Tycoons of Stock Market

Who is an investor?

An investor is a person who allocates capital with the expectation of a financial return. It is an individual who commits money to investment products with the expectation of financial return.

We are here going to talk about the biggest investors of all time, who have actually earned through stock market. Stock market has been the primary source of income for them. A few such biggest investors are:

Warren Buffet
Warren Buffet is an American Business magnate, investor and philanthropist. He is the chairman, CEO and largest shareholder of Berkshire Hathaway. He is also ranked as one of the world's richest people and in 2012, the Time ranked him as one of the most influential people. He is also known as the "Wizard Of Omaha". Started to invest at an age of 11, today he is he biggest investor and also the richest. At the age of 11, he bought 3 shares at $38 per share but soon the share price fell down to $27 per share. Still, Buffett held the shares tenaciously and sold only when the price hiked $40 per share but soon regretted his decision when the share price had reached $200 per share. That was the time when Buffett learnt the lesson; the lesson of patience in the stock market. The lesson we all could learn from Buffets experience is the lesson of patience. Share market is all about patience and its better to invest in a long term when investing in a share market.  Buffet's interest on stock market can be traced back to his childhood. Since then, he had a passion for making money and at the age of 10 when he visited New York, He made an effort to visit the New York Stock Exchange. And when he returned to Omaha, he started trading.

Rakesh Jhunjhunwala
Rakesh Jhunjhunwala is an indian investor and a trader. He is a qualified Chartered Accountant. India today magazine described Jhunjhunwala as "the pin-up boy of the current ball run" and the Economic Times as "the Pied Piper of Indian bourses".  He is born and bought up in Mumbai and that where he has done his studies from. As soon as he was done with his college, he plunged into full time investment. He started his career in 1985. He made his first profit of Rs 0.5 million in 1986 by selling the shares of Tata Tea at the price of Rs 143 which was purchased at Rs 43. Between 1986-1989 he earned Rs 20-25 million.  Like Buffett, he is a long term investor, however he acknowledges that trading income helped him build his capital income and remains.  His stock picking strategy is influenced by George Soros' trading strategies and Marc Faber's analysis of economic history. He endorses the rule, "the trend is your friend." His investment philosophy says, "Buy right and hold tight". He claims to base his trades, in part, on the business model of a company, its growth potential, and its potential for longevity. He factors in heavily the competitive ability, sociability and management quality of the enterprise.

George Soros
George Soros is a Hungarian born American business magnate, investor and a philanthropist. He is the Chairman of Soros Fund Management. He is known as "The Man Who Broke the Bank of England" because of his short sale of US $10 billion worth pounds, giving him a profit of $1 billion during the 1992 Black Wednesday UK currency crisis. An immigrant who turned into a financier. Soros's experience from 1963-1973 as a vice-president at Arnhold and S. Bleichroeder resulted in little enthusiasm for the job and a desire to assert himself as an investor. In 1967, First Eagle Funds created an opportunity for Soros to run an offshore investment fund as well as the Double Hedge fund in 1969. Soros announced in July 2011 that he had returned funds from outside investors' money (valued at $1 billion) and instead invested fund from his $2.45 billion family fortune due to U.S. Securities and Exchange Commission disclosure rules. In 2013, the Quantum fund made $5.5 billion, making it again the most successful hedge fund in the history. The fund has generated $40 billion since its inception in 1973. He has made his mark as an enormously successful speculator, wise enough to largely withdraw when still way ahead of the game. The bulk of his enormous winnings is now devoted to encouraging transitional and emerging nations to become "open societies", open not only in the sense of freedom of commerce but- more important- tolerant of new ideas and different modes of thinking and behavior.

There are few investors who motivate the beginners in this field. They had started investing at a tender age and today are amongst the richest. Investing is stock market is all about patience is what their experience tells us. What I ultimately want to tell is, stock market is a nice income source if one wants to invest in a long term and understands the market thoroughly.

Portfolio Management

Portfolio is none other than Basket of Stocks. Portfolio Management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.

It is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other trade offs encountered in the attempt to maximize return at a given appetite for risk.

From the above definitions it is evident that portfolio management is systematic management of securities and assets for achieving desired gains by balancing the risk. It is imperative to build a well-maintained portfolio in order to ensure that an investor succeeds in his/her endeavor. The basic rule of portfolio management is, "Don't pull all your eggs in one basket", which means not to put all your money ins scripts of one sector only but to diversify it.

The portfolio management process is the process an investor takes to aid them in meeting his investment goals.

The procedure is as follows:

1. Create a Policy Statement: A policy statement is the statement that contains the investor's goals and constraints as it relates to his investments.

2. Develop an Investment Strategy: This entails creating a strategy that combines the investor's goals and objectives with current financial market and economic conditions.

3. Implement the plan created: This entails putting the investment strategy to work, investing in a portfolio that meets investor's goals and constraint requirements.

4. Monitor and update the plan: Both markets and investor's needs change as time changes. As such, it is important to monitor for these changes as they occur and to update the plan to adjust for the changes that have occurred.

RISK AND DIVERSIFICATION: DIVERSIFYING YOUR PORTFOLIO

Diversifying your portfolio might not guarantee against a loss but is the most important component to helping you reach your long-range financial goals while minimizing you risk. However, no matter how much diversification you do, it can never reduce risk down to zero.

There are three main things you should do to ensure that you are adequately diversified:

1. Your investment should be spread among many different investment vehicles such as cash, fixed deposit, stocks, mutual funds and perhaps even some real estate and precious metals.

2. Your securities should vary in risk. Picking different investments with different rates of return will ensure that large gains offset losses in other areas.

3. Your securities should vary by industry, minimizing unsystematic risk to small group or companies.

Portfolio construction is more of art than science. Portfolio management and construction is primarily based on actively weighting regional and sector allocations against a fund's underlying benchmark along with a thorough analysis of the risks associated with these weightings.

There are various steps in the construction of a portfolio:

1. The first is the decision on how to allocate the portfolio across different asset classes broadly as equities, fixed income securities and real assets. This asset allocation decision can also be framed in terms of investments in domestic assets versus foreign assets.

2. The second component is the asset selection decision where individual assets are picked within each asset class to make up the portfolio. In practical terms, this is where the stocks that make up the equity component, the bonds that make up the real asset component are selected.

3. The final component is execution, where the portfolio is actually put together. Here, the investors must weigh the costs of trading against their perceived needs to trade quickly. The importance of execution will vary across investment strategies.

Famous proverbs on portfolio management by few great speakers are:

1."Wide diversification is only required when investors do not understand what they are doing."-Warren Buffett

Meaning, diversifying is relevant. Once you have gotten your feet wet and have confidence in your investments, you can adjust your portfolio accordingly and make bigger bets.

2. "Every portfolio benefits from bonds; they provide a cushion when the stock market hits a rough patch. But avoiding stocks completely could mean your investment won't grow any faster than the rate of inflation."-Suze Orman

3. "No business in the world has ever made more money with poorer management."- Bill Terry

4. "I don't think a manager should be judged by whether he wins the pennant, but by whether gets the most out of the 25 men he is given." - Chuck Tanner

5. "If you are saving for the long run, it's actually a good thing when the market is down because the more shares you have, the more you can potentially make when markets rise. And over time-decades, not months-the markets rise more than they fall."-Suze Orman

Stages of Stock Market

Stage Analysis is a strategy for longer term and trading. It uses chart patterns to describe for distinct stages that a particular trade can be in. The stage, and transitions between stages, have specific guidelines for whether a trader should buy, sell, or hold the trade.  This creates a simple strategy to follow when trading the market.  Stage Analysis also helps traders identify and stay invested in long term trends in the market. The four stages are described below:-

BASING:
A period in which a stock or other traded security is showing little in the way of upward or downward movement. The resulting price pattern is a flat line. Often, 'basing' is a term used by technical analysts to describe an issue that is consolidating after a period of rapid growth or decline. A basing stock is one with equal amounts of supply and demand. Basing is a common occurrence after a stock or the market has been in a lengthy decline or has increased by a large amount. In other words, the market is taking a break. Some stocks can form a base that lasts for several years before the trend is reversed.
A basing stock is also thought to be one that is forming new lines of support and resistance. In essence, basing is the merging of previous lines, which leads to the formation of different ones. Many technical analysts believe that basing is crucial, especially for surging stocks. They view basing as the "breather" that allows the issue to continue climbing.


ADVANCING
After a long wait, and having your money tied up what feels like ages, finally stage 2 arrives and the uptrend starts. The pros pile up a lot of the stock before the masses get in. Since most amateurs have forgotten about this beaten down stock, they start buying when the price advanced far too much and that is when we get in the next stage. You should better be long in this stage. The stock breaks out of the horizontal base and begins advancing over a period of time.  The breakout needs to occur on increased volume, otherwise it might not be sustainable.  The stock should also break above the 180 days moving average during the breakout. While the stock moves higher, most of the advance should occur above a rising 180 days moving average.


TOPPING
This stage is a bit similar to stage 1, except stage 3 is the stage following after an uptrend (and not a downtrend). The stock starts to move sideways and buyers and sellers are equal. The pros already unloaded there stocks or are still unloading. The stock starts to trend sideways in Stage 3 and lose momentum to the upside.  The 180 days moving average also loses its upward slope and starts moving sideways.  The price action in the stock usually occurs much more above and below the flattened 180 days moving average than it did in Stage 2.  The stock will either breakdown into a Stage 4 decline after this stage, or after a consolidation break back into another Stage 2 advance.


DECLINING
The stock breaks down below Stage 3 trading range and below the 180 days moving average in Stage 4, and continues to decline mostly below the 180 days moving average.  The 180 days moving average begins a long slope downward.

Initial Public Offer (IPO)

An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue, the best offering price and the time to bring it to market.

The primary advantage a small business stands to gain through an initial public stock offering is access to capital. In addition, the capital does not have to be repaid and does not involve an interest charge. The only reward that IPO investors seek is an appreciation of their investment and possibly dividends. The main advantages of a public company are:

1. Access to capital to fund growth
Public placement of shares on a stock exchange allows the company to attract capital to fund both organic growth and acquisitive expansion. If retained earnings and debt funding are insufficient, IPO becomes one of the most realistic and convenient ways to secure the continuing growth of the business. It provides access to a massive, timeless pool of capital and boosts the investment credibility of the business.

2. Creation of liquidity and potential exit for the current owners
Formation of a public market for the company’s shares at fair price creates liquidity and provides an opportunity to sell the shares promptly with minimal transactional costs. The private owners of the company can dispose of their stakes in the business both during an IPO and at a later stage.

3. Maximum value of the company
Normally, an IPO is an offer to a large number of institutional and retail investors to become shareholders of the company. The very multitude of large investors and their confidence in the liquidity of their investment in a public entity assure the current owners of a private company about achieving the maximum possible valuation of the business at the time of an IPO or afterwards.

4. Enhancement of the company’s public profile
Listing on a recognized stock exchange means that the business will receive wide media coverage, usually a very favorable one, thus increasing the company’s visibility and recognition of its products and services. The company’s activities will also be reflected in the reports by professional financial analysts. Such public profile supports liquidity of the shares and contributes to the expansion of the business contacts. It also helps to increase confidence among the company’s business partners.

5. Improvement in debt finance terms
For domestic financial institutions – used to working with the low-transparency businesses and often inadequate financial reporting – a company listed on a recognized stock exchange becomes a desirable and reliable partner. Banks are often ready to extend loans to public companies in larger amounts, under smaller collateral, for longer maturities and with lower interest rates. Even the largest and most prestigious banking institutions are keen to work with public companies – whose transparency and corporate governance serve as additional factors of confidence for banks and other suppliers of credit.

6. Extra assurances for partners, suppliers and clients
Partners and contractors of a public company feel more confident about its financial state and organisational capabilities as compared to those of a non-transparent private business. Partners take additional comfort in the fact that the public company has gone through rigorous legal, financial and corporate due diligences – all of which are required for a successful completion of an IPO. Confidence among partners and contractors is a sound foundation for stable and predictable business relations with the public company, and allows the latter to obtain additional leverage in negotiating better terms for doing business.

7. Enhanced loyalty of key personnel
Publicly available information about the share price of a public company allows development of employee motivation schemes based on partial remuneration of staff in the form of participation in the equity capital (for example, share options). Equity-based incentive schemes stimulate the key personnel to become more efficient in their work in order to support the company’s growth rates and profitable development – which in turn increase the operational and financial efficiency of the company and its market value.

8. Superior efficiency of the business
Conduct of various due diligences during the IPO process requires a thorough and comprehensive analysis of the company’s business model. During the IPO implementation process, certain internal changes take place, including modification of the organisational structure; selection of the key personnel and delegation of responsibilities; improvement of internal reporting and controls; as well as critical evaluation of the efficiency of the entire business. Normally, such extensive internal efforts result in significant improvements of the communication system, management and controls; they also help eliminate any previously hidden shortcomings in the internal functioning of the business.

The biggest disadvantages involved in going public are the costs and time involved. Experts note that a company's man agement is likely to be occupied with little else during the entire IPO process, which may last as long as two years. The small business owner and other top managers must prepare registration statements for the SEC, consult with investment bankers, attorneys, and accountants, and take part in the personal marketing of the stock. Many people find this to be an exhaustive process and would prefer to simply run their company. The underwriter must make sure that it sells the entire issue. An IPO is deemed successful if the entire issue is sold and its price jumps when it starts trading. The best way to achieve those goals is to generate investor demand by limiting the number of shares offered in an IPO and by setting the subscription price sufficiently low.

An initial public offering (IPO) is the first sale of stock by a company. Small companies looking to further the growth of their company often use an IPO as a way to generate the capital needed to expand. Although further expansion is a benefit to the company, there are both advantages and disadvantages that arise when a company goes public.

There are many advantages for a company going public. As said earlier, the financial benefit in the form of raising capital is the most distinct advantage. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt. Another advantage is an increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers.

Subsequently this may lead to an increase in market share for the company. An IPO also may be used by founding individuals as an exit strategy. Many venture capitalists have used IPOs to cash in on successful companies that they helped start-up.

Even with the benefits of an IPO, public companies often face many new challenges as well. One of the most important changes is the need for added disclosure for investors. Public companies are regulated by the Securities Exchange Act of 1934 in regard to periodic financial reporting, which may be difficult for newer public companies. They must also meet other rules and regulations that are monitored by the Securities and Exchange Commission (SEC). More importantly, especially for smaller companies, is the cost of complying with regulatory requirements can be very high. These costs have only increased with the advent of the Sarbanes-Oxley Act. Some of the additional costs include the generation of financial reporting documents, audit fees, investor relation departments and accounting oversight committees.

Public companies also are faced with the added pressure of the market which may cause them to focus more on short-term results rather than long-term growth. The actions of the company's management also become increasingly scrutinized as investors constantly look for rising profits. This may lead management to perform somewhat questionable practices in order to boost earnings.

Before deciding whether or not to go public, companies must evaluate all of the potential advantages and disadvantages that will arise. This usually will happen during the underwriting process as the company works with an investment bank to weigh the pros and cons of a public offering and determine if it is in the best interest of the company.