Welcoming all students for the first class on first day…
Since morning I was at the top of Banyan tree located outside the gate to test the behavior of students.. though turnout was very good, I could see every one talking about that double hundred from Sehwag and then playing the game on their mobiles throughout the day.. From tomorrow onward mobile will not be allowed inside the school premises…… take care……
Ok…… Every one ready now? Let’s start our proceedings…
We shall deal with both basic as well as advanced levels….. Today, I am going to cover 2 topics.
Chapter1.
A. Investment
B. Trading
C. Trader and Investor.
Chapter 2.
A. Price never stops…Price is in perpetual motion
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Chapter 1.
A. Investment: A financial investment, in simple words, means deployment of fund in a financial instrument with an expectation of a positive return… In other words, every investor expects his investment to grow.
Ex: An investor investing Rs.10,00,000 in a mutual fund would expect that he gets positive return…. A positive return here means any amount accruing over and above Rs.10,00,000 of initial investment..
An investor has 2 options.
1. To go for an investment which gives fixed % of return. In this case his return on investment is fixed. A Bank fixed deposit fetching 9% interest per annum belongs to this category. Here the investor is assured of his return.
2. To go with an investment which is subject to either positive or negative return…. Why does an investor go with this category?…. Because he expects more returns compared to the category 1. However he has to take more risk here. Investments in Mutual funds, stock markets…… all belong to this category.
Lesson 1: More risk….. More return…. less risk…… less return.
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B.Trading: Trading by nature is a speculative business… meaning…. a trader forecasts the future movement of a particular market instrument and takes the position in advance.
C. Difference between a trader and an investor.For an investor to get positive return, the market has to go up…. However for a trader to get positive return, market need not go up…
Let me clear this aspect…. An investor buys a share of a particular company and expects the price of that share to go up and there by make positive return on his investment… Hence an investor has limited perspective… he expects one side movement….
A trader on the other hand is not concerned whether market moves up or moves down…. he buys in case the market is expected to move up and sells later to make the gains and in case he expects the market to make down move…. he sells first and later buys at lower levels to make gains from the difference there of… This part has to be crystal clear….
Lesson 2: Trader has an advantage over an investor as a trader can make money from both falling as well as rising market whereas an investor makes money from a rising market only and suffers severe loss from a falling market.
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Chapter 2.
A. Price never stops… Price is in perpetual motion….. one might be surprised to hear this statement. In reality, price never stops. How? It is because the perception of investors and traders about the value/price of a stock is in perpetual motion i.e: keep changing every moment.
Ex.: Say… today ICICI Bank’s share opens at Rs.750 and then at the end of the session it closes at Rs.730. Now the price was in motion throughout market hours… next day… say… it opens at Rs.720. Now we have a difference of Rs.10 Between today’s opening and last day’s closing. How did that happen? It is due the character of “Perpetual motion”… means the news, fundamentals, macro and micro economic factors… All keep affecting the price 24/7 though market is open for just 6.5 hours. Hence price keeps changing even when market is closed and thereby causing different perceptions in the minds of traders/investors…
Lesson 4: Price is moving even when market is closed!!
Ok. Boys…. it’s already late tonight… too many mosquito’s are biting here… hence let’s wind up for today…… Next class will be announced very soon… good night.. take care…. Bye heart the lessons!!!!
4xraghav 