Decoding a Trade/Order Book in the Exchanges...

Hello friends,

The long weekend is over and hope you are ready for an exciting week ahead. There are lots of you who are new to the markets. Today, I am going to take you through the following:

1) Order Book in the Exchanges

2) How to use it

3) And most importantly, how NOT to use it :-)

I am hoping that most of you are trading/investing ONLINE with a broker. Now when you are buying or selling shares online, you will see an order book which provides you a good idea of the top 5 selling and buying prices.

You can find order books of your stocks in both NSE and BSE sites. Lets take an example of an order book here.

From the above example, we see that there are 4 columns. The buy quantity is the number of shares waiting to be bought. Buy price is the price which a buyer is willing to pay for the share. Sell price is the price which a seller is quoting for the share. The sell quantity is the number of shares waiting to be sold.

So we have 500 shares waiting to be bought at a rate of 5250. And we have 1650 shares waiting to be sold at 5252. Now a trade is executed when the buying and selling price match. For example. if a buyer plans to buy 1700 shares at market price, he will get 1650 shares at 5252 and 50 shares at 5252.10 and we can see that the last traded price goes to 5252.10. 

Similarly, if a seller plans to sell 700 shares at market price, he will sell 500 shares at 5252 and the remaining 200 shares at 5249.20 and the last traded price will be shown as 5249.20. 

We can see that the order book is made by the highest 5 buying prices and the lowest 5 selling prices. 

In the bottom, we see the Total buy quantity and the Total sell quantity. Now, we only see a part of the actual order book. The orderbook definitely contains more than top 5 orders. For example, in the current scenario, we cannot see how many buyers are waiting to buy at prices below 5248.70 and we also do not know how many sellers are waiting to sell at prices above 5252.45.

Due to the above reason, it would be foolish to make our buy or sell decision purely by looking at the total number of buyers or sellers. I see many a time, that many traders buy a stock when the total number of buyers are higher than total number of sellers. They try to sell when the total number of sellers outnumber the total number of buyers. It would be interesting to note that a operator/punter can easily manipulate the total number of buyers/sellers by placing a huge order at a very low buy price or a very high sell price (since he is sure that his order will not get executed). 

So the bottom line is, please do not make trading decisions based on order book. Try to trade based on a news or a trend. Be intelligent.

The most intelligent thing to do would be to invest rather than trade. In that case, small price fluctuations would not matter. Only the business matters.

Do you have any questions? Any comments.. Waiting for them...

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Good luck,

Fundamental Investor

A New Beginning :-) Happy Makara Sankranti !!!

Dear investors, friends & learners,

Happy Makara Sankranti, Pongal, Lohri, Bihu, Khichdi, Uttarayan and much much more to all of you... So many names for just one festival in India :-)

Sankranti means movement of the Sun from one Rashi (Zodiac) to the other. Of course, we have 12 Sankrantis during the year, but Makara (Capricorn) Sankranti signifies the movement of the sun from Dhanu Rashi (Sagittarius) into Makara Rashi (Capricorn).

Today is a very special day which is celebrated all over India. A day which signifies the end of the cold winter days and the beginning of the warm spring. This is the period when nature is at its best, the trees and plants are adorned with healthy new leaves and the crops are gloriously ready for harvest. This is the time when the climate is neither too hot nor too cold making it perfect for all of us !!!

Since India is primarily an agricultural country, a lot of festivals are celebrated with an attitude of gratitude to the Almighty for giving bountiful crops to feed everyone. Makara Sankranti is a harvest festival where everyone joyously shares their yield with their near and dear ones. This is a day when everyone and everything which enabled the harvest are thanked - the Animals, the Sun, Mother Earth, the Tools & Equipments and most importantly, Mother Nature for providing the best climatic conditions for the crops. 

We always need to remember that what we are today is because of Mother Earth. She has given us everything possible. Whatever we have created is from her. Let us have gratitude for all that we have received and humbly take her blessings. Sadly, in the last few decades, we have been exploiting Mother Nature for our selfishness and it is high time that we realize, we are nothing without her...

Today is a day when we harvest the previous year's crop and begin the new one with enormous hope and humility. 

Let us all, in the same way, begin our investments in solid companies with a new ray of hope and continue to learn and be humble. Let us collectively pray for all the companies to give their best and serve the people with the best of their products, so that our investments grow with the Indian Economy :-)

Wishing you and family a Happy Makar Sankranti :-) Enjoy yourselves...

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Good luck,
Fundamental Investor 

Bloodbath in the Markets !!! Should we worry?

Hello friends and investors,

I have been receiving hundreds of emails in the last couple of weeks with a common concern regarding stocks moving down more than 50 - 60% in market value from their glorious high. The essence of almost every question is "Should we worry? What do we do now? :-("

The answer is Yes and No. Those who picked up their stocks without doing their own homework or analysis definitely need to worry. Those who invested with the intention of making money overnight definitely need to panic. I would suggest the folks who come in the above category to change your mindset before its too late. And believe me, you can, my friends...

And No Worries, clearly for those who invested in a sound business with a long term vision and understanding of the Potential and Value of the business. Even if your stock is down by more than 50% in market value, I'm sure you know that your business is good/sound and these are temporary gyrations. I can assure you that if you have chosen your business well, you have no reason to doubt your own conviction. If the business is doing well under a great management, do not worry at all. The value will come in due time...

As far as I understand, 2016 is going to be a year of Great quality Stocks. The Indian Government is taking very good steps in various sectors to ensure that our Indian Economy moves in the right direction. A lot of high quality companies are currently quoting at very attractive valuations and the overall bearish mood in the markets provide awesome opportunities for long term. We just need to identify such businesses and then invest in them with a longer horizon and vision. When the overall market crashes, we need to use this opportunity to load ourselves with great companies.

Now, without knowing how to value companies, it is impossible to grab such opportunities. So focus on learning and then start investing :-) It is high time that we understand what the market is all about. Once we know what we are doing, these questions based on Worry & Panic will never creep into our mind..

I strongly believe that there will always be opportunities in the market. Do not ever think that if you spend time on learning, you will lose opportunities on the way. With the right knowledge, you will be able to have a fruitful year ahead in the stock market.

This site is dedicated for learners and that's what we will do, slowly and nicely.

Let's learn together and then invest wisely :-) Just chill...

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Good luck,
Fundamental Investor

Real Market Picture - Funny but True :-)

Hello friends,

Hope you had a relaxed weekend. The stock market is a very interesting place. It's a place where you can Make or Break. We have been seeing a number of businesses in the market. Also, a lot of IPOs in store..

It's Monday morning and thought Ill share something very interesting with you.

A nice video which gives you a good feel of what happens when we speculate and enter the market without homework. This should motivate you to learn and invest. Knowledge is everything !!!

Most of the people do not invest but only trade.. Watch this video and have some fun.

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Please share this post on multiple public platforms so that many more can get benefited and master the art of Investing in the Stock Market !!!

Enjoy,

Fundamental Investor

Fundamentals of Investing in the Stock Market !!!

Hello investors and friends,

Hope all of you went through the videos of Warren Buffet and got a feel of how he values and chooses his businesses (Click here to view the post). Many times, it is worthwhile to watch interviews of successful investors to get a practical understanding of how to pick stocks.

Now here are some interesting points with a few lines of my own from my experience. I hope each of you can digest these points and see if you can put into practice.

I call these my Fundamentals of Investing in the Stock Market. Practising these fundamentals is not impossible and I can vouch for that.

I guarantee you that with a small change in attitude, the stock market will not be a gambling zone but an amazing ownership model for all :-)

1) Always understand the business you are getting into. If you do not understand the business, you can never value it. For this, ensure that you read a lot about the management, products, their customers, company presentations, their confidence of the future. All this needs to be well understood before you look at their balance sheets.

2) If the business does well, the stock value will be realized in due time. If a business is good, the daily colour might not be green but the quarterly colour will definitely be evergreen :-) Just hold on to your business with conviction if it is going good. One day or the other people will run to buy it while you sleep in peace.

3) Look at the long term prospects as well. Today a sector which is the future might be trading low. If after point number 1, you know that the business is growing well, you can invest with a long term vision. Then point number 2 follows.

4) Buy low and sell high - Now this is something which almost no one follows. Normally, you will buy when the stock is moving up  and sell when the stock is moving down. Once you learn to value the company, you will buy low and sell high. 

5) It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Basically, this point is for the greedy who want to make quick bucks. It doesnt take time to lose quick bucks in the market friends. Choose solid value companies at a good price and then sleep over it. Forget the daily movements.

6) When buying a stock focus on WHAT will happen and not WHEN it will happen - This doesn't mean that you do not have a vision. You have to have the common sense of when the business will most likely do better, but the WHAT is very very important.

7) Do not buy or sell a stock based on newspaper headline. Use your HEAD instead. It will pay much more.

8) Management is everything - I have posted in all the boards that management is key. If management is not honest and efficient, you should not invest in that counter whatever may be the prospects. So point number 1 is very important.

9) There are 1000s of companies. Don't forget that there are always opportunities at every point of time. What I am trying to say is that it is worth to spend time studying the counters and then investing. Don't think that you will miss a chance while studying.

10) One of my favourite points - Don't look at the markets but at the individual companies.

Wish you all the very best my friends.. 

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Please share this post on multiple public platforms so that many more can get benefited and master the art of Investing in the Stock Market !!!

Good luck,

Fundamental Investor

Lets begin -> How does Warren Buffet value a business?

Hello investors and friends,

As I had mentioned before, this blog is for learning and not for recommendations. You should be able to choose your own businesses moving forward.

Now, the best way to begin is to see how the best investors approached the market and companies.

Now, many of you would have heard of Warren Buffet, who is one of the most successful investors ever.

How did he make it? How did he choose his businesses? What was his outlook?

The first exercise is to go to youtube and find out how Warren Buffet values his businesses.

Can you do that?

Here are a couple of links you should check out first. Then you are free to explore more.

Ok... Now, that you have seen the videos, let us summarize it well. Click here to read the Fundamentals of Investing in the Stock Market.. 

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Please share this post on multiple public platforms so that many more can get benefited and master the art of Investing in the Stock Market !!!

Good luck,

FI