During adverse economic periods, many people are afraid of buying shares of any company. Fresh memories of crashing stock markets test the nerves of local and international savers, who often prefer to hold cash rather than take any risks.
Exaggerated fear is, more often than not, a mistake. If you act prudently, every period can be good to make financial commitments. When bad news and pessimism reign, those are times of great opportunity to purchase shares of solid companies at low prices.
Stories of financial collapse reported by the media succeed in terrifying many people out of the stock market. At the time of writing this, you can hardly turn on the radio or open a newspaper without learning about one more company on the brink of bankruptcy.
However, in investing, like in everything else, realism triumphs over anxiety and pragmatism over worry. Gloomy reporters seldom look objectively at facts. On many occasions, share-holders would be better off if they keep a cool head and avoid liquidating their stocks at fire- prices.
The first step to develop self-confidence as an investor is to realize that nobody possesses the ability to predict exactly when shares are going up or down. There is no magic formula for successful investing. The best you can do is to strive to keep well informed and make rational decisions. Those two are the factors that will improve your financial results and increase your self-reliance.
After a period of inflation or deflation has begun, some people will claim that they had predicted what was going to happen, but these are often the same persons who had previously made many wrong predictions. A broken clock gives you the right time twice per day, but cannot provide you accurate time information.
Magic formulas are not a good way of making plans. Reason and realism constitute a superior approach to making investment decisions. If you want to develop self-confidence as an investor, you have to remind yourself every day to have patience. Forget about short-term volatility and look at the big picture. Ask yourself where the world economy is headed for in the next five years.
Move your focus beyond the next quarter and see what the whole year will look like. Look for companies with a strong international presence. Even in periods of generalized gloom and doom, many countries continue to grow at good rates.
Rational investors tend to prefer enterprises that operate in stable markets, in particular if their dividend is maintained or increased. At the same time, risks can be minimized by investing in corporations, such as pharmaceutical multi-nationals, that have world-wide distribution for their products. These enterprises often purchase rights to new drugs from small laboratories and universities in to distribute those medicines internationally.
How can you increase your confidence in making the right financial decisions? You do not need to know everything in to become a good investor. Aim at identifying well-managed companies whose shares are priced attractively. If their products meet fundamental human needs efficiently, chances are that those businesses will do well.
Problems that you know nothing about might come up next week and make your shares go down. This is part of the game for better or worse. A claim of infallibility is something that you should leave to those who believe in magic formulas. Accept that you will make mistakes and do not fall into endless self-recrimination.
Make your investment decisions on the basis of reasonable expectations and stop worrying about the future. If you diversify your portfolio and shares of companies that operate in countries with good prospects of economic growth, you should be able to profit from the increasing prosperity around the world.
JOHN VESPASIAN writes about rational living and is the author of the novel “When Everything Fails, Try This.” He has resided in New York, Madrid, Paris and Munich. His stories reflect the values of entrepreneurship, tolerance and self-reliance. See John Vespasian’s blog about rational living.
JOHN VESPASIAN writes about rational living and is the author of the novel He has resided in New York, Madrid, Paris and Munich. His stories reflect the values of entrepreneurship, tolerance and self-reliance. See about rational living.
“You have to pay your dues,” is what my friend Fred replies when someone asks him for stock market advice. I know Fred well enough to be able to testify that, when it comes to dues, he has indeed paid his. Like many others, Fred lost a great part of his investments in the June 2002 market crash. That’s when share prices of internet companies collapsed, sinking the rest of the market and keeping it down during the following twelve months.
“For me, the whole mess was a blessing,” Fred smiles when he tells me the story for the hundredth time. He knows that I am going to listen attentively to his words, since I belong to those who never get tired of receiving uncomfortable, but invaluable advice. Why do I love to hear Fred’s story? Because he is one of the few persons I know who is going through the 2008-2010 financial crisis without a scratch. What, I must add regretfully, is not my case.
“I was living in an illusion,” recounts Fred. “The 2002 stock market crash woke me up. It made me ask myself hard questions about my investment style and objectives.” He tells me that, for him, the most difficult was to admit that many of his cherished ideas about investment were radically false. “I was a great believer in traditional theories and I was wrong,” Fred summarizes.
Thanks to Fred, I have come to realize myself that most of my ideas about investment are fairy tales, although pervasive ones. Who could blame me for believing what is daily propagated by so many alleged experts? “I used to spend lots of time selecting stocks that I intended to keep for the long term,” Fred confesses, shaking his head. “I was well aware that market corrections and crashes take place from time to time, but I had learned to see them as inevitable.”
After losing 60% of his liquid assets in 2002, Fred threw away his previous theories. Pain had pushed him to change. He was determined to reshape his investment practices and take control of his life. He promised himself that, whatever happened in the future, he would not be paralysed again, he would not be playing sitting duck any more.
“I learned to look at facts with an open mind,” Fred explains. “The change of mentality was not easy, since I had been brainwashed to ignore the contradictions in my thinking.” Fred’s explanations illustrate how hard was for him to change his mind. “It took me several weeks of thorough self-examination to reach the conclusion that my achieving long-term investment growth had nothing to do with how long I kept stocks in my portfolio.”
“The 2002 market crash changed my view of the world,” remarks Fred pensively. “It forced me to abandon old myths that didn’t work. It put me back on the right track. It made me choose between giving up altogether or acquiring the habits of a professional investor.”
Today in 2010, I can see clearly which choice Fred made. He is going through the current financial crisis completely unscathed. While a storm is wiping out investors all over the world, Fred’s annoyance from the market is comparable to a ripple in the water.
“If you had to condense all you’ve learned in ten rules, which ones would you choose?” I asked him, taking notebook and pencil out of my pocket. “Could other investors apply the lessons that were so hard for you to learn?” These were Fred’s responses:
1. Develop long-term ambitions and work on their implementation by devoting daily a fixed amount of time to supervising your investments.
2. The major difference between professional and amateur investors is that professionals are always willing to recognize their mistakes. If facts turn against your theories, drop the theories. Be ready to sell your shares when it becomes obvious that you have made a mistake.
3. In stock market investments, like in real estate, the easiest profits are made by purchasing attractive assets at a low price.
4. You don’t need to spend hours on end doing research in to achieve high investment returns. The cost of a few superb investment newsletters is negligible compared with the time you’ll save.
5. The cheapest way to avoid catastrophic losses in the stock market is to place stop-loss orders in every share in your portfolio. It’s up to you to decide whether you are ready to take a loss of 10% or 20% before recognizing a mistake.
6. Never invest more than 5% of your assets in one single share or venture. Even if you devote all the care in the world to select your investments, you will never be able to rule out all risks.
7. There are dozens of stock markets in the world. If you live in the US or Europe, take a look at Brazil, China, Australia, or New Zealand. The costs of investing internationally are lower than you may think.
8. Dividend-paying shares with a long history of increasing dividends every year are usually solid investments if you can them at a reasonable price.
9. Never invest in something that you don’t understand. Avoid obscure companies with unidentifiable and profits.
10. Use the internet to the maximum. The amount of investment information available for free is mind-boggling. Nevertheless, remain sceptical, compare sources, and check everything several times.
Investment mistakes are no different from others. Marketing failures will allow you to improve your product targeting next time. Human resources blunders should help you hire better candidates in the future. The validity of the lessons we learn is often commensurate with the pain caused by our mistakes. Mismanaged assets, like mismanaged advertising, may lead to a financial loss, but if the loss teaches you a great lesson for the future, nothing has been wasted.
JOHN VESPASIAN writes about rational living and is the author of the novel He has resided in New York, Madrid, Paris and Munich. His stories reflect the values of entrepreneurship, tolerance and self-reliance. See about rational living.
JOHN VESPASIAN writes about rational living and is the author of the novel He has resided in New York, Madrid, Paris and Munich. His stories reflect the values of entrepreneurship, tolerance and self-reliance. See about rational living.
The 2008 financial crisis uncannily echoes what happened in Japan more than a decade ago. In the 1990s, the Japanese banking systems had become overloaded with bad loans after a property bubble collapse, according to Gillian Tett, author of Fool’s Gold. The investor psychology seemed dangerously similar too. If this is the case, investors who high yield stocks now could collect big dividends while the economy fights to get back on its feet.
The Associated Press (AP) reported on Friday that the U.S. federal budget deficit has surged to an all-time high of $1.42 trillion. The Obama administration projects deficits will total $9.1 trillion over the next decade. For weeks the US dollar’s decline sent gold to all-time highs and helped oil to over $78. Canada happens to have plenty of these commodities.
The following are 18 Canadian companies listed on U.S. exchanges with market caps greater than $1 billion, reasonable P/E ratios, and dividend yields greater than 3.5% (sorted by yield):
Name
Symbol
P/E
Yield
Market Cap
PROVIDENT ENERGY TR
(PVX)
9.0
11.1%
1.66B
PENGROWTH EGY UTS
(PGH)
5.0
10.6%
2.61B
PENN WEST ENERGY TRU
(PWE)
5.1
10.1%
6.90B
ENERPLUS RES FD
(ERF)
5.8
8.4%
3.97B
HARVEST ENERGY TRUST
(HTE)
4.2
8.1%
1.14B
B C E INC
(BCE)
21.7
6.1%
18.82B
TELUS CORP
(TU)
8.6
5.8%
9.41B
PRECISION DRILL TRST
(PDS)
4.3
5.7%
1.91B
BANK OF MONTREAL
(BMO)
17.3
5.1%
27.68B
TRANSALTA CORP
(TAC)
21.9
5.1%
4.07B
BAYTEX ENERGY TR UTS
(BTE)
12.8
5.0%
2.77B
CANADIAN IMP BK COMM
(CM)
3.7
5.0%
2.98B
BROOKFIELD PTYS CP
(BPO)
6.2
4.6%
4.47B
TRANSCANADA CORP
(TRP)
15.1
4.3%
21.71B
SHAW COMM CL B NV
(SJR)
15.6
4.2%
8.24B
ROGERS COMMUN CL B
(RCI)
16.8
4.0%
16.57B
BANK OF NOVA SCOTIA
(BNS)
16.7
3.9%
45.86B
TORONTO DOMINION
(TD)
17.4
3.5%
53.70B
These 18 high-dividend companies are in 4 sectors: Energy, Financial, Telecom and Utilities.
Energy Income Trust
High demand from China and a weak US dollar make the energy sector attractive. 7 companies belong to energy income trust category:
Symbol
Operating Margin
Debt/Operating CF
52-wk Range
(BTE)
36%
1.0
7.84 – 26.44
(ERF)
51%
0.7
12.85 – 28.58
(HTE)
10%
3.2
3.00 – 11.55
(PDS)
28%
2.0
2.00 – 12.21
(PGH)
22%
2.5
4.51 – 11.90
(PVX)
23%
1.5
2.23 – 6.84
(PWE)
58%
2.3
6.77 – 19.01
For sophisticated traders, trading commodities directly might provide a higher reward. For income investors, commodity companies might be a better choice because they provide some buffer, in addition to regular dividends.
There is a small ETF called Claymore Canadian Energy Income (ENY) which includes most of these companies. Its yield is 5.45%.
Financials
The Following are comparisons between Canadian banks, U.S. major banks averages, as well as JPMorgan Chase (JPM), one of the most conservative banks in the US. Clearly Canadian banks are much more profitable.
Description
P/E
ROE %
Div. Yield %
Net Profit Margin %
U.S. Money Center Banks
n/a
1.1%
1.1%
1.3%
JPMorgan Chase & Co. (JPM)
52.6
2.9%
0.4%
15.5%
Toronto-Dominion Bank (TD)
17.6
9.4%
3.5%
22.2%
The Bank Of Nova Scotia (BNS)
16.8
13.2%
3.9%
28.9%
CIBC (CM)
3.8
7.0%
5.0%
18.8%
Bank of Montreal (BMO)
17.4
9.2%
5.1%
21.8%
Telecom
Competition in the telecom sector is heating up in Canada. When BCE (BCE) and Telus (TU) announced they will start carrying the iPhone next month which puts an end to the exclusivity that Rogers (RCI) has enjoyed, it sent RCI’s short ratio to a stunning high of 33. Unlike those 3, Shaw Communications (SJR) primarily focuses on cable services.
Utilities
TransAlta (TAC) is an electric utility company while TransCanada (TRP) operates through two segments: pipelines and energy. TAC’s short ratio of 5.8 makes me nervous.
Conclusion
After boldly buying when others were selling, Warren Buffet is pulling back, buying fewer stocks while investing in debt. He is warning that the economy, though on the mend, remains deeply troubled.
In addition, the Canadian dollar is a strong threat to the Canadian economy. CurrencyShares Canadian Dollar Trust (FXC) appreciated over 13% this year. Mark Carney, the governor of the Bank of Canada, has warned that the Canadian dollar appears to be moving away from the fundamentals.
The iShares MSCI Canada Index (EWC) year-to-date’s return is an astonishing 46%. A great stock can be easily turned into a bad investment, if you it at a higher than reasonable price. It all depends on the starting price.
Nonetheless, high-dividend, fundamentally-strong companies are more likely to survive in this stormy market. One of the greatest ways to protect your portfolio is through asset allocation: to make sure not a single sector accounts for more than 20% of your portfolio. Be sure to re-balance as it will automatically enroll you into the “ low, sell high” camp.
Disclosure: I have long positions on BMO, BNS, CM, PWE, TD, and TRE. All data is from Yahoo Finance (http://finance.yahoo.com/) as of Oct 16, 2009.
When it comes to finding an investment loan, whether you want to purchase property or help fund a new product or an upcoming business it is always important to do your homework. Even in today’s economy there are many options available to an individual who would like to secure an investment loan, this is where taking the extra time to research your options has the potential of saving you thousands over the course of the loan. It is important to understand that there is a major difference between an investment loan and a mortgage or business loan, and these differences need to be understood even before you approach your financial institution.
All loans are not created equal and understanding the purpose of each option can have very positive effects on your bottom line. When it comes to investing in property either for resale or for potential rental income it is important to know that the loan you will need is an investment loan, not a mortgage. While both loans seem the same on the surface, in actuality they are very different. There are many tax incentives and programs that are available to those who have a mortgage on a property that are not available for those who have an investment loan, and vice versa.
When attempting to secure a loan for either a business or a new product there are different types of loans that are available depending on the amount of interest you will have in the business. If you want to start your own business then you will need to secure a business loan, however if you only want to become an investor or have a small interest in an existing business then you will need an investment loan. The same is true if you are in a position to help bring a valuable new product onto the commercial or private market. Depending on how much interest you have in the venture will depend on what type of loan you will need to secure, however in this situation the most common is an investment loan.
While all of this may sound confusing there are many ways to determine the exact type of loan you will need in any given situation. The first step is to always do your homework both on the type of loan you will need to secure and you personal finances. Understanding every possible avenue when it comes to funding can greatly increase the chances of getting the best deal possible. It also has the potential of saving thousands of dollars over the course of the loan.
There are a few key facts that have not changed when it comes to securing an investment loan, and they start with knowing exactly how much interest you will have in a property, business, or new product. An investment loan should only be considered if you want to “-into” a company, purchase an investment property, or help fund a new product that on the market. This is a simplified explanation of the best times to obtain a investment loan, however you should always speak to your financial institution to customize the right funding options for your situation.
Austral Mortgage makes choosing the right for you easy. Your Choice of will impact on your Investment Return. We have a wide range of loans to suit your mortgage needs. We also provide advanced mortgage calculators to help make your financial decisions easy.
Mutual funds pool money from investors, who are constantly saving into the fund and at the same time, others are withdrawing from the fund, forcing the investment managers to keep large sums of money as liquid cash. This is one disadvantage of a mutual fund because, keeping liquid cash is detrimental to the growth of a portfolio since, it ties the money. The money is not invested in productive endeavors, thereby reducing the benefits that could have been accrued.
The various fees charged include shareholders fees, which come in the form of loads and redemption fees. Loads are divided into front load fund, back load fund, constant load fund as well as no load fund, calculated as a percentage of the amount of stock you wish to or sell. Annual fund operating fees include the cost of keeping shareholders records and financial statements, marketing and advertisement fees. As an investor who is only starting out on investment, it would be wise if you could start up with funds that have low investment requirements.
A front load fund entails paying the commission that would accrue up front and in a back load fund, you pay the commission upon selling all or part of your holding. A constant load fund deducts commissions on a regular basis, while a no load Fund does not charge any commission. There are many no load funds out there and in most instances, they out perform the loaded funds since all your money goes into buying shares. There are also many examples of load funds out there, but the most prominent ones are the index mutual funds.
Peter Gitundu Creates Interesting And Thought Provoking Content on Mutual Funds. For More Information, Read More Of His Articles Here If You Enjoyed This Article, Make Sure You Read My Most Recent Posts Here
It is explicit that the enactments like Companies Act, 1956, Securities Contracts (Regulation) Act, 1956 and SEBI Act, 1992 contain provisions to protect the interests of investors. However, they have not served the purpose fully. Hence, the investors must be aware of the other measures available for their protection.
It is a known fact that, the capital market in India has grown manifold in the last five to seven years. However, when compared to the western countries, it is still in its infant stage. The experts in the capital market predict a faster growth of the market coupled with a substantial increase in the number of investors. The investors’ grievances must be redressed and they should be assured of prompt, efficient and reliable services to protect their interests.
On their part, the companies too have taken the investors’ problem seriously so much so that they have changed their earlier stand of having a centralized department for investors’ problems in favour of giving the whole portfolio to outside specialized agencies as transfer agents. There is a growing awareness now that the handling of investors’ problems is a specialized subject and if they fail to deliver efficient services, their chances to mobilize fresh resources by way of public rights issue may be jeopardized and eventually losing sympathy of investors.
The Government of India, also appreciating the fact that good investors’ service is one of the important factors for a sound and healthy capital market, has started a service dialogue on this issue and has given powers to Securities and Exchange Board of India (SEBI) and stock exchanges for speedy redressals. In fact, both SEBI and stock exchanges have successfully launched a separate department for this kind of work. They have started publishing names of companies which have largest number of investors’ complaints and insist on solving the investors’ problems with speed. A beginning made in this field in the last two or three years is now gaining momentum.
INVESTORS’ SERVICE CENTRE
Companies with lakhs of shareholders / debentureholders have opened permanent investors’ service centres for attending to problems like change of address, non-receipt of refunds, interest or dividend warrants, non-receipt of certificates after transfer and revalidation of warrants. They also accept lodgements for transfer of shares / debentures and accordingly accept such applications, make on the spot endorsements for fully paid certificates and liaise with the company’s secretarial department to ensure faster solution to problems, however, small.
With these innovations, the work load of post offices and couriers has been considerably reduced. The investors and companies are a happy lot now. They have comparatively lower pendency of problems. The executives’ time consumed in scrutinizing transfer forms has been minimised now as they are to check only the specimen signature and prepare a list of transfers for the Board meeting. With communication facilities improving, time is not far when all formalities relating to the transfer would be completed locally, and the local centre would send only the final list of transfer application for the Board to discuss and resolve. Such service centre in India where illiteracy level is high, help in narrowing the communication gaps as also overcoming linguistic barriers. Companies headquartered in Delhi may have a shareholder from a very remote village in Kerala State who may not be good at writing complaint in Hindi*. This sometimes becomes a major impediment in prompt redressal of grievances. The Reliance Industries Limited is one company which has opened such centres at many places in the country which have fared well. Opening of temporary investors’ service centres for taking care of sudden increase in problems (especially after the closure of mega issues and their allotment) is also helpful, for instance, due to sudden spurt in the problems, it helps better understanding and faster solution of complaints. The Oswal Agro group is a company which had, at the time of mega-issue of Bindal Agro Chem. Ltd., opened such centres. Similarly, ICICI and Tata Timken Ltd., have also extended such facilities, although for a very short period, and for a very limited purpose of public issue complaints.
LODGEMENT CENTRES FOR RIGHTS ISSUE
The application forms of rights issue which, hitherto were being accepted by banks are (in some cases) now being accepted at the predesignated company’s service centre. In a few cases, the companies have decided to handle the acceptance of rights application form themselves. The bank’s job would then be reduced to clearing of cheques and maintaining the collection account in terms of funds. This procedure ensures a perfect and better investors’ assistance at the time of filling up the form, fewer rejections of forms, speedy clearing of cheques, faster remittances of funds and immediate allotment on closure of the issue. Earlier, the banks used to take longer time in processing the forms and thus the procedure of finalizing the allotment entailed undue delay. Rights issues generally remain open for a month and the forms are relatively lesser than public issues. As a consequence of this, the banks were taking their own time to finalise the processing before arriving at the final collection figure. This system was followed by TELCO, Deepak Nitrate, Procter and Gamble, Ashok Leyland, Ranbaxy, Nicholas Lab., ESAB India, Indian Organic and so forth. The indicators for future events are that the companies may resort to such arrangements in relation to collection of allotment and call money and may also consider lodgement of public issue forms at private investors’ service centres. This would, however, require clear cut legislation.
The question is, can a private service centre provide as good or as strong an infrastructure as a bank can? The bankers have the advantage to pool a large contingent of staff when suddenly required, it would have the necessary space also and generally speaking it can cope with a large volume of work. The private service centre may initially face problems in building up the requisite infrastructure.
LODGEMENT OF DEBENTURE CERTIFICATES OF REDEMPTION
This is smaller to lodgements to -back. The debentureholders are requested to lodge certificates along with advance stamped receipt at the predesignated centres throughout the country. The holders are then sent redemption amount by pay orders. This avoids inconvenience for the investors, ensures proper filling up of form and saves postal authorities of work.
SPECIFIC CENTRE FOR ON THE SPOT ENDORSEMENT FOR CALL MONEY PAID
A few companies have started giving on the spot endorsement (as fully paid) facility at local service centres. This process hardly takes a few minutes. It facilitates the investors in transacting on the share certificates which he is holding, thereby saving the agency of waiting for a month after sending them to the company for the endorsements.
It is time for the Government to insist on companies with very large shareholders base to open full time permanent service centres, not only in four metros in India but also at all places where stock exchanges function. One of the objectives of granting legislation to SEBI was to inspire confidence in investors and protecting their interests. The recent guidelines and code of conduct also require the stock exchange members to modernise investment services, introduce better and innovative practices in the interest of investors. In this context, it is apt to mention the SEBI’s achievement for the redressal of investors’ grievances.
REDRESSAL OF INVESTORS’ GRIEVANCES BY SEBI
In an effort to improve the quality of intermediary services available to investors, procedures have been instituted for redressal of investors’ grievances arising from the issue procedure and those related to brokers. The table given below gives the details of investors’ grievances that have been received by SEBI since its inception and their redressal rate. Constant follow up and deterrent actions have helped in redressing an increasing proportion of investors’ grievances. The large number of complaints received clearly indicates the inadequacies of the existing systems and practices in Indian securities markets. These grievances are also a reflection of the rising expectations of investors from intermediaries in the securities markets. The intermediaries in the primary and secondary markets such as brokers, sub-brokers, underwriters and merchant bankers, bankers to the issue, share transfer agents, and registrars to the issue are required to be registered with SEBI. The increasing number of investors’ grievances indicates that investors’ satisfaction and investors’ confidence area set to become central issues in the development of securities market in India.
It is essential from the point of view of promoting investors’ confidence in their investment to create a sound investment climate which needs redressing the grievances of the investors. In this regard, the services rendered by SEBI to redress the grievances of investors’ are worth to mention. However, in view of growing capital market activities, besides SEBI, investors’ service centres in private sector should also come out in large number to redress the grievances of investing community.
Dr.R.SRINIVASAN is a Post graduate in commerce and corporate secretary ship . He received his doctoral degreein the Managementfaculty from Alagappa University in 1997. He is now Working as an ASSOCIATE PROFESSORin Post graduate and Research Department of Corporate Secretaryship at Bharathidasan Government College for Women (Autonomous), Pondicherry University, Puducherry.He currently teaches Accounting ,financial management and Research Methodology Subjects. Before Joining BGCW, he was teaching in SNR College, Coimbatore, Sindhi college, Chennai& T.S.Narayanasamy College, Chennai for eight years. He was with the industry for a short term at Salzar Electronics Pvt. Ltd, Coimbatore. He has about 20 years of teaching experience and having research experience of 15 years. His interests are in Accounting and finance, Capital Market, Quantitative Methods. He underwent the Faculty Development Programme at Indian Institute of Management Ahmedabad during 2000-01. He has presented 20 papers in national and international conferences and has published twenty papers in the areas of Finance and Human resource Management in National Journals. Co-authored a book titled, ‘Investors Protection, published by Raj Publications, New Delhi He has delivered lectures in contemporary finance topics at Pondicherry University. He is involved in consultancy projects for Godrej Saralee, Chennai in the areas of Statistical Applications. He has supervised a number of research projects in the area of corporate finance and Human Resource Management. He is the Board of examiner in corporate Secretaryship and Management for the past two decades.
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DO YOU ASPIRE TO BE A SUCCESSFUL INVESTOR IN CAPITAL MARKET?
NEED FOR INVESTMENT
v To earn return on idle resources
v To generate a specified sum of money for a specific goal in life
v To make a provision for an uncertain future.
INVESTMENT AVENUES IN THE STOCK MARKET
Securities are classified into ownership and debt instruments namely, equity shares and debentures. REGULATORY MECHANISM:
SEBI FOCUS AREAS
I – COMPANIES AND OTHER ENTITIES
SEBI is focussed upon creating a:
v Disclosures oriented attitude,
v Good Corporate Governance,
v Ethical practices,
v Stakeholders’ orientation, and
v Transparency in operations of resource raisers.
Disclosures in Indian Capital Market should be at par with global standards.
II – MARKET PLACE
SEBI is focused upon creating an:
v Efficient,
v Effective,
v Transparent,
v Clean,
v Competitive, and
v Customers oriented Market Place.
Indian Market is at par with global standards in almost all operational parameters. Indeed, better than that at some of the dimensions.
III – INVESTORS
SEBI is focused on empowering investors through spreading the critical message that: “The most protected investor is the educated one”.
INVESTMENT CRITERIA
Investor should evaluate securities broadly on the following criteria:
Liquidityaspects
Safety aspects
Returns criteria
Tax savings attribute
Investor involvement is required to manage the investment portfolio
Minimum amount that investor can invest
RISK FACTORS
Risks are positively correlated with probability of returns i.e. high returns means high risk too.
Different securities carry different risk-return profiles
Risks may take place in the form of
credit risk (the counter party may default payment)
return risk (return from investment may depend on several contingent factors)
liquidity risk
INVESTMENT DECISION RULES
Empower investors through information.
Investing is a serious business.
Be informed about the risks and rewards of products/mechanisms before investing. This understanding would facilitate prudent decision making at investor end.
Investor just don’t a paper, investor take stake in an organization. Equip investor with the required information before initiating this relationship.
Seek advice from an expert, if required, before committing any position in the market
Read documents and understand the implications before entering in to contracts, with various intermediaries in the market and issuers.
Deal with only the SEBI registered intermediaries. Know investor intermediary, his history, potential to deliver etc. before entering into relationship. Don’t get carried away just by the charges.
Don’t be carried away by the persuasion of the broker/selling agent. Take investor decisions independently and discreetly based on the information. Be doubly sure about the suitability of the product/ products/ contracts to investor before investing.
Do ask for relevant documents from investor intermediary.
Maintain the records of all investor communication with various intermediaries and issuers. This would help investor resolve the dispute, which may arise out of investor dealing with them.
INVESTORS PROTECTION
Investors in their own interest must observe certain basic ground rules and investment principles.
ØInvestor should be apparent about the investment objectives and realistically review the risk taking capacity; should do his due diligence and home work before investing/ divesting any particular scrip and choose proper timing. In a moment stated, he should not be spontaneous in buying, emotional in holding and panicky in selling. One should be modest in expectations of gains and patient for their realization.
When the price of scrip is rising sharply and swiftly, without any conceivably concrete reasons, it should set the investor thinking before buying. Similarly, when there has been too much of publicity and hype about a particular entity or scrip, one should exercise caution and ascertain the real influencing factor. He should enquire about the quality of management, and the background of promoters.
These are common sense – based cautions, which should temper the temptations of the sensex – based happiness It is relevant here to remember Mr. Malcolm Forbes’s words of determination: he says: No earnings record, no chart, no prospects can entice him to a stock in a company , where he has a poor opinion about management or CEO.
It is indeed amazing that our ancestors of antiquity in their words of wisdom have given profound advice on matters which concern us even today. Let me put it in our today’s parlance, what an ancient sage observed: He said: one should do deliberations on likely profit and loss and the final gains before embarking into any venture or investment.
A wise person will not venture into such a gamble in quest of gain and in the process loses the capital itself. Or, in other words, a wise investor will not washout scrip, assuming it a blue chip, hoping to realize capital gains, and ending up in capital loss.
2. A small and retail investor may not have adequate time, knowledge or expertise to decide on and to execute a judicious, prudent investment plan. For him, his advice was: find a proper person and entrust the job to him so that he could do the job for you at the appropriate time.
Grievances of investors:
Grievance related to
Whom to contact
Issue/ Company
Compliance officer of the issuer company/Lead Manager/Stock Exchange
Trading/Broker/ Sub-broker
Investor Grievance Cell of
concerned Exchange
Mutual Fund
Compliance Office of Mutual Fund
Depository Services
Investor Relation Cell of
Concerned Depository
Corporate Action
Concerned Company/ Exchange
Intermediary
Compliance officer of the intermediary/
Affiliated industry association/SRO
Office of Investor Assistance and Education takes up grievances against the following:
Bankers to Issue
Brokers
Clearing and settlement organizations
Credit Rating Agencies
Custodians
Debenture Trustees
Depositories
Depository Participants
Derivative Exchanges and related organizations
Foreign Institutional Investors
Foreign Venture Capital Investors
Merchant Bankers
Mutual Funds
Portfolio Managers
Registrars and Transfer Agents
Securities Exchanges
Securities lending intermediaries
Sub-brokers
Underwriters
Venture Capital Funds
back of securities
Collective Investment Schemes
Compliance with listing conditions
Corporate Governance
Corporate restructuring
Debentures
Delisting of Securities
Issue of securities
Non-receipt of Dividend
Substantial Acquisition and Takeovers
Transfer of securities
FINAL MESSAGE
View investor as a customer of financial instruments and own the responsible of investor decisions. Use the information and understand the systems before committing investor resources.
SEBI would facilitate investor path through consistently improving the:
quality and quantity of disclosures by resource raisers, and
Creating efficiency, effectiveness and transparency in the operations in the market place.
By communicating the above message, SEBI does not disown its responsibility.Hence the role of a regulator in relation to investor empowerment is to implement a mandatory system for investor education. The regulator should ensure that the investor is made well aware of his rights to complain, with an easy, quick and non-judicial route for complaint and recompense should there be a problem, as well as the ability to use the courts. The regulator should also ensure that information is made widely and easily available, at a reasonable cost.
Dr.R.SRINIVASAN is a Post graduate in commerce and corporate secretary ship . He received his doctoral degreein the Managementfaculty from Alagappa University in 1997. He is now Working as an ASSOCIATE PROFESSORin Post graduate and Research Department of Corporate Secretaryship at Bharathidasan Government College for Women (Autonomous), Pondicherry University, Puducherry.He currently teaches Accounting ,financial management and Research Methodology Subjects. Before Joining BGCW, he was teaching in SNR College, Coimbatore, Sindhi college, Chennai& T.S.Narayanasamy College, Chennai for eight years. He was with the industry for a short term at Salzar Electronics Pvt. Ltd, Coimbatore. He has about 20 years of teaching experience and having research experience of 15 years. His interests are in Accounting and finance, Capital Market, Quantitative Methods. He underwent the Faculty Development Programme at Indian Institute of Management Ahmedabad during 2000-01. He has presented 20 papers in national and international conferences and has published twenty papers in the areas of Finance and Human resource Management in National Journals. Co-authored a book titled, ‘Investors Protection, published by Raj Publications, New Delhi He has delivered lectures in contemporary finance topics at Pondicherry University. He is involved in consultancy projects for Godrej Saralee, Chennai in the areas of Statistical Applications. He has supervised a number of research projects in the area of corporate finance and Human Resource Management. He is the Board of examiner in corporate Secretaryship and Management for the past two decades.
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Do you think of the Stock Market as a big, bad world full of shady, dubious people who are lurking for your money? Do you believe that there is a jungle out there where everyone is out to double-cross the other and the smartest one gets to win all the money? Do you think that having faith in the markets could be an expensive affair, where you ended up losing more than you gained?
With the growing number of setbacks and scams in the stock market, despite the most stringent measures adopted by the regulatory authorities (SEBI in India) one might actually have a point here. When the Global Trust Bank went bankrupt and then got wound up, none felt the pain the way the individual shareholder did. This was followed by the infamous scam relating to the Satyam Computers (where the Managing Director got funds swindled out of the company and had the books cooked up by massive amounts showing inflated profits over the past several years) which led a shock wave over the country and also had global repercussions (not to mention a court case by individual foreign investors in the United States) while leaving many a domestic shareholder high and dry.
Unfortunately, these are one-of-a-kind cases and there really is no way to guard against these. But one company that has stood the test of time when it comes to shareholder-confidence, is the Reliance Group of Companies. It is not as though the company is free of controversies. Like any other closely held company, this too has been the subject of prolonged domestic squabbles leading to bitter court cases and an inevitable demerger. This was followed by the differences between Mukesh and Anil Ambani, based on gas prices that moved up to Supreme Court. Add to that the strong reactions of the Government against the Ambani brothers for waging a war against each other on gas being a National property. But through it all one fact seems to have emerged unfettered – the loyalty of the company to its shareholders. The RPL and Reliance Power Initial Public Offers (IPOs) in the recent past are witness to the fact as they displayed a commendably fair allotment to the prospective individual shareholders.
Last year, when the Centurian Bank of Punjab merged with HDFC Bank, the CBoP shareholders were the losers to the deal, Sabre Capital (the company that held substantial interest in CBoP) having already sold off its stake by then. This year, when the news of a possible RIL-RPL merger was made official on February 27, Friday and a board meeting to finalize the swap ratio and discuss other details of the merger on March 2, Monday was announced, then, that too gave the RPL shareholders a long and anxious weekend. But this was followed by a big relief on Monday morning when it was announced that the the swap ratio of the merger deal would be 1:16 as against an expectation of a mere1:12 swap ratio even in the most optimistic of cases. True to the words of Mr. Mukesh Ambani, Managing Director, RIL the merger did indeed reflect the enduring philosophy of the company of creating shareholder value.
The Reliance policy of creating shareholder value translates even to the Reliance Mutual Fund. In the last recession when many funds tightened its purse strings, several dividend schemes under the Reliance Mutual Fund whisked out rich dividends to its unit holders – a welcome change to all fund investors.
For all those of you who are or have grown averse to the ways of the stock market, Reliance surely is not the only company that is investor friendly – there are many more from which to choose provided one chooses right – for now, just know that RELIANCE is definitely one of these. Rely on Reliance and you will not regret it. Happy Investing!
Paramita Banerjee is an Investment Banker based in India and shares her ideas and experience through her articles.