LONGTERM INVESTMENT IN SHARES- FOLLOW YOUR OWN JUDGEMENT.

How to invest in shares on longterm basis(refer to my previous article)
Since it is your money that your are going to invest and the fruits of the investment is for your later life as well as for your family members, so take double care in judging the shares that you select to invest. Dont go by the trend of the market. Market trends ore only for short term, in which vested intrested persons will surely have a hand in the unusual and unrelated movement of price and quantity of shares. It could be a reder aquiring that particular share or someone having a insider information might be doing the damage. It is your money, so avoid such kind of shares from your perview to invest. Also never attempt to invest all your cash reserves in one particular share, though you have selected it after making a detailed study of that share, since your judgement will be based on the future performance of the share. future is not that easy to predict. So invest only about 30persent of your cash reserves in shares, 40 persent in immoveable assets or bullion and the remaining in other debt instruments. Also dony jump into the wagon to buy a perticular share at any price(refer my previous article)

When you want to buy a particular share and by chance your are short of money to buy, let it go, and drop your idea, since the cycle pf up and down will come and you can take your chance at the next oppurtunity. NEVER borrow to make investment in shares, wharever the merit of the share.

Also keep track of the price to earning ratio of all your shares and that of the index. When the index price to earning ratio crosses 20 be watchfull and when above 23 encash your investments. History waens us of the trouble whenever the index's price to earning ratio is above 23.

Almost majority of investors go by trend ie when the market is in a bull run they want to jump in and benefit, which will put you in trouble. No speculator has made honourable money from the market. Stoch market histroy has lot of instances of people who had indulged so and had badly reminded about the perils of such activity. People always invariably hesitate to buy the shares whem the market is going down, ignoring even the fact that it is available at the BUYABLE PRICE arrived by them(refer mu previous article). Why is this? Permit me to say that it is sheer greed. Always set your target BUY price and SELL price and bo by that, in all circumstances.
When you are not having a target BUY price and SELL price for your share, your are misguided by the downward trend of the market and you always miss the oppurtunity to buy at your BUY price and sell at your SELL price.Human nature is that people wait and want the market to go down furthur, when it is downtrend and go up furthur, when it is uptrend. but the market will not have its journey ONE WAY only, it has to and will always turn around to continue its jorney the other way, till it is made once again to reverse its journey. So, when you are sure about your target BUY price and SELL price, you will always be sure to GET IN and GET OUT of that journey without any loss for you.

Do not also go by any advice bu the broker, since he will be compelled more by the commission he earns rather than the performance of the share. Similary many and most of the shares announced as IPOs is always invariable introduced when the marketis in bull phase. We have seen cancellation of many IPOs when the market turns bearish.Make your judgement, when even financial instutions back any particular IPO, they have their own resons for it.

So, he sure way to invest in shares is to learn the fundamentels, detailed study of that particular industry, choose the company as per its value(refer ny previous article) and be bold to actaccording to your judgement. So invest in fundamently good company, with good track record, and also try to buy (if your cash reserves permit) during downtrend, so as to bring down your average cost, by which you will be turning the trend to your advantage, rather than sulking atit.

BR PREPARED FOR THE OPPURTUNITY, IF MISSED, IT WILL TAKE ITS OWN SWEET TIME TO RETURN.

N.Raghu

FINANCE FIGURED

Longterm investment in shares- the sure way to make money-returns better than Banks.

This is for those who want to invest their hard earned money in shares on a longterm basis. There are lot of facts to be considered to predict the market. Any shrewd investor should do his homework on the industry in which he is going to buy shares from the market. The industry will have its ups and downs. This has to be taken into account. Some external factors and events will also effect the performance of the industry as a whole.So, prudent as you are, choose a few indusries in which you have some basic knowledge and study them for atleast 6 months, when you have a considered opinion about that industry,make a list of the companies in that industry and select some to make investment.

PARAMETERS TO SELECT A COMPANY

1) Equity capital should be in accordance to its scale of operation.

2) Debt capital should be optimum, should not be in excess to its scale of operation and technology. Excess debt not advisable.

3) Return on Capital(equity capital+debt capital) should be consistent on for a long period, should equal the industry average. Below that avoid. Above average consider. This ratio is available in periodicals in the market. Zero in for a 15-20% return.

After making a list of companies, now the question is which to choose?. Go for a compnay which has good return on capital and at the same time available at a low price. If the price is high wait. Naturally the price will be high when the market is on a bull run.
HOW TO VALUE, WHETHER THE SHARE PRICE IS AT 'BUY' FOR LONGTERM?.

To arrive at the value you should know:

1) Enterprise Value

2) Return on Capital (averagr return)

3) Calculate total capital at the time of buying shares.

Enterprise value is the value that market is prepared to pay for that company.
Enterprise Value = Market Capitalisation + debt Capital
Total Capital =Equity Capital + Debit Capital

Equity Capital is the money contributed by promoters and other share holders plus the portion of retained profits(after disbursing dividents)

So when you decide to buy make sure that
Enterprise Value = Total capital at the time of buying X[1+ average return on capital%]^5 or 6.

If the left side is < or = to right side than 'BUY'

So the golden rule is invest in HIGH 'return on capital' companies at a LOW price, which produces HIGH 'return on investment' over a period of time.