Is the stock market a gambling arena?

• Many people shy away from the stock market thinking it is a lot likegambling and some even think it is gambling. The vagaries of the stockmarket in the form of sudden spurts and dizzying falls only add fuelto this thought.
• Adding fuel to the aversion is the past pain from few experiments --many in their 40s are still not entering the market because they werehurt by the Harshad Mehta scandal!
• Short-term trading versus Investing- The goals for any investor in the stock market change very dramatically based on whether he is a short-term player or a long-termone. In the short term, the market has to be perform the role of an income generator for the trader/investor. In the long term, it has to give capital appreciation for the investor.
  The first thing to remember is that when we buy a stock (a share in any company), we get a part ownership in the company. We have a right to a part of the assets and a part of the profits that the company generates.
  The price of the share will be reflected by the current and future profits of the company and also by the various forces that affect thebusiness of the company. There are several macro-level factors such asthe political, social, and international environment too that affectthe business and hence the share prices.
  Shares are best for the long-term investor
  To generate income out of shares is possible in two ways:
  -Wait for the dividend. This income is going to be quite low compared to the market price of the share. Typical Indian dividend yield(dividend per share/market price of share) is in the range of 1% to2%. Not quite attractive.
  -The other way is to generate trading gains. This is highly risk ladenas inherently share prices follow randomness. The Random Walk Theory says that the events in the past do not affect the price of the shares in the future. Hence, it is not possible to predict the future price of shares. This means that to generate income by trading one has to 'speculate'. That is gambling.
  -In the long run (three years and above), however, the scenario is different. There is sufficient control for the management of the company to steer it to success or failure. And this will be reflected in the stock market as rise or fall in the share prices.
  As an investor in the company, we too get signs on whether to hold onto the share or to let it go. In the short run companies can fool its investors by changing some numbers and by making good presentations but in the long run to compete and to grow, they have to delivervalue.
  Returns in the long run
  The stock market remains the undisputed and consistent leader forreturns in the long run. In spite of the economy slowing down in India and going into a depression in many parts of the world, the historical Sensex returns are still very attractive.
  The Sensex was formed as an index to reflect the stock marketmovements in the year 1979. The value at that time started at 100. OnAugust 14, 2009 this figure stood at 15,400. This translates to acompounded annual growth rate of an amazing but true 18.28%.
  We cannot see any other asset class giving such returns over the long term. Is there a reason why stocks perform so well in the long run?Yes, there are.
  -As business people, the promoters of the companies have an inherent reason for working towards the growth of their companies. Also businesses need time to grow and flourish.
  As businesses compete with each other during their growth, they comeout with creative, efficient and effective solutions to our needs andproblems. This creates value for us as consumers and as investors. The country itself grows because of this.
  Case in proof
  A case in proof is a Bangalore family that was surprised by the valueof shares that their late father had accumulated. He had bought sharesof Hindustan Level Limited (HLL [ Get Quote ] -- now HindustanUnilever Ltd) consistently for over 20 years from whatever savings hecould scrap from his earnings as an executive in a private company.
  At one point in time HLL was the largest company in India and he lovedthe company. Post his retirement he continued to hold the shares inthe material form itself. After he passed away, the family found thathe had over Rs 1 crore (Rs 10 million) worth of HLL shares!
  Stock market is not a gambling arena
• The stock market is a tool for investing and wealth-creation. As discussed above it is a way to create wealth in the long term. Itshould not be mixed with gambling nor should it be used for that purpose.
  Like gambling, it might be thrilling in the short term but too much indulgence in thrill at the expense of strong fundamentals could lead to major losses.
  Ironically, the media and the people around us always highlight the extremities rather than focus on the fundamentals. For example, a person losing Rs 500,000 in one day is given more importance than someone earning the same amount in three years. This has been themajor cause of creating a negative picture of the stock markets.
  
• We need to come out this imagery and look at the broader and long-termpicture. Long-term investors can never lose money in the stock market if the fundamentals are right!

Learnings from Rakesh Jhunjhunwala investment style

Rakesh Jhunjhunwala made a fortune by investing in the stock market. From an initial amount of Rs 5,000, as it is rumoured, he has made Rs 5,000 crore injust over two decades!

There is a lot we can learnt from his investing quotes:
1. Invest in a business and not a company.

Jhunjhunwala identified and invested in Pantaloons much before themarket discovered it. Today, he is gaining from that investment.That's because he invested in the potential of the underlying business(of organized retail in this case) and it's first mover advantage.

2.Maximise profits and minimise losses.

Cut losses and move on with life. At the same time, hold on to winningstocks till their business has achieved its full potential.

3.Always have an independent opinion.

Observe and read relevant information with an open mind.Jhunjhunwala believes in doing his own research before investing. A good example: he was lapping up the ignored Indian Public Sector (PSU)stocks when the herd was after the IT stocks during the late nineties.He made a fortune investing in PSU stocks, while many lost their shirts during the dot com led market crash in 2000.

4.Be opportunistic but wait for the right moment.

Don't jump to buy all at once. The market always gives a chance to buymore at a lesser price if you wait for the right moment.

5.Be happy with your gains but learn to accept losses with a smile.

Jhunjhunwala has had his share of dud investments. A good example is Mid-day Multimedia. But that did not deter him.

4.Study the markets thoroughly.

Refer to history.There have been many a bull and bear markets but in the long-term, themarket is always trending upwards

5.Do something you love.

Jhunjhunwala went on to pursue his passion for investing right after he completed his Chartered Accountacy. He also had the option to go abroad but he chose to do what he loved.

6.Patience may be tested but your conviction will be rewarded.

Many of his holdings like Praj Industries, Hindustan Oil Exploration,Pantaloon, did not move for quite some time. However, he had the conviction in their business models and their potential to becomemultibaggers, which they eventually did.

7. Market is always right.

Markets cannot be taught, they have to be learnt.According to him there are no kings or kingdoms in the stock market. Mr Market is the only prime force.

8.Be an optimist!

His genuine optimism rubs across the businesses he backs and they achieve success faster. For example: Bilcare, a clinical suppliesmanagement services, has suddenly become a hot story out of nowhere.

8.Aspire, but never envy.

Jhunjhunwala believes in sharing his investment ideology and thoughtprocess in this highly secretive industry.

9.Begin whatever you dream.

Boldness has genius, power and magic in it.No wonder he has backed many a first generation entrepreneurs likeC.J. George (Geojit Financial), Mohan Bhandari ( Bilcare), PramodChaudhari (Praj Industries) etc.
And some more...-- Build a fighting spirit; take the bad with the good.-- Balance Fear and Greed-- Invest for the long term-- Be paranoid of success; never take it for granted. Realise successcan be temporary and transient
Recently, while addressing an audience in Hyderabad, he predicted that the bull market is intact and the current phase is just a significant time-wise and price-wise correction.
Let's hope he is right this time around too and we see the resurgenceof the India bull market soon.

Why should you control your anger?

An interesting story........
There once was a little boy who had a bad temper.
His Father gave him a bag of nails and told him that every time he lost histemper, he must hammer a nail into the back of the fence.
The first day the boy had driven 37 nails into the fence. Over the next fewweeks, as he learned to control his anger, the number of nails hammereddaily gradually dwindled down. He discovered it was easier to hold histemper than to drive those nails into the fence.
Finally the day came when the boy didn't lose his temper at all. He told hisfather about it and the father suggested that the boy now pull out one nailfor each day that he was able to hold his temper. The days passed and theyoung boy was finally able to tell his father that all the nails were gone.The father took his son by the hand and led him to the fence He said, "You have done well, my son, but look at the holes in the fence. The fence willnever be the same. When you say things in anger, they leave a scar just like this one. You can put a knife in a man and draw it out.
It won't matter how many times you say "*I'm sorry*", the wound is stillthere. A verbal wound is as bad as a physical one.
Hence, we need to learn this aspect and implement in our lives.. be it personal or professional!

Bank information must be effective

Have you ever compared the service charges of your bank with that of others to see how competitive the rates are?Banks impose charges for basic services such as collection of outstation cheques, and carrying out standing instructions and levey penalties for not maintaining minimum balances or for excess debit entries in your savings account. You also lose money if you close an account within 12 months of opening. Some banks offer a 50 per cent cut in service charges for senior citizens..If you click on the icon ‘Useful Information’ on the Reserve Bank website dedicated to “Common Persons” you will see a link that> connects you to the websites of over 40 banks on ‘service charges’.The list of banks include public sector, private sector and foreign> banks. The link gives valuable insights. Some banks for example,calculate the minimum balance required in an account on a quarterly basis, some on a monthly and yet others on an average daily basis.You can also get a good look at the service charges imposed by your bank — and I am sure you will be quite surprised at some of the levies! The idea of providing such information to consumers is good, but if it is to serve any useful purpose, the information should be more structured and provided in a way that facilitates price comparison. With most banks, the links take you straight to the ‘service charges’> page, but with some, they do not and you have to search for the ‘service charges’ icon. And each bank has its own way of providing the information, making comparisons difficult. Some sites have outdated information. The Reserve Bank has to come up with a specific format for the> information and insist on banks updating the information regularly in a consumer-friendly manner.Banks also should provide information on their customer charters and> their implementation

We are faced with a negative demand shock

*During the oil shocks in the second half of the 1970s, governments believedthat the solution was to boost demand, whereas the problem was negative-supply shocks. So the expansionary (monetary and fiscal) policies implemented at the time simply led to an upsurge in inflation. We are currently faced with a negative demand shock, due to the halt inindebtedness and the decline in global trade.It must therefore be dealt with as a demand shock and not as a supply shock
*counter-cyclical monetary and fiscal policies are justified up to thepoint where perverse demand-dampening effects appear;
*• *cutting wages is counterproductive, except if it can boost employmentmore than proportionally; governments should therefore as far as possiblecurb companies’ attempts to renegotiate wages downwards;
*• *having low inflation is favourable whether this is thanks to commodityprices or increased competition, as it stimulates real incomes; likewise,the fact that employment only partially adjusts to the drop in activity isstabilising, even though it entails a fall in profitability.*