Stocks Related Questions and Answers.

andian chase
Created by andian chase
On Oct 15, 2019
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Stocks Related Questions and Answers.

1. Why Should You Invest in stocks? How much money will you get back?
Put, you wish to speculate to make wealth. It’s comparatively painless, and therefore, the rewards square measure plentiful. By investment within the securities market, you will have loads of extra money for things like retirement, education, recreation otherwise you may pass away and your wealth is shared to successive generation. So, you become your family’s Most Cherished antecedent. Whether you are starting from scratch or have some thousand bucks saved, investment basics can facilitate you from occurring the road to financial well-being. This is part of a stock.

Options for Investment are:

  • Shares
  • Bonds
  • Mutual funds
  • Post Office Schemes
  • Real Estate

How much money will you get back?

There’s no guarantee of how your investment will perform. With company shares, it depends on the company’s performance and the economic outlook.
With funds, the chance of losing your money or making a big profit depends on the mix of different investments in the fund.

2. Habits of successful investors
1. Planning
2. Knowing the business
3. Diversification
4. Long-term plan
5. Continues Learning
6. Active Management
7. Avoid delays
8. Find costs
9. Make common sense a priority
10. Holding cash
11. Striking by Principles
12. They keep emotions out
13. Taking help

3. When should we sell an investment?
Making money on stocks involves just two key decisions: buying at the right time and selling at the right time. You’ve got to get both the right to make a profit.

4. What is REIT? How to Invest in REITs?
REIT stands for Real Estate Investment Trust and started in the year of 1960 as an amendment to the Cigar Excise Tax Extension of 1960. The provision allows individual investors to buy shares in commercial real estate portfolios that receive income from a variety of properties. Properties included in a REIT portfolio may include apartment complexes, data centers, health care facilities, hotels, infrastructure in the form of fiber cables, cell towers, and energy pipelines office buildings, retail centers, self-storage, timberland, and warehouses.

How to Invest in REITs?
You can invest in publicly traded REITs and REIT mutual funds and REIT exchange-traded funds (ETF) by purchasing shares through a broker.

5. High vs. Low Priced Stock–What Delivers Better Returns?
It is better to choose low-priced stocks than the high priced once. That means that low-priced stocks have better chances to grow their shares price faster than high-priced stocks.
Stocks priced higher than Rs 500 deliver higher returns both over the short & long term compared to stocks priced below Rs 500. Investing thousands of rupees on a single stock doesn’t take any advantage.

6. What is Cape Ratio?
CAPE Ratio or Cyclically Adjusted Price-Earnings Ratio is a less commonly used a variant of P/E Ratio. Prof. Robert Shiller of Yale University popularized this ratio and hence goes by the name, Shiller’s P/E Ratio. It is used in the assessment of whether the stock is overvalued or undervalued.
CAPE Ratio = Price/ Average earnings for 10 years adjusted for inflation.

7. What is Cash Flow?
Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows or maximize long-term free cash flow.

8. What is working capital?
Working Capital is an indicator of the short-term financial position of an organization and is also a measure of its overall efficiency. Working Capital is obtained by subtracting the current liabilities from the current assets. This ratio shows whether the company possesses sufficient assets to cover its short-term debt.

9. What is the current ratio?
The current ratio, also known as the working capital ratio, measures the capability of a business to meet its short-term obligations within a year. The ratio considers the weight of the total current assets versus the total current liabilities. It shows the financial health of a company and how it can maximize the liquidity of its current assets to settle debt and payables. They can use the Current Ratio formula to easily measure a company’s liquidity.

10. What is Return on Equity?
The Return on Equity ratio measures the rate of return that the owners of common stock of a company receive on their shareholdings. Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders. 

11. What is the Debt-Equity Ratio?
The debt-to-equity ratio is a financial, liquidity ratio that compares a company’s total debt to total equity. The debt-to-equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt-to-equity ratio shows that more creditor financing (bank loans) is used than investor financing (shareholders).
Debt to equity ratio = Total Liabilities/ Total Equity.

12. How do you make money from stocks?
There are two types of ways to make money from stocks.
1. Eventual profits
Your shares increasing, price over time and selling it is called eventual profits. For example, if you invested $100 in stock then it eventually started growing up and reached up to $120 then you get a profit of $20.
2. Dividend Profits
The other way of making money from stocks is to collect dividend money. Like we can’t say, all companies pay dividends, but most of the big companies pay dividends. If you buy the stocks, then you can be paid dividends every three months for your stocks.

13. What are Bonus Shares? Why Bonus Shares are issued?
A bonus issue is a stock dividend allotted by the company to reward the shareholders. It issues the bonus shares out of the reserves of the company. These are free shares that the shareholders receive against shares that they hold. These allotments typically come in a fixed ratio such as 1:1, 2:1, 3:1, etc.

14. What is an IPO?
An initial public offering is a process by which a private company can go public by selling its stocks to the public. It could be a new, young company or an old company that is listed on an exchange and hence goes public. Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public raising no fresh capital.

15. How can I invest in an IPO?
1. Decision
The first step is to choose the IPO that you wish to apply for. A great way to decide is by going through the company’s prospectus. You can find them on the Securities and Exchange Board of India’s (SEBI’s) website.
The prospectus fairly shows the company’s business plan and its purpose. Once you invest in a particular company’s IPO, the next step is to arrange for funds.
2. Funding
You can use your savings to invest in an IPO. But worry not if you don’t have sufficient funds in your account.
There are a few banks and non-banking finance companies that will lend you money at a certain interest rate. So, inquire about the interest rates before you take a loan.
3. Demat-cum-trading account
A Demat account is a prerequisite to apply for an IPO and is nothing but a facility to store your stocks and financial securities electronically and this account can be opened by submitting your PAN card, address, Aadhaar card, and identity proofs.