State of Play!

On a lazy Saturday afternoon, my husband and I decided to go to the movies, munch on popcorn, drink soda and watch Russel Crowe in action. And boy what a movie! :)

State of Play, with its apt tag line of "find the truth" takes you to the world of corrupt powerful politicians, evil corporations and the journalist's quest to uncover the secrets. In this intelligent thriller, Russel Crowe plays a persistent,  brooding journalist who has a crush on his best friend's wife. The best friend is played by Ben Affleck who is a Congressman in the midst of an investigation involving PointCorp a private defense contractor. The congressman's beautiful mistress is pushed onto the train tracks killing her and that sets the story in motion. What follows is web of lies, cover ups and a struggle to keep the truth from being uncovered!

Here is my take on the movie complete with quotes, scenes I liked and rankings..

• Brad Pitt was originally slated to play the role of the journalist Cal McAffrey. I'm glad the New Zealander took over instead. He portrays the character perfectly with his brooding intense face and long locks.
• I cannot imagine anyone more perfect than Ben Affleck to be the suave Congressman. His clean cut, good looks and confident stride embodies the perfect politician.
• I loved her in Queen and was completely bowled over her performance in this movie. Helen Mirren is the perfect crisp, snooty British lady with her colorful language and brusque manners. She reminds me of Meryl Streep's character in Devil wears Prada. The boss with no soul!
• Rachel McAdams who portrays the other journalist, also seemed a perfect fit. With her doe like eyes ready to shed tears at the drop of a hat, yet steely determination to hold on to her story; she plays a convincing role as Russel Crow's protege.
• Michael Berresse plays the perfect cold blooded, emotionless killer with an unstable mind and a zeal to kill.

Some favorite quotes:

• Did we just break the law? Nope, that's what you call damn fine reporting.
• One to kill, one to cover.
• Coffee is free for friends of the press.
• You come in here, it's all about you and you get your story.

A definite must watch! Rating: 8/10

And if you ever happen to visit Newcastle, Australia..don't forget to stroll along the Newcastle beach. A sight for sore eyes! :) And there is cheap beer too!

Priyanka S Vaidya

Image: www.fahlgrenmortine.com/.../04/state-of-play.jpg

A beautiful mind

Finally saw the movie "A Beautiful Mind". Being a die hard Russell Crowe fan, I knew I could expect a brilliant movie and perfect role play. Here are some wonderful and memorable dialogues from the movie:

" Classes will dull your mind, destroy the potential for authentic creativity"

"Nothing's ever for sure, John. That's the only sure thing I do know."

"I need to believe that something extraordinary is possible."

"Perhaps it is good to have a beautiful mind, but an even greater gift is to discover a beautiful heart."

"Find a truly original idea. It is the only way I will ever distinguish myself. It is the only way I will ever matter."

"They are my past. Everyone is haunted by their past."

"God must be a painter. Why else would we have so many colors?"

"I think that's what it's like with all our dreams and our nightmares, Martin, we've got to keep feeding them for them to stay alive."

"Its called "life" John. Activities available, just add meaning."

"Mathematics...mathematics is never going to lead you to higher truth and you know why? Because its boring!"

Movies like these inspire the mental creativity mode and refreshes the  spirit!

Priyanka Vaidya

Top 6 financial goals:

Amongst all the posts I read about investing and finances, what stood out was setting defined clear goals. Like in any project, having a clear objective is an essential task. Since this blog is about achieving financial freedom, I'm listing my top goals or objectives.

• Getting out of debt and staying that way.
• Paying off student loans and car loans.
• Creating an emergency fund (most important given the current economic scenario).
• Buying a house.
• Starting a retirement fund.
• Create an investment portfolio that will maximize my savings and returns.

Next is devising specific strategies to achieve all these goals. For credit cards, it is paying off the cards with higher interest and/or paying off the ones with the least debt.

Student loan interests can be deferred which seems like a good idea, but unfortunately it piles up the amount you eventually need to pay back. Making regular interest payments is a better choice.

Explore options for refinancing car loans. Leasing a car is not a good solution, and I had to learn it the hard way.

Find out the bare minimum household expense and then plan a strategy to save at least six months of safety savings. A great idea that I came across is to invest this safety amount in fixed term deposits. For e.g investing Rs 10,000 for a 1 month short term deposit, another Rs 10,000 for a 2 month deposit. This ensures a steady flow of Rs.10,000 (projected minimum household expense) at the end of each month. Great strategy!

Owning a house is a huge asset in your personal portfolio and a major lifetime undertaking. Careful scrutiny of the real estate market, housing loan options available, "rent-to-buy" schemes can be very useful before taking the plunge.

Starting a retirement fund as early as possible ensure you have money tucked away in your old age and also that you can retire earlier than you expected.

The last and the most important is creating a well balanced investment portfolio to make your money grow. Exploring different bank interest options, investing in mutual funds and stocks, investing in gold and cash; all need to be done on a consistent monthly basis.

Do all this and you just might be on your way to be a millionaire! :)

Priyanka S Vaidya

Virtual Stock trading:

As I mentioned in a previous post, I have been exploring the option of using the virtual stock market world (@ Indian Fantasy Stocks and Share Market) to gain a better understanding of the real world market. It is like an online game where you are given virtual money but trade during real time stock market hours and at real time rates. Here are some of the highlights of the virtual share market:

• We are given Rs. 1,000,000 cash in hand (much difficult in real life to have that amount to spend!).
• The actual scrips with their real time values on BSE are listed
• Its possible to buy/sell/trade scrips like in real time. A brokerage value of 0.5% is charged for all transactions.
• There is an option to view your portfolio and transactions.
• There is a segment covering actual market news.
• A detailed stock price list and the popular stocks being traded.
• A list of leading investors with an option to view their portfolio.
• And best of all prizes to be won!!

Priyanka S Vaidya

Stock Bytes:

• "No one disregard technical analysis now. If you do, do so at your own peril!"
• Moving averages smooth the price data to form a trend following indicator, albeit with a lag.
• When the 500 day MA (Moving Average) crosses the 200 day MA, it conveys investor confidence in the strong rally.

Priyanka S Vaidya

Paper trading:

• Paper trading is also called as virtual stock trading in which a would-be-investor can practice his stock picks and study their trends before the actual "buy" or "sell" transaction.
• It is the most "loss-free" way to test decisions and can be executed by simply noting the price trend of the chosen equity.
• The following posts will cover some paper trading reports of Small cap stocks.

Priyanka S Vaidya

Technical Analysis: RSI and Stochastic Oscillator

1) Relative Strength Index: This indicator measures the internal strength of the share and is calculated by comparing the average upward price change with average downward price over a set period of time.

For e.g a 14 day RSI would consider the average upward and downward movements of the equity over 14 days.

RSI = 100 - 100/ (1 + U/D)

U = Average upward change.

D = Average downward change.

RSI has reference lines at 30 and 70.

When RSI crosses 30, it is suggested to BUY

When RSI moves below 70, it is suggested to SELL

2) Stochastic Oscillator: This is an indicator that uses previous support and resistance levels. It indicates the stock price levels in relation to its historic price momentum.

%K = (C- Ln)/(Hn-Ln) *100

C = Present Close price

Ln = Lowest low for last "n" period.

Hn = Highest high for last "n" period.

n = Defined period.

When %K crosses 20, it is suggested to BUY

When %K falls below 80, it is suggested to SELL

Priyanka S Vaidya

2 picks of the day:

1. Today's first paper pick is 3i Infotech a small cap selected for technical analysis and as a candidate for a paper pick.

3i offers technology solutions for various industries including Insurance, Banking, Capital Markets.

Here are the vital stats for 3i:

• Sector: IT Consulting and Software is @ 5321.38 points.
• Stock value today: 61.90
• RSI = 52.427
• %K = 11.2
• 200 MDA has crossed 50MDA but both trending down.
• Profits and sales seem to have dipped.

Verdict: HOLD/SELL

2. Today's second pick is Aarti Industries a Commodity Chemicals industry manufacturing specialty, agrochemicals and nitro compounds.

Here are the vital stats for Aarti:

• Sector: Commodity Chemicals @ 
• Stock value today: 48.65
• RSI = 52.25
• %K = 62.06
• 200 MDA about to cross over 50MDA
• Profit and Sales seem to be picking up.

Verdict: HOLD/BUY

Priyanka S Vaidya

Online trading and suggested investment ratios:

Along with taking notes and trying to get equipped with information about BSE and scrips, I am also working on getting the actual tools necessary for trading. Once again, the geographical feasibility determined my options. I am currently trying to set up all the necessary details for trading online via HDFC. They seem to have a decent website with an excellent knowledge center with an aim to teach the newbies like me. They have a detailed investment portfolio suggestion according to the age bracket (22-30 years). Since I fall in the 1st bracket, here is the suggested investment ratio:

• Cash and bullion: 10%

• Mutual funds equity growth: 20%

• Fixed income instruments: 30%

• Shares equity:40%

And the best discovery of all!! A Fantasy stock exchange for BSE!! Here I can trade virtually and learn from my mistakes without loosing real money. How cool is that?

This certainly gives me a lot of food for thought and future posts! :)

Priyanka S Vaidya

BSE Caps:

No we aren't talking about bowling hats or the golf kinds :) These are the divisions of the scrips on the BSE according to their market capitalization. Here are some of the facts about the BSE Mid cap and small cap.

• The BSE mid cap and small cap index series were created to include companies with relatively less market capitalization.
• The BSE Midcap index which is updated everyday currently shows its current market capitalization is 750,267.16 Crores (full).
• Some of the scrips included in the mid cap are Tata Chemicals, IDBI Bank.
• The BSE small cap index is also updated daily and currently shows its market capitalization to be 260,875.24 Crores (full).
• Some of the scrips included in the small cap are Aptech, Hexaware, Prism cement etc.
• The BSE large cap are the companies with the most market capitalization.
• The segment is divided as 80% for large cap, 15% for mid cap and 5% for small cap.
• Investing in small cap and mid cap segments is feasible for investors like me who have just entered this system as the share price is an affordable range.

Now its to be seen which feathers feature in my cap :D

Priyanka S Vaidya

How do I make my money trading?

For the naive newbies like me, this is the first question that jumps to mind. Here's a little bullet list of how it works and how if you make a wise investment you can make money.

• When you buy a stock, you invest in the company or the enterprise.
• The underwriters or the investment banks decide the initial value of the stock.
• Let us say the stock price is set at Rs.25 and the company has listed 440,000 shares.
• If the company makes Rs 1,000,000 profit annually, then each share or stock would get 1,000,000/440,000 = Rs 2.72 per share profit (or earnings per share)
• So if I own 100 shares of this company I would be eligible for Rs 272 at the end of the year in returns.
• However, the management of the company has a say in which form and what amount they can return the Rs.272 you expect to get.
• They can send you a cash dividend of some portion or entire amount. This cash can be used to buy more shares or invested in some other asset.
• The company can take decisions of repurchasing the shares.
• The company can reinvest the funds for future expansions and growth.
• It can strengthen its balance sheet by reducing debts or adding more liquid assets.
• The higher the Return on Equity, the better choice for your investments.
• In layman terms if the price of the share increases, you stand to gain.
• Secondly, the dividends paid to you are your returns on the investment you made in the company. so the higher the profit of the company, better you earn.
• On reading various websites, it came to my notice that trading frequently is an investing mistake one can avoid. Its vital that you choose your investment wisely and then be patient :) Patience pays!
• The formula "buy low sell high" is the underlying equation that stands true to make gains.
• Another excellent quote by Warren Buffet was to not follow the herd, that is not follow other people based on fear of losing out.
• With this little bit of information in hand, it now essential to know how to read a balance sheet.
• It is necessary to look at the company's balance sheet, income statement and cash flow statement.
• The balance sheet gives an idea about the company assets, debts and stockholder dividends.
• Cash flow statements give an idea about the expenditures undertaken by the company.
• The income statement gives an idea about the company's profits or losses.
• Detailed explanations in the next post!

Priyanka S Vaidya

BSE Stock Sectors:

BSE has specific sectoral indices to define the market specific to each sector or segment. The segmentation of the market ensures that similar industries are put together for comparison. BSE currently has 11 sector indices defined which cover 90% of the market capitalization and is based on the Free float methodology as well.

• Auto index (BSE Auto): Covers scrips like Maruti Suzuki, Tata Motors, Hero Honda etc.
  
• Banking index (BSE BANKEX): Covers scrips like ICICI Bank, HDFC Bank, Bank of India etc.
  
• Capital Goods Index (BSE Capital Goods Index): Covers scrips like L&T, Siemens, SKF, BHEL etc.
  
• Consumer durables Index (BSE Consumer durables index): Covers scrips like Titan, Videocon, Blue Star etc.
  
• FMCG Fast Moving Consumer Goods (BSE FMCG Index): Covers scrips like Nestle, Dabur, Colgate etc.
  
• Healthcare Index (BSE Healthcare Index): Covers scrips like Cipla, Ranbaxy, Biocon, GSK etc.
  
• Information Technology Index (BSE IT Index): Covers scrips like Infosys, Wipro, TCS, Patni etc.
• Metal Index (BSE Metal Index): Covers scrips like Tata Steel, Jindal steel, Hindalco etc.
• Oil and Gas Index (BSE Oil and Gas Index): Covers scrips like Reliance, ONG, Indian Oil etc.
• Power Index (BSE Power index): Covers scrips like Tata Power, NTPC, Suzlon energy etc.
• Realty Index (BSE Realty Index): Covers scrips like DLF, Unitech, Housing Development Corp etc.

These sectors can be classified as "Defensive" and "Cyclical".  The defensive stocks include utilities and consumer staples since these companies are not affected as much by the market downturn. Defensive stocks are the safe choice since they provide a protection in a falling or bear market.

The cyclical stocks are volatile and are easily influenced by the market cycles. These are also inter-dependent for e.g if the realty market is high then the metal index may show a corresponding rise.

Thus having information about the sector index is also very vital in order to gain further information about the stock you want to buy or sell.

Priyanka S Vaidya

Investment 101:

Apart from understanding the basics of the stock exchange, I will also blog about the other peripherals necessary for this project. It involves deciding certain trading philosophies, understanding investment basics and of course getting the right tools for the trade :)

• Investing in its most basic definition is making your money work for you by rendering more money!
• Investing involves a little bit more of risk taking than saving money.
• Investing has a very defined risk-reward ratio, higher the risk, higher the rewards (most times).
• When you buy a stock, you invest in the company. In case you have a greater share of the stock in the company, you may even vote on certain important topics!
• Your income potential is directly proportional to the growth of the company, so needless to say invest wisely!
• As opposed to savings, there is always a risk involved in stocks of losing money.
• It is necessary to do a certain amount of research before investing in a certain company.
• It will be useful to look at the entire company's or corporation's market capitalization. As explained in a post before, the market capitalization is the freely available trading stock issued by the company times the current value of each share.
• It is necessary to investigate the price to earnings ratio. This mathematical ratio determines how much money you are paying for Rs.1 of the company's earnings. E.g: Company has reported a profit of Rs.2 per share and the stock value is Rs.20 per share, then the p/e value is 10.
• Technology companies may sell at an average of 40 p/e, while textile manufacturers may have the ratio as low as 8. This makes it feasible to compare two companies within the same sector. An example to help clarify the p/e ratio is as follows: Company ABC and XYZ are both selling share for Rs.50.  ABC has reported earnings of Rs.10 per share while XYZ has reported Rs.20 per share. p/e ratio for ABC is 5 whereas p/e ratio for XYZ is  2.5. Thus we are getting twice th e earning power in case shares for XYZ is purchased!
• It is important to study whether the company is reducing the total number of outstanding shares. Although it may seem counter intuitive, the investor will reap higher returns when the company orders a buy back for the shares. In short you get a larger piece of the pie, if there are less people to share it with! :)
• Finding out the basics such as current value of the company shares, its market capitalization, its p/e ratio, its management and future growth is a very critical factor before beginning the buying spree.
• Last and certainly not the least, "patience" is the key criteria. You should have the temperament (and the resources) to buy a stock and hold on to it to see it grow!

Priyanka S Vaidya

Sensex 201:

Here's a more detailed post on the SENSEX index.

• In 1986, SENSEX was calculated on Market capitalization method and changed to free-float in 2003.
• This index gave a good metric to capture the bull runs and the bear runs.
• Bull market: The more optimistic trend in which the market starts as the economy seems to get better.There is increased investor confidence, in anticipation of future price increase.
• Bear market: This is the more pessimistic trend in which the market witnesses a steady drop. The investors tend to sell more, in order to minimize future losses. The generally accepted value is a decline of 20% or more over a two month period.
• The SENSEX reflects the free-float value of 30 component scrips relative to its base period.
• The base value of SENSEX is 100 index points.
• The dollar linked version of SENSEX is the Dollex-30.
• In order to make it to the top 30 of the component scrips of the SENSEX, the stocks need to display a listed history (traded on the BSE for at least 3 months); should have a trading frequency record for the previous 3 months; should figure in the top 100 companies listed by rank; its value should be at least 0.5% of the index; should represent the sector and have an acceptable track record.
• The closing value of SENSEX on a trading day is computed using the weighted averages of all trades on the SENSEX constituents in the last 30 minutes of the session.
• The index is reviewed for updates every quarter and the announcements of the new incoming and outgoing scrips are made 6 weeks in advance.

Priyanka S Vaidya

Sensex 101:

Some facts and figures:

• 318 people paid a princely sum of Re.1 and became members of the BSE in 1875.
• The Stock Index or Sensex as we know it was introduced in 1986.
• BSE National Index was later introduced in 1989. This covered 100 stocks at 5 major stock exchanges Mumbai, Calcutta, Delhi, Ahmadabad and Chennai.
• The National Index was later renamed as the BSE 100 index in late 96 and considers only prices listed at BSE.
• The dollar linked version of the BSE index was introduced in 2006.
• In 1994 two index series were launched termed as BSE-200 and Dollex-200.
• BSE 500 and 5 sectoral indices were launched in 1999.
• In 2001 the BSE-PSU, Dollex 30 and the country's first free float index was released named BSE-TECk.
• Now all BSE indices are free float except BSE-PSU.
• Free float index: When the free-float market capitalization of a company is considered for computation of an index it is called free float index.
• Free float market capitalization: The market share is the proportion of the total shares issued by the company which are readily available for trading in the market.
• BSE gives out information on the Price-Earnings ratio, Price to Book Value ratio and Dividend yield percentages on day-to-day basis of all the major indices.
• Value of BSE index is updated on real time basis during trading hours.
• All indices are reviewed periodically by independent finance professional in a committee.

Priyanka S Vaidya

BSE Groups

As promised yesterday, here is a separate blog post to explain the various trading groups on BSE.The scrips are divided into various criteria based on various defining parameters.

• Scrips: Scrip is a substitute for currency and is often a form of credit.
• Group A: The "A list" or the most tracked scrips. The A list companies usually have their issue price higher than average market capitalization of 100th company in existing A group.
• Group B: The "A", "Z" and "S" companies are clubbed in this category.
• Group F: Fixed Income Securities.
• Fixed Income Securities: An investment that provides a return in the form of fixed periodic payments and eventual return of principal at maturity.
• Group G: Trading in government securities is possible in this group and is carried out by retail investors.
• Group S: Represents scrips forming part of the BSE-Indonext segment.
• Group T: Represents scrips that are based on trade-to-trade basis as surveillance measures. It means the stocks need to be settled on the same day it was traded.
• Group TS: This group consists of scrips in the "BSE-Indonext" segment. They are also settled on a trade-to-trade basis as a surveillance measure.
• BSE-Indonext: This alliance was formed to benefit small and medium size companies, investors and capital market as a whole.  BSE acts as the central participating exchange and the Regional Stock Exchanges (RSE)s participating in the program are the secondary exchanges.
• Group Z: These groups of companies have failed to comply with its listing requirements or have failed to resolve investor complaints.

The top gainers and losers for the day for categories "A', "B", "S", "T", "TS" and "Z" are listed on the BSE website.

Priyanka S Vaidya

BSE Basics

I decided to dabble in the share market, but figured I need to learn some basics before I make my hands dirty and share it with everyone as I go along. I'll be studying the Indian Share markets and hopefully am on my way to an exciting (and profitable) journey!

• Bombay Stock Exchange (BSE) is India's first stock exchange which obtained recognition in 1956.
• It changed to an online screen based order driven trading system in 1995.
• It was demutualized in 2005. Its strategic exchange partners now are Deutsche Börse and Singapore Exchange.
• For the uninitiated (like me), Demutualisation is the process of changing a cooperative association into a public company. This is done by converting interests of members into shareholdings which can then be traded through a stock exchange.
• It is world No.1 in terms of number of companies listed and world's 5th in transactions!!
• One can choose from nearly 4,700 listed companies which are categorized as A, B, S, T and Z groups.
• The details of these groups will be covered in the next post!
• The BSE sensex or the Sensitive index is a value weighted index composed of 30 stocks started in 01 Jan 1986.
• These comprise of the largest and the most traded stocks representing twelve sectors on the BSE.
• A separate post will cover the methodology of the sensex.
• Apart from the sensex there are 21 indices, including 12 sectoral indices.
• The BSE has a transparent market allowing trading in equity, debt instruments and derivatives.
• ETF: Exchange traded funds. It is an investment vehicle or tool that enables investors to invest trade or      hedge.
• Equity trading: The process of buying and selling of company stock shares.
• Debt instruments: Notes, bonds, certificates, mortgages, leases or other agreements between lender and borrower.
• Derivatives: A security whose price is derived from one or more underlying assets. The assets include stocks, bonds, commodities, currencies or market indices.
• BOLT: BSE online trading system.
• Corporate bonds: A debt security issued by corporation to investors. Backing for the bond is the payment ability of the company or its physical assets.
• Director’s database: Single point access to the board of directors of listed companies.
• ICERS: Indian Corporate Electronic Reporting System facilitates the corporate in sharing their corporate announcements.

Priyanka S Vaidya