Right from the time, when we wriggled out of the sea water and started infiltrating all over this planet; we always needed fiction to survive.
We needed myths like Gods, states and religion.
Man needed stories to stick to. We needed groups to be part of and we needed feeling of, “us and them” to feel purpose in our life.
Then ideologies corrupted our minds. Some followed communism; which raised right questions but provided few solutions.
Few followed capitalism; that solved many problems but gave birth to extreme inequality and ecological disturbance.
Communism still holds firm in many countries; especially in Eastern parts of the globe.
Communism is basically,” from each according to his ability and to each according to his needs.”
In this all property is owned by the community and each person contributes and receives according to his ability and needs.
Communism is still deeply ingrained inside every inch of capitalism and we don’t even observe it.
It is necessary for capitalism to flourish and spread.
In the house joint family members share their possessions with each other. They earn them by capitlistic market and then put to use based on communist principles.
When we get out of house; we ask strangers for directions free of cost. We may get shelter under strangers umbrella. Somebody may tell you that you forgot to remove stand of your bike, without charging money.
In office, your senior colleague may answer your queries or act as a mentor free of cost.
Now see Facebook and Instagram. How much money they would earn if people didn’t share their pictures and art free of cost.
Would Amazon feel the same, if reviewers didn’t post product reviews for free on it.
So, capitalism may boast of anything but it is nothing without this daily communism.
Elinor Ostrom took this idea to her heart and studied how humans can judiciously share common resources without need of a state or autocracy to intervene.
This concept of commons need to reach more people and should be recognised for its vital role.
Her studies got Elinor Ostrom; Nobel prize in 2009 but still capitalism with its bright lights is outshining the garden of commons.
It is eye-opening write-up. It tells us that; even if intentions are good and legislation in place, still beneficiary may be deprived of a benefit due to misinterpretation of things and complexities of a process.
In year 2015, as people tried to flee to better lands amongst middle eastern Syrin war. As many as 4000 refugees drowned in meditarranean sea; as they tried to cross it with inflatable boats.
They paid loafty money to mediators and found themselves with their families; in the middle of no where.
This happened in spite of Geneva convention aggrement; which enables refugees from Syria to seek asylum in Europe.
But, when people tried to reach airports they faced effects of anti illegal immigrants directive, which was designed to stop illegal immigrants. This directive required airlines company to ship back illegal immigrant for free.
Hence, on airport counter every asylum seeker was seen as illegal immigrant. Hence Geneva convention failed to help them due unclear and complex process.
Why didn’t they use good boats.
Because, there is EU policy to confiscate illegal boats. Hence, if people used boats they will be captured and gone
Hence, desperate people used inflatable boats which are very unstable and risky.
Hence inspite of remedy (permission of asylum under Geneva convention); it was really hard for refugees to reach Europe to seek asylum.
Sorry, for the heading of the blog. This was to get your kind attention.
This blog is about stocks, also known as shares, with particular focus on Indian general masses, who want to enter and explore share market.
It is simplified basic knowledge about share markets.
Babies will not need it. But their dads will need it, to secure their future. Hence in a way this blog is for those babies too; who are going to discover in future, that their daddy knew next to nothing about economics and investing.
As uncertainty, looms in the economy with unpredictable future, you need to have knowledge about all the spheres of the investing.
If you have money, it should grow with time and this can be done by wise investing.
So let’s clear our basic doubts about shares.
First let’s clear biggest confusion according to my analysis. It is terminology which blogs use to explain shares. It is confusing.
We must know that ;
equity = share = stock = security
First you should know this fact that they call shares with so many names. As different sources write different names, it can be daunting. They all are interchangeable.
We will use term share in this blog, to avoid confusion.
“Share is a physical or digital certificate that gives buyer partial ownership of a business.”
Let’s imagine a business is worth 100 rupees. Its owner divides this into 100 shares each worth 1 rupee.
Now, he puts them in stock market ( stock exchange) from where people can buy or sell these shares.
So, if someone buys 40 shares of this company, he becomes 40% owner of the company. Any one who invests 1 rupee, he becomes 1% owner.
So shares help businesses in raising money for their operations.
His investments are now dependent on the performance of the business. If it grows, he earns money and if business falters, he looses money.
He can buy or sell shares anytime on the stock exchanges.
There are two main stock exchanges in India –
1. The Bombay stock exchange ( BSE)
2. The National Stock exchange ( NSE).
Companies are listed on stock exchange. And only listed companies can sell their stock in stock market.
These are regulated by SEBI ( Securities and exchange board of India); which is a statutory body responsible for fair working of the exchanges.
It penalises for wrong practices and frauds and formulates rules and regulations for working of stock exchanges.
Hence, one can invest money in stock market without worrying about frauds or cheating, as far as stock companies are concerned. Whole system runs on trust.
These days stocks are available in digital format and can be easily purchased or sold using apps like zerodha, Angelbroking etc. Whole process is very simple.
You need to make a demat account with regulator and after kyc verification (know your customer) verification; you can purchase and sell from comfort of your home.
How does initial price of a stock is decided?
It is random value in decimels decided by the company promoters. After that performance of the business and demand and supply and perceptions about future decide the price of that stock.
Total number of stocks issued is called total shares outstanding.
If we multiply number of shares issued with the price of one share, we get market capitalisation ( market cap) of the company.
All companies listed on stock exchange are divided into groups based on market cap.
1. Large cap –
Top 100 companies in terms of their market capitalisation. These are safer and successful companies. Examples in India are TCS, HDFC, L and T, wipro etc.
2. Mid cap –
101-250 in list of companies based on market capitalisation. Examples are pfizer, emami, bayer etc.
3. Small cap –
Above 250. These are generally lesser known volatile companies.
Now based on performance of the company, its management, brand value, public sentiments and many external factors like war, disaster, competition, fads;there are fluctuations in the price of stock in the market on day to day basis.
But generally in long term ( 10-15 years ); if business of the company is sound, it results in rise in stock price over time in spite of the short term wide fluctuations. Hence stock market investment is for long term.
If you don’t have 10-20 years of time to let your money grow, it can be less fruitful mode of investment.
What happens when stock prizes rises?
Company can give you part of the profit, that is called dividend.
Or it may hold extra cash for liquidity and expansion.
It may invest gains for further expansion of the business.
Why the people worried about Sensex rising or falling. What is this sensex?
Sensex is a metric using which we can guess overall performance of the economy.
We can’t check each and every stock daily. So we have devised a simple measurement number. It simplifies monitoring.
Sensex and nifty are such numbers. They are stock market indices. They tell the direction of the market, whether towards positive or negative.
Sensex belongs to Bombay stock exchange. It is made up of 31 hand picked companies, which are picked by private firms.
For example, sensex companies are picked by Sand P global. Companies are not fixed. Based on performance new companies enter and go.
Nifty belongs to the national stock exchange. It is made up of 50 stock. Hence, it is called Nifty 50.
Hence, next time you see a news anchor worried about fall in sensex, you will know that, she is talking about the performance of choosen list of companies on that day. Their performance is averaged based on their size and sector.
Few more terms that you hear everyday.
Bull market – when the market is on the rise like horns of a bull.
Bear market – when market is on fall like a crouching bear.
Blue chip companies- companies which are reliable performers.
What is initial public offering?
IPO – Initial public offering –
Each company starts as a small privately owned company. With Time it grows and it needs more money to expand. It then lists itself on Stock exchange, so that anyone in public can buy its shares as IPO. It raises a lot of money for the company.
A board of governors is appointed to oversee working of the company. Its data and performance are public. It is responsible to its shareholders for maintaining good performance.
Hence, IPO is the initial offering stock by a private company, which enlists itself on the stock exchange so that its stock can be bought and sold by general public.
This blog is aimed to provide introduction to the share market to Indian readers.
Babies don’t need to study economics. They don’t need to know about debt. They don’t need to calculate interest rates and returns on investment.
But their fathers need to know all this. They need to earn money and then grow it slowly to fight inflation and uncertainty.
Babies and children in turn need this knowledge for their daddy or mamma; who are in-charge of money, which babies will own one day.
Don’t you think they want a wiser dad or mom, so that they can get lot more more money, than a passive parent may provide.
So this blog is to understand basics about debt or loan.
Debt is a loan which is to be repaid in fixed time and is given on particular rate of interest ( extra money other than principal amount ).
It is a way to raise money for businesses.
It can be classified into various types like business loan, personal loan, housing loan, car loan etc.
It can be secured or unsecured. secured loans have attached asset like property, machinary or FD; equivalent to the amount of loan, which can be forfeited in case of inability to return the loan.
What are bonds?
Bonds are one type of debt instruments. They are used by businesses to raise money.
Bond is a standard piece of aggrement, that fixes term of the loan like interest rate and tenure.
Company has to pay interest irrespective of the revenues. Hence, for investors bonds are relatively safer option to invest their money. As fixed returns are guaranteed beforehand. But, as risk is reduced in these compared to shares, returns on investment in bonds is also lower.
Government also takes loan from people for building infrastructure and other works.
Bonds are issued by government. This type of loan is called sovereign debt. Govt gives assured retuns on these investments.
Various debt instruments.
1. Bonds which we have discussed above.
2. Debentures – It is a debt instrument that is not secured by collaterals and generally has tenure longer than 10 years. Hence it is given to creditworthy organizations.
3. Corporate deposits –
It is company version of fixed deposit. It is for fixed duration and has fixed interest rate. It is provided by banks and non banking financial institutions.
4. Fixed deposit ( FD) – It is favourite thing of Indian masses. It preserves money with very low returns.
5. Public provident fund ( PPF) –
It provides for reasonable returns and tax and saving benefits. It has limit of 1.5 lakhs. Lately it’s returns have also been curtailed.
6. National savings certificate ( NSC) –
These are issued by government of India as small savings instruments. It is provided by India post.
7. Debt mutual funds –
These are mutual funds that invest primarily in bonds. Hence they have lower returns as compared to shares but are safer.
Main aim of all these is capital protection.
Capital gains is secondary.
As you age, it is better to invest more in bonds and debt instruments.
As you near your retirement or big expanse, you can take out money from equity and park it into a debt instrument for capital protection.
Inspiration – many personal finance books.
Few things about home loan.
It is given by bank or non banking financial company.
Down payment is initial payment for the home. It is generally 20% of the home value.
Before construction you have to give pre EMI. In first year 99% loan is disbursed.
After registration of the property remaining 10% is disbursed and registration documents lie with bank as collateral.
After, registration EMI starts.
Tenure is time period in which loan is to be repaid.
EMi is decided based on rate of interest and tenure.
There are other charges like processing fee, notarization, conversion charges etc.
Overdraft facility –
It is a way to reduce tenure and EMI of your loan.
Bank creates a savings account linked to your home loan account. It is called overdraft account.
Any additional amount of money in this account; over and above your EMI is taken as pre payment towards the loan. This reduces loan principal and hence reduces EMI.
Added advantage is that you can withdraw money from this account anytime.
For example; if you took 25 lakh loan with overdraft account. And you added 5 lakhs to this account. Interest rate of your loan will be calculated on 25-5 = 20 lakhs in place of 25 lakhs. Hence you get reduced EMI.
Why is it so.
Because interest rate of such loan is higher by 0.25-5% as compared to routine loan.
But inspite of this it is a useful way to save money.
You will be happy that you know it.
Inspiration – Mistakes in personal finance, that I have made.
Personal finance is such a sticky thing. After you grow out if childhood, you come to know about this money thing. Now your dad stops fulfilling your unreasonable demands and starts to expect, that you are going to earn some money now.
Eighteen years of pizza, burgers and your TV recharges needs to be billed to you from that moment.
You were sent to school to learn how to earn. And you scratch your head that school completely forgot to teach you, how to earn money.
You wonder how will arithmetic and algebra and mediveal history, will get food on your plate.
You see towards your friends and they too are under axe of their parents, to earn their living.
In this post let’s discuss few basic concepts, that help in managing personal finance in current scenario.
And that’s the time when one needs to learn about personal finance. Earlier you start, better it is for your lazy body.
Let’s get this stuff.
1. Don’t compare with others. Everyone is running different race with different rules and different rewards. Choose your race correctly, that suits your mindset, skills and personality.
2. Nothing is free. Yes, that free voucher, with that costly phone is indirectly to be paid by you. And, you must also understand that your time and attention are also a form of capital that Marketing people are in pursuit.
3. People, beliefs and culture change with time. So don’t keep your ideas rigid. It was risky to board in car of a stranger, but now it’s fashionable due to UBER.
4. Always leave some room for errors, unexpected events and unknown forces. Don’t be a overconfident. Don’t board Titanic without lifeboats.
5. Past cannot predict future. Experts cannot predict future. No one predicted 2008 or 9/11 or covid.
6. Negatively gets more focus and attention. Try to go beyond all those negative vibes floating in sea of social media.
7. Personal finance is a relatively untouched part of the conventional knowledge. So, start learning about it.
8. Set ceiling of your satisfaction. Don’t keep running. Rest, relax and enjoy. Afterall, that’s why you work.
9. Use power of the compounding. And be aware that it takes time. There are millions of articles and videos that explain compounding to you.
10. Getting rich is easier than staying rich. All those sports stars who retired young can easily slip into poverty.
11. You can do average things and fail multiple times, but you can still become rich.
12. Financial freedom is the biggest success possible.
13. Be rich. Don’t focus on looking rich. Be humble and save money.
14. Dollors saved are equal to dollors earned in value.
15. Go for cash flow instead of capital gains. If you can generate positive cashflow other things will take care of themselves.
16. Try to build assets which put money in your pocket, even when you are not working. That elusive thing is called passive income.
17. Whenever you calculate your gains always keep inflation in mind. It reduces purchasing value of your money. This 100 rupee note will be less useful five years from now.
18. Don’t try to be cheap. Try to be useful to others. Don’t die fighting for pennies. Keep your heart big and vision broad. Don’t be 11 th fruit seller in a row on roadside. Enter business with substantial returns for your efforts.
A lot of things are infinite. They continue. Waiting for their end, leads to early obituaries. Eyes dry out, before comprehending corners of these things.
There is no end to a few things. There is no permanent winner or looser. Only finite moments of disturbances followed by a continuous flow of the time. Flow; that is continuous.
Life is such a thing. A little part of infinite flow of time. It ends and no body notices after sometime. Then new biomass loaded with consciousness, wriggles on earth and this flow continues unabated.
Life is part of an infinite stream that continues; come what may. Life ends but game of the life continues. Till last living cell is destroyed, it will continue and even after that; there is always a chance of resurrection of biology.
So why do we want finite durations?
Why we want business quarters?
Why we want annual reports?
We know business continues till owners live , so why is focus on the short term? Long term things should have long term strategy.
So, for a brand to last for decades; we need infinite mindset.
Infinite mindset means – That business is an infinite game; that is to be played with long-term targets in vision.
For example, USA thought Vietnam war was a finite game but after loss of life and big fortune; they realised that it was an infinite game, if they continued to play it.
Microsoft wanted to defeat Apple, which was a finite game mindset. Apple focused on satisfying the customer and recently on the privacy of customers. Hence Apple was clearly playing infinite game right from the start.
Lego wants game to continue. Hence it has been around for so long.
Even if Apple knew that iPhone will kill the ipod, they went ahead with it.
Similarly gym to gain fitness is an infinite game. If you stop following diet and excercise schedule after few months, you endup regaining all the weight you shed with so much effort.
So take life as an infinite game.
Qurters, annual revenues, flowcharts- all are artificial constructs to keep shirt term goals in perspective, but too much focus on them may jeopardize long term prospects of the business.
Infinite game is positive and inclusive.
It needs reselience and it has a just cause.
It avoids too much focus on the short term results, as long as long term progress is positive.
Hence next time you see an CEO too much submerged in three monthly results, assume that he has got a finite mindset.