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Investing in Equity Shares revealed


Date Posted: 12/28/2012 12:48:36 AM

Posted By: chris85  Membership Level: Bronze  Total Points: 45

There is no doubt that 'happiness' leads to a happy life but perhaps it is the most confusing and misunderstood expression in the world. It's definition is never same for everyone and surprisingly, it never remains same to a particular individual, forever. A sick person considers 'health' as the real wealth. A young man may not consider so; rather believes that a good pay rise or more income can purchase more happiness in life. Unfortunately, his conception on happiness keeps changing as the time changes. A person in a disastrous marriage considers magic of happiness lies in happy married life. A blind person sheds tears as he is devoid of every exquisiteness of the planet he lives in, while most others with beautiful lively eyes prefer keeping them shut very than viewing this aggressive brutal world. So the question remains unanswered: what makes one happy? Is it a huge regular extra income? A Rolls Royce with a Palm Beach residence or 10,000 Facebook followers or is it a good family and company of good friends? Is there any happiness formula particularly one that is statistically and scientifically credible?

What we don't notice is that the main reason for unhappiness or no-happiness is because many of us aren't satisfied with how much we have now. We are constantly expecting a raise at work, more money, befriending rich aged relatives and regardless of long odds, spending on lottery tickets and many more options to purchase more happiness with more income. What we all miss and overlook is an eternal fact that 'real happiness' lies in utmost contentment. To be happy means to be content in whatever you have, in whatever you do, in whomever you are with, happiness lives within ourselves. If you think this long speech of mine is a bit pessimistic,

well, then now is the right time to shift our focus to the topic that I wish to discuss with you.

We are never happy with our incomes; always looking for more avenues to earn extra income on the belief that more cash will buy us more happiness. The main topic of our discussion is very simple-- how we can earn some extra income over our regular earnings by using our idle fund that we have saved so far or from our occasional surplus balances, no matter how little it's, if that can add more happiness to our lives, there's no harm in using it wisely.

Investment is associated with the work of good use of cash to reap growth in future. Equity is one form of investment where you have maximum income and return potentials if you can act cautiously without any excessive greed, like a cool consultant. It is the ideal way to grow your money magically provided you invest it very wisely, i must repeat, very wisely. Always remember that extra income is always associated with extra risks. We must cautiously compare the risks with income potentials and simultaneously look for methods to minimize risks in equity outlays, as per our risk bearing capacities.

Today, we will chat about some tips that may help you to identify and pick the appropriate stocks (it's the completely paid shares of a company) with minimum risk but with maximum income potentials. Investing in stock market does not essentially need much money; you can do it with as much as you feel comfortable. If you can select a good company with solid financial structure (good fundamentals, revealed by its financial statements) with good business prospect and invest there with a long term horizon, say for 5 years or more, it is nothing surprising, if your cash gets double or triple or more than that within a couple of years.

The experts recommend a company is safe to invest if it fulfills three criterion: firstly, it should be at least ten years old, has a consistent record of earning profit and paying dividend, and lastly, it's shares are trading at a price 90% of its book value. However, for this, you must possess some basic knowledge and required skills to evaluate the soundness and growth prospect of a company in a particular sector with future growth potential within your time horizon.

There is another way to earn from equity as a short term trader in the stock market. A short term trader often acts within a short span of time; buys at a dip, when the price is low and sells when the price is higher, and reaps the difference as profit. If you follow few simple steps you can earn extra income regularly. As a short term trader, you should concentrate on few selected high beta stocks (as it's safer and easy to track) very than watching hundreds of company stocks listed in the stock market. Your selected stocks has to be highly volatile and range bound-- fluctuate or move frequently within a price bracket. They prefer to move within a minimum and maximum limit. The minimum levels are popularly known as "support levels", every stock has many different support levels, if one slips another creeps in. Once these support levels are touched, the costs of the stock, normally, keeps moving upward towards a higher level. These higher levels are called "resistance levels". Similar to 'support levels', every stock has many 'resistance levels'. A short term trader must maintain "stop-loss" to avoid loss from further fall. Once the costs of a stock crosses a "resistance level", it becomes a new 'support level' for the stock. Likewise, when a support level breaks, it becomes a new resistance level of the stock.

The stock prices never change in any consistent manner. They move in irregular ups and downs movements depending on the performances, financial policies, market situations, mood the market and tons of different non-financial but stock-market related reasons (technical reasons). So, if you need to trade or invest in equity to earn more money regularly you must have good knowledge about 'support levels', 'resistance levels', 'stop-loss' and facts that reflect the soundness of a company. Likewise, you must update yourself with the prospect and potential of all the sectors to select the proper soil for your outlay. Some of the popular sectors to invest are medicine, information technology, infrastructure, finance, insurance, automobile, food and beverages, refineries, steel, etc. Identification of the right price to invest in a profitable stock is possible only on identifying the pattern of it's price movements. You must find out and record its price movement over a large span of time-as long as you think it is justified for your analysis.

You should also keep records of past dividends, profits or earnings, ratio between price (market price) and earning (earnings per share in a period) or P/E (Price/ Earning Ratio) as it is popularly called, compare them with the peers and others within the sector. A higher P/E ratio indicates the cost of the stock is considerably higher with respect to it's income. Every sector has an average or standard P/E ratio. Compare your selected stock's P/E with the 'sector average' and peers to know it's worth, whether or not it is overpriced. A higher P/E ratio often indicates that investors have much confidence on the prospect of the company. A lower P/E may not always be attractive, people may have less confidence on the prospect of the company. Use your prudence on the value judgment.

Every equity investor can predict the movements of a stock price more accurately if he learns to interpret its open interest data. "Open Interests" are opened or yet to settled contracts or outstanding contracts at any point of time.

Open interests are those contracts that have not yet been exercised (squared off), expired, or fulfilled by delivery. The positions of open interest are reported every day to represent the increases or decreases in the number of contracts for that day, and it is shown as a positive or negative number.

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