13 Things Your Broker Won't Tell You

#1
Hi all .. came across this excellent reading
Reagrds

13 things your stock broker won't tell you

With the markets touching record highs, you ought to be on your guard. Dont go by tips. Do your own analyses, says chartered accountant Kanu Doshi.

Dont go by tips from your freindly neighbourhood broker. Do your own analyses, says chartered accountant Kanu Doshi in conversation with an investor.


Investor: Hi, whats up?

Advisor: Nothing, except the stock market is rangebound, with Sensex hovering around 8,500.

Investor: Can we review the entire approach to equity investment at these levels of boom market.

Advisor: Fine. We may jot down some broad principles and we may call them Axioms. As you know, these axioms are all my work but based on several excellent books on the vast and fascinating subject of stock market investment like One Up the Wall Street; Beating the Street; both by Peter Lynch; Zulu Principle by Jim Slater; The Warren Buffet Way; to name only a few of them.
Axiom One:

Where there is profit, there is always risk. Greater the opportunity of profit, greater the possibility of loss:

There is a close direct relationship between the risk and the reward. Higher the reward, greater the risk. Though this is fairly simple, it is always observed in breach.

Axiom Two:
Gentlemen who prefer BONDS, dont know what they are missing. On Bonds, there is no return ON our money; there is only return OF our money:
Bonds being Debt instruments unlike equity, yield only fixed return and with inflation and income tax factored in, there is often no return at all.

Axiom Three:

Equity Investment is risk investment:
Investing in equity shares of companies is risk related because returns are linked to the companys profits unlike investing in bank deposits or bonds or debentures where the returns are fixed and accrue to investors regardless of the companys profits.

Axiom Four:
Stock market behaviour is unpredictable:
Stock market behaviour is dependent on human behaviour and since times immemorial, it has been established that human behaviour can never be predicted with any reasonable accuracy; and hence we have fluctuations in prices of commodities, things and stocks based on greed, emotions, hopes, fantasies, fear and dreams resulting in opportunities of making money out of such fluctuations!

Axiom Five:
Not all common stocks are common:

Though equity shares as an investment class is one, each company has a distinct identity and performs differently and therefore rewards its investors also differently.

Axiom Six:

Investing is nothing but arbitrage of ignorance:

Investing is basically profiting from pricing and difference in market perception of a given product at a given point of time. Stock market is one place where the buyer and the seller both think that they are smart in their decision.

Axiom Seven:
Elephants dont gallop, zebras do:

Stock prices of big companies with large capitalizations move up or down rather slowly compared to smaller companies because there is not much of market ignorance on big companies to capitalize on. Hence smaller companies tend to reward its investors more handsomely.

Axiom Eight:
Equity investment is not for everyone, nor for all times of a persons life:

One needs not only cash but also courage to be an equity investor. There has to be a positive mental temperament and willingness to absorb occasional losses. Those prone to panic at losses should remain invested in fixed deposits with banks and Government Bonds. If you dont know who you are, stock market is too expensive a place to find it out! Even for a risk loving investor, there is no single static investment strategy valid from his cradle to crematorium.

Axiom Nine:
Investors make mistake in buying not good stocks at high prices but in buying bad stocks at low prices.

A lay investor tends to buy unsound companies at cheap prices instead of solid companies at high prices.

Axiom Ten:
Equity investment cant maximize your income; but it can maximize your wealth.

Actual yield by way of dividends on equity shares with reference to their market value is often as low as 1 percent on our investment. But capital appreciation in equity values can be mind blowingly high. Ask initial investors of Infosys, Pantaloon to name only two companies.

Axiom Eleven:

Saving for investment is not a punishment.

Investing is making conscious choices about how you will use your money. It is not about choosing to live rich or die rich. It is about how you want you and your dear ones should live during your lifetime and thereafter.

Axiom Twelve:
On Stock Prices:

(i) There is no high price or low price of a stock. There is only the market price of the stock nor any price too high for you to buy or too low for you to sell.

(ii) In isolation, price of a stock is not relevant. What is important is whether a share is underpriced or overpriced, overvalued or undervalued.

(iii) We do not invest in Stock Market Index; nor in Stock Market; nor in individual companies. We invest in a stock at a price at the correct time.

(iv) You cant control the market nor the individual stock prices; but you can control your reaction to the market.

(v) Intelligent investing is knowing what to buy; smart investing is knowing when to buy.

(vi) Your profit is determined by your purchase price and not your sale price. Timing your purchase is important.

(vii) Dont ask the price of the stock, ask what is the worth of the entire company to know whether the stock is worth investing.

Axiom Thirteen:
On Share Brokers:

(i) Dont expect your broker to help you to earn for you. He is there to earn from you.

(ii) The sub-broker made money and the main broker made money and two out of three making money in a single transaction is not a bad bargain.

(iii) Never ask a broker whether you should buy a particular stock, it is like asking a barber if you needed a haircut.

Investor: This was great education!
 
#3
harmads said:
Hi all .. came across this excellent reading
Reagrds

13 things your stock broker won't tell you

With the markets touching record highs, you ought to be on your guard. Dont go by tips. Do your own analyses, says chartered accountant Kanu Doshi.

Dont go by tips from your freindly neighbourhood broker. Do your own analyses, says chartered accountant Kanu Doshi in conversation with an investor.


Investor: Hi, whats up?

Advisor: Nothing, except the stock market is rangebound, with Sensex hovering around 8,500.

Investor: Can we review the entire approach to equity investment at these levels of boom market.

Advisor: Fine. We may jot down some broad principles and we may call them Axioms. As you know, these axioms are all my work but based on several excellent books on the vast and fascinating subject of stock market investment like One Up the Wall Street; Beating the Street; both by Peter Lynch; Zulu Principle by Jim Slater; The Warren Buffet Way; to name only a few of them.
Axiom One:

Where there is profit, there is always risk. Greater the opportunity of profit, greater the possibility of loss:

There is a close direct relationship between the risk and the reward. Higher the reward, greater the risk. Though this is fairly simple, it is always observed in breach.

Axiom Two:
Gentlemen who prefer BONDS, dont know what they are missing. On Bonds, there is no return ON our money; there is only return OF our money:
Bonds being Debt instruments unlike equity, yield only fixed return and with inflation and income tax factored in, there is often no return at all.

Axiom Three:

Equity Investment is risk investment:
Investing in equity shares of companies is risk related because returns are linked to the companys profits unlike investing in bank deposits or bonds or debentures where the returns are fixed and accrue to investors regardless of the companys profits.

Axiom Four:
Stock market behaviour is unpredictable:
Stock market behaviour is dependent on human behaviour and since times immemorial, it has been established that human behaviour can never be predicted with any reasonable accuracy; and hence we have fluctuations in prices of commodities, things and stocks based on greed, emotions, hopes, fantasies, fear and dreams resulting in opportunities of making money out of such fluctuations!

Axiom Five:
Not all common stocks are common:

Though equity shares as an investment class is one, each company has a distinct identity and performs differently and therefore rewards its investors also differently.

Axiom Six:

Investing is nothing but arbitrage of ignorance:

Investing is basically profiting from pricing and difference in market perception of a given product at a given point of time. Stock market is one place where the buyer and the seller both think that they are smart in their decision.

Axiom Seven:
Elephants dont gallop, zebras do:

Stock prices of big companies with large capitalizations move up or down rather slowly compared to smaller companies because there is not much of market ignorance on big companies to capitalize on. Hence smaller companies tend to reward its investors more handsomely.

Axiom Eight:
Equity investment is not for everyone, nor for all times of a persons life:

One needs not only cash but also courage to be an equity investor. There has to be a positive mental temperament and willingness to absorb occasional losses. Those prone to panic at losses should remain invested in fixed deposits with banks and Government Bonds. If you dont know who you are, stock market is too expensive a place to find it out! Even for a risk loving investor, there is no single static investment strategy valid from his cradle to crematorium.

Axiom Nine:
Investors make mistake in buying not good stocks at high prices but in buying bad stocks at low prices.

A lay investor tends to buy unsound companies at cheap prices instead of solid companies at high prices.

Axiom Ten:
Equity investment cant maximize your income; but it can maximize your wealth.

Actual yield by way of dividends on equity shares with reference to their market value is often as low as 1 percent on our investment. But capital appreciation in equity values can be mind blowingly high. Ask initial investors of Infosys, Pantaloon to name only two companies.

Axiom Eleven:

Saving for investment is not a punishment.

Investing is making conscious choices about how you will use your money. It is not about choosing to live rich or die rich. It is about how you want you and your dear ones should live during your lifetime and thereafter.

Axiom Twelve:
On Stock Prices:

(i) There is no high price or low price of a stock. There is only the market price of the stock nor any price too high for you to buy or too low for you to sell.

(ii) In isolation, price of a stock is not relevant. What is important is whether a share is underpriced or overpriced, overvalued or undervalued.

(iii) We do not invest in Stock Market Index; nor in Stock Market; nor in individual companies. We invest in a stock at a price at the correct time.

(iv) You cant control the market nor the individual stock prices; but you can control your reaction to the market.

(v) Intelligent investing is knowing what to buy; smart investing is knowing when to buy.

(vi) Your profit is determined by your purchase price and not your sale price. Timing your purchase is important.

(vii) Dont ask the price of the stock, ask what is the worth of the entire company to know whether the stock is worth investing.

Axiom Thirteen:
On Share Brokers:

(i) Dont expect your broker to help you to earn for you. He is there to earn from you.

(ii) The sub-broker made money and the main broker made money and two out of three making money in a single transaction is not a bad bargain.

(iii) Never ask a broker whether you should buy a particular stock, it is like asking a barber if you needed a haircut.

Investor: This was great education!
1st time on traderji and was really interesting to read ur 13 points good job
 
#5
Thanks Harmads ,
That was short and sweet useful reading compared to some of the books I'm trying to read and undertstand

Can someone help me to find the A list companies online?

Regards
Dominic
 
#6
hi harmads. great post, i am fairly ignorant of charts, i neither have the time nor the inclination, i have generally followed the rules above, and made a 15% increase in my investment in the last 4/12 thank you once again :) bud
 

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