Bulls, Bears and Stags

Bulls, Bears and Stags

Hi there,

Let’s catch up with ‘Bulls’ and ‘bears’. The two most commonly used terms in stock markets.

A common story is that the terms ‘Bull market’ and ‘Bear market’ are derived from the way those animals attack. Bulls are supposed to be aggressive and attacking while bears would wait for the prey to come down.

Another story is that long back, bear trappers would first trade in the market and fix a price for bear skins, which they actually din’t own. Once the price is fixed , they would go hunting for bear skins. So eventually even if the prices go down, they will still be able to sell if for a high price. This term eventually was used to describe short sellers and speculators who sell what they do not own and buy it when the price comes down and makes money in the process.

However, it was Thomas Mortimer,in his book called ‘Every Man His Own Broker’ (1775) who first officially used the terms Bulls and bears to describe investors according to their behavior.

BULL MARKETS

When can you say it’s a bull market? When the prices of stocks moves up rapidly cracking previous highs , you may assume that it’s a bull market.If there are many bullish days in a row you can consider that as a ‘bull market run’. Technically a bull market is a rise in value of the market by at least 20%.

BEAR MARKETS

A bear market is the opposite of a bull market. When the prices of stocks moves crashes rapidly cracking previous lows , you may assume that it’s a bear market. Generally markets must fall by more than 20% to confirm that it’ a bear market.

STAGS

This is another category of market participant. The stags are not interested in a bull run or a bear run. Their aim is to buy and sell the shares in very short intervals and make a profit from the fluctuation. It’s a daily tussle for stags in the stock market.

MARKET TIMING

The basic idea behind stock market investment is simple- Buy low, sell high and make money. So to make money, you buy stocks in a bear market when stock prices are low and sell stocks in a bull market when stock prices are high.

However, knowing the exact time when a bear market would start or when a bull market run would come is not possible. Just when you thought the markets would go up, it may surprise you by trading low. Your strategy should be to pick up shares in the bear market and sell it when there’s a bull market run.

HERE’S THE CRUX..

• Technically a bull market is a rise in value of the market by at least 20%.Anything less than 20% would be considered as a minor rally.
• A market launches into a bull phase when sentiment turns buoyant, which is usually because of a series of positive developments that beat expectations
• Reverse is also true. A 20% or more fall in value is considered as a bear market. Anything less than 20% would be considered as a ‘correction’.
• Bear markets occur when news flow tends to be worse than expectations, causing investors to sharply punish stocks or sectors. This has happened in the US where more bad news on the sub-prime front and US economy data has stifled even the briefest of market recoveries.
• To confirm a bear market, this weakness should persist for at least two months. In bear markets, liquidity is extremely tight, volumes tend to be low and market breadth tends to be poor
• Some experts believe that for emerging markets such as India, which tend to be more volatile, the correction needs to be steeper at 30-35 per cent.
• In every bear market, there tends to be bear market rallies or a bear market pullback, where the market rises 10-15 per cent only to decline yet again. The bounce-back usually occurs when some stocks or sectors are ‘oversold’, to borrow a term used by technical analysts.
• Worst bear market conditions are followed by great bounce backs.

That covers Bulls, bears and stags.
There is an old saying which would further give authenticity to our bear story-
“Never sell a bear skin unless you have one.”

Have a nice day!

know your BLUE CHIP SHARES!!!

What are Blue-chip shares?

BLUE CHIPS

‘Blue-chips’ is one word that you’d be hearing a lot of times once you start following the stock markets. So this post is about blue chips or ‘bellwethers’ as it is sometimes called.

Blue chip stocks are large companies whose shares are considered to be relatively safe than normal shares. It gains that status from its past record of being a high growth, high dividend paying company. These companies would be leaders in its field. For example-Infosys technologies is described by Medias as an ‘IT bellwether’. It reflects the investor’s confidence in that company’s capacity to maintain its status as the leader of the pack and its past record of excellent management and of giving good returns to it’s share holders.

The term ‘blue-chip’ is coined from a game called poker where the chip with the highest value is blue in color. In stock markets, the term is used to describe the stock that has highest quality – in terms of investor confidence.

There is no hard and fast rule to find out which a blue chip company is and which one is not. A blue-chip typically would have stable earnings and dividend history, a strong asset position, high credit rating and an excellent record of being a leader in its field. These are huge companies in terms of market capitalization and revenues.

All the 30 stocks in Sensex index can be considered as blue-chip companies. You can also see the Dow Jones list of Indian blue chips at –

http://www.bluechiplist.com/indices/dow-jones-india-titans-30/

ARE THESE SHARES SAFE FOREVER?

No. These shares may be assumed to be relatively safer than others, provided, the positive factors that drive the company remain intact. Just like any other company, a blue chip company can also run into financial troubles and become dead one day. No one can guarantee you that a blue-chip will remain like that in future also.

May be, some of the future blue chips are hidden in mid caps right now. If you have managed to spot them right now, you have a chance to become a millionaire soon.

SHOULD YOU INVEST IN BLUE-CHIPS?

Of course, Yes! You must have some portion of your investments in Blue-chips. They bring the required solidity in your portfolio, since they do not fluctuate heavily like mid caps or small caps.

Investing in blue chip also requires lot money because; typically these shares will cost more. Hence, there is a necessity to valuate it meticulously.

Gold – A must in your portfolio!!!

 Gold – A must in your portfolio

Gold is the base of monetary systems around the world. It’s an asset that’s highly liquid, accepted everywhere and considered equivalent to cash.  It’s also one of the lesser volatile commodities traded internationally.

Gold is very effective in bringing solidity into your portfolio and reduces investment risk. In terms of returns, it’s not a very effective tool to bring short term profits. Gold gains in value over a period of time and hence, you will have to wait for some time (say 5-10 years or sometimes more than that) to see the real effect of gains.

How to invest in gold?

Gold can be bought in different ways. You have 7 options –

You can buy-

• Gold jewellery
• Bullion bars from jewelers that are part of the world gold council
• Gold coins issued by various banks
• Gold exchange traded funds
• Equity based gold funds
• E-Gold
• Take positions in Gold futures and profit from the price movement.

The first three options are about buying gold physically. If you have bought Gold jewellery, we are sorry to say that it’s not a right move from the investment point of view because, you would have paid an additional of 5%-30% of it’s value as making charges depending upon the design and some money on precious stones used in them. These stones are valueless and do not appreciate unless it’s a piece of diamond. Making charges paid is also a waste of money. Banks charge around 5% premium for coins sold through them. Bullion bars /coins bought through WGC networked jewellers may be the better option here since; they generally sell gold for a 2% or 3% premium. So if you want to hold gold physically, it would be better to buy it from WGC networked jewellers since they are the cheapest option.

Now, physical holding of gold risky since it is prone to loss by theft / fire or such other accidents. To protect from such losses, you will have to insure it and that will be an additional annual cost to be incurred until you sell it off. The purity of gold sold by jewellers is an issue that’s hard to crack. Again, it may be impractical to store it physically beyond a certain limit and in the case of an emergency if you go to a jewellery to sell your gold, they might not accept it straight away.

After reading the above paragraph, if you think that storing gold physically is not practical, you have the last four options – Gold ETF, equity based gold funds, e-gold and futures positions in gold.

Gold ETF is nothing but mutual fund schemes that invest only in gold. One unit would roughly equal one gram of gold. These funds are managed by asset management houses. If you don’t want investment houses to get involved, you can directly purchase e-gold launched by the national spot exchange. In both the cases, you will be holding gold in electronic format – just like investment in stocks.All you need is a demat account.

One more category of electronic gold is equity based gold funds. Equity based gold fund are basically mutual fund schemes launched by asset management companies. They do not invest directly in gold (when fund houses launch direct investment in gold, they are called gold ETFs) instead, they invest in stocks of companies that are engaged in mining, extraction and trading of gold.

The last option – taking positions in gold futures – is a risky game. All the negatives and positives of derivative instruments are relevant here also. It’s would work if you can reasonably predict the price movement of gold in the short term. It’s basically speculation (or trading, if you want to call like that) and cannot be brought under the ‘investment’ category.

How much to invest?

As a general rule, around 10 % of your investment fund can be in gold.

Which is the best option?

The best option would be to hold gold in electronic form – through ETFs or through e-gold route. In the first option, the additional amount you have to pay is the brokerage charges plus annual fund management charges. In the second case, your annual holding cost is zero. In both the cases, you don’t have to worry about the security of gold since it is held in electronic form in your demat account and the rates quoted in the exchange is 99% at par with the international gold prices.

By definition of the income tax department, gold a capital asset. Any gains from investment in gold are treated as capital gains. In the case of ETFs, it is considered as a long term capital asset after one year and in the case of e-gold and physical gold, it is treated as a long term capital asset only after 3 years. The relevance of this is that, long term capital gains are taxed at special slab rates declared by the income tax department whereas, short term gains from gold ( in the case of gold ETFs, gains made by buying and selling ETF between 1-12 months and in the case of physical gold /e-gold, gains made by buying and selling it between 1-36 months) is taxed at normal tax rates.

So we think that the e-gold route would be the best. Gold ETF comes second.

What’s the risk of investing in gold?

Generally, gold is a safe investment. It beats inflation. The risk is that sometimes, especially in boom periods, you’ll find the performance of gold to be slower than other asset classes like equities and real estate. So, the real risk lies in the opportunity loss.

With this we sum up our  24^th principle. Know that –

• Gold is an insurance against inflation.
• It’s a good investment, but not the best one since it’s a slow performer.
• It brings stability to your portfolio
• Jewellery is not a right form of investment as it’s cost  involves making charges and the purity of gold sold by local merchants are always questionable.
• Physical gold are prone to theft or other losses. Gold kept in bank lockers are not safe since, the lockers of most banks are not insured and the bank is not responsible for your assets kept in lockers.
• It’s a capital asset and hence any gain on gold would be taxable.
• Paper gold or gold held in electronic form is the best way to invest in gold.

RBI drives the market!!

RBI measures and Global cues will drive the markets.

The markets logged the biggest gain in the last two months as the rupee showed some signs of stability, thanks to the measures declared by the new RBI governor Mr. Reghuram Rajan. If we look at the last 30 days, the rupee had fluctuated between 60.77 (on 6^th August 2013) and Rs 65.24 to a dollar (6th September 2013). In between, it touched a lifetime low of 68.80 on August 28^th, spreading widespread panic regarding the economic prospects of India. The measures announced by the new governor resulted in a rise in banking stocks which was one of the worst performers for the last few months. It has also created a sense of confidence among all the market participants. This was evident from the way market responded to disappointing PMI numbers and various downgrade warnings. The sensex and the Nifty closed at 19,270 and 5,680 with a 651 and 208 points gain mainly led by banking stocks. Overseas investors have invested Rs 2600 crores into the Indian capital markets in the first week of September.

This week, the main drivers could be the IIP, CPI and export/import numbers and further policy measures from the RBI’s side. Crude oil prices and rupee movement will also be closely watched by the participants. Although there is some optimistic climate all around, the main event that may trigger a self off in emerging markets is the US FOMC meeting that’s scheduled on September 18^th.

Expect the market to trade in a range of 18,800- 19,600 for the sensex and 5,530 – 5,800 for the Nifty. The week may also see short term traders booking profits.

You may like these posts:

1. The week ahead
2. Stock markets in india
3. SBI- Should you invest in this stock?

news feeds for upcoming trading days!!!

Markets may remain volatile

The markets exhibited heavy volatility last week with the broad indices plunging 4.5% during the mid week. However, the indices bounced back and closed at 18,519 and 5471. This is the fifth consecutive negative weekly close for the Indian markets. Not only in India, but almost in all global emerging markets there were sell offs in equity and bond markets due to fears of a tighter  US monetary policy.

The rupee hit a life time low of 65.50 on Thursday making it one of the worst performing currency in Asia today. The rupee has fallen more than 20% in less than a year now. The erosion in value is a huge opportunity for FIIs and NRIs to pick up stocks since there is a double advantage of higher convertibility rates for their money and lower equity valuations in India. With the rupee rates playing havoc in the economy, it is expected that the RBI and finance minister will speed up measures for making it stable. As far as Indian investors are concerned, It’s prudent to stay off from the market since there is negative sentiments all around. The derivatives expiry for August contracts is on this Thursday hence volatility cannot be ruled out this week too.

GDP estimates for the first quarter, RBIs measures to support the falling rupee and derivatives expiry will determine the general market trend this week. We expect the markets to trade in a range of 18,100-18750 for the sensex and 5350-5600 for the nifty. Staggered accumulation of beaten down stocks is recommended.

You may like these posts:

1. Investing in Indian stock markets- A guide for NRI’s
2. How do FI investors affect stock markets?
3. Important dates for Indian stock investors.