Vol. 22 No. 05
` 10.00
MAY 2014
Published by: Vision Books Pvt. Ltd., 24 Feroze Gandhi Road, Lajpat Nagar 3, New Delhi 110024, Ph: 29836470, 29836480; e-mail:visionbk@vsnl.com; www.visionbooksindia.com
Dear Investor, How to Make Money in Any Market! Savvy traders make money in every type of market. They buy during uptrends — and sell short when the market heads lower. The accompanying book, The Trader's Guide to Selling Stocks Short tells you everything you need to know about making money when the market is falling. The new book, Complete Guide to Exchange Traded Funds featured on pages 4 and 5 explain why ETFs have become the hot favourites of investors and traders in the US and shows how you can profit from them. In Wall Street and Witchcraft (page 3), bestselling author Max Gunther offers a most intriguing peek at the use by many investors of astrology, tarot cards, magic squares, etc. Can you make more money using these methods? Well, find out for yourself. The new book All About the P / E, (see page 15) is a comprehensive and practical guide on how you can use and improve this universally followed metric to boost your returns. As always, this issue also highlights dozens of other terrific books by top Indian and international market experts to help you invest and trade profitably in all market conditions. Act today . . . You can order the books you want in any of the 3 following ways: 1. Online at www.visionbooksindia.com. 2. Or, by sending us your order by email at visionbooks@gmail.com . 3. Or, you can order using the Reader Privilege Voucher on page 11.
Kapil Malhotra Publisher Descriptions and contents of all books available at
www.visionbooksindia.com
Matthew G. Young
C
ONTRARY TO THE TRADITIONAL METHOD
“
There is always money to be made in any market. Even in bear markets, there are sectors in bull phase — or, you can go short.
of trading, selling a stock short is done with the hope that the price of the stock will drop. Most people have little clue as to — Ashwani Gujral the mechanics of how this works. The process of short selling is misunderstood for several reasons. It is, in fact, a complicated and intricate method of trading, but because of the taboo surrounding shorting, it only appears to be more difficult to understand than it actually is. Short selling is also counterintuitive. How does one manage to profit from the declining price of a stock? Is it even ethical to profit when all those around you are losing their money?
”
HOW SELLING SHORT HELPS YOU MAKE MONEY ALL THE TIME: One of the few truisms of the stock market is that stocks fall at a much faster rate than they rise — and stocks always go down, even the major blue chip companies. Oscillation is another truth that describes the stock market. Stock prices fluctuate up and down, much like waves on the ocean, so even when a stock is climbing in price, it does not go straight up. Usually, this oscillation stays within a range called a price channel, and day traders thrive off of these minor changes. By trading large quantities of shares, day traders, both on the long and short side, are able to generate profits from these daily fluctuations. It is when prices break outside of their range that catches most other traders' attention. When a stock begins falling, traders go through a series of emotions: anxiety, (Continued on page 2)
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greed, and foolishness are prevalent, but fear is chief amongst them. Many traders will abandon their position, cutting their losses early, hoping they made the right decision. Even more will wait, hoping that the market will rebound quickly so that they may continue making money. A tiny fraction of these traders will even continue to buy more shares, predicting that the market will bounce back up and that the new shares bought will be at a discount. As a short seller, you are given another option. When you think a stock is about to fall, you can merely sell it short and reap in the gains while the stock drops. YOUR TRADING EDGE: The short selling process varies drastically from taking a long position in the market, and because few people understand it, the shorting process is clouded in mystique. So, once you understand it, selling short will give you a trading edge. It is an invaluable tool that allows traders to profit, no matter what the market conditions are. With this extra tool in your arsenal, you will be giving yourself that edge over the millions of other traders who do not understand or are afraid to sell short. Of course, short selling comes with dangers. True, there is the risk that a stock might rise in price and cause the trader to lose money, but there is an element of risk that comes with any variable investment. If you use safeguards, this risk is minimized. AN INEXACT SCIENCE: Surprising it may sound, short selling can provide financial security and be an important part of a well-balanced portfolio. The main idea behind diversification is that if your investments are truly spread out, you are protecting yourself if any one of them fails by counting on the other investments’ gains to minimize the loss. This is why hedge funds have become so popular. Hedge funds,
SELLING STOCKS SHORT a basket fund that attempts to make up for losses in other portfolio areas, have appeal because oftentimes they will perform well in poor markets, or at least perform better than traditional funds. In essence, what a hedge fund does is attempt to provide gains when the overall market is in a downturn. This is often accomplished through short selling. Another major reason why selling short is a worthwhile task is because of the way in which markets have acted over the course of history. It is an established fact that stocks fall in price quicker than they rise. This allows you to accomplish two valuable things with your money: keeping your money in high-risk transactions for shorter periods of time and conducting more money-making transactions than you would if you held long positions for the same amount of time. SELLING SHORT OVERCOMES THE “WHEN TO SELL” DILEMMA: Although when to enter a
position is a debatable issue, when to sell is an even more difficult decision to make. Shorting partially alleviates this problem by making the sell point the entry point. In other words, you are beginning a trade by selling the security first, rather than the traditional long method of buying it. This way, the stress of when to sell is taken away, only leaving the buyback process remaining for the end of the trade. Instead of spending time fretting over exit timing, this part of the trade is already taken care of, allowing you to best determine when to buy back the shares that were shorted. Selling stocks is just as important than buying. This is where the profits are realized. Successful trading involves both sides, not just buying. By becoming a knowledgeable short seller, you will master the most difficult aspect of trading, and refine both sides of your strategy, whether it is a long or a short position.
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No. 904-6 ` 395
How to make money when the market is falling You can do so by selling short, which is an invaluable tool in a trader’s armoury. Most traders trade only the rising security or market. With this extra tool in your arsenal, you will get an edge over the millions of other traders who either do not understand — or are afraid — to sell short. And, with derivatives trading, short selling is easier than ever before. This book lays out the full anatomy and trading practices of going short, from initiating a position to the final sale. It also presents expert insights and tested short selling strategies: n
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RECENT BESTSELLER
The Dividend Investor How to Get Regular Income Plus Capital Appreciation from Shares
Rodney Hobson Shares can be an unbeatable way of securing regular income. High quality shares with estabNo. 899-5 ` 295 lished track record of paying regular and growing dividends assure you regular
income at relatively low risk. Not just that. Over time, the prices of such shares also appreciate, thus giving you both regular income plus some capital appreciation. Dividend investing is a safer method of profiting from the stock market. Typically, consistent dividend-paying shares also have lower price volatility than the stock market as a whole. Packed with real-life examples 10 rules for the dividend investor, this book provides you a complete roadmap for profiting from dividend shares. PAGE 2 n THE PROFESSIONAL INVESTOR n MAY 2014
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How to begin: Selecting a broker and trading platform, paper trading, bankroll, strategy, tracking your trades When to go short and how to select a security to short Using fundamental and technical analyses in short selling Entry strategies and how to avoid common mistakes Setting and maintaining price limits Exit strategies and safeguards Risks of selling short How to protect and preserve your capital Using put options to sell short Short selling forex, commodity futures, etc. Expert advice on short selling from top traders What you can learn from some famous short sellers.
Regardless of your expertise and experience, this book will help you master what you need to know to start short selling — and profit from it. [Excerpt from: The Trader’s Guide to Selling Stocks Short by Matthew G. Young. Order on page 11, or by email to visionbooks@gmail.com, or online at www.visionbooksindia.com]
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WALL STREET AND WITCHCRAFT
The Occult Approach to the Market
Max Gunther
THE MADDENING SOMETHING: One fact, at least, is undeniable: Why do some people perform consistently better on the stock market than others? Obviously some are smarter than others. Some have access to inside information denied to others. Some may have niftier trading systems than others. Others are too cautious. Others aren't cautious enough. Others are too gullible. Others are too greedy. The list of tangible and rational factors could go on and on. But after you have distilled these factors out, something still is left. Something. Two men of generally equal brightness and experience and financial acumen go into the market. One comes out with a fortune and the other comes out with holes in his pockets. Due to circumstances that neither could rationally predict, one man’s stocks went up and the other’s went down. Each man’s purchases, at the time he made them, were purchases that other reasonable men would have considered sound in the light of the information then available. And yet one man’s purchases turned out to be right and the other’s wrong. Why? What is this something? Some would call it chance or luck: the blind, random play of uncaring circumstance. By this definition, a man may win all the time simply because he is lucky. This would be the rational explanation of a lucky man’s story. But there are other explanations, which, for want of a more exact word, I’ll call irrational. I don’t necessarily use the word in its derogatory sense. I mean only that these other explanations deal with psychic and occult phenomena that can’t be seen or touched or easily measured — forces and
agencies whose existence can’t even be proved to everybody’s satisfaction. Some scientists think such phenomena may exist, but the scientific world at large is by no means convinced. The phenomena are outside the boundaries of what most cool-headed observers would call the tangible and rational — hence the label “irrational.” Often, I think I don’t like any of the irrational explanations. Rubbish, I say. But then I examine the rational explanation and I don’t like that one much either. I’m a market player myself. Long before that I was a poker player. I've had personal experience with odds. I know a winning streak has got to end sooner or later. Nobody goes on winning forever. Nobody. But the baffling fact is, some market players do go on winning forever. I’ve sought them out and talked to them. You’re going to meet them in this book. You’ll hear their irrational explanations. Quite possibly you won’t want to believe them. I didn’t either. I assumed they were all lying to me until they proved otherwise. I made all of them produce documentation and other evidence. I doublechecked by talking to their brokers. I bulldozed some of them into making predictions whose outcome I could witness with my own eyes, and I had the predictions typed up and dated and notarized so that there could not be an argument afterward about what actually had been predicted. And in the end I had to believe them because there was no other choice. The crazy fact won’t go away. There are people in and around Wall Street who approach the stock market irrationally and win.
ALSO BY MAX GUNTHER
Instant Millionaires
The Luck Factor
The Secrets of Overnight Success
Why Some People are Luckier than Others and How You can Become One of Them
In this book you will meet three dozen impatient people. People who weren't satisfied with the slow, money-saving route to financial security, the safe route No. 849-0 ` 295 that most of us feel stuck with. They wanted instant wealth — and they got it.
Luck, we can’t see it, or touch it, but we can feel it. We all know it when we experience it. This is a most compelling and readable book on the fascinating No. 803-2 ` 295 subject of luck. Come, change yours.
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Stock market riches using astrology and other occult practices Since that first tulip was traded on that madly specu-lative exchange in No. 903-9 ` 295 17th-century Amsterdam, some very special individuals — plungers not in the Merrill Lynch tradition — have been picking winners and harvesting huge profits with uncanny success. How? They play the market in ways that seem weird to the rest of us — but they win! There are those who feel vibrations, play by the stars, read tarot cards, rely on extrasensory perception, dream dreams, play by numbers. Crazy? Maybe. Yet every single one of them is rich. You’ll meet them all in this peek at the occult side of the street. If you want to play the game their way, there’s a toolbox for you inside the book — an appendix to teach you their specialised techniques; with astrology, tarot cards, witchcraft, magic squares, and other uncanny devices. Each method is carefully explained by the author, a bestselling financial writer of unimpeachable reputation who researched this book with the objectivity of a scientist and who vouches for the accuracy of the results described in it.
“The crazy fact won’t go away. There are people in and around Wall Street who approach the stock market irrationally — and win.”— Max Gunther MAX GUNTHER (1926-1998) is the author of the fabled money bestseller, The Zurich Axioms. WHERE NOW SWEET ASPIRANT?: In this book you will meet a large number of weird and wonderful people. If you consider all lunatics or frauds and all their words mumbo jumbo, close the book right there and go back to the world of rational men. But perhaps, on the other hand, you aren’t quite prepared to go back to the rational world. Perhaps, somewhere in this world of peculiar folk, you may learn something that piques your curiosity or starts you thinking along a new track. You wonder, maybe, whether one of these crazy market approaches could be made to work for you. You may want to learn more. [Excerpt from: Wall Street and Witchcraft by Max Gunther. Order on page 11, or by email to visionbooks@gmail.com, or online at www.visionbooksindia.com]
INVESTING IN EXCHANGE TRADED FUNDS
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Profitable Investing and Trading with ETFs Martha Maeda
E
(ETF S ) ARE investment funds that hold a basket of stocks, bonds, commodities, etc. and trade on an exchange. Globally, ETFs have been an “overnight” revolution and now represent nearly every asset class. Indian investors are very familiar with gold ETFs, with an ever greater variety of ETFs becoming increasingly available. XCHANGE TRADED FUNDS
DIVERSIFICATION: Exchange traded funds
represent an assortment of securities selected from a particular index, or benchmark. Their objective is to follow the market performance of the index as a whole. An investor purchasing a share in an ETF is purchasing a share of a whole basket of stocks instead of placing all his or her capital in the shares of a single company. The market price of an individual stock is affected by countless factors apart from the actual value of the company itself. Economic news, predictions about the future, news of natural disasters and political conflicts in other parts of the world, and the beliefs and emotions of other investors cause prices to fluctuate constantly. A company that has been doing well for years can suddenly encounter difficulties and plunge in value, causing its shareholders to lose a large part of their capital. Investing in an ETF offers individual investors the same kind of safety cushion that is available to large investors with expansive portfolios. An ETF makes it easy to diversify a portfolio by adding exposure to an entire market sector, style, or asset class with a single purchase. Broad market index ETFs, are still the most popular, ETFs tracking a wide spectrum of investment styles, geographical regions, and market sectors are available. The newest ETFs follow highly specialized market indexes. It is possible to add bonds and Treasury notes (T-notes) to your portfolio by purchasing fixed-income ETFs, though they are not nearly as numerous as those tracking the equity markets. ETFs also offer participation in the ownership of hard assets, such as gold, and in commodity futures trading.
TRANSPARENCY: By definition, an ETF is
required to make available at all times information about the underlying stocks that it holds. A share of an ETF represents a share in the ownership of specific securities, and the investor can, at any time, look at a prospectus online or request a printed copy of a prospectus, which shows exactly which stocks are included in the ETF and what fees and expenses are incurred by the fund. ETF shares are traded on the stock market throughout the day, and an investor can watch prices and track the intraday value of the fund. The exchange on which an ETF is trading is responsible for calculating its estimated NAV — the actual value of its underlying securities — throughout the day. The estimated NAV of all ETFs is calculated every 15 seconds and is posted on a number of stock exchange and investment Web sites, including those of the ETF companies. The NAV of an ETF is not necessarily the market price of an ETF, but it indicates the estimated price at which the ETF should be selling. Investors can easily detect when an ETF is selling at a premium (the market price is higher than the actual value of the ETF) or selling at a discount (the market price is lower than the actual value of the ETF) and make investment decisions accordingly. Mutual funds are notoriously vague about their holdings because fund managers do not wish to publicly disclose their trademark investment strategies. Over time, fund managers may make investment decisions that significantly change the character of their fund, a phenomenon known as “style drift.” Investors may be unaware that the actual holdings of the funds no longer reflect their stated objectives and that the asset allocations in their portfolios have been affected. ETFs such as S&P 500 SPDRs, which are organized as UITs, are strictly required to maintain holdings that reflect the composition of the index they are tracking. ETFs organized as RICs contain only a representative sampling of the securities tracked by the index and can be manipulated PAGE 4 n THE PROFESSIONAL INVESTOR n MAY 2014
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to accommodate difficulties, such as illiquid assets, but are still required to publish a daily account of all their holdings. Even the actively managed ETFs launched by PowerShares in April 2008, which follow the investment strategies of active fund managers, list their holdings daily on the PowerShares Web site. LOWER FEES AND COMMISSIONS: After an ETF
has been set up, it is “passively managed.” It simply aims to maintain the same composition as the index it is tracking by occasionally adding or selling off shares of its underlying stocks. The portfolios of actively managed mutual funds experience a high turnover of stocks and bonds as their managers strive to execute investment strategies, generating additional expenses, such as trading costs for buying and selling stocks and bonds on the stock exchange (estimated to average about 0.08 percent). Managers of actively managed mutual funds must keep some cash out of circulation to use in executing trades; the “opportunity cost” of maintaining this cash reserve instead of investing it is estimated to be around 0.04 percent. In addition to commissions, many mutual funds have “load” or “exit” fees, amounts that an investor pays to enter or exit the fund, which must be subtracted when calculating returns from an investment. Shares of an ETF are not sold directly by the company sponsoring it, but they are sold through a brokerage on the open market. To purchase or sell shares in an ETF, an investor pays a single, low transaction fee to the brokerage. The brokerage does the work of bookkeeping and customer service, keeping administration costs for the fund low. Because an ETF is linked to an index and is not actively managed, it is not paying the salaries of market analysts and active fund managers, only a licensing fee to the provider of the index (such as S&P). EASE OF PURCHASE: ETF shares can be bought and sold anywhere, and shares of ETFs from different providers can be managed in a single brokerage account. Comparable low-cost index mutual funds are often available only from a single provider so that an investor who wishes to hold more than one index mutual fund in his or her portfolio has to maintain several separate accounts. Some index mutual funds
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INVESTING IN EXCHANGE TRADED FUNDS
charge a substantial “load fee” to initiate an investment. International ETFs allow U.S. investors to buy into foreign markets using U.S. dollars by making simple transactions through a U.S. brokerage. INVESTOR STRATEGIES: Shares of ETFs are sold on the stock exchanges throughout the day and can be employed in all the investment strategies that are used with stocks: options, buying on margin, market timing, hedging, and leveraging. This has made them a popular investment vehicle with investors of all types. Long-term investors benefit from the diversity and low costs of ETFs, while active traders are able to speculate with entire market sectors rather than the stocks of individual companies. WHAT TYPE OF INVESTOR ARE YOU? The safest, most effective way to profit from ownership of an ETF is simply to buy shares of an ETF based on one of the broad indexes and hold on to them for the long term. Passive investing, a popular strategy implemented by millions of investors, is often called “buy and hold.” Passive investing does not involve market timing or predictions about the future of the market. The investor simply holds the ETFs for a time as the underlying shares gradually increase in value. The only trading in a passively managed portfolio is done when it is necessary to rebalance asset classes or when cash is added or withdrawn. Index Funds Plus Active Management: Many passive investors use a strategy in which they combine low-cost, market-index ETFs with a few costlier custom-index ETFs that promise higher yields, or they purchase ETFs from a style or sector that seems about to experience a surge in market value. An investor who has a practical understanding of a particular market sector may invest in an ETF reflecting that market. The hope is that the market-index portion of the portfolio will achieve market returns and that the custom portion will achieve superior returns. Even if the custom portion does poorly, the total portfolio will not be far from market returns. Another strategy is to have two portfolios: a conservative one to preserve assets and an aggressive one that takes higher risks and aims for rapid growth. Life-cycle Investing: Life-cycle investing is a form
of buy-and-hold strategy in which an investor’s portfolio is adjusted as he or she moves through different stages of life. Asset allocations remain constant during each stage, but investment strategies change as the investor moves from youth to middle age to retirement. Investors pass through four general stages in their financial lives: an aggressive stage during their youth, when they have few financial liabilities and time to make up for financial mistakes; a more conservative stage during middle age, when an investor considers the need to prepare for old age and retirement; retirement, when the investor relies on investment to provide a steady stream of income; and late retirement, when an investor begins to consider the needs of his heirs as well as his own requirements. Active Trading: Active trading is an attempt to achieve returns greater than those of the financial markets by identifying and buying stocks that are about to increase in value and selling stocks that are about to decline. Active investors use strategies, such as buying on margin, selling short, and purchasing options to increase their returns. An active investor spends time researching the market on a daily basis, looking for opportunities such as price and value discrepancies, studying economic forecasts, and keeping an eye on price momentum. ETFs provide many opportunities for active investors to shift their assets easily and rapidly from one market to another. Special Strategies: ETFs can be used for special
purposes, such as to fill out an asset class that is underrepresented in a portfolio, hedge against a downturn in the price of a particular stock, manage currency risks, or secure certain tax advantages. BUY AND HOLD: THE MOST SUCCESSFUL INVESTMENT STRATEGY: Passive investing, a
popular strategy implemented by millions of investors, is often called “buy and hold.” The goal of passive management is to achieve the same return as the stock markets. ETFs are ideal for this purpose because even a relatively small investment buys exposure to every area of the financial markets. Index mutual funds have been popular with passive investors for a long time, ETFs provide a lower-cost, more tax-efficient alternative to such mutual funds. PAGE 5 n THE PROFESSIONAL INVESTOR n MAY 2014
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No. 912-1 ` 399
How to invest and trade profitably and safely in ETFs Exchange traded funds (ETFs) are investment funds that hold a basket of stocks, bonds, commodities, etc. and trade on an exchange. Globally, ETFs now represent nearly every asset class. Indian investors are very familiar with gold ETFs, with an ever greater variety of ETFs becoming increasingly available. An ETF is much like a mutual fund but has many terrific advantages besides being exchange traded. Their complete transparency enables ETF investors to get a continuous fix on their positions and easily readjust their portfolios. This book reveals how ETFs provide both investors and traders a unique set of benefits: n What an ETF is and the different types of ETFs n How ETFs score over mutual funds and stock picking n How ETFs make asset allocation easy n How to select a suitable investment strategy using ETFs n How to build and manage a diversified equity portfolio with ETFs n Why ETFs have become such a favourite of traders n How to guard against the top 10 mistakes made by beginners. Here is complete guidance on how you can profit from ETFs — safely.
“. . . not since the setting up of the public stock exchanges have such wildly different types come together . . . individual investors are huge buyers of ETFs, so too are hedge funds . . . and just about every type of investors and trader in between” — Will McClatchy, Editor, ETFZone.com [Excerpt from: The Complete Guide to Investing in Exchange Traded Funds by Martha Maeda. Order on page 11, or by email to visionbooks@gmail.com, or online at www.visionbooksindia.com]
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STOCK MARKET TRADING SECRETS
Secrets of Day Trading, Swing Trading and Position Trading
Ashu Dutt
DIFFERENT TYPES OF TRADING: Trading is usually day, swing or ‘position’ trading. To understand the different forms of trade, let’s take the example of a boat. It does not stand still on water even if it is anchored. It bobs up and down. Day trading takes advantage of the ‘bobs’ the market experiences during a day. Just as a boat rises in high tide and falls during low tide, the market too may see a significant fall or rise during a trading day. Swing trading is like a boat without an anchor. In calm waters, it may drift away a bit. However, it rarely leaves the harbour. Swing traders take advantage of a drifting market that could last a few days. Position trading is like a boat in the open sea. How far can it go before it hits strong winds or a storm? Position traders try to gain from a stock’s move out of its range and into fresh territory, and hold the stock till the time it runs into a storm and needs to turn back. Day traders usually pay for small differences in prices. The trick here is to have the ability to close your trading positions quickly if the trade is not going your way. That sounds easier than it is. It is not easy to take losses — and even more difficult to move on after a loss. Swing trading is simpler but it also requires the ability to close a position when things are not going your way, e.g. an overnight news or an early end to the rebound, etc. Position trading allows you the time to think about your decision and pick stocks that move over a period of time — and in most cases reverse over a course of time. DAY TRADING SECRETS: Day trading is suitable only for those who don’t let temporary setbacks get them down. If you get emotional or angry about a loss, the chances are that you will end up multiplying your loss by trading more in order to make up for the loss. Day trading requires the ability to accept losses. If you don’t see any other opportunity in the horizon, just sit tight. Enter a trade only when a clear opportunity emerges. A trading plan usually helps. Based on your experience, the plan should specify how many
stocks you can trade at any given time, and the maximum percentage loss you are ready to bear. Once you have set these broad parameters, pick the stock you are going to trade. It is advisable to focus on no more than five to ten stocks on a regular basis day after day. Stocks have their own unique behaviour just as people do; no two stocks behave exactly alike. Which is why you gain an edge by studying the same stock over a long period of time. POSITION TRADING SECRETS: A position trader
holds his stocks for a longer trading period, namely for a couple of weeks or months. Position traders look for stocks that are making a move that may last for days, weeks or months. The moves can be specific to the stock, or they may be caused by a move in the entire sector, or even the market as a whole. Let’s say that a company has discovered new gas reserves that could substantially increase its revenues or perhaps change the very outlook for the company. This could result in the stock moving up for days, weeks or months till the full impact of the discovery shows up. A position trader may trade in this stock and may continue to hold it over the period he expects the stock to show its full price rise. A stock may also be in an uptrend because the entire sector has found new interest in the markets. When a sector gets attention from investors, institutions and traders, it tends to make significant moves over weeks or months. A position trader may identify a stock or stocks within the sector whose charts show strong price rise potential and volumes as compared to the overall sector. Then there is the situation where the entire market moves northward. When bullishness sets in, everything rises — the big stocks, the mid caps, the small stocks, and even trash. Position traders may carry their position till the time the market’s rally plays out. SWING TRADING SECRETS: Swing trading takes
advantage of a market’s swing upwards or downwards over a few days. Swing trading is especially useful when the market is falling sharply and is likely to rebound. Such rebounds PAGE 6 n THE PROFESSIONAL INVESTOR n MAY 2014
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Trading secrets of big market players revealed “You can make 50% to 100% every year with low risk. It’s possible and it’s true,” says market guru and bestselling author, Ashu Dutt.
No. 838-4 ` 295
Trading is one of the most rewarding occupations. If you can master chart reading and self-control, you have an unbelievable edge over others in the market.” In this conversational, easy-to-read book, Ashu reveals 22 stock market trading secrets to help you make big profits. Rooted in his decades of real-life market experience, and tested for their effectiveness, these trading secrets and techniques are typically the domain of big market players that will give you that elusive trading edge: n How to identify and trade the head of the
price move for maximum profits n Secrets of trading supports and resistance n Rules for profitable entries and exits n How the right alignment of
price, volume and time spells big profits n All about stop losses n When to stay out of the market n The vital importance of money management and trading discipline. PLUS, much, much more.
don’t last long but provide an opportunity for swing trades. The key is to take advantage of short term movements in the stock. For example, if the market is falling — and short covering for 2 to 3 days makes the stock rise very swiftly — a swing trader would trade in such markets. Swing trading may carry higher risks than usual. What if there is news overnight that impacts the stock? What if the rebound ends before you close your trade? Since you are still playing for small trading gains as a norm — though large gains are possible — any significant news or event can make the trade go against you. It’s best to start with position trading and then move on to swing trading. Only when you are able to take losses quickly and develop the ability to not let a loss disturb you, or expect the next trade to help you recover your loss, that you should move on to day trading. [Excerpt from: 22 Stock Market Trading Secrets by Ashu Dutt. Order on page 11 or by email to visionbooks@gmail.com, or online at www.visionbooksindia.com]
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MONEY MANAGEMENT RULES FOR TRADING NIFTY FUTURES
Money Management Rules for Trading Nifty Futures
Ashwani Gujral and Prasanna Khemariya
T
O MY MIND, ONE OF THE MOST NEGLECTED
aspects of trading is money management. So neglected and ignored is the topic that most traders never know it exists and go out of business without actually knowing what they missed out on. So, what exactly is money management? Money management is that part of your trading system that answers the question “How much?” throughout the course of a trade. USE TRAILING STOP LOSS TO PROTECT CAPITAL: Before initiating a trade you should always decide the amount of money you are prepared to lose should the trade go wrong. You must honestly answer this question: What would happen if I lose X% of my money? Would it affect my mental well-being, my family life, my lifestyle, etc.? You must be emotionally and financially prepared to face the consequences of being stopped in your trade. You should also weigh the odds of each trade. Usually, an average person has about 50:50 odds of making money on any trade. A Nifty futures trade which is based on technical analysis and market insight and understanding improves the odds in your favor to 60:40. So if ten trades are executed, six of them are likely to make money. Two out of ten may initially go in the predicted direction but then lose. The other two are likely to lose straightaway. Can we increase these odds to 80:20? We can do so by placing breakeven stops at the right place corresponding to the amount of initial risk you are willing to take on a trade. By doing so, you cannot lose eight times out of ten. If you do not lose eight times out of ten, and lose only 20 points the other two times, you will end up a winner. CUT YOUR LOSSES EARLY: Typically, if your analysis is correct and you execute a trade as per your plans and buy or sell setups, it should quickly move into the money. Before the close of the market at the end of the day, you should make an assessment of your positions, the market noise and behavior — and cut losers since each big loss starts by being small one. DO NOT LOSE TOO MUCH ON ANY GIVEN TRADE: Do not take a risk of more than 50 points on any given Nifty trade, which means you should trade only when the odds of the market moving
in your favor are more than 90%. This also means that you will not find good trades every day. How we have arrived at this figure? One should fine tune one’s entry and exit mechanism by analyzing the buy / sell setup on the five-minute charts to make entries or exits. You may be comfortable with even a 50 point loss but the more capital you lose on each trade, the fewer the number of attempts you'll have the capital for. Since risk of a good entry is the biggest risk, what is important is that each trade should not cost more than 50 points. NEVER OVER-LEVERAGE: You must not lose more
than 2% of capital on any single trade in the futures market also. The first challenge is to survive, you can make money afterwards if you are alive and kicking. If you can survive, you will thrive. If you run out of gunpowder, your battle is over. You cannot control the price movement but you can always control the volume you trade; most traders go bust because of volume, not price! PYRAMIDING: If a trade moves in your favor and you wish to pyramid, always remember that fresh additions should be in smaller quantities so that the initial quantity is the largest and that you add only once the Nifty moves into the money by 1X (one X) of the risk taken, i.e. by the amount of the stop. Keep moving the stops 1X, each time you add lots, so that you risk your own capital only on the latest lot. TRADE ACCORDING TO THE MARKET: If you are not sure of the market’s true colors and the implied volatility of the options is on the higher side, sell higher index calls against index positions. For example, if you buy Nifty futures at 5,000 in a sideways market, you could sell the 5,100 call for ` 50, which gives you some cushion as it gives you ` 50 up front, though it limits the upside. This is not a solution for all markets but only when markets are range bound. RIDE THE MOVE: Most money is made in only a handful of big trades. Always ride the trade with the assumption that the current trend would remain in force until a majority of signals prove otherwise. The biggest mistake most Nifty traders in India make is that they sell too soon — and also buy PAGE 7 n THE PROFESSIONAL INVESTOR n MAY 2014
How to make money in any kind of market using price charts
n
With: 150+ charts of real examples from Indian markets
This is the first comprehensive book on chart patterns and chart analysis using real-life examples from the Indian market. It No. 721-9 ` 675 explains every significant tradable pattern, buy and sell signal, and the use of important technical indicators with the help of more than 150 charts of Indian stocks: n How to make big profits by identifying the
ongoing trend and trading with the trend n How to make mega profits by identifying
n
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impending trend reversals and catching big moves in the opposite direction How you can reap windfall profits by identifying and trading breakouts from continuation price patterns on charts How to use volume to confirm price action How to use momentum indicators in conjunction with charts to finesse profitable entries and exits Trading rules for various chart patterns.
Written by the bestselling author of How to Make Money Trading Derivatives, this book shows how you too can make money by identifying the market's mood with the help of the various typical patterns that are formed on charts — and by using appropriate trading methods for each pattern.
“A must read for anyone interested in trading the Indian markets.” Editor, Technical Analysis of Stocks and Commodities Magazine, USA
too early. Nifty often moves with high volatility in either direction, with abrupt gap up and gap down openings, and unless you are prepared to face the consequences of riding out the smaller jerks, shocks, jiggles, wiggles and shark attacks, you will not be able to capture the sustainable longer moves. Always trade in the direction of the larger trends, with the most emphasis on the primary trend which lasts the longest. In a strong up trend, look for opportunities to buy only on dips. In a down trend, sell rallies or bounces. ALWAYS USE REAL STOPS: You should always place mechanical stops instead of mere mental stops. The stops can be placed based on your trading profile and risk capacity. [Excerpts from: How to Make Money Trading with Charts by Ashwani Gujral and Prasanna Khemariya. Order on page 11, or by email to visionbooks@gmail.com, or online at www.visionbooksindia.com]
HOW TO MAKE BIG PROFITS “The secret is to first learn TRADING
How to Make Money Trading with Charts
How to Make Money Trading Derivatives
Trading the Markets: Real-time Market
With: 150+ Charts of Examples from Indian Markets
An Insider's Guide (3rd Edition)
Ashwani Gujral & Prasanna Khemaria The first comprehensive book on chart patterns and chart analysis using real-life examples from the Indian market.
Ashwani Gujral This is a pioneering book on trading Indian futures and options written by an expert who does so for a living. It is an insider's guide which spans all aspects of successful trading.
Analysis and Technical Trading Lessons from a Master
“A must read for anyone interested in trading the Indian markets” Editor, Technical Analysis of Stock and Commodities Magazine, USA
“Ashwani Gujral has the natural ability to show traders how it works” Trader's Source Magazine, USA 853-3
721-9 ` 675/-
` 495/-
Sudarshan Sukhani This book, based on Mr. Sukhani's daily newsletters covering a complete bull and bear cycle of the indian market, is the nearest thing to being inside a market master's mind — real-time. Every trader and investor will benefit from this master lesson on actionable analysis and technical trading. 845-2 ` 495/-
How to Make Money Trading Stock Trends
The Complete Guide to Short Term Trading
High Performance Trading
Sundar Lakhia Trend trading is one of the simplest and most logical ways of profitable trading.
How to earn high returns — with low risk — through short term trading 870-4 ` 395/-
35 Practical Strategies and Techniques to Enhance Your Trading Psychology and Performance
“Truly an instructive book on how to trade trends in the 831-5 ` 395/stock market” Jeffrey Tan
High Profit Trading Patterns New 10-Year Research Reveals Nifty's Profit Secrets
Kora Reddy This path-breaking book reveals hundreds of high profit short-term Nifty trading patterns, based on a rigorous 10-year research. 832-0 ` 495/-
How to Make Money Trading with Candlestick Charts: With Examples and Charts Balkrishna M. Sadekar Explains step-by-step how you can trade the markets by using the powerful and proven candlestick tech794-3 ` 395/niques.
from Indian Markets
Alan Northcott
22 Stock Market Trading Secrets
Steve Ward BEST SELLER
Ashu Dutt “Up to 50-100% every year from stocks — with low risk. It's true! it's possible,” says Ashu Dutt. “Trading is one of the most rewarding occupations. If you can master chart reading and self-control, you have an unbelievable edge over others in the 838-4 ` 295/market.”
36 Strategies for Striking It Rich in Commodity Trading — Ashu Dutt “Commodity trading is one of the last frontiers of big gains! ” This book shows you how to succeed.
Swing Trading
872-8 ` 295/-
A Guide to Profitable Short-Term Investing
Trader's Guide to Financial Markets & Technical Analysis
Marc Rivalland
Jitender Yadav A comprehensive guide on how to profitably trade stocks, bonds, currencies, commodities, derivatives, etc. using technical analysis.
Predatory Trading and Crowded Exits
851-3 ` 495/-
666-2 ` 595/-
“You can make far greater profits (by trading) swings than in any other way.” W. D. Gann, Legendary Trader
848-3 ` 495/-
Financial Speculation Trading Financial Biases and Behaviour
Gerald Ashley
Lex Van Dam, Hedge Fund Manager
806-3 ` 495/-
Trading Systems:
A New Approach to System Development and Portfolio Optimization
Urban Jaekle and Emilio Tomasini
808-8 ` 675/-
The Guts & Glory of Day Trading True Stories of Day Traders Who Made (or Lost) $1,000,000 — Mark Ingebretsen 843-8 ` 495/-
Marber on Markets
CLASSIC
Brian Marber In this book Brian Marber reveals his money-making trading secrets honed and shaped by his vast wealth of experience. 738-3 ` 675/-
How to Make Money from Charts
The Way to Trade:
Discover Your Successful Trading Personality — John Piper 715-4 ` 495/-
This book uniquely highlights the fact that profitable trading is not simply a matter of superior trading methods, it is as much about who you are.
The Complete Guide to Day Trading
New Thinking on Market Volatility
James Clunie
“A very important book . . . wholly recommended”
794-3 ` 495/-
PAGE 8 n THE PROFESSIONAL INVESTOR n MAY 2014
BEST SELLER
A Practical Manual from a Professional Day Trading Coach — Markus Heitkoetter
International day trading coach Markus Heitkoetter lays out a simple, proven system for day trading 769-1 ` 495/success.
IN THE STOCK MARKET. . . then invest, then go on learning” DERIVATIVES
TRADING
Stock Market Trading Rules
Futures & Options
Fifty Golden Strategies
Introduction to Equity Derivatives BEST R
BEST SELLER
William F. Eng Here are fifty golden market trading rules, showing you how to survive and succeed in the stock market. 343-4 ` 295/- “Very valuable books” Tim Slater, USA
E
SELL R. Mahajan How you can risk-proof your stock market investments — or trade and speculate.
Stop Orders: A Practical Guide to Using Stop Orders for Traders and Investors — Tony Loton
This innovative book covers everything you need to know about stop orders and how to make them work for you.
691-3 ` 395/-
examples" Business India
Winning with Options 807-4 ` 325/-
How I Made $2 Million in the Stock Market: The Darvas System for Stock Market Profits
Nicolas Darvas
783-8 ` 295/-
CLASSIC
This book tells one of the most unusual success stories in the history of the stock market.
Winning with Futures
The Smart Way to Manage Portfolio Risk and Maximize Profit
Michael C. Thomsett This book offers investors easy-to-follow and important techniques related to portfolio management, and shows how traders can use options with profit.
Ashu Dutt “There are very few opportunities for making very large gains in relation to the money you put up. Futures and options is one of them,” says Ashu Dutt. In this book, he reveals timetested strategies that successful futures and options traders 875-9 ` 295/use but won’t tell you, proven methods that can make you a fortune. The Smart Way to Recognize Opportunities, Calculate Risk, and Maximize Profits
834-6 ` 395/-
Michael C. Thomsett Meant for investors new to futures, this book describes and evaluates all their risks and opportunities to help you use them with confidence.
Dictionary of Futures and Options: Over 1,500 Terms De-
7 Winning Strategies for Trading Forex: Real and Grace Cheng
739-1 ` 495/-
Tom Dorsey’s Trading Tips A Playbook for Stock Market Success
Alan Webber A comprehensive reference source of essential information for any investor involved in futures and options. Both the complete beginner and the seasoned professional will find this book invaluable. It contains all 331-0 ` 395/the basic terminology.
833-9 ` 395/-
New Insights on Writing Covered Call Options
fined and Explained
Actionable Techniques for Profiting from the Currency Markets
“A must-read for traders who want to know how they can make money in the forex market”
“An excellent introduction for investors” President, BSE “Introductions the subject with lucid writing style and simple
How to Make a Fortune in Futures & Options
Richard Lehman & Lawrence G. McMillan The book covers everything you need to know, from the mecha-nics of implementation to option strategies best suited to your investment goals.
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555-0
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“Reference book on futures and options” The Hindu
Thomas J. Dorsey This book shows you how to invest confidently using point and figure 480-5 ` 395/- charting, a proven, objective plan.
Red Joker Rules The 35 Rules of Gambling That All Investors Should Know — Pat Holland
Trading with Candlestick Charts: An Introduction Clive Lambert
“A well-written and, above all, practical guide to candle- stick charting” — The Technical Analyst, UK 767-7 ` 395/-
Trading Rules from the Masters: Money-making Lessons from 50 of the World's Top Trading Experts
Philip Jenks and Stephen Eckett
“A most useful book” 710-3 ` 295/-
SPECULATION
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Extraordinary Popular Delusions and the Madness of Crowds Charles Mackay
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This is a sparkling book of advice from a gambler to an investor. Both situations begin with a common pool of money. Through a mixture of skills, 791-2 ` 295/self-control and sheer luck, some players gain more than others. The skills that spell success in gambling have, over time, been distilled into a number of rules.
This book includes Charles Mackey's account of the three infamous financial manias — John Law's Mississipi Scheme, the South Sea Bubble, and Tulipomania. To772-1 ` 250/gether, these three historic episodes confirm that greed and fear have always been the driving forces of financial markets.
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PAGE 9 n THE PROFESSIONAL INVESTOR n MAY 2014
— Rebecca Turner
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STOCK MARKET INVESTING
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STOCK MARKET STRATEGIES
14 Wealth-Building Secrets of Value Investing — Ashu Dutt “Value investing is not only about low PE, low book value, or other conventional measures of value”, says Ashu Dutt. In this book, he reveals the secrets of value investing that go beyond the 871-1 ` 295/- traditinoal measures of value, secrets that can make you very rich.
Armchair Investing
N. J. Yasaswy
Multibaggers
(5th Edition expanded)
840-7 ` 495/-
A comprehensive handbook for making money in the stock market. Investment expert N. J. Yasaswy provides a stepby-step framework for intelligent investing.
“Excellent . . . packs a lot of substance“ – Business India
817-9 ` 295/-
Aditya Shroff The stunning success of some of the world's legendary investors, including Warren Buffett and Peter Lynch, has been built on their stock picking skills.
837-7 ` 345/-
Tejaswy Nandury The author reveals the major characteristics of multibagger stocks and provides a step-bystep investing framework for getting mega returns such stocks offer.
Fundamental Analysis for Investors Raghu Palat All the analytical tools of economic, industry and company analysis, and how to calculate the intrinsic value of 795-2 ` 295/a share.
the right stocks to invest in – easily and quickly.
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How to Profit from Mega Returns Stocks
BEST SELLER
Stock Picking — Simplified: How to choose
Making Money in Stocks — Simplified BEST
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Intelligent Stock Market Investing Handbook
The Zulu Principle: Making Extraordinary Profits from Ordinary Shares — Jim Slater This book is a modern investment classic and an international bestseller.
882-7 ` 295/-
100 World-Famous Stock Market Techniques
Anatomy of the Bear: Lessons
Richard J. Maturi A handy reference book that explains 100 of the most important stock market investment 562-3 ` 250/methods.
How does one spot the bottom of a bear market? What brings a bear to its end? This book pro797-4 ` 595/vides you the answer.
from Wall Street's Four Great Bottoms — Russell Napier
801-8 ` 395/-
The Midas Touch: The strategies that have made Warren Buffett the world's most successful investor
John Train 770-7 ` 295/This is the book that tells readers how to invest like Warren Buffett.
STOCK MARKET
The Stock Investor's Pocket Calculator: A Quick Guide to All the Formulas and Ratios You Need to Invest Like a Pro
842-1 ` 395/-
Michael C. Thomsett This is a most useful and investor friendly guide.
Profitable Investment in Shares: A Beginner's Guide
Balance Sheets
How to Build a Share Portfolio A Practical Guide to Selecting and Monitoring a Portfolio of Shares
“An excellent guide, covering all the basics” UK Analyst
A Guide for Foreign & Domestic Investors — Tadashi Endo
S. S. Grewal and Navjot Grewal Tells you the basic principles and guidelines for profitabe investment in 573-9 ` 190/the stock market. Hemant R. Dani Intelligently interpreted, the balance sheet and profit and loss account are of crucial importance for investors. These key financial statements reveal financial health of a company.
Rodney Hobson How to build and profit from a share portfolio.
The Indian Securities Market
BEST SELLER
386-8 ` 450/-
It’s When You Sell That Counts 561-5 ` 325/Donald L. Cassidy Failure to sell at the right time is a common pitfall. This book shows how to encash your stock-picking success.
476-7 ` 295/-
Investing Under Fire
The Stock Market Dictionary 854-4 ` 295/-
Winning with Stocks The Smart Way to Pick Investments, Manage Your Portfolio, and Profits
Michael C. Thomsett How to pick winning stocks, manage your portfolio and make profits in the market. The book also highlights and 843-8 ` 395/describes the 10 most valuable indicators — including current and debt ratios, revenue trend, net return, price history, volatility, P / E ratio, and trading range trends — that allow you to take advantage of opportunities while limiting risks.
First book to present a comprehensive overview of the operations, regulations and important developments in the Indian capital markets.
Guide to Dalal Street Money-Talk
Praveen N. Shroff 2,000 stock market terms clearly defined and explained. 436-2 ` 190/-
The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
Justin Fox Is the modern investment theory flawed? Read this book and decide for yourself; it may be the most important investment 790-1 ` 595/decision you will ever make. PAGE 10 n THE PROFESSIONAL INVESTOR n MAY 2014
411-2 ` 395/-
Alan R. Ackerman In this book a most distinguished assembly of world’s leading investment managers review the issues contemporary investors need to consider for investment success.
'ks;jksa ls YkkHk dSls dek,aa ,l ,l xzsoky vkSj uotksr xzsoky SEBESLLTER u, fuos'kdksa ds fy, ,d xkbM rFkk 'ks;jksa esa bUoSLVesaV ls /ku dSls dek,¡A bl yksdfiz; iqLrd esa vkidks 'ks;jksa esa ykHknk;d fuos'k ds ewy fl}kar vkSj blds fy, mi;ksxh ekxZn'kZu feysxkA
849-6 ` 145/-
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22 Stock Market Trading Secrets 36 Strategies for Commodity Trading 7 Winning Strategies for Trading Forex Dictionary of Futures and Options Extraordinary Popular Delusions Financial Speculation Futures & Options High Performance Trading How to Make a Fortune in Futures & Options How I Made $2 Million in the Stock Market How to Make Money from Charts How to Make Money Trading with Charts How to Make Money Trading Derivatives How to Make Money Trading Stock Trends How to Make Money Trading with Candlestick Charts New Insight on Writing Covered Call Options Predatory Trading and Crowded Exits Red Joker Rules Stock Market Trading Rules Stop Orders Swing Trading The Complete Guide to Day Trading The Complete Guide to Short Term Trading The Guts and Glory of Day Trading The Way to Trade Tom Dorsey’s Trading Tips Trading Rules from the Masters Trading Systems Trading with Candlestick Charts
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(Page 10) Stock Market Investing 14 Wealth-Building Secrets of Value Investing 100 World-Famous Stock Market Techniques Anatomy of the Bear Armchair Investing Balance Sheets Fundamental Analysis for Investors Investing Under Fire Intelligent Stock Market Investing Handbook How to Build a Share Portfolio It’s When You Sell that Counts Multibaggers The Myth of the Rational Market Stock Picking — Simplified Profitable Investmet in Shares The Stock Investor's Pocket Calculator The Indian Securities Market The Midas Touch The Stock Market Dictionary The Zulu Principle Winning with Stocks
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295 295 Behavioural Technical Analysis 495 Channel Analysis 495 Elliott Wave Explained 395 Future Trends from Past Cycles 495 The Complete Guide to Point and Figure Charting 595 The Technical Analysis Course 395 Timing the Market 295 How to Profit from Technical Analysis 295 Ichimoku Charts 595 Martin Pring on Market Momentum 395 Technical Analysis from A-to-Z 395 Technical Analysis of Stock Trends (9th Ed) 795 Technical Analysis and Stock Market Profits 675 A Beginner’s Guide to Charting Financial Market
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I N V E S T I N G R AT I O S M A D E S I M P L E
Price-to-Sales Ratio (PSR) DEFINITION Price-to-Sales ratio = Market capitalisation ÷ annual sales
Price-to-sales ratio is sometimes abbreviated to PSR or called the revenue multiple. The ratio can also be calculated by dividing the share price by the sales per share. HOW TO USE PSR AS AN INVESTOR: The PSR can indicate how cheap a company’s shares are. Unlike P/E and EPS, it can be calculated for almost any company, even those making a loss.
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15 Easy Steps to Mastering Technical Charts How to Hugely Increase Your Trading Profits
Ashu Dutt “Charts are for trading as water is for fish. You cannot trade without knowing how to read a technical chart," “Trading the markets is a No. 877-3 ` 295/game of odds. The goal is to improve your odds. The odds of making the greatest profit at the minimum possible risk,” he adds.
Rajiv D. Khatlawala
Timing the Market
Curtis M. Arnold This “Bible of Technical Analysis” teaches you the entire spectrum of technical analysis techniques. — Business Today
Richard W. Schabacker This great work by Schabacker is a worthy addition to each and every technical analyst’s and trader’s library.
Nicole Elliott
No. 793-6 ` 595/-
Elliott Wave Explained
Brian J. Millard The classic text on channel analysis for traders. How to Make Money by Predicting Share Prices through Channel Analysis.
Robert C. Beckman This book provides a clearest and easiest-to-understand discussion of Elliott wave theory ever published. No. 532-1 ` 395/-
“At times over the past few years, Robert Beckman’s forecasts of major market movements have shifted huge sums of money.” — Investor’s Review, USA
Martin Pring on Market Momentum BEST
A Beginner's Guide to Charting Financial Markets
No. 802-5 ` 295/-
for Investors & Traders
Thomas A. Meyers This book describes when, where, and how to employ the variety of tools availablee to an investment technician. No. 489-9 ` 395/-
SELLER Martin J. Pring Pring tackles overbought / oversold conditions; divergences, advance breakdowns and breakouts, moving averages, price patterns.
“A Bible on momentum.” No. 570-4 ` 395/-
— The Economic Times
PAGE 13 n THE PROFESSIONAL INVESTOR n MAY 2014
“A simple introduction to this arcane but widely followed art” — The Wall Street Journal, USA
The Complete Guide to Point and Figure Charting A Manual of Charting and Trading Techniques
Nicole Elliott This book presents, for the first time ever in English, the advanced stage of candles tick analysis — Ichimoku Kinko Hyo, also called Cloud charts.
— Business Investor’s Daily, USA
The Technical Analysis Course: A Winning Program
Ichimoku Charts
A Real-World Gudie to Predicting & Profiting from Market Turns
Michael Kahn A practical Introduction to technical analysis for Investors. This book will arm you with one simple, vital tool that will enhance your investment success — the price chart.
` 395/-
Advanced Candlestick Analysis Using Cloud Charts
The Key to Share Price Prediction
“An interesting book . . . a worthwhile read” — Your Trading Edge, UK
No. 312-4
No. 708-1 ` 675/- “This original work by the founder of technical analysis will teach you many valuable things that you don’t know” — J. Welles Wilder
ICHIMOKU CHARTS Advanced Candlestick Analysis Using Cloud Charts
BEST SELLER
“Can be used as a dictionary for technical analysis.”
Technical Analysis and Stock Market Profits
Channel Analysis
No. 809-4 ` 495/-
Steven B. Achelis This book covers virtually every technical indicator with examples in use today ranging from classic indicators to more complex tools.
"The real bible of technical analysis"
“For the savvy investor” No. 662-X ` 295/-
Behavioural Finance and Its Role in Technical Analysis
— Canadian Financial DIY
BEST SELLER
How to Profit in Bull & Bear Markets with Technical Analysis
Technical Analysis from A-to-Z
“The best explanation and summary of behavioural finance concepts that I have come across.”
BEST SELLER
This clearly-written beginner’s guide shows how you can profit from what the market is telling you. And, the basic principles and techniques are easy enough to No. 709-X ` 295/understand and apply.
■
Behavioural Technical Analysis: An Introduction to Paul V. Azzopardi This important book reveals how behavioural finance offers a more refined understanding of technical price patterns and how it can No. 850-6 ` 495/- serve as an important foundation for profitable new trading techniques and strategies.
How to Profit from Technical Analysis A Beginner's Guide
A N A L Y S I S
No. 670-0
` 595/-
Weber and Zieg "Point-and-figure is the best of all technical analysis methods," assert the expert authors and demonstrate in this book.
Future Trends from Past Cycles Brian J. Millard Find out how you can, identify share price trends and turning points through cycle, channel and probability analysis. No. 856-8 ` 495/-
Technical Analysis of Stock Trends (Ninth Edition)
Robert Edwards, John Magee & W.H.C. BEST SELLER Bassetti Long considered the definitive foundational work on technical analysis, this milestone, expanded 9th edition of “the bible of technical analysis” offers No. 742-1 ` 795/both proven, time-tested trading and investing techniques and updated contemporary know-how for success in different market conditions.
“This book is a classic — learn from this wonderful book.” Ralph Acampora, Prudential Securities, USA
n
INVESTING, GOLD & SILVER, MUTUAL FUNDS AND PERSONAL
The Rich Investor
How to Stop Worrying about Money — Forever
Arjun Parthasarathy Is your money working to make you rich. This book on common sense inversting highlighs the typical mistakes made by investors and shows you ways to aviod and rectify them.
Investing Ratios Made Simple: A Beginner's Guide to
Mehrab Irani
BEST SELLER
This book takes you on the liberating journey from financial slavery to financial freedom. It contains 10 commandments for wealth creation and wealth preserva876-6 ` 395/- tion which lead to financial freedom.
“The(se) 10 commandments . . . permanently free us from money problems.” — H. N. Sinor, CEO,
the Key Financial Ratios
Robert Leach
Association for Mutual Funds of India
Properly used, financial ratios are an extremely effective method for an investor to diagnose any company's financial health. This book explains in a simple, easy-to861-2 ` 295/read style how you can use these powerful analytical tools to help you pick the right companies to invest in.
“Outstanding . . . ten unique commandments” — Dr Rana Kapoor MD & CEO, Yes Bank
How to Become a MultiMillionaire Subhash Lakhotia Practical, inpirational roadmap for becoming a multi-millionaire. Come, dream big — and discover how you can fulfil your dreams.
The Invincible Investor 10 Top Financial Planners Reveal the Secrets of Loss-Proof Investing
"Become an expert yourself by learning from experts." — Jennifer Openshaw, Founder, Women's Financial Network, Inc.
830-8 ` 190/-
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"So many good minds speaking on
— Technical Consultant, Harvard University.
Profitable Investing in Volatile Markets
In this book, top international portfolio managers, financial planners and investment managers show you how to invest profitably in volatile times.
744-8 ` 145/-
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GOLD & SILVER
771-4 ` 250/-
The Luck Factor Why Some People are Luckier than Others and How You Can Become One of Them
Max Gunther Taking us on a richly anecdotal ride through the more popular theories and historic instances of luck, Max Gunther unearths the 803-7 ` 295/traits lucky people have in common — and which can change your luck. This is a most compelling and readable book on the fascinating subject of luck. Come, change yours.
Sundar Sankaran This innovative handbook is a comprehensive guide to the entire process of wealth building and wealth management. It highlights the risks and returns from all the 835-3 ` 495/popular investment classes, including equity, debt or income investments, gold, real
Instant Millionaires: The Secrets of Overnight Success
Max Gunther In this book you will meet three dozen impatient people. They wanted instant wealth — and they got it. The instant millionaires featured in this book are a richly varied lot.
The Complete Guide to Investing in Gold and Precious Metals Alan Northcott Gold, silver and other precious metals are the true safe havens of investing, assets which have maintained their value throughout history, despite all wars, political upheavals or infla839-1 ` 395/tion. This highlights their crucial value and import ance for investors. In fact, whenever financial markets turn uncertain, gold and silver offer extraordinary returns and come to occupy center space in the minds of investors. PAGE 14 n THE PROFESSIONAL INVESTOR n MAY 2014
849-0 ` 295/-
Making Your Own Will How To Do IT. Why You Should Do It 2nd Edition Rajesh Talwar This book explains simply and clearly everything you need to know about making your Will: n What you can bequeath and 883-4 ` 199/what you can't. n Why, how, and when to amend your Will. n How to draft your Will.
MUTUAL FUNDS
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a complex topic.”
Industry Professionals Reveal the Secrets of Profiting in Turbulent Markets
Wealth Engine: Indian Financial Planning and Wealth Management Handbook
10 Commandments for Financial Freedom
How to Avoid Common Investing Mistakes and Build Wealth
745-6 ` 250/-
n
PERSONAL FINANCE
INVESTING
852-0 ` 225/-
FINANCE
Indian Mutual Funds Handbook (3rd Edition) EST B
SELLER Sundar Sankaran The author’s experience of handling hundreds of training programmes ensures an engaging and easy to understand approach to mastering the subject in this book. n How to select a mutual fund for investment: the 838-0 ` 495/- things to look for n How to compare mutual funds: the right performance evaluatin tools for different kinds of schemes n Disciplined methods of mutual fund investing — systematic investment, withdrawal and transfer plans.
“I recommend this book to everyone who wants to make informed investment decisions“ Shekhar Sathe, Kotak Mahindra
The Winning Portfolio How to Choose the Best Mutual Funds
Paul B. Farrell
481-3 ` 190/-
“An easy-to-follow roadmap for maximizing your mutual funds profits. . . both rational and intuitive” — Brian Murray
n
ALL ABOUT THE P/E
n
The Power of the Improved Price Earnings Ratio
How to boost your stock market returns using the priceearnings ratio
T
The price-earnings ratio, or P/E, is the most commonly used valuation No. 901-5 ` 395 metric in stock market investing. For most people, it's a shorthand way of deciding how the market regards a company. But it's also tricky concept, full of pitfalls. For example, a company with a low P/E could either be an attractive investment opportunity or a company which is deservedly cheap because it is in difficulty. This book is both a hand-book on the intricacies of P/E and a practical guide on how you can use, adjust and improve the priceearnings ratio to boost your stock returns:
Keith Anderson
HE P/E ALSO HAS A STRONG INTUITIVE meaning: it tells you how many years’ worth of future earnings you are paying in order to buy the share now. While the value to investors of being familiar with this widely used statistic is clear, professionals in financial markets even may well be surprised by how easily the P/E could be improved if things were done slightly differently.
THE
LONG-
TERM P/E: Why
Shiller in his 2001 book Irrational Exuberance, but at the level of the overall market P/E. His ten-year ‘cyclically adjusted P/E’ (often abbreviated to CAPE) was, he proposed, a useful measure of how overvalued or undervalued the market as a whole was compared to its long-term average. However, no-one thought of scientifically testing Graham and Dodd’s suggestion at the level of individual stocks until my In recent decades the P/E has been the most paper in 2006.
important and best-known investment ratio.
WHAT USE IS THE
do we take LONG-TERM P/E?: Indeed, apart from the share price, it is the only into account To test whether investment statistic that is published in print earnings from these longer-term only one year P/Es are of any use every day. when we try to in predicting value a company using the P/E? A year is by returns, I followed a fairly standard procedure. law the period over which companies must First I set up a database of all UK companies publish audited accounts. For many companies since 1975 (over 4,000 have been quoted at a year is really not relevant to their business some point). I then took this year by year and cycle. For most companies the most important listed all companies that were quoted on the effect on their activity is the health of the stock market on 30 April 1975, 30 April 1976 economy as a whole. They should really have and so on up to 30 April 2009. This gave about their earnings measured over the whole 1,300 companies available to invest in in each economic cycle to get a true view of their long- year group, although the companies themselves term earnings potential. An economic cycle is change (the average company is only quoted generally thought to last 7-8 years on average. for seven years before it is taken over or As with many good ideas, this one was first disappears for some other reason). thought of decades ago, and then nothing was Then, for each year, I sorted them by their done with it afterwards. In Security Analysis in traditional (one year) P/Es and divided them 1934, Ben Graham and David Dodd into ten groups (deciles), so as to mirror having recommended the use of average earnings over bought ten portfolios: the lowest 10% of a period of at least five years, and preferably companies by P/E, the next 10% and so on up over seven to ten years, as giving a much more to the highest 10% of companies by P/E. Then reliable view of a company’s true earnings I calculated the average returns including potential. dividends for each of those ten groups Something similar was suggested by Robert assuming I had held all the stocks for one year, NEW BOOK BY BESTSELLING AUTHOR
Invest and Grow Rich How 12 Individual Investors Made Millions in the Stock Market
Guy Thomas This book reveals how successful stock market investing can radically change your life and give No. 895-7 ` 395 you freedom from the daily drudgery and grind of a conventional job.
The book profiles the investing strategies, wisdom and lifestyles of 12 highly successful individual investors who accumulated £1m or more — in most cases much more — mainly from stock market investment. And, mind you, these are not “professional” or “expert” investors. While some have academic degrees or strong market backgrounds; others left school with few qualifications and are entirely self-taught investors. PAGE 15 n THE PROFESSIONAL INVESTOR n MAY 2014
n
n
n n
n n
How to interpret the P/E and understand what the market is telling you about a company's prospects How to improve the P/E ratio and turn it into an even more powerful predictor of future returns, while controlling for risk The rich investing and trading insights that decom-posing the P/E offer How the long-term P/E increases the traditional P/E's power to predict future returns How P/E helps you identify outperforming stocks How famous investors Ben Graham, Joel Greenblatt, and Joseph Piotroski use the P/E to pick stocks to invest in.
“I recommend this book with great enthusiasm.” — Werner De Bondt
i.e. 1 May 1975 - 30 April 1976, 1 May 1976 - 30 April 1977, and so un until 1 May 2009 30 April 2010. So at first I sorted all the companies by the traditional P/E and calculated the average returns for all the one-year holding periods from 1975-6 up to 2009-10. Then I did it all over again but sorted them by the two-year P/E. It was all the same companies and the same one-year returns for each, but some of them fell into a different portfolio group due to their P/E changing, as we just saw for Haynes. And so on, up to sorting by the ten-year P/E. Adding more years of earnings to the earnings part of the P/E does greatly increase the power of the P/E to predict returns. [Excerpt from: All About the P/E by Keith Anderson. Order on page 11, or by email to visionbooks@gmail.com, or online at www.visionbooksindia.com]
RNI No. 62633/95 Publication Date 1 MAY 2014 Posted at New Delhi NDPSO MAY 1-2, 2014
Regd. No. DL(S)-01/3182/2012-2014 Under Lic. No. U(C)-209/2012-2014 Licensed to Post without Prepayment
PAGE 16 n THE PROFESSIONAL INVESTOR n MAY 2014
n
10 COMMANDMENTS FOR FINANCIAL FREEDOM
How to Make Money from Nothing! Mehrab Irani
Y
ES, MORE CASH FLOW, POSITIVE LEVERAGE, over a period of time will also earn capital gains higher returns mean money from noth- (portfolio income). ing or, literally, printing your own money. What If You Have No Money to Start With?: You might You might wonder how one can reach that argue that you don’t have ` 5 lakh to put up as stage. Tables 1 and 2 will take you through down payment. When you think this way, it’s that journey to your destination. worth reminding yourself that God has given Assume you invest in a rental real estate worth each one of us some unique talent or gift. Iden` 25 lakh, which gives you rental yield of 12%, tify your unique ability or skills and work toby putting ` 5 lakh (20%) as down payment wards earning some money using those. And and borrowing the rest ` 20 lakh from a bank once you have accumulated some wealth, learn at 9% p.a. rate of interest. Now, as depicted by the tricks of the game; start small initially and Table 1, after paying for property tax, maintethen graduate to bigger and bigger play over a nance and income tax, you are left with a cash period of time. flow of ` 37,800. Kindly note the principal repayment of the loan is not assumed because if What If You Initially Generate Negative Cash Flows?: the transaction can provide free cash flow after It’s true that there are chances of generating paying the interest, there is no need to repay negative cash flows initially. Remember, howthe loan — the arrangement can run for perpe- ever, that if you have selected your investment tuity, throwing up free cash flow every year. To asset correctly, whether it be real estate, stock substantiate, take the balance sheet of any com- or bond, and at a reasonable price, then over a pany. Most of them carry loans in perpetuity. period of time it is sure to rise in value, if for Does it mean they don’t repay their loans? Cer- no other reason than simply because the value tainly not. They keep repaying old loans which of money will go down. You may wonder how, had financed earlier assets and then take new for example, the price of a bond would go up loans to finance newer assets. Both their loan when the value of money goes down. As we and assets keep expanding. The trick is to man- saw in Commandment 5, the price of a bond age the cash flow to keep this cycle of creating rises when interest rates fall, and vice versa. new assets out of new loans running. In the proTable 1 cess, you will generate life long Income Statement — Money from Nothing free cash flows for yourself. Expenses Income 1,80,000 Rent from rental 3,00,000 This is your positive cash Interest on loan real estate flow from the transaction — (` 20,00,000 @ 9%) 30,000 the money which you printed Property tax 36,000 out of nothing. And, remem- Maintenance Income tax 16,200 ber, so far we have not assumed Surplus carried forward 37,800 any increase in the value of the to balance sheet real estate, i.e. we have assumed Total 3,00,000 Total 3,00,000 no portfolio income but only Table 2 passive income from rent. Of Balance Sheet — Owning Your Own Printing Machine course, over a period of time Year 0 Year 1 Assets Year 0 Year 1 the increase in the asset’s price Liabilities Net worth 5,00,000 5,00,000 Rental 25,00,000 25,00,000 could be significant simply bereal estate cause the value of money will Add: Surplus 37,800 Free cash 37,800 come down due to inflation. brought from Since we are concentrating income only on cash flow, we are not statement 20,00,000 20,00,000 concerned with the short term Loan vagaries and price movements (positive in the real estate market — we leverage @ 10% p.a.) earn rent (passive income) and Total 25,00,000 25,37,800 Total 25,00,000 25,37,800
n
How to stop worrying about money — Forever You become financially free when you can stop working for money and when money starts working for you. That’s No. 876-6 ` 395 financial nirvana — and this book shows you how to achieve it. The book takes you on the liberating journey from financial slavery to financial freedom. It contains 10 commandments for wealth creation and wealth preservation which lead to financial freedom. Step-by-step the book helps you fully understand money and its fascinating, elusive behavior, including the best ways to earn, invest, protect, budget, save, spend and multiply your money. It uncovers the unique rules of money and highlights the common financial mistakes which may be stopping you from becoming rich. This book boldly challenges — and often upturns — conventional wisdom. It reveals things about money which you may never even have thought of before. Above all, it gives you the roadmap to be financially free — forever.
“The(se) 10 commandments . . . permanently free us from money problems.” — H N Sinor, CEO, Association for Mutual Funds in India MEHRAB IRANI is a qualified chartered accountant, company secretary and CFA (Level I) with rich experience in investment research, portfolio management and investment banking.
Therefore if you buy a bond at a high yield, its price would eventually rise when the yields start coming down. The price of an equity stock will rise when the company’s earnings rise while that of real estate would rise with inflation and the improvements which you make to the property so that it commands better rent, e.g. new paint, new fans, air conditioners, geysers, etc. And once the value of your investment asset increases, you would get higher income from it while the interest cost will remain the same. Thus, over a period of time a stage would come when your increased income will become more than your fixed interest cost, thus producing positive cash flow for you. Sure, the initial pain would have to be endured but once that phase has passed you will reach the stage of cash flow positive leverage. [Excerpt from: 10 Commandments for Financial Freedom by Mehrab Irani. Order on page 11, or by email to visionbooks@gmail.com, or online at www.visionbooksindia.com]
Printed and published by Kapil Malhotra on behalf of Vision Books Pvt Ltd and printed at Ravindra Printing Press, 1590 Madarsa Road, Kashmere Gate, Delhi-110006 and published at 24 Feroze Gandhi Road, Lajpat Nagar-III, New Delhi-110024. Editor: Kapil Malhotra