Look Before You Invest!

Contents

Preface --------------------------------------------------------------------------- 1 Acknowledgements---------------------------------------------------------- 2 What is stock market?-------------------------------------------------------3 Investment vehicles----------------------------------------------------------4 Why invest in stocks?--------------------------------------------------------6 Fundamental and technical analysis simplified-------------------7 Investor Risks-------------------------------------------------------------------8 Myth-buster----------------------------------------------------------------------9 Look before you invest!-----------------------------------------------------11 Do's and Don'ts for investors-------------------------------------------14 Frequently Asked Questions----------------------------------------------17 Quotable quotes---------------------------------------------------------------18 Useful websites------------------------------------------------------------------20 Further reading----------------------------------------------------------------21 Disclaimer------------------------------------------------------------------------24

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Preface
You should take consistent effort to keep up with rapidly evolving world of information and technology by constantly acquiring and updating your knowledge level as this is highly essential for success in all endeavours in life. Without proper knowledge and skills, even the simplest chores of our life seem risky and complicated. Mainly, owing to ignorance or precisely, due to the lack of financial literacy, most people are in a mistaken belief that the stock market is a place where luck is tried, bets are placed and money is made by the wheel of fortune game of fate or destiny. Blindly believing in nonsensical myths without understanding basic arithmetic and forces of demand and supply, most people shy away from profiting from one of the highly rewarding ways of investment - stock market. This simple booklet attempts to give a brief introduction to the stock market, brings light on seem-tobe-complicated financial jargons, bust the myths and provide a basic knowledge to the investor who invests his hard earned money in stock market. This book, obviously, is not a complete guide to any kind of investment. It just provides the reader or investor with basic knowledge and insight into stock market and the world of investment. Anyone who is interested in this domain of finance can secure more information and insight from the books and websites recommended in the final pages of this booklet. As a dealer in securities, derivatives, commodities and currency markets, I believe it is my duty to make the investors aware who invest on the stocks and other investment vehicles I recommend. This booklet is dedicated to the goal - to inform and educate a novice investor. I hope it can accomplish the goal it is meant to achieve. Happy investing! Yours truly, Justin Raj

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Acknowledgements
In our world, a good support group is greatly needed for any simple effort to accomplish something fruitful. This page is dedicated to those few good, friendly and helpful souls who helped and guided me through a week-long writing marathon which eventually resulted in my first booklet. First of all, I have to thank my mother for her support and of course, the delicious food she had cooked (and still cooking!) which kept me alive and refreshed since the day I started writing this booklet. Then I have great thanks to my brother who always supports me even if the endeavours I undertook turned out to be disasters. This booklet wont be made possible without proofreading and editing done by my best friends, Mr. Jim Mathew and his wife Mrs.Tina Jim, founders of HireSEOwriters.com. I should extend my gratitude to Mr. Kiran Tom Sajan, Reporter at Deccan Chronicle whose creative designing skills gave a great makeover to this simple booklet. I also take this opportunity to thank Mr.Arun Mathew, my friend and journalist at Topgear Magazine, for additional inputs and ideas which enriches this booklet all the way to the end. Last but not least, I appreciate you for the valuable time you are going to spend reading my simple booklet and also your interest in stock market investment as well as your burning desire for financial freedom. Any comments or queries on this book or any kind of investment assistance please feel free to mail me on mailjustinraj@gmail.com

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What is stock market?

Investopedia defines stock market as, the market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance. In simple terms, it is through stock market that listed companies raise capital for expansion or other operations. Stock market is divided into two main sections: 1. Primary market: it is the place where the shares are issued. Primary market consists of investment banks which decide the beginning price for the share of a company and hold the responsibility of overseeing the sale of shares directly to investors. 2. Secondary Market: it is the market where the shares are bought and sold among investors other than from issuing companies themselves. National stock exchanges such as National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are examples of secondary markets.

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Investment Vehicles
Generally, investment vehicles are the methods by which an investor invests his hard earned money. This can also be referred to anyplace you can put your money. Some of the examples of investment vehicles are: stocks, bonds, mutual funds and alternate investments such as Futures, Options, Real Estate, FOREX, Gold etc. Bonds Bonds are grouped under fixed-income securities which has debt as underlying value. Precisely, you are lending your money to a corporate or government when you purchase a bond from them. From an investment in bonds, you are entitled to get fixed interest on your investment and eventual repayment of your investment after maturity period. Bonds are comparatively safer than stocks and other investment vehicles. Most of the bonds from a government which is stable are risk-free and guaranteed investment. With less risk comes lesser returns. So the return from bonds is generally lower than other securities. Stocks By purchasing stocks or equities, you become a part owner of the business. Investment in stocks gives you the right to vote at the shareholders' meeting and receive dividends. Profits from stocks are called dividends. Bonds versus stocks Stocks are volatile while bonds provide steady income Some stocks don't pay dividends. Stock provide higher returns than bonds Mutual Funds Basically, a mutual fund is a mutually agreed pool of funds from different investors with a unified investment goal. This fund enables you to get access to services of a professional money manager who can invest your money in a set of securities, bonds and other investment vehicles. Most of the mutual funds have a specific strategy in place, such as some of them focus on large stocks, others on bonds from companies while few of them invest in stocks in certain market sectors. Advantages of mutual funds A sound investment with no experience or deep study or research. Professional money management Better returns Look Before You Invest!

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Alternative Investments Alternative investments consist of Futures, Options, FOREX, Gold, Real Estate, Etc. These investment vehicles are also known as derivatives since they derive their value from the underlying stocks and other securities. These investment vehicles are highly complicated and require different investment strategies and specialized knowledge. Higher the risk, higher the returns. Alternative investments give investors an opportunity for higher profits. But if the investor dont know what they are doing, they could get themselves in a lot of trouble and financial loss. So, sound market knowledge and skills are needed to deal with derivatives.

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Why invest in stocks?
The main attraction of investing in stocks is the greater return they offer. Since a stock is a piece of ownership on a business or a company, the value of a single stock increases when the company grows. If an informed and knowledgeable investor knows the right stocks of right companies, he or she can make good profit when the company performs well. If the investor indulges in active trading, he or she can make more profit in a short span. Accessibility is another advantage which lures the investor to invest in stocks. Anyone with good knowledge about market trends, adequate capital, proper research and analysis can access the market and acquire ownership of stocks. The stocks traded in the market also have greater liquidity than other securities. This means that it can be easily converted into cash by selling the equities to other traders in the market. Latest advent of information technology in the form of online trading or SBTS (Screen Based Trading System) has brought transparency in stock market activities. Buying and selling can happen in matter of seconds and it helps the trader to utilize the timely fluctuations of the market. Since 2008, making profit from stocks which are held long term (more than one year) are exempted from Capital Gains Tax (CGT) if STT (Securities Transaction Tax) is paid on sale.

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Fundamental & Technical Analysis Simplified
In simpler words, fundamental analysis is looking into the basics of a company and measure whether the stocks of the company is the worth buying, holding or selling. It is similar to weighing a listed company and knowing how much the company is worth. There are two broad approaches to fundamental analysis: top down and bottom up approach. In top down approach, the investor first take up the broad macroeconomic factors such as political, social and economic conditions in which a company operates to determine the future performance of the company. In bottom up approach the investor analyses the performance of each company in a sector and finally end up investing in the best and highly performing company. The ratios and other numbers on which fundamental analysis is done is obtained from a company's financial statements, cash flow statements and major news sources. Technical analysis is simply a method of analysing a company or a market index on the basis of historic performance, past prices and volume. Unlike fundamental analysts, technical analysts do not try to measure a stock's intrinsic value. On the other hand, they use technical charts and other sophisticated tools to identify patterns that can nearly predict future activity. Most of the Technical analysts believe that the historical performance of stocks and stock markets are indications of future performance. To make these two schools of market analysis easily digestible, just imagine the stock market as a shopping mall. A fundamental analyst goes to each store of the mall, study the products which are there for sale and then after careful examination and analysis decided to buy it or not. But the case of technical analyst is entirely different. He just sits outside the mall and watch people going for shopping to the stores. His perception on market is not based on the intrinsic value of the product but on the pattern or activity of shoppers going into each store.

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Investor Risks
Any kind of investment is risky and prone to price fluctuations, losses as well as profits. There in nothing like a 'perfect' and 'safe' investment. Here are some of the risk factors an investor should bear in mind while investing in stock market. It would be appropriate that an investor should take into consideration all the risks mentioned below before venturing into the world of investment. Business risk investing in a stock means that the investor in becoming a part of the business or the company. A business doesnt guarantee steady income or cash flow. This feature of business makes investments in shares bit riskier than any other investments. But with higher risks comes higher returns. Financial risk there is always uncertainty over how a company finances its operations other than issuing common stocks. If a company uses finance mainly from the common stocks, it is subjected to business risk only. But if a company takes financial aid from banks or other financiers, it runs the risk of giving priority to paying interest rather than paying or giving returns to the shareholders in terms of dividends. Liquidity risk this risk refers to the uncertainty looming over the ability of the investors to convert their investments into cash for funding any other purposes. Liquidation is mainly done in secondary market. In simple terms, liquidity factor refers to the easiness and fastness by which the investor can liquidate his or her shares. Exchange rate risk this kind of risk is faced by investors who make investments in other countries using currencies other than their domestic currency. The main example for this example is gold. Exchange rates play a major role in the business of gold. Macroeconomic factor risk it refers to the uncertainty prevails over the macroeconomic factors such as unemployment, economic output, inflation, investment and savings. These are key indicators of economic performance and minor fluctuations in these factors have great impact on businesses and subsequently on share prices and investments.

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Myth Buster
Since its introduction, stock market has been filled with numerous myths. Some people compare stock market to casino where reckless gambling takes place while others depict stock market as a place where only a few like brokers and others mint money. Here in this section a simple attempt has been made to demolish some of the myths which haunt the stock market as well as the investment world. 1. When a person wins other loses There is a widespread belief that if someone loses money, it is the gain of other person on the other side. Unfortunately, it is true at some times. But stock market always makes constant momentum since the industrial production and other factors goes up with time. So all the long term investors makes profit from their investment. The money gets transferred hands only if the investor indulges in short term speculation. 2. Investment in stocks is risky All investments are risky in one way or the other. Even sleeping with money under your pillow carries the risk of theft! So only way you can go forward with your investment is to take professional advices and implement various strategies before leaping into investing. 3. Stock markets are casinos Most of the inexperienced or more importantly, ignorant traders believe that stock market is nothing more than a gambling centre. The truth is that, a share of equity of a company means a piece of ownership in that particular company or business. When the company or business runs in profit, the stakeholders will make profit and vice versa. There is no clear-cut formula to success in stock market. Only careful and deep analysis on companies are the only way to make money in the market today. Unlike investing, gambling is a zero-sum game where no value is created. Money just slips from the hand of the loser to the hands of the winner. By investing we are participating in the growth of an economy. It also helps to create a healthy competition among companies which in turn increase their productivity and motivates them to develop new products which help to improve consumers' lives. So, dont go astray by confusing both investing and gambling.

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4. In stock market, only stock brokers and other elite section of people make money Advertisements on business websites, television channels, newspapers and even on roadsides, you can see brokers giving tips on trading. Most of those advices or tips are useless, inaccurate and ineffective. But today, the scenario has changed. The internet has exposed market to the public more than ever before. Most of the important data and research tools which are available only to brokerage firms previously are available to even laymen today. So you can trade in a much more democratized stock market today. 5. Tips from brokers are sure shot way to mint money in stock market Most of the brokerage firms employ a research team but the output is mainly based on the quality of the researches they conduct on the market. Even though the research goes well, the macroeconomic situations are mostly unpredictable. Number of unexpected events can change the course of market which can bend the research results as well. Keep in mind that not all market analysts are good in giving good advices.

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Look before you invest!
Investors must understand the process that is required to be followed while transacting on exchanges. Investors must also be aware of their rights vis--vis trading members or brokers. The following section contains some of these processes that must be understood before trading in the securities market. 1. Selecting a Broker/ Sub - Broker Investors must deal only with a Broker / Sub - broker registered with SEBI (Securities and Exchange Board of India) after due diligence. Details of the registered brokers can be obtained from the Exchange websites. 2. Entering into an Agreement with the Trading member (broker)/ Sub-broker Investors must: Fill in a Client registration form with the Broker / Sub - broker Enter into Broker / Sub - broker - Client Agreement. This agreement is mandatory for all investors for registering as a client of a Trading Member. Ensure the following before entering into an agreement: Carefully read and understand the terms and conditions of the agreement before executing the same on a valid stamp paper of the requisite value. Agreement must be signed on all the pages by the Client and the Member or their representative who has the authority to sign the agreement. Agreement has also to be signed by the witnesses by giving their names and addresses.

Investors must note that Regulatory Authorities have not stipulated for execution of any document other than Broker/ Sub - Broker / Client Agreement. 3. Transacting

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Investors must: Specify to the Broker / Sub - broker, the exchange through which the trade is to be executed and maintain separate account for each exchange. Obtain a valid Contract Note from the Broker / Sub-broker within 24 hours of the execution of the trade. Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client in the prescribed format. It establishes a legally enforceable relationship between the Trading Member and his Client in respect of settlement of trades executed on the exchange as stated in the Contract Note. Contract Notes are made in duplicate, and the Trading Member and Client, both are provided one copy each. The Client is expected to sign on the duplicate copy of the Contract Note, confirming receipt of the original. The following are the prescribed types of contract notes. Contract Note - Form 'A' - Contract Note issued where Member is acting for constituents as brokers/ agents. Contract Note - Form 'B' - Contract Note issued by Members dealing with constituents as principals. Ensure that the Contract Note: Contains SEBI registration number of the Trading Member/ Sub broker. Contains details of trade such as, Order number, trade number, trade time, quantity, price, brokerage, settlement number, and details of other levies. Shows trade price separately from the brokerage charged. Shows brokerage within SEBI stipulated limits. As stipulated by SEBI, the maximum brokerage that can be charged is 2.5% of the contract price. This maximum brokerage is inclusive of the brokerage charged by the sub-broker (Sub-brokerage cannot exceed 1.5% of the contract price). Additional charges that a Trading Member can charge include Service Tax on the brokerage, any penalties arising on behalf of client and Securities Transaction Tax (STT). The brokerage, service tax and STT are indicated separately in the Contract Note.

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Contains signature of authorised representative of the broker. Contains arbitration clause stating jurisdiction of relevant courts. 4. Settlement Investors must: Ensure delivery of securities/ payment of money to the broker immediately upon getting the Contract Note for sale / purchase but in any case, before the prescribed pay-in-day. Give the Depository Participant (DP), 'Delivery out' instructions to transfer the same from the beneficiary account to the pool account of broker through whom shares and securities have been sold, so as to deliver securities from demat account. The instructions must contain: details of the pool a/c of broker to which the shares are to be transferred, details of security, quantity etc. As per the requirement of depositories the 'Delivery out' Instruction should be given at least 48 hours prior to the cut-off time for the prescribed securities pay-in. Give the Depository Participant (DP) Delivery in' instructions to accept shares in beneficiary account from the pool account of broker through whom shares have been purchased, so as to receive shares in the demat account. Ensure that the members pay the money or securities to the investor within 24 hours of the payout.

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Do's and Dont's for investors
Investors must follow some Dos and Donts while transacting in the securities market or stock market. Given below are some general Dos and Donts for investors: Dos Investors must: Always deal with the market intermediaries registered with SEBI / stock exchanges.

Carry out due diligence before registering as client with any intermediary. Carefully read and understand the contents stated in the Risk Disclosure Document, which forms part of the investor registration requirement for dealing through brokers. Collect photocopies of all documents executed for registration as a client, immediately on its execution. Ensure that the documents or forms for registration as Client are fully filled in. Give clear and unambiguous instructions to their broker / agent / depository participant. Always insist on contract notes from their brokers/sub-brokers. In case of doubt in respect of the transactions, verify the genuineness of the same from the exchange. Always settle the dues through the normal banking channels with the market intermediaries. Adopt trading / investment strategies commensurate with their risk-bearing capacity as all investments carry some risk, the degree of which varies according to the investment strategy adopted. Be cautious about securities which show a sudden spurt in price or trading activity, especially low price stocks. Remember that there are no guaranteed returns on investment in the stock market. Read the terms and conditions and understand the risk factors associated with the commodity market investment

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Always keep copies of all investment acknowledgements, slips, contract notes). documentation (e.g. application forms,

Send important documents by a reliable mode (preferably through registered post) to ensure delivery. Ensure that they have money and will be able to pay, before you buy. Ensure that they hold securities and will be able to deliver, before they sell. Follow up diligently and promptly e.g. If the required documentation is not received within a reasonable time, investors must contact the concerned person at the Trading Member immediately. Possess thorough understanding of the research and analysis technique he employs while making an investment decision. Keep in mind that all trading tools like charts are mere ways to understand the market sentiments and cannot be relied completely on making investment decisions. Have done his home work before commiting himself/herself to a financial advisor's advice. Understand that the it is him/her who is solely responsible for his/her losses and gains Understand that no Chart Pattern works out the way he/she thinks it should every time. Understand that he/she should deploy protective Stop-Loss and/or Exit strategy before entering into a Trade.

Donts

Investors must not: Deal with unregistered brokers / sub - brokers, or other unregistered intermediaries. Execute any documents with any intermediary without fully understanding its terms and conditions. Leave the custody of their Demat Transaction slip book in the hands of any intermediary. Make any payments in cash

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Accept unsigned/ duplicate or incomplete contract notes Deal based on rumours or 'tips'. Get swayed by promises of high returns. Fall prey to promises of guaranteed returns. Investing the money which is borrowed with higher rate of interest. Get misled by guarantees of repayment of their investments through post-dated cheques. Get carried away by luring advertisements of any nature in print and electronic media. Blindly follow media reports on corporate developments, as some of these could be misleading. Blindly imitate investment decisions of others who may have profited from their investment decisions. Forgo obtaining all documents of transactions, in good faith even from people whom they know. Delay approaching concerned authorities in case of a dispute. Written complaints must be filed with the Exchange as soon as possible. Invest unless he/she has thorough understanding of what he/she is doing, and why he/she is doing it, based on his/her own personal knowledge and experience. Engage in intra-day trading of shares and securities with the money he/she can't afford to lose.

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Frequently Asked Questions
Given below are answers to some of the frequently asked questions from novice investors when they step into the world of stock market investing. 1. How much percentage of return I can get from my investment in stocks? A. Stocks are highly volatile as well as risky. No one can give you any sort of guarantee on your return. But most probably with proper analysis of market, calculated risk, stop-loss and monitoring you can achieve good returns from your investment. 2. What benefits can I avail if I divert my funds from my savings account to buying equities or derivatives? A. Investment in stock offer higher returns than savings, which is just 3.5% per annum. Money lying in savings is idle money. You can always make your money works harder in stock market. 3. Do I get all support from my broker on which shares to buy and sell on each day? A. Any given day. Service will never be an issue if you are dealing with a registered broker. 4. Which skills I need to develop to become a good speculator or investor? A. Fundamental analytical skills as well as technical chart reading skills should be developed along with emotional discipline to become a good investor or speculator. 5. Do brokers deal with all stocks in the market? A. Most of the brokers deal with all listed stocks except few illiquid scrips. 6. Can I track my investment portfolio online? A. Of course, yes. 7. Can I withdraw money from my trading account incase of any emergency? A. Yes, you can liquidate the stocks you own at any time you please. 8. Am I eligible to receive dividends on the stocks I own? A. Yes Look Before You Invest!

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Quotable Quotes
If we fail to anticipate the unforeseen or expect the unexpected in a universe of infinite possibilities, we may find ourselves at the mercy of anyone or anything that cannot be programmed, categorized, or easily referenced. Agent Fox Mulder, The X-Files The most dangerous untruths are truths slightly distorted. G.C Lichtenberg That which thou sowest is not quickened, except it die. I corinthians XV:36 The happiness of those who want to be popular depends on others; the happiness of those who seek pleasure fluctuates with moods outside their control; but the happiness of the wise grows out of their own free acts. Marcus Aurelius It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it. Nathan Mayer Rothschild You've got to be careful if you don't know where you're going, 'cause you might not get there. Yogi Berra Everyone needs constant education and training. The more you keep yourself informed, the better honed your instincts and decision-making capabilities. Linda Conway The greatest ignorance is to reject something you know nothing about. Anonymous Choose a job you love, and you will never have to work a day in your life Confucius Anytime there is change, there is opportunity. So it is paramount that an organization get energized rather than paralyzed. Jack Welch, CEO, General Electric Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude. Thomas Jefferson

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Risk comes from not knowing what you're doing. Warren Buffett. The harder you work, the luckier you get. Gary Player Whatever the mind of man can conceive and believe, it can achieve. Napoleon Hill Two-thirds of the decision-making process is based on analysis and information and one-third is always a leap in the dark. Napoleon Bonaparte Winners dont do different things, they do things differently Shiv Kera Efficiency is doing things right; effectiveness is doing the right things. Peter Drucker

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Useful Websites
www.nseindia.com : It is the official website of National Stock Exchange of India. At this website, you can find the value of the index, stocks and latest market news and also number of useful intra-day and historic charts as well as details on certification exams, guides which can inform and educate novice investors. www.bseindia.com : It is the official website of Bombay Stock Exchange which provides you with the similar information which the website of national stock exchange provides you with. www.money.rediff.com : This is a good website where you can track intra-day market movement as well as latest market news www.moneycontrol.com : This is an online market news portal where you can get latest market movement, trend and real time sector wise performance of the market. www.finance.yahoo.com : This website provides you with latest national and international market news www.bloomberg.com : This is an international market news provider. Its free mobile application is also popular all over the world. www.investopedia.com : This is the Wikipedia of the investment world. The user can get the meaning of all financial jargons and enjoy reading various good, informative articles on this website. It is a very good website to bookmark on your browser. www.dsij.in : It is the website of Dalal Street Investment Journal. The reader can get latest market news and also a good feel of market sentiments from this news-portal. www.scores.gov.in : SCORES is the short form of SEBI Complaints Redressal System. It is a one stop shop to file all investor complaints.

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Further Reading

Security Analysis by Benjamin Graham

The Intelligent Investor by Benjamin Graham

The Warren Buffet Way by Robert G Hagstrom Common Stocks and Uncommon Profits by Philip Fisher Look Before You Invest!

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Peter Lynch Collection

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The Richest Man in Babylon by George S. Clason

Rich Dad's Guide to Investing by Robert T Kiyosaki

Unfair Advantage by Robert.T.Kiyosaki

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Disclaimer

All of the content published on this eBook is to be used for informational purposes only. Embarking on trading securities and shares by merely reading this eBook provides no guaranteed returns of any kind. Though the author is a Level I Financial Market Professional, the advices and suggestions envisaged in this eBook doesn't guarantee success in stock market investment. The information and content in this eBook are not, and should not be construed as an offer to buy or sell any of the securities or buy any books mentioned. Trading of securities may not be suitable for all users of this information. The information in the document is also subject to change without notice. Both intra-day trading of stocks and investing in the stock market, in general, have large potential rewards. However, they both have large potential risks involved in which you can lose all your money. So it is highly recommended that you should get professional advice from certified financial market professionals before entering into the highly risky and volatile world of stock market investing. No one can claim the control of the stock market. Financial market professionals derive at the investment decisions from the available research data and information from the past or prevailing market situations to provide guidance to the investor. So, the risk and reward depends solely on the decisions of investor himself.

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