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Presentation on Basics of Stock Selection FINAL

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11 views20 pages

Presentation on Basics of Stock Selection FINAL

presentation

Uploaded by

rsuri681
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCE FOR EVERYONE

Basics of Stock Selection

Name: Raunak Dammani


Course: Bcom(P)
Semester/sec: Sem 1/A
Roll No: 2024/08/008
Indian Capital Market - Overview

Market Regulator
SEBI

Stocks and
Commodities Other
Depositories
Derivative Intermediaries
Exchanges

Stock Brokers,
NSE, BSE, MSE, RTAs, Mutual
NSDL, CDSL
MCX etc. Funds, Investment
Advisors etc.
Starting Investment in Capital Market

Accounts Required

Bank Account Trading or Broking Account Demat Account

Many DPs offer a 3-in-1 account opening facility which gives you the convenience of opening a trading, demat and bank
account – all together. Now some DPs are now offering online demat account opening. Trading or Broking account is
required only if you want to buy / sell shares through stock exchange.
Why Do We Invest?

Investment is necessary to support your financial needs when you do not earn money.

1. By investing a portion of your income you allow money to


grow and work for you.
2. 3 parameters to assess suitability of any investment
avenue are –
i. Return potential
ii. Safety
iii. Liquidity
3. Various avenues where money can be invested, are
broadly classified into some groups, known as ‘Asset
Class’. Stocks or Equity shares are most popular class of
assets.
What is meant by Stock Selection?

Stock selection is the selection of one or more stock (or shares) based on
certain set of criteria in order to maximise the probability of meeting the
trading or investment objective.

There are more than 5000 stocks available for trading or investment.
None can trade or invest in all at the same time.

Hence, one needs to select a manageable number of stocks.

Fundamental and Technical Analysis are the two most preferred


tools for stock selection.
Types of Analysis

Economic Fundamental Technical

Quantitative

Qualitative
Fundamental Analysis
Fundamental analysis is a method used to identify the true value of a stock.

1. The current price of a stock may not reflect the actual


value of the stock. The stock may be overvalued or
undervalued in the market.
2. Fundamental analysis helps investors to study the health of
the company, and thus leading to the actual value of the
stock.
3. This is done by using various qualitative and quantitative
factors.
4. The main purpose of this method is to identify companies
that that are fundamentally strong in order to invest in
them for the long term.
Economic Analysis
1. It involves assessing or examining topics or issues from an economist’s perspective.
2. This allows investors to analyse the market from the big picture to all the way down
to individual stocks.
3. By examining the economic numbers one can determine the current market strength
and have a better idea of what the future holds.
4. Key Economic indicators investors must incorporate while selecting stocks:

i. Indices (e.g. Nifty, Sensex)


ii. Gross Domestic Product (GDP)
iii. Unemployment rate
iv. Inflation rate
v. Consumer Confidence
vi. Purchase Managers' Index
Types of Fundamental Analysis
Qualitative Analysis

It takes into account information that can’t be expressed in numbers.

i. It relates to the company itself.


ii. Factors – examples –

a) Management experience and performance


b) Corporate governance
c) Industry and competition etc.
Types of Fundamental Analysis
Quantitative Analysis

i. It is related to information that is shown in company’s financial statements. It involves


measuring simple statistical data to complex calculations.
ii. This analysis helps you to evaluate investment opportunities such as when to buy and
sell securities.
iii. Factors – examples -
a) Company’s revenues
b) Profit margins
c) Return on equity
d) Future growth potential
e) Financial ratios
Technical Analysis

It focuses on the stock market, rather the company.

It seeks to predict price movements by examining historical


data, mainly price and volume.

The underlying idea is that the market price already reflects the
fundamentals of any given stock, which therefore can be ignored.

It is a good idea for investors to leverage both technical and


fundamental analysis to fill the gaps.
Basic Terms Used in Study of Price Charts

Term Meaning
Support Level A level below which the price will likely not fall
Resistance Level A level above which the price will not likely rise
Breakout When a stock rises above its resistance level or falls below its
support level
Trend line A regression line that predicts future prices based on past prices
Relative strength Ratio of the percentage price change of a stock to the percentage
price change of a broader index or another stock
Price Charts
Technical analysts use a variety of charts based on the information they seek. However,
there are three types of charts that are most commonly used. They are: Line, Bar and
Candlestick

Line Chart

1. It plots the closing price of a share for each


trading day over a period.

2. The line formed by joining the dots plotted


on the graph shows the movements in stock
price during the period.
Price Charts

Bar Chart

1. It plots the intra-day high and low prices of a


stock using a bar for each trading day for a
specified time period.
2. The top of the bar corresponds to the day’s high
and the bottom, day’s low.
3. Two additional horizontal lines indicate the
opening and closing price. The length of the bar
is proportional to the volatility in a stock.
4. Colored coded - If the share price closes above
the open price it is colored green, and if the
close is below the open the bar is colored red.
Price Charts

Candlestick chart

1. It displays the relationship between the high &


low and opening & closing prices of a stock.
2. The body of the candle represents the opening
and closing prices during the period.
3. Above and below the body are vertical lines
called wicks or shadows that show the lows and
highs of the traded prices.
4. While an individual candle provides sufficient
information, patterns can be determined only by
comparing one candle with its preceding and
next candles.
Difference between Fundamental & Technical Analysis

Fundamental analysis Technical analysis


Analyses stock value based on economic and Analyses historical stock movement to
financial factors predict the future price of a stock
Long-term approach Short-term approach
Uses financial statements for analysis Uses price movement charts for analysis
Incorporates new market information Focuses mainly on past performance
5 Steps Approach For Great Stock Picking

1. Approach stock purchases as buying a business rather than just a stock purchase in the
portfolio.
2. Evaluate the true worth of the business considering the future earning potential.
3. The margin of safety is the real risk containment measure, and not stop loss.
4. Do not depend on turnaround as it seldom occurs.
5. Invest for the long term to generate inflation-adjusted superior returns.

So when one asks how to choose stock to invest in, the real question, is how to
identify a great business and what all parameters should be used to identify it?
Remember

1. Always remember your financial goals and


investment timeframe.
2. Review your financial goals periodically, at-least
once in 5 years.
3. Risk and Return profile of various assets are not
constant.
4. Consider taking help from a registered and
qualified Investment Advisor.
5. No stock remain the best all the time. Market is
dynamic and you need to review your portfolio
periodically.
“Investing money is the process of
committing resources in a strategic way
to accomplish a specific objective.”
Alan Gotthardt
THANK YOU

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