A stock market is as enigmatic as a woman's mind ; deep and unpredictable. Even millions of analysts around the world try to predict its movement but have seldom succeeded. At times they rule and drive a country's economy; sometimes bringing wealth, sometimes taking wealth. A game where the money lost by someone is the money gained by another. The size of stock arket is abot $40 trillion, about 40 times the size of Indian economy.
Inspired by the enormous opportunities of wealth creation offered by stock markets, everyday retail investors park their money in stocks. Those who do not have the patience or time to track the market, take advantage of the mutual funds who professionally manage our money by investing in stocks. The recent hullaballoo being SIP (systemmatic investment plans) where every month a fixed amount is invested in stocks by the fund manager. No wonder that these plans received good recognition from retail investors as it takes advantage of the ups and downs of market. The SEBI, as a moderator, keeps changing the rules of the game now and then; latest being abolishment of entry load (a fee for puting money in a mutual fund).Good news for people who have burnt their fingers in the past bear run; analysts have predicted that markets are going to turn bullish again.
Commodities often rule the world economy. Steel, which once commanded the economy has lost its sheen in the current decade and has given way to oil. Oil bonds, which usually shows a negative correlation with equities (high oil price leads to high transportation, producion and operating cost for companies and hence reduced corporate earnings), are showing a positive correlation surprisingly. If we look at the recent bounce back in the market, oil price has also rallied parallely; meaning they both have gone up together. There is also a good demand increase in the market for oil as well as for equities.Hence there is no hard and fast rule in a market; after all if there is one there will not be any losers?
There are different ways to analyse a stock . The most common being:
- fundamental analysis which uses the company's financial,business,market,managerial strength to evaluate the value of a stock
- technical analysis deals with predicting stock movement using charts, graphs and patterns
All these tools will guide and give a fair idea about a scrip's performance; however there is no tool to find the certainity of a stock's movement. Blue chip (popularly traded stocks) are the favourites of low risk preferes, mid caps are preferred by moderate risk takers and small caps are preferred by high risk investors. It is always good not to put all your eggs in one basket but to have a combination of stocks in a portfolio.
Too much of anything is good for nothing; a rule of thumb is that an ideal portfolio is something which has about 15-20 different stocks and not more than that with an ideal mix from various industries, risk level and .
"A rupee earned today is worth more than a rupee earned tomorow". So utilize the magnanomous opportunities offerred by equities in various forms viz. mutual funds, derivatives, stocks and add wealth because higher the opportunity cost, higher will be the returns expected.
