Investing wisely in the stock market in India - some rules to follow

Investing in the stock market is one of the best ways to make money. However, it is something that needs to be done wisely and requires patience. These are some rules to remember while investing. While this is primarily focussed towards investing in India, these rules apply everywhere.

1. Invest for the long term - investing should always be done with a long term view in mind (between three to five years is a good time span). Investing for the long term allows enough time to sway through the volatility that often accompanies the stock market. However, it is also important to keep investing regularly as well. The power of compound growth can only occur over a long period of time. This approach also creates discipline in the investor.
   


2. Invest regularly in small amounts - investing should be a way of life - just like exercise - and should be done regularly. Instead of investing a large amount at a time, it is better to invest small amount at regular intervals of time. A monthly investment is a popular option. This helps in neutralizing the effects of volatility in the market, so that you get more shares when the price is low and less shares when the price is high. Over time, the average cost of accumulation of shares levels out. This also creates a sense of discipline.
   


3. Invest in businesses not just stocks - when you invest in a company's shares, you are buying a little piece of ownership in that company. Buy a business, not just a stock. This approach will make you more aware of the type of business the company is engaged in, its growth prospects and the quality of the company's management. The management of a company is important and an investor should be familiar with at least a few of the people behind the company. This is not a rocket science though. You do not have to know the complete ins and outs of the company, but you should have a fair idea based on research, news items, word of mouth and plain old common sense. Investing in stocks ultimately is about investing in the future prospects of that company and it is always necessary to know something about the nature of business, the products or services, the growth history, management and future plans of the company.
   


4. Do your own research - with the growth of the Internet, it is now possible to do research on companies very easily. Sites like Google finance, yahoo finance, money.rediff.com, moneycontrol.com and economictimes.com are good places to start. The basic things to look at are the PE ratio, growth of EPS, book value, growth of profits, profit & loss, dividend paying history among others. It is better to shortlist companies based on your own research. Look for companies that have lower PE ratios. A company with a low PE ratio generally means that the company's shares are available at a good bargain. However, there are some exceptions. Not every company with a low PE ratio is a good investment. The PE ratio is more about how much of a bargain you are getting on your purchase and does not necessarily indicate anything about the quality of the company itself. But it's a good place to start, along with looking at the profit growth over a few years and growth of EPS (Earnings per share) [PE ratio by the way is -- price of the share/EPS].
   


5. Never invest based on tips - for every 'tip' there are more than a thousand people who lost money. Never invest in any company based on a tip alone. Information is everywhere, but there is also a lot of misinformation. Tips are like rumours, they spread like wildfire and could be with some vested interest behind them. Never believe them. Tips are different from suggestions or tips based on some bona fide research and suggestions received through such sources can be explored by doing further research and then considered.
   


6. Invest only risk capital - never invest money in the stock market unless you have a comfortable amount of money saved up in a bank account. Money invested in the stock market should only be that which is left over after paying all the monthly dues such as children's school fees, rent, bills, etc. As mentioned earlier, invest small amounts regularly.
   


7. Know the risks before investing - while stock markets can be very rewarding, there is an inherent risk in investing in the markets. Stock prices can crash and leave most of your capital wiped out. Know this before investing. If you are willing to take this risk, only then invest. However, like all risks you can say that the greatest risk of all is not taking any risk. Higher the risk, higher the return. Know this and be prepared for what goes with the territory.
   


8. Diversify your investments - Don't put all your eggs in one basket. Buy stocks of companies across sectors. Do not over-diversify. Scattering your capital across too many stocks is as bad as not diversifying. A basket of 10-15 stocks is ideal.
   


9. Book profits regularly - it is important to book profits at regular intervals. Whenever your investment reaches a predefined target, it is good to book partial or full profits. You can always buy again later at a lower price. No money can be made until you sell. The idea is to buy low, sell high and then repeat.
   


10. Cut losses - always remember not to hold on to losing stocks for too long unless you have a very good reason to. The feeling of not wanting to be wrong is not a good reason. We all learn from mistakes and everyone including investing legends like Warren Buffet and Rakesh Jhunjhunwala also have made their share of mistakes. Learn to acknowledge your mistake and cut your losses by selling your losing shares. Consider it as a price for tuition.
    


11. Patience is a virtue - small drops form an ocean, fortresses are made brick by brick and so it is with building wealth. Do not entertain dreams of becoming rich overnight. Start investing early and regularly and keep doing it over years. It takes years to build wealth. Over years you can accumulate good quality stocks that will earn you great riches. But it takes time. Do not be impatient. Enjoy the ride.
    


12. Enjoy yourself - investing is a lot of fun and everyone has their own style of investing and their own choice of portfolios. Invest in companies that you are interested in and enjoy the ride. Remember this always - never let success get to your head and never take failure to your heart. Keep trying and enjoy!
    

Article Source: http://EzineArticles.com/?expert=Prashant_Solomon

Bangalore visit

Just returned from a one day trip to Bangalore or should I say Bengaluru, India's "garden city". I must say, weather wise in India, you cannot beat Bangalore. The new airport is great and the flight was very smooth. Air India is pretty good.

The children of the Mughal empire

The Mughal Empire has always fascinated me. What would India be without the Taj Mahal or Red Fort? It is the Taj Mahal that is India's wonder of the world and the most attractive tourist destination in the country. It is the Red Fort from which the Prime Minister of India addresses the nation every August 15th. These are also two of the greatest monuments of the Mughal period, windows into a time that the Mughal empire was perhaps the greatest on Earth.

Tales of Akbar and Birbal are an old time favourite. The Mughal emperors hold a certain grand aura about them that most other kings, queens, emperors and empresses of the world do not match up to (with the possible exceptions of Ashoka, Alexander the Great, Victoria and maybe a few more).

Notable Bollywood films like Mughal-e-Azam and more recently Jodha Akbar have captured the story of the greatest Mughal emperor Akbar in reasonable detail. The Mughals are a part of our history and of our modern day culture.

But what ever happened to them? We know that Bahadur Shah Zafar was the "last Mughal emperor" although the empire had been decaying for one and a half centuries before him. This is a link to an interesting story I found about the conditions that the last Mughal emperor's descendants are living in today. I thought you might find it interesting.

http://www.themalaysianinsider.com/index.php/world/31340-mughal-emperors-descendants-penniless

Cattle class and Shashi Tharoor

Shashi Tharoor

OK, it is now a matter of debate. Was Mr. Shashi Tharoor, India's minister of state for external affairs right or wrong when he made his famous 'cattle class' tweet? He justified his online remark by saying that he was referring to the way economy class passengers are treated by the airlines. But then again, Mr. Tharoor follows his 'cattle class' phrase with 'the other Holy cows' in reference to other politicians like Mrs. Sonia and Mr. Rahul Gandhi who are also on this so-called 'austerity drive'.

Whether what Mr. Tharoor says is true or not, he needs to realise that while politicians and ministers also enjoy freedom of speech and expression under Article 19 of the Constitution of India, they also have certain duties as public servants and one of these would be to respect the actions and views of their political parties and government and think twice before tweeting. Mr. Tharoor needs to understand that he is now no longer a 'normal tweeting citizen', he is a minister in the government of India and needs to refrain from making such silly remarks that too for the whole world to read. Considering that he worked in the United Nations and almost become the Secretary-General, who needs to learn a little more about diplomacy towards his party and to the Indian public.

Delhi lashed by rains. Roads jammed

Well, it finally rained! Correction - it rained like Hell! But along with the rain came the utter chaos on the roads in New Delhi. It is absolutely ridiculous that the nation's capital gets completely screwed with just one rain! The roads are completely jammed. Traffic is in total chaos and it takes hours to travel barely a few kilometres.

Why? Obviously, the drainage system in Delhi is an utter failure. Is anyone cleaning the drains? We pay taxes to the government and so money should not be the problem. Maybe the problem is with honesty and the sense of duty in our public servants - which include the safai karamcharis by the way!

The next time you want to walk on the moon and visit one of the craters, don't bother applying to NASA. A walk down one of the roads in Delhi will give you a good enough idea. The roads have craters in them, obviously from the poor quality of materials being used in them.

I believe next year there is a certain Commonwealth Games happening in this same city. God forbid if it rains. I know for a fact that we will not win the Gold Medal for civic infrastructure.

We are spiritual beings

"We are not human beings having a spiritual experience. We are spiritual beings having a human experience."
- Pierre Teilhard de Chardin

UberTwitter is cool

I was looking for a good Twitter client to install on my Blackberry. So, after some surfing around, I found Twitterberry. I installed it and used it, but it was not too user friendly and was very confusing when it came to uploads photos. So, I did some more surfing and found UberTwitter. This is a very cool application for a single interface between Twitter & your Blackberry handset. It is very user friendly and uploading photos is very easy. I recommend UberTwitter.

Indian real estate begins to pick up

It looks like the real estate sector is getting better in India, especially in the NCR area. Reports of increasing prices and renewed interest in buying of houses indicate that the worst may be over for Indian real estate players. Real estate companies on the stock exchanges have also been the main beneficiaries of the recent stock market rally.

Is this the beginning of a new 'bull market'. I think it is. Recent market surveys indicate that the NCR will see a surge of demand in residential real estate in the next five years. The study indicates that there will be a demand of about 1.5 billion square feet of residential real estate alone in the NCR. This is good news for real estate developers. Let's wait and watch.

Ultimate faith in the divine will

By. Prashant Solomon
(published in The Speaking Tree column, The Times of India October 31, 2008)

Why do we pray? Some want health, others wealth. Some pray for the longevity of their parents, the safety of their children or that some other desire of theirs gets fulfilled. These prayers, like all others, have power and energy that bring them to life.

The only difference between a prayer and a desire is that a prayer is directed towards God with faith. Faith plays an important role in whether the prayer is answered or not. But do we always know what is best for us?

Suppose there is a new video game in town that every child wants. But this game is not without its dangers - it has gore, violence and profanity and might not be in the best interest of the child. But the child still wants it and repeatedly asks his parents for it. They may refuse a few times, but chances are that after a while, may give in to their child's demands. Not all parents will give in, but some will. So, the child's 'prayer' was ultimately answered by faith and perseverance. But is the video game good for the child?

We ask God for things that we want, but are those things always the best for our spiritual growth? As the saying goes, 'be careful of what you wish for, because you might get it'. We may be intensely praying for things or relationships that may not be good for us. But the intensity of our prayers creates a vibratory ripple in the Cosmos that will have its answer, its result - the fruit of the desire seed. This is why it is important for our spiritual growth to let God decide what is best for us.

When Jesus Christ was in the Garden of Gethsemane on the eve of his crucifixion, he knew the fate he would suffer the next day. Though he was divine in nature, he was also in human form and naturally did not want to die. So, in Luke 22:42, we learn that he said the following prayer: "Father, if Thou be willing, remove this cup from me: nevertheless not my Will, but Thine, be done." Christ put God's will above his own. "Thy Will be done" is also part of the Lord's Prayer. This is the essence of faith in its truest and purest form.

Putting everything into God's hands and saying simply, "Let Thy Will be done" requires a tremendous amount of courage. It requires a lot of faith. Because somewhere deep down inside your heart and mind, you wish and hope that the Lord's Will coincides with your own. But true and pure faith knows (not believes, because believing is not being entirely sure) that the Will of God is best for you. That is true faith. Like in the case of Christ, if he had not died on the cross, he would not have therefore been glorified through resurrection and thus his mission would not have been accomplished. So, his will in this case, would not have been the best for him. God knew what was best and since Christ said, "Let Thy will be done", it was done.

At the same time it is fine to put your request before the Lord like Christ did when he said, "If Thou be willing, remove this cup from me." So you can ask God - "If Thou Art be willing then let Thy Will be done, not mine."

This prayer - if said with utmost faith and sincerity and with the knowledge that God loves you and will do whatever is in your best interest - will yield the sweetest fruit

http://timesofindia.indiatimes.com/Speaking_Tree/Ultimate_faith_in_the_divine_will/articleshow/3655327.cms

Unite against Mother India's problems, stop attacks against Christians

The recent attacks on churches and Christians in Karnataka and Orissa and other scattered parts of the country are a disgrace to the secular fabric of India and an insult to the vision of our founding fathers of India being a secular republic.

It is also clear that non-Congress governments, whether they are led by the BJP or BJD, are not only insensitive towards the rights of minorities but are also, it seems in the case of Karnataka in particular, very dismissive towards their accountability in bringing the guilty persons to justice.

It is very clear and does not take any kind of rocket science to conclude that these attacks are being perpetrated by the Bajrang Dal and other Sangh Parivar factions.

It is appalling that despite the Christian community in India being in the forefront in serving the nation in the form of providing quality education, healthcare and social services, it is being targeted on the label of “converting” the masses. When a poor child is fed, a sick person injured or an illiterate child educated, they are already “converted” from being a victim of apathy to a useful member of society. The spark of love and care that is showered on them is enough to convert them into becoming a useful citizen of this country. They do not have to become a Christian for that.

There are millions of Hindus, Muslims and Sikhs in this country who have been converted by a Christian institution. Not converted into practicing any kind of religious dogma ~ which really doesn’t matter anyway ~ but by being converted into a useful member of society.

So let us Indians not tread down the gory path of communalism. Let us unite and solve the real problems Mother India faces ~ poverty, corruption, lack of infrastructure, pollution, illiteracy and unemployment.

Published in the Statesman as a letter to the editor. Click here to visit site.

You are Godstuff

BY. Prashant Solomon

(Published in the Inner Voice column of Hindustan Times March 4, 2008)

(slightly edited version was printed in the newspaper due to space constraints)

The ancient wisdom of the ages is this – you are a drop of the ocean called God. However, most have not realized this truth. "The Kingdom of God is within you," says the Lord Jesus Christ in Luke 17:21 and this is so. Think of this truth. When the creation of the Cosmos took place, the raw materials had to come from somewhere. So where did they come from? Even if you believe in the Big Bang theory that the Cosmos was condensed into a tiny ball of energy that just exploded one fine day and continued to expand until the present cosmic setup, the basic elements of the cosmos had to come from somewhere. It is too simplistic to say that they "just came" out of nowhere. The basic building blocks of the entire Universe are the same three sub-atomic particles – protons, neutrons and electrons. There is absolutely no difference between the protons, neutrons and electrons in you and in the paper that you are reading and the chair that you are seated on. They are the same. There is fundamentally no difference between you, your car, your house, your best friend and your worst enemy when it comes to the basic building blocks that make you. This is important to note because it immediately makes you feel the 'oneness' of all things throughout the Cosmos.

So, the Creative power that made the entire Cosmos had to have used 'itself' as the basic 'stuff' that made the protons, neutrons and electrons as well as the almost unimaginable energy that goes into every single atom of creation. So not only are we (as the late astronomer Carl Sagan loved to say) 'starstuff', but we are all 'Godstuff' that has been mixed and matched in different permutations and combinations and is made to interact with each other amidst the delusion that we are actually separate. We are as separate as the individual drops in the ocean – which still retain their existence in some stretch of imagination, but at the same time, have merged with the larger entity called ocean. They still exist, but now as a part of a larger more powerful being. Like the cells in your bodies are individual beings in their own sense – they have a fixed boundary or body, they are born, they reproduce, they absorb oxygen (so they breathe in a sense) and then they die. They may even have consciousness, but miniscule compared to the consciousness of a human being. Yet, our physical bodies are nothing more than a conglomerate of trillions of cells. So are we the single body or the sum total of trillions of cells?

Extending this thought to the next level – our souls are like the cells that make up the body of God. We are drops of the ocean of God and are one with God whether we recognize this or not. But we are blessed. It is possible through meditation for our consciousness to become one with the cosmic consciousness. Just like the sound of the sea lays hidden inside every sea shell, the vibration of God's kingdom is hidden within every soul – just waiting to be found. It can be found by tuning into it. So the drop can still have its existence in consciousness, but at the same time can draw on the wisdom and experience of the grand ocean and be one with it at the same time. When this happens, we will realize the truth that we are not separate beings in isolation, but parts of the creator of the entire cosmos and since we ALL are parts of the Creator, and like drops of the cosmic ocean, therefore we are all ONE.

Prayer power

By. Prashant Solomon

(published in Inner Voice column, page 13, Hindustan Times, October 24, 2007)

(published in slightly edited form in the newspaper due to space constraints)

There is a lot of power in thoughts and prayers. Thoughts are a form of energy and therefore real. Prayer is a form of communication with the Infinite source of all energy, or God; through our thoughts. Thoughts are like seeds which require nourishment to grow into fruit-bearing trees. The nourishment of thoughts is in the form of affirmation, concentration and attention. Prayer need not necessarily involve the usage of pious phrases.

Normal Vincent Peale describes a three-fold approach in his best selling book, 'The power of positive thinking' – (1) prayerise, (2) picturise and (3) actualise. The first step involves simply thinking and talking to God informally, which is prayer. The next step is picturising or visualising it mentally. Create in your mind an image of the desired result: a healed love one, a more prosperous life, a happy marital life, a more healthy or confident self. Whatever you seek, pray to God and then visualise it to be so and then just say to God, "I have put it in Your hands, Lord." After this, the actualisation will come in time either by the desired result or guidance.

Peale gives a glorious example of how we can spread love and goodwill throughout our daily lives. Just say a little prayer for anyone that you see. These are called flash prayers "shot" out towards people. Just send out thoughts of love and goodwill. There have been cases where the recipients of such prayer "shots" could feel a physical manifestation of the energy.

The world can be a lot happier if we all just continuously "shoot" each other with prayers of love and goodwill. Let us "shoot" out positive thoughts towards one and other. We could try to replace our hatred and anger filled thoughts with thoughts of love and goodwill. Just mentally send out peaceful and love filled thoughts of goodwill towards everyone that you see and they will feel it as well. The energies around the whole world will change if everyone starts to do this. These energies are very powerful and the results will be seen and felt. But constant prayers are needed. Even prayers take time to be answered. Just be patient and have faith.

Prayer and positive thinking is also a very useful technique in creating a more confident and success filled life. Thoughts of success often attract success. Thoughts of failure often attract failure. Energy is like a magnet. It attracts. Positive energy attracts positive results.

Positive affirmations, especially at night time before bedtime is a very important tool to attract positive results. The age old tradition of prayer before sleeping is so that the positive thoughts and prayers can sink into the subconscious mind during sleep. Avoid all forms of negativity. Nip it in the mental bud. One can not stop negative thoughts from entering, but one can kick them out as soon as they enter. Positive thoughts can repel negative ones from establishing themselves in the mind.

Many of the world's problems can be solved if there is more prayer energy generated. This energy will increase when we add prayer into our consciousness and make it a part of our daily life. Talk to God either verbally, mentally or even in written form. Yes, write a note to God. Every day use flash prayers to increase the overall consciousness of peace and goodwill and soon if more people do it, we will transform into a much better, safer and peaceful world.

Prashant Solomon, LL.B

On September 18, 2007, I got my final year LL.B result and I passed with a first division (62.5%). I am now a law graduate. I can become an advocate if I choose to. I thank God for this. I always wanted to do an LL.B and now I have finally achieved it!

Cool tools from google

I just wanted to mention that I found these following tools of Google extremely useful and cool.

www.google.com/notebook

and also the Google calendar, which you can access by logging onto your gmail and on then clicking on the calendar link on the upper left part of the screen.

PM vs. Left Front

Indian Prime Minister Dr. Manmohan Singh gave a good reply to the communists that they can go ahead and withdraw support if they so wish. Hurray! The Prime Minister has shown great courage in doing so and I'm sure that millions of us Indians will respect him more for finally standing up to these communist Left Front types like Prakash Karat. These communists while choosing to 'support' the government from 'outside' have virtually opposed just about everything that Dr. Singh's government has done or tried to do. One wonders what exactly is the 'support' that they are lending. The Left Front has acted more like the true opposition than the BJP-led NDA has since 2004.

It is great that Dr. Singh has taken this step. Now the ball is in the court of Karat and company. Will they really act and pull down the government for entering into the nuclear deal with the US or are they just trying to rouse trouble?

Brick by Brick, My Citizens

The Roman Emperor Hadrian once said while building the Roman Empire, "Brick by brick my citizens, brick by brick."

What does that mean?

With the monumental task of building the Roman Empire, one can be sure that Hadrian offered those words to the roman citizens as a way of telling them not to focus too much on the big picture but rather look at it in a way that it can be accomplished and that would be simply brick by brick. One can imagine that the size of the task would be large enough to make most say, "No way, it cannot be done!"

Wealth creation through Shares

I nice piece I just read at the Nigerian Tribue. Inspiring!

NIGERIAN TRIBUNE - Financial Freedom - Wealth Creation Through Shares


Develop a passion for shares

By Ayeromara Peter

A young man of 23 years came to my office three years ago. He was then a final year student of Lagos State University (LASU). He came purposely to dispose some of his shares so as to pay his school fees and complete his final year projects. When he handed his share certificates to me and the statement of his account in CSCS, the thought that came to my mind was that the young man was one of those bad boys that wanted to sell his father’s shares. On a second thought, I began to ask him a series of questions.

An authentic owner?

The guy answered my questions beyond any doubt that he was the authentic owner of the shares. Still not satisfied, I went to the stock broking firm where he purchased the shares through his CSCS account. All the staff of the stock broking firm testified that they knew him very well. When we calculated his investment in shares as at then, it was over eight hundred thousand naira (N800, 000.00).

The most surprising thing was that the guy was an orphan. The parents died when he was in primary school. This young man, through dint of hard work and discipline, sponsored himself to school up to the university level without any help or support. Despite that, he developed an investment mindset when he was still young. According to him, he started investing in shares since 1997 when he was in secondary school.

Labouring to invest

After school hours, he would go and do menial jobs. The proceeds he would then divide into three; one part for his feeding, another for his education and the last would be used to invest in shares. That was not the end of the story. A kind hearted man who was with us when this man was narrating his story told him not to sell part of his shares. He gave him the one hundred thousand naira he needed. The young men developed a passion for shares even though it was not convenient for him then. He set aside money everyday to buy shares.

You have no excuse, really!

If an orphan like that man could weather the storm to plan for his financial freedom, nobody should have any excuse not to be rich. One thing about money is that, if you are earning five thousand Naira (N5,000) per month and you don’t save, you would not be able to save and invest when you are earning more. This is the reason you see people working in multinational companies with fact pays begging when they are no longer there.

The power of savings and investment

Savings and investing lead to multiplications of wealth. The most interesting thing about investing in shares is that once you start, you become addicted to it. Do you know that most of the richest people in the world made their money in the stock market? Do you also know that individuals, big corporations, multinationals, banks etc invest them surplus in the stock market?

A few examples

Bill Gates of Microsoft made his money through the computer but became very wealthy through investments in shares, bonds and other financial instruments. The computer alone would not make him the richest man alive; he did it by multiplying his money in the stock market. Warrant Buffet the second richest man alive also multiplied his money through shares. Coming back home, the Onosondes, the Ibrus, the Dangotes, Jimoh Ibrahim, Oba Otudeko, the Ojoras, and so many people too numerous to mention invested in and have made money in the stock market.

How much do you want to earn

You must sit down and write down how much you want in next five years. As each year is coming to an end, write your mission statement, your vision for the next year. Write down the amount you will set aside weekly and monthly for shares. For details on how you can become a multimillionaire in a few years by investing, your mission statement, how you can turn your N5, 000 or less monthly in shares by trading profitably in them so as to retire rich, start planning for your retirement in 5,10, 15, and more years. Also, don’t forget to buy a copy of my book, Secrets of Making Money in Shares’. If you read the book, you will not have any reason to be poor again in life.

Why you lose money in stock markets

A great piece by my friend Mangesh Ghogre and Vivek Kaul. A must read for stock market investors.

Why you lose money in stock markets

Why you lose money in stock markets
March 24, 2005
(reproduced with permission)

It is the investor's dream come true: the Bombay Stock Exchange's Sensex and the National Stock Exchange's Nifty are scaling all-time highs.

In fact, in the last 6 months, both the indices have risen by 18.74% and 19.79% (considering the period from September 21, 2004 to March 21, 2005), respectively. By any standards, the Indian stock markets are witnessing a bull run.

Economic theory tells us that, ceteris paribus, higher prices dampen demand and lower prices increase demand. But when the stock market witnesses a bull run, investors do not behave like normal consumers.

As the stock prices go up, the more stocks appeal to investors. This leads to investor psychology during a bull run that is detrimental to the investor as well as for the market.
No wonder some investors end up making losses. Let us see how.

The herd mentality

Robert Shiller in his book, Irrational Exuberance, says, 'A fundamental observation about human society is that people who communicate regularly with one another think similarly. There is at any place and in any time a zeitgeist, a spirit of times.'

Marketing research has shown that the typical Indian buyer's decision is heavily influenced by the actions of his acquaintances, neighbours or relatives. Psychologically, the desire to conform to the behaviour and opinions of others, a fundamental human trait, is what drives such buying behaviour.

So if everybody around is investing in the stock market, the tendency for potential investors is to do the same. Like sheep in a herd, investors in a bull run find it cozy to be inside the herd rather than outside it.

The Ant Effect

Another interesting observation during a bull run is the order in which investors take decisions. Ants, when they get separated from their colony, obey a simple rule: follow the ant in front of you. Much like the circular mills of the ants, investor decisions are made in a sequence.
People, who invest in the stock market during a bull run, assume that investing in the stock market is a good bet simply because some of the people they know have already done the same and made profits.

Consequently, during a bull run the stock market has more buyers than sellers. Expectedly, stock prices zoom up. Expecting the bull run to continue, more and more investors enter the market, fuelling an even greater price rise and this cycle gets repeated.

Riding the bull wave, stock prices of fundamentally weak stocks also start to go up. Driven by unrealistic expectations, these unsustainable prices soon start to tumble and the bubble eventually bursts.

At times, investors know that the stock they are investing in is fundamentally weak but they are still willing to invest in the stock, because they feel that some greater fools could be depended on to invest in the stock after they have and this would give them handsome returns on their investments.

Greed

Investors are human, after all. So, the lure of quick wealth is difficult to resist. During a bull run, stock markets offer astonishing returns in a short period of time as compared to other investments. This helps in attracting more money into the stock market.

If we look at the present scenario in India interest rates on a six-month fixed deposit with a bank stands at around 5 per cent per annum.

Other investment opportunities like the Public Provident Fund, Kisan Vikas Patra, etc do offer better interest rates, but the investment is locked up for a significant period of time.

If one compares this with investment in an index fund (let us say an index fund that mirrors the BSE Sensex), the six-month return on it would have been a whopping 18.74% (considering the period from September 21, 2004 to March 21, 2005). Given this it becomes very difficult to stay away from the stock market.

Greed also results when investors see people they know making money through investments in the stock market. As Charles Kindleberger wrote (in his all-time classic Manias, Panics and Crashes), 'There is nothing so disturbing to one's well being and judgement as to see a friend get rich.'

This leads to more people entering the stock market without really understanding the market.
Rear view mirror driving

Investors in general, and especially during a bull run, tend to look at the recent past pattern and assume that the future patterns will be identical to the past ones. This is as good as driving a car looking in to the rear view mirror.

A rear view mirror-driven car will not meet with an accident as long as the road ahead of the car is exactly as it is behind the car. This is rarely the case, both on roads as well as in the stock markets. But, when the stock market is on an upswing, the more investors tend to believe that it will keep going up forever.

They mistake probability for certainty. They pump in more money into the stock market and this always does not go into the right stocks.

Mental accounting

Richard Thaller, a pioneer of Behavioural Economics, coined the term 'mental accounting', defined as 'the inclination to categorise and treat money differently depending on where it comes from, where it is kept and how it is spent.'

Research in Behavioural Economics shows that gamblers who lose their winnings typically feel they haven't lost anything. The fact though remains that they would have been richer had they stopped playing while they had won enough.

Investors during a bull run tend to behave similarly. Once they have got a certain return on their investment they tend to plough all their returns back into the market. When such money goes into fundamentally weak stocks, investment essentially boils down to speculation.

In closing

Individual investors, while investing during a bull run, ignore the most fundamental principle of investment: high returns come with high risk.

And in the euphoria to make quick returns, investors forget the risk involved in the stock market investments.

Individuals logically should seek information on where to invest. But most investors do not. Few ask the right questions at the right time and are naïve enough to go with the crowd.

From the point of view of business no one on the Dalal Street has any reason to suggest that the market (or for that matter a particular stock) is overpriced. Investors need to find out.

The greatest damage happens to those investors who buy fundamentally weak stocks when prices have peaked. When the price of such stocks come crashing down the confidence of the investor in the financial system plummets.

Investors become reluctant to part with their money. This in turn hampers the ability of the capitalist system to raise capital for newer ventures. Also the financial market ends up
misallocating resources and it creates unnecessary risk for ordinary citizens.

Investors should remember that bubbles are caused by excess cash coming into a particular investment theme.

Thus, investors during a bull run need to be careful and not put all their eggs in one basket. They need to spread their investment across stocks and if possible stay invested in other assets as well.

Further, an investor should have a good idea of the business of the company he is investing in. Hopefully, this will help him to make an informed decision.

Even as you read this, chances are that you may think: 'This will not happen to me.' And this false notion is at the root of all the problems. So, ensure that your investments are based on strong company and industry fundamentals and not just hearsay.

Happy investing!

Vivek Kaul is Research Scholar, ICFAI University; and Mangesh Sakharam Ghogre is a Mumbai-based freelance writer and a keen observer of the stock markets.

Worlds without end-Editorial

The following article of mine was published on December 9, 2006 in the Editorial Page of the Times of India

Worlds without end-Editorial-OPINION-The Times of India


Looking at stars on a clear night somewhere away from the city, one is amazed at how many are visible. The hazy band of the Milky Way stretches across the night sky and contains millions of stars, thousands of light years away, but still part of our own Galaxy.

Late astronomer Carl Sagan put the number of stars in the Milky Way Galaxy at 400,000,000,000 (400 billion). There are a little more than six billion people on our planet — so a rough estimate puts it at about 60 stars in the Milky Way per human being on Earth. Imagine that, each one of us could have 60 solar systems in the Milky Way Galaxy.

Since 1995, we have discovered around 200 extrasolar planets or planets revolving around other stars. Some of these stars like 47 Ursae Majoris, only 46 light years away (a stone's throw in terms of stellar distances), even have a system of planets like our sun has. So far we have only been able to discover larger Jupiter-like worlds because the current method of finding planets makes it difficult to find smaller Earth-like worlds. However, NASA is planning to launch the terrestrial planet finder project in 2014. This project will be able to detect smaller Earth-like extrasolar planets. Chances are good that we are soon going to find other planets with liquid water and an Earth-like atmosphere. These other worlds will become targets for human colonisation. Going back to our 60 stars per human formula, even if we take a very modest figure of two planets per star system, this means there are 120 planets per human being and over 800 billion planets in our Galaxy alone. That is a lot of potential real estate.

As mysteries of the Universe unfold, it is important that we realise our place in the larger scheme of things. Just as we talk about being a part of the world, we need to remember that the world is only a part of a much larger Galaxy, which in itself is part of a much larger Universe (there are more than 100 billion known galaxies and an estimate made in 2003 by Australian astronomers puts the total number of stars in the known universe at 70 sextillion or 70,000,000,000,000,000,000,000). There are now theories that even the Universe is only one out of many universes that make the multiverse — the supreme collection of universes. These other universes would exist in some other frequency or dimension and inter-dimensional travel could someday take us there. Where does it end?

Are we the only planet with life or is the multiverse teaming with life? While we have not yet found life anywhere other than planet Earth, we still have 70 sextillion stars multiplied by the number of universes to explore before we can conclusively prove that Earth is the only inhabited planet. However, even if we find a tiny microbe on Mars, we have proved the other alternative — that we are, in fact, not alone.

Either way, exploration and colonisation of space is necessary. If ours is indeed (however unlikely) the only inhabited planet in the multiverse, then we have a great responsibility. We have been given the gift of life and we need to preserve that. This would mean that we need to carry the torch of life to the stars and colonise other planets. The Earth could be destroyed in so many ways and it would be our duty to spread the fire of life throughout the multiverse.

If the other alternative is correct and there is an abundance of life, wouldn't we want to find it and interact with it? How long can we earthlings be alone? There would then be an endless opportunity to exchange our culture, commerce, science, techno-logy, beliefs and art. What a wonderful thing it would be to find intelligent and friendly life elsewhere. Clearly, we are just in our infancy. We humans have only reached our own moon so far. Humans have not visited even Mars yet, though our probes have criss-crossed the surfaces of Venus, Mars and Titan.

But our focus is too earth-centric. We need to stop abusing our planet and think of its preservation, just as we need to seriously start planning the further exploration and colonisation of space as physicist Stephen Hawking has advised.

The writer is a Delhi-based freelancer.

Still the Mind and See the Light

The following article of mine was published in the Speaking Tree column of The Times of India on October 19, 2006

(link to the article, text below)

Still the Mind and See the Light-Editorial-OPINION-The Times of India



Stillness of mind is necessary for us to realise who we really are. "Be still and know that I am God", says Psalm 46:10, a clear advice in the Bible by the Lord to meditate.

When a stone is dropped into a pond of water, it creates ripples, which prevent a person from seeing his own reflection in the pond. It is only when the ripples subside and the water is still that you can see your own reflection. Our consciousness is like the pond; if thoughts enter into our mind, they create ripples in our consciousness and these ripples prevent us from seeing our own self in the pond of our consciousness. Stubborn thoughts need to be stopped if true knowledge of Self is to be gained.

This must happen smoothly. A thought is like a fire, which is fuelled by attention. By not paying attention to a stubborn thought, it can be made to pass through the mind unattended. Do not try to wrestle with your unwanted thoughts. Wrestling with them is giving attention to them. A person can only truly concentrate on one thing at a time.

Focusing on our own breath is a good way to divert attention away from stray thoughts. Breathe in deeply through your nose and while breathing in, pay attention to your breath. Hold the breath inside you for just a few seconds, maybe five or six seconds, and exhale slowly paying attention to your breath as you exhale. This technique will relax you as well as help in stilling the mind. After repeating this exercise about 10 times, say the word, 'Om', 'Amen' or 'Amin' — depending on your choice, they basically all refer to the creative word of God — three times. Now focus your attention to the point between the eyebrows about one inch above the eyebrow level. This is the centre of Christ Consciousness, which is called the Kutastha Centre by Paramahansa Yogananda.

In the Bible this place is mentioned by Christ when he says in Matthew 6:22: "The light of the body is the eye: If therefore thy eye be single, thy whole body shall be full of light". The idea is to concentrate on this point without thinking or allowing thoughts to enter the mind.

True meditation is the complete stillness of mind. Though thinking about God is a good thing and can be helpful in raising the levels of positive energy around you, while meditating try not to think of anything — not even God. Remember what the Bible says, "Be still and know that I am God".

Knowing something does not come by thinking about it, but by realising and experiencing it. When the mind is stilled completely and concentration and attention is at the Kutastha Centre, then gradually, the veil separating your own awareness from cosmic awareness is pierced. A feeling of complete relaxation and tranquillity is soon followed by joyous bliss that is all-pervading. When the eye is single — the single eye of intuition or the Kutastha Centre becomes the focus of attention — then the body shall be full of light. When the attention is focused like a magnifying glass at the Kutastha Centre, the eye of intuition will see the divine light of God and the body shall be bathed by the Divine and Glorious light.

It is a wonderful feeling to still the mind and see your own true blissful self in the reflection of your own pond of consciousness. Seek God within you now.