Basics of stocks & shares

[The_Big_K]

Hello CEans!

Not many of us are aware of how the share market works. This thread specifically focuses the basics of stocks & shares. Ask questions, post useful information and answer other's questions on stocks & shares in this thread.

Let us limit this thread to the discussions on 'basics' of stocks & shares.

-The Big K-

[pradypop]

There's a certain value(worth) of a company. Generally this value is ascertained by taking many things into consideration viz;
1. Assets
2. Liquid cash
3. Brand value
4. Future prospects
5. Stability of organization...and few more.

Organizations look to raize capital for futute investments by selling part of stakes to others. They do it by creating shares out of company's nett worth. Lets say a company's nett worth is a billion rupees and company decides to sell 10% of its worth. It creates 100million shares of Re 1/- each(generally) and make an offer to investors at say a range of 450-550/- as an IPO(initial public offer). Now investors may see a good future for the company and may purchase each share at 500/- per unit. Now the company raises huge funds in the deal. The investor gets the share of company's profit proportional to his stakes in the company.

By stock market we mean stocks of shares. The performance of a stock is measured by average gain or loss of the stock. The performance of the market itself is measured by performance of sensex.

The sensex is weighted average of major stocks listed in the market. Weighted because 5% fall in a big company affects market more than a 5% fall in a small company. Sensex generally gives you a very good idea of how markets are moving.

That was a very brief over-view. We can get into specifics at later stages.

[pradypop]

Last one was my 50th post. It also provides me with messaging facility I believe!!!

[The_Big_K]

Originally Posted by pradypop

Last one was my 50th post. It also provides me with messaging facility I believe!!!

Prady, you already have a special status over here. So the messaging facility was enabled by default. Congratulations for your 50th post !

Prady, do pump in more about stocks & shares if possible. I'm searching for the finance people to write for us in this thread. Let us keep the fingers crossed.

Everyone, feel free to ask questions and post information in this thread / section. Do not forget to title your thread appropriately.

-The Big K-

[aashima]

Thanks for the information pradypop. I knew very little about the stocks and share that too due to my subjects related to economics and like that. I would really like to know a good deal of it. Looking forward to some more useful information on the same.

[Neha]

This question was in my mind since a longtime...Nice information to share,pradypop..Looking for more.

[pradypop]

Well, I would like to address the issue of investing and how it is done.

To invest into stock market you need to hold an account with banks or agents called "D-MAT" account. You can put all your money in your account and then can go shopping around the stock market.

The selling or buying of shares happen in two ways; by you placing a bid on "X" company's share at some price and anyone willing to sell at that price would pass his shares on to you in exchange of money, which gets debited onto his account from yours automatically. This is generally when a share is on rise. The seller would make an offer to sell his shares at some price and if you are intrested you can purchase it. This happens generally when share is on a fall. The price of share is the price at which last transaction happened. Everything happens online and the process is very easy.

You can set trigger points in your software i.e. to sell or purchase automatically when the value of the share reaches the value set by you. You need not even be present at the place for transaction.

Had you purchased 1 share of coca-cola in 1929, you would have been richest person in the world today. Had you invested Re 1/- in Infosys in 1992, you would be making Rs 22000/- out of it by now. Happy Investing!!!

[pradypop]

There are two types of investors, retail and institutional. We all fall into category of retail investors and we genarally invest on small number of shares.

Thers are organizations which invest large sums into stocks of companies and these are called institutional investors. There are foreign as well as domestic institutional investors. FII means "Foreign Institutional Investment" which is one of the means for our foreign currency reserves. But FIIs are not very good because they come only for profit booking(purchasing and selling shares to make quick money). Infact this is one of the major source of instability in markets. Its FDI(Foreign Direct Investment) which we look for to achieve a sustained growth. FDI is investment made for equities(partnerships) in companies. This money once it comes doesn't go back.

Banks are generally Institutional investors. They run schemes called "mutual funds". They take money from investors and invest in various shares of various companies. The value of the mutual fund itself is the weighted average of all shares. Some may fall and some may rise but there generally is some average positive growth in mutual funds. But growths will never be extravagant. This also depends on how well banker is managing investments. On weather he's investing in right companies.

Its in association of one such banker running US-64 mutual fund, Ketan parekh made lots of money and a scandal. KP invested his money in 10 low priced shares and got US-64 to invest huge amounts into these stocks. This made the prices of these companies soar. Then he sold of his shares to make 300 crores in a month or so. These shares since have become famous as K10. Harshad did opposite to make money-by pulling markets down to invest and allowing for correction.

SEBI is incharge of stock markets.

[Rocker]

Hey Pradypop! thanks for the information. Big K! thanks for this thread!
Can you write about the basics of IPO?

[The_Big_K]

Originally Posted by Rocker

Hey Pradypop! thanks for the information. Big K! thanks for this thread!
Can you write about the basics of IPO?

Thanks a ton, Rocker! I can write something, but I'm trying to get people who are really 'into' finance.

This thread will be more interesting if we can have question/answer type posts. What say?

-The Big K-