Wednesday 25 November 2009

Share Market


What is share market?
Share market is sharing the company with public. Let me explain in a more meaning full manner. If a person has a company and if it gives profit or loss all goes to a single person (owner of the company). If two people run a company in partnership and the profit and loss are shared by two persons. If a company needs ten million for its expansion and its growth, but it doesn’t had enough money then they will get the money from public by selling one million shares to the public, each with a value of 10. Now the face value of the company is 10. Now there are more people to share the company’s profit and loss. One person can have more than one share. And the shares can be sold in the open market.

If the company is doing well then more peoples will try to buy that company’s share and very less people will try to sell the share, so the share value of the company will increase. Who ever is holding the share gets profit. If the company is not doing well then more people will try to sell the shares and only very less people will try to buy the shares, so the share value of the company will decrease.

You will also get an amount of company’s profit per each share your holding. This is called as dividend. Some company declares dividend and some don’t. Usually companies declares dividend once in a year. Company declares dividend in the percentage of face value. You can also earn money by intraday trading and short selling. Intraday trading is buying the share when its down and selling share after it goes up on the same day. Short selling is selling share with high value and buying it back after it goes down on the same day. To buy a company’s share you need a trading account. Trading account holds the shares and the money used for trading. You have to transfer money from bank account to your trading account and from where you can buy shares. After selling the shares money goes back to the trading account. You can’t withdraw money directly from trading account. For that you have to transfer money from trading account to your bank account and then you can withdraw money from bank account.

Click here to know about short term money earning method in share market
How to invest in share market?
To invest in share market we have to choose a right company. To choose a right company we have to do some simple calculations.

Lets see the first method. Gather some company names in share market. Then check the company’s accounts for EPS (Earnings per share) see whether it increase every year. Then calculate the growth rate of the company.
Click hereto see the account details of the company.

Percentage Growth Rate of EPS for a year = ((EPS of this year – EPS of previous year)/ EPS of previous year) * 100

For clear understanding view the image.

Click here to see the above formula in image

If you have the details of the company from 2005 to 2009 then you have to do this calculation 4 times starting from 2005 to 2008. Now you get 4 values. Then average them (add 4 values & divide it by 4). Now do the calculation for all the companies in the list and buy the best company. For example let’s assume a company with company name “ABC” and its EPS in corresponding year is as follows 2005 = 3, 2006 = 4, 2007 = 5, 2008 = 12 and 2009 =19.


Growth rate in the year 2006 = ((EPS in 2006– EPS in 2005)/ EPS in 2005)*100= 33
Growth rate in the year 2007 = ((EPS in 2007– EPS in 2006)/ EPS in 2006)*100= 25
Growth rate in the year 2008 = ((EPS in 2008– EPS in 2007)/ EPS in 2007)*100=140
Growth rate in the year 2009 = ((EPS in 2009– EPS in 2008)/ EPS in 2008)*100=58

Growth Rate (now average them) = (19 + 33 + 140 + 58) / 4 = 250 / 4 = 62.5

For clear understanding view the image.
Click here to see the above formula in image

The company’s (ABC) growth rate is 62.5. The company has a good growth rate, so it’s a good company.

Another method
For this method you need to calculate the percentage of dividend. This method needs Dividend amount and value of the share.

Percentage of dividend = (Amount of dividend / Value of share) * 100

For clear understanding view the image.

Click here to see the above formula in image

If the percentage is more than 5% then it’s a good company. Check how many years they have declared dividend. If they have declared dividend for many years they are best company.

Warren Buffet is the king of share market. If you are already in share market and you don’t know about Warrant Buffet. Please search his name on the internet and know about him. You can learn a lot in share market if you read about him.