Stock Market is like Dating!

Ever invested your feelings in a girl and thought like “yepp I guess I could stop here for sometime”? (Short-term homework)

And then got home and OMG hell broke loose. You find out she is insensible and created unnnnecessary drama over something you said about one of your mutual friends, and now people wanna talk to you about something you have noooo idea you said?

Or probably (Long-term homework) hung out with a girl for weeks, began dating, became exclusive, had her say the rightest words on the planet, had her do the nicest things… BOOM over!

Stock Market is a car with a thousand rear-view mirrors the size of windshield and windshield the size of a rear-view mirror. It’s a volatile Ocean on a full moon night which takes up even the small boats when the tides are high; we think yep that one, over there, I’d like that one please. But then the tides wear off, you can’t find your boat and you find out who is swimming naked.

LOL yeppp, blue-chips go wrong… and they make everyone’s eyes blue, not in a good way.

So, lesson:-

1. Find dividend aristocrats. Its better to get something in return on a regular basis. Choose the stocks whose dividends have consistently increased.
2. Find blue-chips, but remember they are not permanent.
3. DI-FUCKING-VERSIFY. It hurts less when you have 3 more lovers to hang out with, right? Chains of habit are light than heavy when chains of habit of others is consistent for now. I mean, one stock falls, there are others that will balance it out. Unless of course you are a jerk-magnet and all of them were ill quality stocks. Then, you should probably advise people which stocks to NOT invest in. Or maybe you are investing in the same industry type. Don’t do that.

HOW TO CHOOSE A STOCK TO INVEST IN:-

1. Find out your favourite product/service’s stock name(If it’s traded).
2. Look at it’s financial statement from search engines.
3. Love it in it’s bad-times; I mean, invest in a quality stock when company has temporary trouble. (Buy low, Sell high)
4. I believe stocks that will not be affected by change(modernization, technology, globalization) are a good-call. Like, don’t invest in a company that sells fans, ACs will take over. Don’t invest in a company that sells floppy drives, u know why! Probably don’t invest in blackberry  anymore LOL. Coca Cola?
5. Maybe Facebook? But you have to keep up with their performance. Don’t hold it if something better comes along, and it becomes Myspace or Orkut or Hi5.
6. Check their quarter earnings.
7. Definitely read about any new M&A or any new business expansion. The sooner you know, sooner you can invest when the prices have not yet soared up.
8. Check balance sheets of the company you wanna invest in. Go for it signs: More assets than Liabilities, More current assets & cash than current liabilities, Debt to equity ratio should be less than 1, 0 Preferred Stocks.
9. Check P/E Ratio, PEG Ratio.
10. I think you should keep a number-target where you just sell it off. Buy what you can afford to lose.

Read these 4 books when you get time (I haven’t yet lol) :

1.       Graham – Intelligent Investor

2.       Warren Buffet - The Essays of Warren Buffet

3.       Robert Kiyosaki – Rich Dad, Poor Dad

4.       Peter Lynch – Beating the Streets

Movies to watch :

1. Wall Street (1987)        

2. Margin Call (2011)

3. Boiler Room (2000)     (I like this one! Especially Vin Diesel & yeah Ben Affleck)

4. Trading Places (1983)

5. American Psycho (2000)

P/E RATIO OR PEG RATIO?

(Just a revision : What is P/E RATIO -> Share Price/Earning per share

PEG Ratio -> P/E Ratio/Growth Rate)

I was asked today why modern analysts give so much importance to the PEG ratio? I reckon its because as P/E Ratio, on one hand, only tells us how much an investor is willing to pay for each dollar extra earned on the investment; 

PEG Ratio, on the other hand, tells us whether the stock is over-valued or under-valued. It takes future (growth) in account.

While P/E is historical (as it judges on the earning earned and market share price), PEG Ratio is futuristic; and if you are in the markets, you must buy the future.

Although today when I was re-studying P/E Ratio and PEG Ratio, I stumbled upon some very interesting articles on the net where they have said that PEG Ratio is a silly tool. I am surprised at their arguments, nevertheless Its safe to say that PEG Ratio is a safe tool, provided you are valuing “teenager” stocks, i.e., stocks that have not matured yet and are growing.

I understand it’s a little mind-stressing as to come to the ratio, you first have to evaluate P/E Ratio… now what PE Ratio do you use? Forward or Trailing?

And then Growth Rate – forward or trailing? 1 year or more or more? And if you want to verify your ratio with other online sites, then, trust me, it’s like finding marijuana in your Lucky Strike packet of cigarettes; chances are 1:100!

So, what’s the solution? Now that is something none of the investors mentioned in their articles! Yes, perfect.. tell us this valuation tool is flawed too.. and have people run to you like you are the Intelligent Investor, or ask to subscribe to your solution booklet for $99. Well, you are a cynic finding faults in anything discovered and making money out of your cynicism. Don’t go around breaking bubbles!

The solution is instead of being in a rush to disapprove and strike out all available valuation tools, we must know why they were derived in the first place, and how to use one, especially where to! 
So, when finding PEG, take current P/E Ratio (If you don’t want to use the formula, its available on http://www.nasdaq.com/symbol/fb/pe-ratio). 

Growth Rate - Now it depends, I tend to use the 5 years one cuz it irons out the creases of time and volatility, Use this site as it gives Growth Rate for both Trailing and future 5 years http://hotstocks.mygroupmedia.com/PEG.aspx

Use the lowest future Growth rate (and EPS) than given, so you are being risk-proof.

Another thing to keep in mind is the lesser the PEG Ratio, the better. It is like ladder rungs; the higher the PEG Ratio, the further you can fall and more you can get hurt.

So, what about Stocks that have matured? With 0 growth?

The formula by Graham in 1962 for stock valuation (with adjustments):

Value = EPS x [8.5 + (2 x Growth Rate) x (4.4/5.76)]

*4.4 the rate of return used then, and divided by 5.76 is the adjustment made.

Now, we will take example of GOOG. I am taking values from the above mentioned sites:

Value = 31.91 x [8.5 + (2 x 13.45) x (4.4/5.76)]

             = $ 926

Adjustment made:

Value = 31.91 x [7 + (1.5 x 13.45) x (4.4/5.76)]

                =$ 715

(This seems more real) and GOOG is currently trading at around $556, so it is currently undervalued.

And if valuated by the basic PEG Ratio formula, even then 1.3 is a very good ratio.

PEG Ratio	P/E Ratio	Share Price	EPS	Growth Rate
1.29672324	17.4409276	556.54	31.91	13.45

Do It for your Foreigner Blonde Girlfriend

"I actually did call my brother yesterday—he's not a trader, he's an investor—and told him to start buying," Iuorio said.

I read this particular line in an article on CNBC site that was named “Why long-term investors should buy this sell-off”, and I found it pretty smartly witty. Anyway, I will begin my rambling now.. I had wanted to write an article on Alpha (No wonder they already got a popular site named on it; seekingalpha.com) and HOW TO CHOOSE THE RIGHT STOCK.. So, I am going to do both in the same post.

I don’t want to go too back in the past, so I'll take an example of the late 90’s.

Imagine you woke up one fine day in 1997 and decided to invest in Amazon.com and bought a hundred of it’s shares for $2.5, ($250 spent)… What do you get today???

A hot blonde girlfriend – preferably one who doesn't even speak your language, so 0 phone call bills, a convertible and don’t forget - The Good Life!

Haha no, you got $31,700. And if I go ahead and convert it into my currency, you have Rs 19 lakhs (using current USD/INR Rs. 60) from Rs 15K. That shit cray! This is Value Investing. You pick your blue chips well, you invest in them, you stay updated with what’s going on with the company, competitors  catalysts and other factors affecting. Lets figure out how to find one such blue chip (or as I call them Love).

   1)   P/E Ratio

P/E Ratio is share price divided by the Earning per share, The denominator (EPS) is based on an accounting measure of earnings, and is highly susceptible to forms of manipulation. For example, a stock’s P/E Ratio is 20, that means investors are willing to pay $20 for every $1.

Now, if the P/E Ratio is very high (or just rose), it means that investors are willing to pay more because they are expecting the stock to outperform in the future (they are expecting firm’s Earning per Share to rise). But if its low, then there are no expectations from it, or market expects it to fall, or no one has invested enough time to find this particular stock. Warren Buffet found these stocks that were undervalued and made his fortune.

   2)  Catalysts:

This is where you analyze on a macro-level, then industry-level, company-level etc. You have to do your research and field work better than others. This is where you can score marks, as ratios are all out there on internet for almost all stocks these days. You have to pick reasons as to why a certain stock’s price will fall or rise and why it should be invested in. When picking your catalysts, don’t pick one that’s too far in the future. Stock Market has a short-term span; anything from one year to less is a good catalyst.

Don’t pick too generic a catalyst either. Anything that affects the economy as a whole should not be the reason behind you picking or rejecting a particular stock. For example, Recession.. NO! that will affect other stocks too. Pick something more specific. Keep your ears and eyes open!

Look at what happened to MH370, of all the people I know I was the (OMG Im boasting!) only one who went online and checked if Boeing and Malaysian Airline were listed on Stock Exchange, and if yes, did the plane's disappearance affect their share prices? Yes, and Yes. MAS that had been trading nowhere less than a consistent 0.31MYR is still unable to rise above its current 0.21MYR.

    3)  PEG Ratio:

Formula is P-E Ratio/EPS Growth. This tells a more complete story than P/E Ratio alone. Don’t be confused when you see different Annual Growth Rate on consulting sites; as this varies. They could be using trailing growth or future growth  for the next 5 years, like I have.

Now, Imagine you want to invest in either of these two companies – Facebook or Netflix. How do you know which one to pick? Share prices could change their direction anyday!

	P/E RATIO ‘14	EPS ‘14	EPS ‘15	EPS ‘16	EPS ‘17	Average EPS
FACEBOOK	58.57	67.69%	41.44%	45.81%	42.05%	31.46%
NETFLIX	80.85	96.35%	80.71%	57.92%	32.71%	24.08%

 (I have made a table so it’s easier to decipher the numeric I will vomit next.)

Facebook has P/E Ratio of 58.57 (2014); and annual growth is 31.46%. (via http://www.nasdaq.com/symbol/fb/earnings-growth )

Therefore, PEG Ratio of Facebook, for 2014, is (58.57/31.46) = 1.86

Netflix has P/E Ratio of 80.85 (2014); and Annual Growth of 24.08%.

Therefore, PEG Ratio of Netflix is (80.85/24.08)= 3.35

So, one would pick Facebook trading at $59.7 than Netflix that is trading at a whooping $332.40.

This means that Netflix stock price is higher than it's earnings growth; and if the company doesnt grow at a faster pace, it's Stock price will fall.

   4)    SEEKING ALPHA

So, what is Alpha? I’ll save you the technical blah blah; Alpha is the *little extra* you receive from a stock that you (or the market) didn’t see coming! It means the stock outperformed market’s expectations and generated abnormal returns. It is in comparison with the risk taken to get the said results. So, a positive alpha means the fund got better than expected returns based on how risky/volatile it was. It measures risk premiums in terms of Beta (β).

Once you know this, you don’t judge a portfolio plainly by the returns it gives. You want to know if the risk you underwent was justifiable by comparing them to the returns received.

It’s like you could be delighted that your blonde girlfriend has finally found someone she can use her foreign language with whilst she chats with some little kid off the streets; but you are failing to see that he could be more than just *a little kid* to her. 
Of course, You are relieved the kid is not around her age, but you are missing the possible risk here, he could be "her" kid. The risk this happiness of seeing her play hopscotch with a toddler would definitely cost you MUCH more than just seeing her flirt with a cute biker off the streets!

Therefore, Knowing Alpha and being able to use it is highly necessary. I will not further explain Alpha or you would be mentally exhausted.

Be a Top Dog! :)

Ride It : Bull Or Bear?

Bear and Bull, if noticed, are both exceedingly dangerous animals and can create serious danger to humans, therefore they are the symbols of market trends!

ANIMALS IN THIS FARM:

Bear: Bear is when economy is hibernating. Historians say that the markets were named on the behaviour of the two animals. Bear, when attacking it's enemy, strikes with its paws, bringing them down. Therefore, Bear when the markets go down. A pessimist expecting markets to fall is also called a Bear.

Bull: Bull is when everything is rosy; there is strong and consistent economic gowth, market sees a rally; & unemployment - what??

A bull, when attacking his enemy, thrusts his head upward to inflict maximum damage. Thus, Up aggressive market trend is Bullish trend; and anyone going long is a Bull.

Pig: These are investors that are looking for their one big shot, ASAP. They are aggressive, impatient, impulsive and restless. They want to be rich without worrying about the homework or risk; They are traders' fave!

Chicken: Self-explanatory! They chicken out of the risk and adventure of Stock Market and choose Money-markets. They might not gain much, but they will not lose sleep or get slaughtered like the Pig!

Badger: As popularized by famous investor Michael A Gayed. I reckon he invites them to the farm because they are hunters, fierce animals, they dig (do their homework), and capable of fighting larger animals like dog-packs, wolves, bears, even Lions.

Market trends, on the other hand, are only Bullish and Bearish. 

When Bullish, 

1. One must find their Love; commonly known as Blue Chips. But never forget that just like your Summer Love or any other Love, these are NOT permanent. 
2. Perform your due diligence and wait till you find your Love. 
3. DIVERSIFY, pay attention. Never take Markets for granted (Stock Market is a Bad Girl)
4. Have a Stop-Loss Technique. This is a directive to sell stocks at a particular Market Price to avoid any kind of losses. For example, when market opinion about a certain stock’s maximum potential price is $45. Have a Stop Loss nearby, as when the stock reaches $44, there shall be a mass selling, resulting in plummeting of stock prices.
5. Asset Allocation: 100 Minus your Age Rule. There are, in general, 2 kinds of investments: Equity and Debt. The rule is you invest 100 minus your age in Equities with the rest going to debt. So, If I am 24, I should have 100-24=  76% in Equities.

One may think that if the markets are bearish, how can one make profits? So, WHAT TO DO IN A BEAR MARKET:

How do you ride a Bear? Same way as you ride the Bull, in the direction it is going!

1. Buy Low, Sell High:
   An adventurous investor, will make the most of this loss-making market trend. One can buy cheap now and wait for the markets to rebound; instead of selling off everything now because you are a Chicken (if you are, then you should invest in FDs; because for you not making a decision is a good decision!).
   For example, Satyam share prices dropped due to the very infamous Satyam Scandal to Rs 11 in Jan 2009, which resulted in all it's investors rub their hands off this particular stock.
   But imagine someone shelling out (not a big amount so he doesn't have to repent) in this not-so-enthralling moment of Stock Market, and would purchase 400 shares of the same at Rs 11 at it's all-time low?
   Winner! Because in 6 months the stock was trading at Rs 100 and out of Rs 4400, he earned Rs 40,000.
2. Ride this Bear out. Trading through the ups and downs scours away the long-term gains.
3. Short-selling.

And no matter what market trend, always be a Top Dog (another member in the farm)!

EEM are Top Dogs

Crores of our Gods are helping our markets outperform! ahaha INP

Not awhile back (this Jan) foreign investors created so much turbulence about the Emerging Markets/ EEM that even we (I speak on behalf of INP ) didn’t know were such huge deal breakers! They were sure Fed's tapering would affect us. They were sure our economies were useless and currency even worse.

According to them, Egypt, Thailand and Turkey were already breathing next to chaos. 

They believed Russia was experiencing decelerating growth. 

India and Brazil were de-growing on an incremental scale, with increasing social tension; Inflation, a widening Current Account Deficit, depreciating Brazilian Real and Indian Rupee against US dollar. 

They didn't like Indonesia because it was dependent on China for imports and to expand business; they believed this dependence was a weakness.

This one is due to the hype created by all the foreign investors over "Emerging Markets"/"Fragile 5" that I regularly read on Twitter. Well, we don't see the fragility now, do we? With India (INP) and Indonesia (EIDO) outperforming US (IWM)

So much so, now  ETF provider ALPS is expanding its dividend dogs of Dow Theory to EEM, the ALPS Emerging Sector Dividend Dogs ETF (EDOG). 
It sort of baffles me as to why they are investing in all emerging markets, but not India; When India would attract serious investments this year. I reckon they just can't ever learn!

Stock Market is a Bad Girl

I have been asked a million times ONE question; why I wanted to get into Stock Market world. A lot of my friends told me I should rather get into Fashion, others told me it's too difficult.

I am sure they are right, but they are speaking for themselves. Anybody who has tasted tequila will hate the taste of it, but would love what it makes you do. It's quick, dirty and you see the results. You need to maintain how much you consume according to your (risk) capacity. It's like table-top dancing; you know it's dangerous, you are in 6 inches heels but why would you want to be sipping cocktail being pushed around or rubbed over by many others?

Anybody that rides horses knows the craving one feels to get on one; they know it might break their bones; but on the other side, it brings speed, power and danger. There's danger and risk in Stock Market, but rewards are there too. I reckon anybody that has ADD issues would be best suitable for it!


I love how it never sleeps, I love how it is always running and keeps one on it's toes. There's adrenaline, rush, thrill; There's no time to rest. According to me, it has the "Bad Girl" charm. The Markets could fling you over anytime you didn't invest enough time and energy on it. It doesn't care how much money you blew on it, the day you woke up and began taking it for granted.. it will leave you for somebody who did his homework while you were distracted. It will leave you with stress, health issues (as I have been told by many Investors), resentment and regret of money-loss.

Stock Market is gambling, a legal one. You have to be the Top Dog, you must find your blue chips in the time of cyclonic volatility.

Equity Research

I was motivated to write this article because I had been googling a lot of ER stuff online; to no bliss. Therefore, I am writing one which would be easier to understand. In this article I shall talk about Equity Research.

Equity Research is a department that works for a brokerage firm, Investment Bank, Pension Fund. It is a revenue producing group that a firm owns. Their job is to figure out which sector, industry, company, share will be outperforming or should be sold off. They generate information necessary for the firm to decide how to allocate their funds.

BUY SIDE and SELL SIDE:

Sell Side Analysts often work for a brokerage firm and give *blanket recommendations* to mass clients. They are not answerable to the clients; but the firm they work for. This could also mean that he might give trade signs to benefit the firm than the clients; as any sell/ hold/ buy movement benefits the firm (trading commission).
Good models and financial estimates have more value to a Buy-Side Analyst because they are chosen by their work and research. They have a lot of pressure to be right, give good fund suggestions. They usually work for Pension Funds or Mutual Fund firms and give right stock recommendations.

Calculating a share's attractiveness: 

• Industry Overview
• Company Fundamentals
• Company Business
• Key Strengths
• Key Financial Indicators
• Peer Group Performance
• P/E Ratio

P/E Ratio:

Take for example, Facebook. So Facebook's Share price (as on 6th April 2014) is $56.75
You can just search the EPS of a company from search engines, if you dont want to calculate it. It's EPS (earning per share) is 0.61.
Therefore, P/E Ratio of Facebook is Share Price/EPS, viz, 56.75/.61
= 93.03

P/E Ratio is of no use unless you compare the same with P/E Ratios of other competitors.
There's argument to whether low P/E Ratio is good or high; but don't forget Warren Buffet made fortune by finding shares with low P/E Ratio and investing in them. This is also called Value Investing.

Future of an ER Analyst:

Once you have worked as an ER Analyst, you are skilled to analyze a share. You can fit well as a Wealth Manager later or with any other buy-side firms.

So much for today, will keep writing!