How to Start Investing in Share Market | Day - 5

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Investing: When you buy shares with the intent to stay invested for as long as your prospects about the  business is good i:e with the intent to being a partner of company it's known as Investing.

Since we are actually participating in business so we do a thorough research on the concerned company before Investing. The research done with this intent is known as Fundamental Analysis.

Demand vs Supply, Price vs Value.

Price never moves in straight line in stock market, every second it keeps changing. Do you think any company's fundamentals or profits or businesses changes within seconds? Absolutely NO.

This is just Market Participant's Sentiment which drives the market up and down, in Investing field the Sentiment is known as Noise

Traders sees the Price and Investors calculates the Value of Share.

Let's understand the difference between Price and Value.

You manufactured a new pen, after calculating all the expenses to manufacture the pen in buying the raw material such as fiber for body & refill ,ink for the refill you found that your expenditure on manufacturing this pen is Rs 10. Here the Value of this pen Rs 10.

Once you packed this pen in fancy wrapper and send it to market for sale. If there is huge demand of this pen people will start bidding to get this pen and they can reach from 10 to 1,000 in bidding process.

The actual Value of this pen is still only Rs 10 but bidding has stretched it's Price to Rs 1000.    

But still at the moment when a person is willing to buy this pen at Rs 1000 he is Valuating this pen worth of Rs 1000 then only he is ready to buy. It's a different discussion that he is Valuating this pen based on the Sentiment of others i:e Demand of pen.

When any asset is trading at higher Price than it deserves based on the actual Value, people will say this asset is Overvalued.

On the other hand when any asset is trading at lower Price than it deserves based on the actual Value, people say this asset is Undervalued.

This kind of scenario can be seen so frequently in the stock market. When some good news comes related to economy or sector or particular company, share price rockets high while price dives deeper when some rumors are spread-ed against the company.

So in the case of good news Company is Overvalued while in rumor case Company is Undervalued.

Value Investor who does the Investing business based on the actual Valuation of the company, buys the shares when good companies are Undervalued because of some rumors and they can hold them forever or can sell them when shares are Overvalued manifold times to book profits. 

Investing is the real business where you can supervise all businesses across the globe and reward/punish them by buying/selling the shares of a particular company.

Below are the resources to read out to become a good Investor

Annual Reports(AR)

  • It's a detailed report on the activities that a company has done throughout the preceding year.
  • It is released by company itself under some strict act so that company can't provide wrong misleading data in AR.
  • AR gives information about financial  performance of a company to it's shareholders.
RHP (Red Herring Prospectus).
  • This is a document that company release from their house explaining each and every details bit by bit before issuing their IPO's to the public.
  • Therefore if you want to track company's strength and record about how it was in it's early stage of business you can go through RHP of that company.
Financial Newspaper.
  • You need to keep yourself updated about what's happening around in finance industry & economy.
  • The Economic Times, Mint, Business Standard one the good ones.
Management Interviews.
  • You need to keep eyes on the Management, what and how they think to run their businesses which will give you a insight about that company.
  • You need to study  books related to Economy, Sectors, Management, Experience of Other Investors or any factors that impacts the market and your emotion and Intelligence .
  • By studying such book as mentioned above you can develop your own instinct or conviction about where to invest how much and when.
  • The Intelligent Investor, Security Analysis are the best books among others available till date for the purpose of learning Investing . These both books are from the desk of Benjamin Graham who is known as the Father of Value Investing.
      Fundamental Analysis.
      Price vs Value.
      Valuation, Undervalued vs Overvalued.
      Sentiment, Noise.
      Value Investing.
      Annual Report.
      Red Herring Prospectus.
      Financial Newspaper.

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