In this post I will present a simple 8 step fundamental analysis template which can be used to analyze if a a stock is investment-worthy or not.
For any stock to merit investment, the most important thing is the financial stability of the business. It is important that a company has manageable debt levels and generates enough operating profits to easily pay interest on its loans and has sufficient cash for day to day operations while delivering decent growth in revenues and profits.
I use the first four ratios described below to assess the financial stability of a company when i consider investing in its stock.
- Long term Debt/Equity Ratio –
Debt/Equity Ratio is a debt ratio used to measure a company’s financial leverage, calculated by dividing a company’s total liabilities by its stockholders’ equity.
Companies (excluding financial institutions) with D/E of less than 1 to be stable and can easily cope with short term downturns as they have higher reserves than what they have borrowed.
D/E= Sum of non current debts/Shareholder Funds.
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Investors are often cautioned about investment risk, market risk, etc. by their advisors and brokers. Investing in a particular asset or any equity share in particular, can give back good returns or, on the contrary, even wipe out the basic value of money that you have put in. But did anyone tell you that the broker himself can also cheat you? He can go bankrupt or be a fraud?
Not only have the small ones, but big investment firms have also given their clients a nightmare. If viewed from the brokerage company’s perspective, it is doing a business purely. Profits are their primary motto. And your money, except from the brokerage charges, is a secondary element for them.
So, how can a stock broker deceive you?
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A common phenomenon that happens to all investors. Having bought a stock, how do we handle declines? Here are a few thoughts and ideas posted from the blog post that originally appeared here. While these may be talking about US stocks, the underlying philosophy applies to all investors be they in New York or London or Singapore or even in Mumbai.
- Avoid falling in love with a company or its stock. The emotional attachment will cloud your judgement and prevent you from making sound decisions in the market. The “pet stock” phenomenon occurs more often than you may think.
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StockArchitect is a platform that works. It helps investors take an informed decision based on the collective views of others.
Here are some of the winners of the week that just went by.
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Stock Architect is a startup, waking up again after a hiatus. We are happy to be a place where leaders from the stock market come together using the power of the internet to serve each other through sharing, networking and collective learning. Our aim is to become a place for traders and investors to get up to speed on market-moving information and insights which drive real-time changes in the investor mood and sentiment.
When we discuss the concept, people often ask us – How do I make money? Does it work? All the doubting Thomases and nay sayers have a field day. We, therefore, culled information from the tweets on the website and looked at different recommendations. The result was astounding. We just looked at Ceat Ltd. & BF Utilities, stocks recommended as buys. Given below is the summary:
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The Union Budget of India – a financial exercise in the largest democracy of the world! It is the day when the Finance Minister of India cracks the whip as he presents the Annual Financial Statement. The Indian hoi polloi are so used to increase (well sometimes decrease too) in taxes, duties etc. It is that day of the year that holds so much of hope and despair too. 11 am IST and the markets watch with bated breath as stocks either soar high or come hurtling down.
As we approach the budget day of 2016, the question on top of everyone’s mind then always is how will the stock market behave this year? At Stock Architect, we are always gleaning through information trying to bring you something interesting. We found this post which we are sure you will love to read and understand. May this Budget Day ring in prosperity for all investors.
How Stock market behaves during budget?
Panic in the stock market? Historical budget data says NO
Market is going to go down substantially!!
Government is going to give this time a very good budget !!
This budget is very very unique and a game changer !!!
Above three are most running rumors or humors that move around stock market, but they are present for all budgets. The following table indicates data of returns by Sensex in pre and post budget sessions for recent four budgets.
| Pre-Post |
2012 |
2013 |
2014 |
2015 |
| 1st day |
-1.55% |
0.17% |
1.25% |
0.63% |
| 2nd day |
-1.09% |
0.69% |
0.40% |
0.48% |
| 3rd day |
-0.16% |
0.04% |
1.27% |
-0.78% |
| 4th day |
2.09% |
-1.62% |
-0.07% |
-0.88% |
| 5th day |
0.48% |
-0.04% |
0.54% |
0.10% |
| 6th day |
1.28% |
0.08% |
0.53% |
0.01% |
| 7th day |
0.59% |
-1.64% |
-1.98% |
-0.90% |
| 8th day |
-1.36% |
0.72% |
-0.54% |
1.65% |
| Budget |
-1.19% |
-1.52% |
-0.28% |
0.48% |
| 10th day |
-1.10% |
0.30% |
-1.37% |
0.33% |
| 11th day |
0.25% |
-0.21% |
-0.07% |
0.46% |
| 12th day |
1.65% |
1.40% |
0.89% |
-0.72% |
| 13th day |
-2.30% |
0.57% |
1.27% |
0.23% |
| 14th day |
0.96% |
0.84% |
0.04% |
-2.05% |
| 15th day |
-1.78% |
1.39% |
0.31% |
-0.47% |
| 16th day |
1.20% |
-0.19% |
0.29% |
-0.18% |
| 17th day |
-0.79% |
-0.41% |
1.21% |
0.95% |
| Average 17 days |
-0.17% |
0.03% |
0.22% |
-0.04% |
| Change(1st day till 17th day) |
-3.28% |
-0.54% |
4.17% |
-2.17% |
| Pre Budget – Market Performance
(Expectation )
(1st to 8th day) |
Market was neutral |
Market was down |
Market was
up |
Market was
Neutral |
| Post Budget-Market performance
(Reaction)
(9th to 17th day) |
Market
went
down |
Market went
up |
Market
went
up |
Market
went
down |
Data for sensex pre budget 8 sessions and post budget 8 sessions as shown in the table provides following takeaways,
- Highest closing loss was 2.30% viz previous day closing in last four years data during budget period
- Highest closing Gain was 2.09% viz previous day closing in last four years data during budget period
- 1st day to 17th day keeping the budget session in centre; Gain was maximum 4.17% during 2014 and loss was maximum -3.28% in year 2012
- Market expectation and market reaction over 17 trading sessions as shown in table clearly show that market did factor in plus and minus viz pre and post but it was not huge number
What should be done in pre budget and post budget rally??
- Data indicates it is better to be patient nothing big is going to happen in pre or post budget sessions, if you think long-term (it is important event but over long-term)
- Data suggests stay away from intraday positions and sector specific calls as it is very difficult to time market especially during Budget days
- In case of trading don’t get exposed to single sector, have diversified calls
- Even after budget declaration, you can buy from the market. The market is not going to close immediately after.
- Even if looking to invest in the hope that budget will be good, go and buy Nifty or Nifty ETF to play safe.
Although, there is a risk reward relationship, it is better to keep away from short-term greed for gains and if at all trade be initiated, it should be under the guidance of your expert, who can guide you for the long-term. As Trading / calls / investment decisions will be sole responsibility of readers, readers are advised to consult their expert before taking any action / decision.
The original article appears here – https://expertmile.com/arti.php?article_id=1016&title=How-Stock-market-behaves-during-budget#sthash.hbdGUH4d.dpuf
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