corporation hold shares of stock in the corporation to represent their ownership. One incredibly interesting characteristic of this "virtual person" is that it has an indefinite and potentially infinite life span.
There is a whole body of law that controls corporations -- these laws are in place to protect the shareholders and the public. These laws control a number of things about how a corporation operates and is organized. For example, every corporation has a board of directors (if all of the shares of a corporation are owned by one person, then that one person can decide that there will only be one person on the board of directors, but there is still a board). The shareholders in the company meet every year to vote on the people for the board. The board of directors makes the decisions for the company. It hires the officers (the president and other major officers of the company), makes the company's decisions and sets the company's policies. The board of directors can be thought of as the brain of the virtual person.
Shareholders
From this description, you can see that a corporation has a group of owners -- the shareholders. The owners elect a board of directors to make the company's major decisions. The owners of a corporation become owners by buying shares of stock in the corporation. The board of directors decides how many total shares there will be. For example, a company might have one million shares of stock. The company can either be privately held or publicly held. In a privately held company, the shares of stock are owned by a small number of people who probably all know one another. They buy and sell their shares amongst themselves. A publicly held company is owned by thousands of people who trade their shares on a public stock exchange.
One of the big reasons why corporations exist is to create a structure for collecting lots of investment dollars in a business. Let's say that you would like to start your own airline. Most people cannot do this, because an airplane costs millions of dollars. An airline needs a whole fleet of planes and other equipment, plus it has to hire a lot of employees. A person who wants to start an airline will therefore form a corporation and sell stock in order to collect the money needed to get started.
A corporation is an easy way to gather large quantities of investment capital -- money from investors. When a corporation first sells stock to the public, it does so in an IPO (Initial Public Offering). The company might sell one million shares of stock at $20 a share to raise $20 million very quickly (that is a simplification -- the brokerage house in charge of the IPO will extract its fee from the $20 million, but let's ignore that here). The company then invests the $20 million in equipment and employees. The investors (the shareholders who bought the $20 million in stock) hope that with the equipment and employees, the company will make a profit and pay a dividend.
Another reason that corporations exist is to limit the liability of the owners to some extent. If the corporation gets sued, it is the corporation that pays the settlement. The corporation may go out of business, but that is the worst that can happen. If you are a sole proprietor who owns a restaurant and the restaurant gets sued, you are the one who is being sued. "You" and "the restaurant" are the same thing. If you lose the suit then you, personally, can lose everything you own in the process.
Stock Prices
Let's say that a new corporation is created and in its IPO it raises $20 million by selling one million shares for $20 a share. The corporation buys its equipment and hires its employees with that money. In the first year, when all the income and expenses are added up, the company makes a profit of $1 million. The board of directors of the company can decide to do a number of things with that $1 million:
· It could put it in the bank and save it for a rainy day.
· It could decide to give all of the profits to its shareholders, so it would declare a dividend of $1 per share.
· It could use the money to buy more equipment and hire more employees to expand the company.
· It could pick some combination of these three options.
If a company traditionally pays out most its profits to its shareholders, it is generally called an income stock. The shareholders get income from the company's profits. If the company puts most of the money back into the business, it is called a growth stock. The company is trying to grow larger by increasing the amount of equipment and the number of people who run it.
Stock Prices: Income vs. Growth
The price of an income stock tends to stay fairly flat. That is, from year to year, the price of the stock tends to remain about the same unless profits (and therefore dividends) go up. People are getting their money each year and the business is not growing. This would be the case for stock in a single restaurant that distributes all of its profits to the shareholders each year.
Let's say that the single restaurant decides, for several years, to save its profits, and eventually it opens a second restaurant. That is the behavior of a growth company. The value of the stock rises because, when the second restaurant opens, there is twice as much equipment and twice as much profit being earned by the company. In a growth stock, the shareholders do not get a yearly dividend, but they own a company whose value is increasing. Therefore, the shareholders can get more money when they sell their shares -- someone buying the stock would see the increasing book value of the company (the value of the buildings, equipment, etc.) and the increasing profit that the company is earning and, based on these factors, pay a higher price for the stock.
In a publicly traded company, all of the financial information about the company is public. The Securities and Exchange Commission (SEC) is in charge of collecting this information and making it available to investors. Shareholders also use a number of other indicators to determine how much a stock is worth. One simple indicator is the price/earnings ratio. This is the price of the stock divided by the earnings per share. There are all sorts of indicators like these, as well as a great deal of other financial information available on any stock. You can look up all of it on the Web in thousands of different places -- see the links at the end of this article for details.
Stock Averages and Brokers
Every day on the news you hear about the Dow Jones Industrial Average, and other averages like the S&P 500 or The Russell 2000. These are broad market averages designed to tell you how companies traded on the stock market are doing in general. For example, the Dow Jones Industrial Average is simply the average value of 30 large, industrial stocks. Big companies like General Motors, Goodyear, IBM and Exxon are the companies that make up this index. The S&P 500 is the average value of 500 large companies. The Russel 2000 index averages the values of 2,000 smaller companies.
What these averages tell you is the general health of stock prices as a whole. If the economy is "doing well," then the prices of stocks as a group tend to rise in what is referred to as a "bull market." If it is "doing poorly," prices as a group tend to fall in what is called a "bear market." The averages reveal these tendencies in the market as a whole.
There are three big stock exchanges in the United States:
· NYSE - New York Stock Exchange
· AMEX - American Stock Exchange
· NASDAQ - National Association of Securities Dealers
A company "lists" its stock on an exchange. For example, the NYSE has about 3,000 companies listed. According to the NYSE:
At the end of November, 1998, there were 3,104 companies with stock listed on the NYSE. These companies had over 236 billion shares worth a total of $10.1 trillion available for trading on the Exchange, giving the NYSE the world's largest market capitalization (in global market-value terms, the total global value of the NYSE-listed companies exceeded $12.8 trillion).
Anyone who wants to buy or sell stock in any of these 3,000 or so companies goes to the New York Stock Exchange to do it.
Of course, no one wants to fly to New York to buy or sell their shares. A person therefore calls a stock broker in a firm that is authorized to trade at the exchange. There are dozens of such brokerage houses, including such familiar names as Merrill Lynch, Charles Schwab and Morgan Stanley. When you call up a broker at one of these companies, he or she relays your trade to the floor of the appropriate exchange, and a representative of the company (or, more commonly, a computer representing the company) makes the trade on your behalf. You pay the broker a commission (generally $10 to $100 per trade, depending on the broker) to provide this service to you. Today, you can also trade stock online -- see this page to learn more.
Stocks that are not listed on an exchange are sold Over The Counter (OTC). OTC stocks are generally in smaller, riskier companies. Usually, an OTC stock is stock in a company that does not meet the requirements of an exchange.
For lots more information on stock, the stock market and related topics, check out the links on the next page.
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