Stock Marketing Expertise Tips

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Stock Markets
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What is a stock market?

• A stock market or equity market is a market for
  the trading of company stock (shares) and
  derivatives at an agreed price.
• The size of the world stock market was estimated
  at about 36.6 trillion USD at the beginning of
  October 2008.

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What is a share/stock/equity?

• Shares represent a fraction of ownership in a
  business. The common feature of all these is
  equity participation. Different classes of shares
  have different voting rights.
• Ownership of shares is documented by a legal
  document that specifies the amount of shares
  owned by the shareholder, and other specifics of
  the shares, such as the par value or the class of
  the shares (if any).
• These days these stock certificates have been
  dematerialized.(No physical document!)

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Who is a shareholder?

• A shareholder (or stockholder) is an individual
  or company (including a corporation) that legally
  owns one or more shares of a company.
• Shareholders are granted privileges depending on
  the class of stock, including the right to vote
  on matters such as elections to the board of
  directors, the right to share in distributions of
  the company's income, the right to purchase new
  shares issued by the company, and the right to a
  company's assets during a liquidation of the
  company.
• Shareholders vary from individual stock investors
  to large hedge fund traders.

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Why does a company issue shares to the
public?

• A company may want additional capital to invest
  in new projects.
• The promoters may simply wish to reduce their
  holding, freeing up capital for their own private
  use.
• Once a company is listed, it will be able to
  issue further shares via a rights issue, thereby
  again providing itself with capital for expansion
  without incurring any debt.
• Financing a company through the sale of stock in
  a company is known as equity financing.

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Trading

• The shares of a company are in general be
  transferrable from one shareholder to another .
  This leads to buying and selling of shares termed
  as trading.
• Investors usually buy and sell shares on the
  exchanges through a stock brokers registered with
  the exchange.
• A company may list its shares on an exchange by
  meeting and maintaining the listing requirements
  of a particular stock exchange.

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Share price determination

• At any given moment, the price is strictly a
  result of supply and demand. The supply is the
  number of shares offered for sale at any one
  moment. The demand is the number of shares
  investors wish to buy at exactly that same time.
• Actual trades are based on an auction market
  model where a potential buyer bids a specific
  price for a stock and a potential seller asks a
  specific price for the stock. (Buying or selling
  at market means you will accept any ask price or
  bid price for the stock, respectively.) When the
  bid and ask prices match, a sale takes place.

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Listing requirements

• The set of conditions imposed by a given stock
  exchange upon companies that want to be listed on
  that exchange.
• Examples include minimum number of shares
  outstanding, minimum market capitalization, and
  minimum annual income.
• These requirements vary from exchange to
  exchange. Example Bombay Stock Exchange (BSE)
  has requirements for a minimum market
  capitalization of Rs.25 Cr and minimum public
  float equivalent to Rs.10 Cr whereas the London
  Stock Exchange has requirements for a minimum
  market capitalization (700,000) .

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Ways of buying and selling shares

• Through a stock broker They arrange the transfer
  of stock from a seller to a buyer. Both the buyer
  and the seller of the share pay commission known
  as brokerage to the broker.
• Directly from the company
• If at least one share is owned, most companies
  will allow the purchase of shares directly from
  the company through their investor relations
  departments.
• A direct public offering is an initial public
  offering(IPO) in which the stock is purchased
  directly from the company, usually without the
  aid of brokers.

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Leveraged Strategies

• Margin Buying
• Buying stock on margin means buying stock with
  money borrowed against the stocks in the same
  account. These stocks, or collateral, guarantee
  that the buyer can repay the loan otherwise, the
  stockbroker has the right to sell the stock to
  repay the borrowed money. The broker usually
  charges 8-10 interest on margin borrowing.
• Short selling
• In short selling, the trader borrows stock
  (usually from his brokerage) then sells it on the
  market, hoping for the price to fall. The trader
  eventually buys back the stock, making money if
  the price fell in the meantime and losing money
  if it rose.

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When to invest in a particular stock?

• Fundamental analysis refers to analyzing
  companies by their financial statements found in
  SEC Filings, business trends, general economic
  conditions and the growth prospects of company's
  market segment. A few parameters which are looked
  upon include Price to Earnings (PE) Ratio, Price
  to Book Value ratio, Equity to Debt ratio.  
• Technical analysis studies price actions in
  markets through the use of charts and
  quantitative techniques to attempt to forecast
  price trends regardless of the company's
  financial prospects. A few examples include Trend
  lines, Bollinger Bands, Oscillators etc.

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Fundamental Analysis
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Technical Analysis
Up Trend-Line
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Technical Analysis
Bollinger Bands
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Stock Market Index

• The movements of the prices in a market or
  section of a market are captured in price indices
  called stock market indices. Such indices are
  usually market capitalization weighted, with the
  weights reflecting the contribution of the stock
  to the index. Examples of index include Sensex,
  Nifty, DJIA, SP500, Nikkei etc.
• The constituents of the index are reviewed
  frequently to include/exclude stocks in order to
  reflect the changing business environment.

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Importance and role of the stock markets

• Raising capital for businesses
• Government capital-raising for development
  projects
• Mobilizing savings for investment
• Facilitating company growth through acquisitions
• Creating investment opportunities for small
  investors
• Barometer of the economy

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Stock markets and the financial risk

• Sometimes the market seems to react irrationally
  to economic or financial news. This may
  'temporarily' move financial prices away from
  their long term aggregate price 'trends'.
  (Positive or up trends are referred to as bull
  markets negative or down trends are referred to
  as bear markets). Over-reactions may occurso
  that excessive optimism (euphoria) may drive
  prices unduly high or excessive pessimism may
  drive prices unduly low.

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Stock Market Crashes

• A stock market crash is often defined as a sharp
  dip in share prices of equities listed on the
  stock exchanges. In parallel with various
  economic factors, a reason for stock market
  crashes is also due to panic and investing
  public's loss of confidence. Often, stock market
  crashes burst speculative economic bubbles.
• Famous stock market crashes have lead to the loss
  of billions of dollars and wealth destruction on
  a massive scale.

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Happy Investing! Thank
You!

• Questions?