- Stock is a share in the ownership of a company.
- Owning Profits means you are entitled to company profits and you can stake a claim on its assets.
- As you acquire more and more stocks your ownership in the company increases.The more your stock and the more your ownership in the company.
Bobby bought 1000 shares of a listed company and became a shareholder. 3 years later however the company declares bankruptcy and creditors are knocking on the door and can stake a claim on Bobby’s personal assets.
When you ‘close’ your short position you’re basically ‘buying’ the stock back.
- Trader buys and sells in the same day for short-term profits.
- Investor buys and holds stock for many months/years.
- Protect Loses and ensure capital (Staring money) doesn't get eroded.
- Always trade with stop-loss i.e at some point count your losses and close the position.
- Stop-loss: How much loss you expected close the trade as soon as your levels are reached. (It is telling to ensure that your main capital that is not wiped out.
- think long-term, you can't make money in the short term in stock markets.
- learn how to pick stocks as per your risk profile and then invest your money.
You’re a day trader who just bought 200 stocks of a company at INR 100 but notice that its price is now falling lower and lower. What do you tell your broker to do so that you don’t lose too much of our investment?
Bobby has a portfolio of various stocks from different sectors. He recently added a tech company’s stock which he bought at INR 200 per share and the price has now gone up to INR 300. When would Bobby actually realize the gains from this particular stock?
Bobby only has stocks in the London Stock Exchange (LSE) and it is known that UK’s market will suffer later this year. What can he do to protect his portfolio from this?
Question 1 1 Mark
When you have a collection of stocks, what is it called?
Correct Answer: B. A portfolio
Question 2 2 Marks
To make a profit, in the most simple scenario, you buy a stock when the price ____ and sell a stock when it ____.
Correct Answer: B. drops and rises
Question 3 3 marks
Who is the CEO of Google Inc., what is its parent company called and which exchange is it on?
Correct Answer: C. Sundar Pichai, Alphabet, NSDQ
Question 4 1 Mark
A stock exchange is like any other market.
Correct Answer: A. True
Question 5 2 Marks
Which city is India’s stock exchange, the NSE, based in?
Correct Answer: B. Bombay (or Mumbai)
Question 6 3 marks
Diversifying your portfolio doesn’t really protect you from risk.
Correct Answer: B. False
It is one of the best ways to protect your portfolio from risks.
Question 7 1 Mark
Social trading means you can basically become a broker and sell stocks to your friends.
Correct Answer: B. No, social trading means I can learn and pick trading tips from my friends and network.
Question 8 2 Marks
Which one of these Indian companies is a brokerage?
Correct Answer: C. Religare Securities
Question 9 3 marks
What do the terms bullish and bearish market mean?
Correct Answer: A. Bullish means markets are going up/are positive and bearish means they are going down/are negative
Question 10 1 Mark
When you buy a stock, you own a part of that company.
Correct Answer: A. True
Question 11 2 Marks
If you wanted to buy stocks in the real world, who would you go to?
Correct Answer: A. To a broker
Question 12 3 marks
Which of these external factors can affect the stock market?
Correct Answer: D. (a) and (b)
- Nasdaq is a global electronic marketplace for buying and trading securities. It was the world's first electronic exchange. Most of the world's technology giants, including Apple and Facebook, are listed on the Nasdaq.
- It operates in 25 markets, one clearinghouse, and five central securities depositories in the US and Europe.
What exactly is an index? What is the NIFTY?
What is the full form of India’s financial services regulatory body SEBI?
What is the most important thing to consider when managing your investments?
Common Myths in Stock Market:
- The most important thing in investment is not return, but your portfolio risk.
- As an Investor, you can make more money by knowing and controlling your risk.
- Risk can wipe out your capital which is finite, small or large.
- Nobody has ever made money by consistently follow the market.
- Very Popular Quote- "Do not time the market, Spend time in the market. "
- As Buffet said-"Behind every stock, there is a company with a business. Try to understand how that business is doing. "
- The investing game is all about generating alpha(excess returns) and in finding such an opportunity in Large Cap Stocks like Infosys, Reliance etc. is extremely difficult.
- Take a calculated risk in stocks will emerge as large-cap in due future in due future; eg: in Last 5years mid stocks like Motherson, Sumi, Eichi Motors, Lupin have multiplied 4-5 times.
- In stock markets, the biggest risk is not taking any risk.
Bobby feels that his returns are the most important thing when investing in the stock market. Though it is important, he would not be able to have a big impact on his returns unless he understands and controls his…
Before investing, Bobby tries to study a lot of theory behind how markets move and times it as much as possible while his friend Tina does research on a company’s business or an industry before. Who is more likely to make better investing decisions?
Question 1 1 Mark
Which Federal Organization regulates the securities market in the USA?
Correct Answer: D. SEC
Question 2 2 Marks
The exact definition of shorting is:
Correct Answer: C. Selling a stock before buying them to make a profit when the price falls
Question 3 3 marks
Focusing on large cap brands such as Reliance or Tata is the best way to make good returns in the market.
Correct Answer: C. Mix a and b
Question 4 1 Mark
What exactly is an index?
Correct Answer: B. A compilation of stocks specific to a market or sector
Question 5 2 Marks
What is the full form of the American exchange called NYSE?
Correct Answer: B. New York Stock Exchange
Question 6 3 marks
A stop loss will help protect you from losing too much of what you investing in a particular stock if its price starts to fall.
Correct Answer: A. True
Question 7 1 Mark
What is the most common Index of India’s NSE?
Correct Answer: D. NIFTY 50
Question 8 2 Marks
Regulators protect the interests of companies and ensure the stock market is performing well.
Correct Answer: B. False
Regulators protect the interests of consumers.
Question 9 3 marks
What is the most important factor to consider when shorting?
Correct Answer: B. Timing
Question 10 1 Mark
The stocks in an index together are called a ____.
Correct Answer: B. Basket
Question 11 2 Marks
What is the world’s largest stock exchange?
Correct Answer: B. USA’s NYSE
Question 12 3 marks
Trading in the stock market is a zero sum game, like gambling. Is this correct?
Correct Answer: E. Both b and d
Who Decides Stock In Stock Exchange?
- Authorised expert named merchant bankers do a detailed analysis of the company/stock before it is listed on a stock exchange like NSE.
- The number of shares that are listed on a company to stock is known as Share Outstanding.
- The stock price of a company: Valuation/Share outstanding.
- The process of listing a company in the stock exchange is called "Initial Public Offering".
- Once listed after a certain price after IPO, the price movement happens due to changes in demand(more people wants to buy) and supply(more people wants to sell).
Why do prices Fluctuate?
- Some people create demand on a particular stock on a given day i.e they want to buy.
- Some people create supply for a particular stock on given day i.e they want to sell.
- If Demand>Supply, then the stock prices goes up and vice-versa.
How to use EPS ratio:
- EPS indicates the profitability of a company.
- EPS trends over the last 3-5 years seen on a graph.
- In the case of trend line rising over a period of time, the company is showing good performance in terms of generating profits for each share-holder.
- A falling trendline should be matter of concern and should be studied in context of other variable of the company like industry ratio and/or any unprecedented headwind affecting the company.
What is Total Earnings / Number of shares outstanding?
BoomTown Company’s total number of shares listed in the market is 1000 and its total earnings stands at 20,000. It’s competitor, BamTown Company’s total number of shares listed in the market is 2000 and its total earnings stands at 50,000. Based on just this information, which stock would you invest in?
P/E Ratio:
- P/E ratio is normally in range of 20-25
- P/E ratio is most important parameter to evaluate Stock's health and subsequently whether it is under-valued(good to buy as value will increase) or over-valued(good to sell as value will decrease in future)
- If the earning are zero or negative for the company, then the P/E ratio does not make any sense at all while evaluating comapny's health.
- A higher P/E ratio could mean investors are anticipating higher earning or profits in the future i.e. you can buy stock as the price will increase more with the increase in earnings in future.
- Such ratios should be seen in comparison to the industry P/E ratio and also in comparison to competitors.
- Sometimes, A stock with high P/E ratio may not be attractive to buy when compared to a competitor.
- Stock ABC -LTP is INR 5000 and P/E is 21
- Stock XYZ -LTP is INR 1100 and P/E is 34
- In this case, ABC will be cheaper to buy although its stock price is higher than that of XYZ.
- This is because for Stock ABC you will pay INR 21 for every rupee of earning, whereas with stock XYZ you pay INR 34 for every rupee of earning.
A company’s current earnings per share is INR 100 and its current market share price is INR 2000. Does it have a healthy P/E Ratio?
Bobby is comparing the health of two companies from the fintech sector using the P/E ratio but one of them has no earnings as of now. Does it make sense for him to use the P/E ratio for this? Why?
Company #1 has a last traded price (LTP) of INR 1500 and a P/E of 50 while Company #2 has a last traded price (LTP) of INR 2000 and P/E of 40. Which company’s stock is better to invest in given this particular information?
Return On Equity:
1. Bobby is about to decide to invest in either Company #1 or Company #2. His friend points out, however, that Company #1 has a lower ROE and than Company #2 which has had a steady ROE for many years. Upon further research, Bobby finds that Company #1 just invested a lot into innovation and research & development. Should he still go for Company #1?
A company made a net income of INR 2,00,000 this quarter and has an ROE of 20%. What is the amount shareholders have invested in it?
What’s an attractive range for a company’s ROE to be in?
- Stock ABC -LTP is INR 100 and Dividend per share is 100
- Stock XYZ -LTP is INR 25 and Dividend per share is 50
Company#1 has an annual dividend per share of INR 40 and its last traded price was INR 20 while Company #2 has an annual dividend per share of INR 500 and its last traded price was INR 250. Which one would you invest in given its dividend yield? Which one is giving back more per
Bobby wants to invest in a company which is newly listed, young and growing really fast while his friend Tinny is going to invest in a much more mature company with a long history of pleasing its shareholders. Who is likely to get a higher dividend yield?
A low dividend yield could potentially mean that the particular stock is overpriced.
- This ratio indicates the amount of leverage or debt the company has taken compared to equity capital.
- A ratio of 2 indicates that the company has taken debt that is equal to twice of equity capital.
- A ratio must be compared to industry average and competitors too.
- A Steady trend in this ratio indicates that the company has been able to raise money consistently in line with the increase in turnover.
- Few companies prefer not to take debt and use their own capital or sale proceeds for further investments.
- Deeper study should be done as many companies are unable to raise debt from banks due to poor credibility of their firm and/or management team.
Company #1 has a Debt to Equity ratio of 5 while Company #2 has a ratio of 3. Which company’s stock would you invest in and why?
Bobby is looking at the debt to equity ratio of an automotive company before he invests his money into its stock. What else should he do while looking at his company’s information?
Which company would have a higher debt to equity ratio in general:
What does a rising trend line of EPS indicate:?
Correct Answer: B. The company is generating profits for shareholders consistently
Question 2 2 Marks
What is another term for the Price Earnings Ratio?
Correct Answer: D. A & B
Question 3 3 marks
The profitability measures of a firm can be judged by which of the below mentioned analysis?
Correct Answer: E. P/e ratio (price earnings ratio)
Question 4 1 Mark
How does one calculate the Price Earnings Ratio?
Correct Answer: A. Price per share / Earnings per share
Question 5 2 Marks
You do not need to compare a company’s P/E ratio with others from that sector to get a good picture
Correct Answer: B. False
You should compare a stock with its sector peers
Question 6 3 marks
A company has 10,000 total shares outstanding and a net income of INR 40 lakh. What is its EPS?
Correct Answer: C. 400
Use EPS formula and divide net income/total shares outstanding.
Question 7 1 Mark
Once a company is listed in the exchange, the movement in stock prices happens due to ?
Correct Answer: C. Change in demand and supply for the stock
Question 8 2 Marks
There are 2 stocks - Stock A has a P/E of 25 and LTP (last traded price) equal to Rs 5000; Stock B has a P/E of 35 and LTP equal to Rs 1100; Which one of them would be better to buy?
Correct Answer: A. Stock A
You’re getting more earnings per rupee with this share.
Question 9 3 marks
Deepak knows that the ROE of Company X is 30% and its average shareholder’s equity stands at INR 30 lakh. What is the exact net profit of the company?
Correct Answer: C. INR 9 lakh
Use the ROE formula to calculate for net profit
Question 10 1 Mark
When a company gets listed on an exchange, its stock price is based on what?
Correct Answer: B. Company’s valuation
Question 11 2 Marks
Company A has a dividend value of $ 300 and company B’s is $100. Now if the share price of company A is $ 200 and the share price of company B is $ 50, which company is giving you a better Dividend Yield Ratio?
Correct Answer: B. Company B
Question 12 3 marks
What is the formula for Debt – to – Equity Ratio? What does it determine?
Correct Answer: A. Total liabilities/ shareholder’s equity. Helps you understand proportion of assets owned by a company through debt or equity.
What is Fundametal Analysis?
The Science of assessing a company’s health before making a decision to buy or sell.
Quantitive factors of a company
-Profits,revenues,cost,future cash-flow etc.
Quantitive factors of a Company-
Company Management,competitor environment, industry trends and macro economics.
Fundamental Analysis of Framework- Qualitative
Asses the qualitative factors of the company in details to as certain the future prospects of the company vis-a-vis competition & economy at large.
Business Model- Questioning the source of profits & revenue and analyzing the company’s core operations will give u a clear picture into the business model of the company.
Management- Question, whether the team has all that it takes to make the company successful? Look for references and people that can validate the performance of the senior manager.
Industry-Question whether the company’s strategy in line with the next trend in the industry otherwise it might lose revenue heavily in future e.g. will the free call and data scheme of reliance JIO affect Airtel?
Competition Analysis- Question whether the company has unique selling propositions (USP) compared to its competitors? If yes, then how easy it is to replicate in terms of time money/resources?
Pick up the Balance sheet and income statement and do the following ratio analysis to ascertain the financial performance of the company.
EPS-look at the trend line of EPS over last 3-5 years.
P/E-Compare the ratio with industry and competition.
D/E- Compare the ratio with industry and competition.
ROE- look at the trend line & compare the ratio with industry over last 3 years.
Dividend Yield- compare the competition over last 3 years.
Determine the intrinsic value of the company- the stock price never usually reflects its real value, as it is subject to speculation and difference in demand and supply. This is where fundamental analysis helps an investor to find out the intrinsic/real value of the company.
Making long term investment decisions- since fundamental analysis helps an investor to determine the future prospects of the company in terms of growth in price and value,one can use map his/her investment horizon while taking decisions.
Reducing loss and Maximizing Profits- Fundamental analysis helps in determining the real value of a stock. Once you compute this value, you know that any price below this value is a bargain and analyzing above is a premium. You can enter and exit a stock accordingly, which helps reduce your risks and maximize profits.
Which of the following would make a good framework for starting off on the fundamental analysis of a company before deciding to trade its stock?
Bobby wants to buy some the stock of a company in the Artificial Intelligence segment of the Technology sector. He has its dividend yield information for the past 3 years but is not sure whether it is the best one to invest in. He should:
To analyse and breakdown a company’s financing, investing and operating activities one should study its:
What is Technical Analysis
It focuses on when to buy/sell a stock basis on price pattern.
The study focuses largely on pattern recognition on the historical price/volume charts using various mathematical formulae/tools.
Stock price charts can be represented in different ways and keys one are Line, Bar and Candlestick Charts.
Pick a market like India(NSE) and an industry that you are comfortable with or have some knowledge about. Eg: You must be using airtel or Vodafone, You may start with the telecom industry.
Bobby is trying to analyze a candlestick chart as part of his technical analysis for a stock and has a doubt about how to read it. You just studied how to read one and tell him that:
Some key assumptions of Technical Analysis are:
As a stock market analyst doing technical analysis why would you want to time the market?
Question 1 1 Mark
Sectors that are heavily regulated will see a small change in policy/regulations impact their stock prices in a big way.
Correct Answer: A. True
Question 2 2 Marks
Once the stock price breaks below support level, then the broken support level becomes the new _______.
Correct Answer: B. Resistance
Question 3 3 marks
For technical analysis, there are many tools that are popular amongst analysts. Select the most popular tools from the options below:
Correct Answer: D. Moving averages
Question 4 1 Mark
The main idea behind looking at a company’s business model as part of the fundamental analysis is to
Correct Answer: D. All of the above
Question 5 2 Marks
Bobby had bought XX Company’s stock when it was in good health. A year later that industry started declining due to various political and environmental factors. However, he saw positive comments from its leadership team about their current and future financial situation. When he checked their current financial report and projected industry trends, he saw that the comments from the leadership were not in line. Should he:
Correct Answer: A. Be wary of the company and do more research before selling their stocks
There seems to be a mismatch in information coming from the leadership and what is happening in the industry
Question 6 3 marks
You have carefully invested in and successfully grown a portfolio for over 3 years and diligently conduct fundamental analysis. This process has made you wealthier. Your friend Sarvesh makes profits on his portfolio by identifying key trends and patterns through technical analysis then making quick trades. Tinny on the other hand has been successful in trading by considering company news and developments in the industry’s overall environment. Who is the speculator, the trader and the investor?
Correct Answer: C. You are the investor, Sarvesh is the trader and Tinny is the speculator
Question 7 1 Mark
What is Fundamental Analysis?
Correct Answer: B. The science of evaluating a stock’s value by looking at the company’s qualitative and quantitative factors affecting its health
Question 8 2 Marks
Once a stock behaves in a particular manner in response to a market event at a given price, it will follow the trend in future as well?
Correct Answer: A. Largely true
Question 9 3 marks
You are doing fundamental analysis for a company in the Utilities industry. Pick the most relevant factor to research more into:
Correct Answer: B. The company’s project pipeline/order book
Question 10 1 Mark
The track record and experience of a company’s leadership is important to its performance in the stock market and to get shareholders great returns.
Correct Answer: A. True
Question 11 2 Marks
A company in the consumer goods sector has its inventory grow faster than its sales over the past 5 years, this
Correct Answer: B. Is a deteriorating sign of their fundamentals
Question 12 3 marks
Bobby is doing technical and fundamental analysis of the technology companies he wants to do trades for this week. He has all the information of the companies from their annual reports as well as the candlestick and line graphs he needs. He is hoping to make a quick profit. What is wrong with this picture?
Correct Answer: A. It doesnt make sense to do fundamental analysis for such short term trades
Now There we Look into Some of the Case Studies:
Maruti Suzuki’s price was 125 rupees and cross 10K in 2017. Let’s Understand the history of the Company
So Maruti Suzuki began as a JV b/w Maruti India & Suzuki Japan. Maruti India was 100% Government-owned company then but Maruti Suzuki was run by Osamo Suzuki who is even the current chairman of Suzuki Japan even now. Suzuki Japan was the largest small car manufacturer even Today.
After that, Research and development wings are created and They start manufacturing and assembling the parts. when In 1991 Liberalisation came to India or Free market economy were brought into India this JV and the car boom was hit rapidly in India. With the Free market economy, a huge privatize and foreign investment has taken to our country. All of these are the beginning of the consumption boom in India and rising middle-class increasing demand and change their lifestyle.
Maruti Listed NSE and BSE IPO on the price of 125 at oversubscribed IPO in 2003. Then in 2006 two manufacturing plants were set up and a huge boom in growth they captured 45% Market-Share. Even today the company own 56% market in India.
Now we see the EPS(Earning per share) in a company life-cycle for 5 years we see that is continuously increasing so it’s a good sign when analyzing the company. If one company EPS continuously increasing that is a good sign for that company.
You know the Company is healthy their Balance-sheet is solid.
The P/E ratio is also increasing, the ROE is at a constant rate, Dividend Yield must be good or you should have transparency that where that dividend yield is re-invested.
Check the differences and comment me what are major difference in two stocks.
