So, what is a broker & What are stocks?

A broker is the person who handles transactions (mediates deals) for you when you are investing. The term can be used to describe the actual person that you are dealing with one on one or it can be used to describe a firm, such as India Bulls. (Some of you may remember the old commercial saying "my broker is Religare and he says"...)

Today you are probably more familiar with Religare, Prrsaar or India bulls, but if you watch any television or surf the internet, you certainly have seen ads for them, etc. Prior to the internet (in the stone-age) there were very few alternatives for the individual investor apart from dealing with a broker or getting your own license. You would be forced to deal with a broker whether the broker was a "full service" broker, meaning they would tell you what to invest in and would control your portfolio, or a "discount broker" who would charge less, but would only carry out your orders, not give recommendations or manage your account. 

Before you delve into the intricacies of the stock market, the first thing you should understand is what exactly a stock is. Stocks, which are also known as shares, are portions of companies that people can buy, and therefore own part of the company. But even though you may own a part of a company, only those who have invested a lot of money into the company have any real say in how the company is run.

There are two different types of shares: preferred (preference) shares and equity (common) shares. When you invest in equity shares, there is a greater risk of losing part or even all of the investment that you have put into the company should the company stop functioning. Why is this? Because creditors, bond holders and preferred shared holders in terms of being paid first, have a higher rank than the common shareholders, and because of this they will get the first chance to get some of the money they have put in if the company goes out of business.

Great Qualities of Great People

Great Qualities of Great People

What made Dhirubhai Ambani, the biggest business giant of India? How did Sunil Mittal create India's largest Telecom Company? How did Bill Gates build Microsoft? Every other day we come across people who have reached the zenith of success, leaving an example for others. But how often do we think of what made them reach such a height? There are certain traits inside them that have made it possible for them to exist above the level of simple survival. Are there any particular characteristics they all share that are the basis of their accomplishment? A deeper insight into their lives will show that they have some things in common.

1. They dream big

All people who have touched the zenith of success have an inspiring dream that motivates them to move ahead into the future. They don't limit themselves to mere words like "realistic" or "possible". They go beyond them. They dream as big as they can and adjust their dream with an organized plan as they progress. They clearly distinguish between perception and reality. As Dhirubhai Ambani, who showed that nothing is truly unattainable for those who dream big, once said, "You should dream big, but dream with your eyes open."

2. They think outside the box

"One needs to think differently to survive in the globalized world. To get success, innovation is the key. Think outside the box and do things which no one else has done before". This is what Wipro boss Azim Premji said and rightly so. To get the outcome that you have desired, you need to approach problems in new and innovative ways. This is not just a business scheme, but one of the key success mantras that every successful leader follows.

3. They learn from failures

As we go through life, we're going to make mistakes. But those mistakes provide us with a great opportunity to find a lesson and learn from it. Former President of India Dr. APJ Abdul KalamI once said, "I have gone through many successes and failures. I learnt from failures and hardened myself with courage to face them. This was my second stage, which taught me the crucial lesson of managing failures." Dr. Kalam's contribution to India's defence capabilities is very significant.

4. They create and seize opportunities

A man of success is the one who has the ability to create and seize opportunities to act on a goal. Successful people don't wait for opportunities to knock at their door. They go and create opportunities for themselves and whenever they come across any, they seize it to make full use of it.

5. They never say 'die'

All people face challenges in life, but unlike others, successful people deal with situations with one view: Do it again if they are fail at their previous attempts. They don't tolerate flaws; they keep on working on them until they fix them.

6. They take up responsibility

Those who are really successful don't hesitate to take up responsibilities. They don't worry about blames or waste time complaining. They truly believe in making decisions and moving on. They take initiatives and accept the responsibilities of success.

7. They take calculated risks

All successful people inherently do take calculated risks all the time. They always assess what kind of a risk they are going to take. They know it well that risk taking doesn't mean jumping headlong into something that they don't know. According to Jack Welch, former CEO of General Electric, risk is stepping outside your comfort zone to a place where you cannot predict with any degree of certainty the outcome of your actions. Risk is taking on something that holds an enormous chance of failure. Most importantly, risk is the only key to outrageous success.

8. They are solution focused

Successful people look for solutions and when they are focused on a solution, the rest of the world seems to disappear until they stop. They don't simply stop at finding or pointing out at a problem. They move ahead and look for better solutions for that particular problem.

9. They review and celebrate successes, even small ones

Success matters a lot for successful people and they don't forget to celebrate for successes even if they are small. They truly believe that even the smallest success builds into the big picture. They list all the small steps they took that worked well or that they are pleased about. As Warren buffet, the legendary investor, says, "In the business world, the rear view mirror is always clearer than the windshield".

10. They ask the right questions

The simple "Why?" when asked about five times can help us get to the root cause of many problems. All successful people ask the right questions and try to find out the causes the put them in a productive, creative, positive mindset and emotional state.

The 3 Most Timeless Investment Principles

Warren Buffett is widely considered to be one of the greatest investors of all time, but if you were to ask him who he thinks is the greatest investor he would probably mention one man: his teacher, Benjamin Graham. Graham is an investor and investing mentor who is generally considered to be the father of security analysis and value investing.

Principle No.1: Always Invest with a Margin of Safety

Margin of safety is the principle of buying a security at a significant discount to its intrinsic value, which is thought to not only provide high-return opportunities, but also to minimize the downside risk of an investment. In simple terms, the main goal should be to buy assets worth Re1 for Re 0.50.

 The business assets may have been valuable because of their stable earning power or simply because of their liquid cash value. Try to invest in stocks where the liquid assets on the balance sheet (net of all debt) were worth more than the total market cap of the company (also known as "net nets"). This means that one would be effectively buying businesses for nothing. While there are a number of other strategies, this is the typical investment strategy for safe investor.

This concept is very important for investors to note, as value investing can provide substantial profits once the market inevitably re-evaluates the stock and ups its price to fair value. It also provides protection on the downside if things don't work out as planned and the business falters. The safety net of buying an underlying business for much less than it is worth is the central theme of a successful investor. When chosen carefully, it is found that a further decline in these undervalued stocks occurred lesser number of times. 


Principle No.2: Expect Volatility and Profit from It

Investing in stocks means dealing with volatility. Instead of running for the exits during times of market stress, the smart investor greets downturns as chances to find great investments. Market offers investors a daily price quote at which he would either buy an investor out or sell his share of the business. Sometimes, he will be excited about the prospects for the business and quote a high price. At other times, he is depressed about the business's prospects and will quote a low price.


Because the stock market has these same emotions, the lesson here is that you shouldn't let Market's views dictate your own emotions, or worse, lead you in your investment decisions. Instead, you should form your own estimates of the business's value based on a sound and rational examination of the facts. Furthermore, you should only buy when the price offered makes sense and sell when the price becomes too high. Put another way, the market will fluctuate - sometimes wildly - but rather than fearing volatility, use it to your advantage to get bargains in the market or to sell out when your holdings become way overvalued.


Here are two strategies that can be used to reduce the negative effects of market volatility:

Rupee-Cost Averaging

Rupee-cost averaging is achieved by buying equal Rupee amounts of investments at regular intervals. It takes advantage of dips in the price and means that an investor doesn't have to be concerned about buying his or her entire position at the top of the market. Rupee-cost averaging is ideal for passive investors and eases them of the responsibility of choosing when and at what price to buy their positions.

Investing in Stocks and Bonds 

It is recommended that distributing one's portfolio evenly between stocks and bonds as a way to preserve capital in market downturns while still achieving growth of capital through bond income. Always remember, first and foremost priority should be given to preserve capital, and then to try to make it grow. Having 25-75% of your investments in bonds and varying this based on market conditions can be very helpful in achieving optimum growth. This strategy has the added advantage of keeping investors from boredom, which leads to the temptation to participate in unprofitable trading (i.e. speculating).

Principle No.3: Know What Kind of Investor You Are 

There are different types of investors based on their risk appetite, operating in the market.

Active vs. Passive

Active and passive investors can also be referred as "enterprising investors" and "defensive investors". 
You only have two real choices: The first is to make a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return. If this isn't your cup of tea, then be content to get a passive, and possibly lower, return but with much less time and work. Market psychology notion is of "risk = return", in fact it should be "Work = Return". The more work you put into your investments, the higher your return should be.    


If you have neither the time nor the inclination to do quality research on your investments, then investing in an index is a good alternative. A defensive investor can get an average return by simply buying the 30 stocks of the Sensex in equal amounts. Getting even an average return - for example, equaling the return of the Sensex - is more of an accomplishment than it might seem. The fallacy that many people buy into, is that if it's so easy to get an average return with little or no work (through indexing), then just a little more work can yield a higher return. The reality is that most people who try this end up doing much worse than average. 


In modern terms, the defensive investor would be an investor in index funds of stocks. In essence, they own the entire market, benefiting from the areas that perform the best without trying to predict those areas ahead of time. In doing so, an investor is virtually guaranteed the market's return and avoids doing worse than average by just letting the stock market's overall results dictate long-term returns. Beating the market is much easier said than done, and many investors still find they don't beat the market.

Speculator vs. Investor

Not all people in the stock market are investors. It is critical for people to determine whether they are investors or speculators. The difference is simple: an investor looks at a stock as part of a business and the stockholder as the owner of the business, while the speculator views himself as playing with expensive pieces of paper, with no intrinsic value. For the speculator, value is only determined by what someone will pay for the asset at any given point of time, but a speculator is a mere guesser.

Graham's basic ideas are timeless and essential for long-term success. He bought into the notion of buying stocks based on the underlying value of a business and turned it into a science at a time when almost all investors viewed stocks as speculative. Graham served as the first great teacher of the investment discipline, as evidenced by those in his intellectual bloodline who developed their own. If you want to improve your investing skills, it doesn't hurt to learn from the best; Graham continues to prove his worth in his disciples, such as Warren Buffett, who have made a habit of beating the market.