Stock Market Basics-4

The risks involved in investing Equities
The share prices are affected by factors that comes from within the company ( change of Management, change of policy of company, change of Human resources, fires and accidents in a company ), and the factors outside the company ( General Market condition, Economy, Sector demand and supply, Government Policies, International Wars, Foreign Policy, Demand in the International Markets, etc ).
So equities involves risk. But in a fixed deposit the risk is almost nil ( But it too have some risk. In case, if a Bank fails ). As we have seen earlier, Equities are riskier but they give good rewards. So while investing we should reduce our risk. How can one reduce the risk involved in equities.

Here comes diversification. One should not invest the entire amount at his disposal in a single share or sector. To reduce risk one should use basket of stocks. If one stock or one sector underperforms the market, the other sector or stocks which performs well will compensate the growth. Thus one can see good growth of his portfolio.

Impact of Tsunami on Japan’s Economy

Ever since Japanese Stock Index Nikkei touched 40,000 on January of 1990, it has been in decline. It touched a low of 7000 in 2008. For more than 18 years, Nikkei has been in decline. This says the sorry state of Japan’s Economy. Japan’s Economy was affected by the 2008 recession. Since then, it has been in a minor recovery path.

 

But the present Tsunami, has dashed the hope of full recovery of Jhttp://www.blogger.com/img/blank.gifapan’s Economy. It is being estimated that more than 200 billion of USD was lost in the Tsunami. World Bank has estimated that it may take another 5 years to repair the damages. It is surely a disaster for Japan Economy.

 

Constructing a Atomic power station is not a easy job. It needs lot of money and time. The damaged Atomic power station may need lot time and money to repair it. Since this devastation is caused not only by Tsunami, it is devastated by earth quake as well. Lot of buildings, roads and infrastructure has been damaged in the main land. Though financially, these loss can be manageable by any country, Japan at this stage, given their poor state of economy, cannot afford this disaster.

Aftermath of Japan’s Natural disaster in world Economy

Once again, Nature has demonstrated its vast devastating power on Earth and also it has been once again proved the instability of Human lives in this world. Even though, natural disaster are not new for the Japanese, the present devastation is caused by Earth Quake, Tsunami, and Atomic radiation. Japanese might not have imagined such a three frontal attack on them.

The only consoling thing is that only the coastal areas are affected by this devastation. The main land is not affected by Tsunami. This seems, that Japan will soon recover from this calamity. The resilience and discipline shown by these people shown by this people is astonishing . We have seen utter chaos in the streets of many Asian or European Or American countries whenever a disaster struck. But the Japanese kept their cool and they have moved on.

It is learnt the Tsunami might cost a lot for the insurers. So, it is bad time for Japanese Insurance companies. Japan is an Automobile Major. It may affect the production of these companies. Japan may need lot of money to be put into their economy. So this will surely dampen the export import balance of that country.  Already crude oil saw a mild sell off on the back of Japanese natural disaster fearing a lack of demand on crude.

Commodity prices may move on the back of fresh demand for reconstructing these regions. So metal prices may go up in the near future. The economic impact of this disaster most likely to affect Japan only. It is unlikely to impact other economies.

Stock Market Basics - 3

When you put your money in banks, the bank pays you an interest. The relation between you and your bank is, as it is between a borrower and lender. But in the case of buying shares, you are giving your money to the company to become a partner of that company.
Since you are a partner of that company, you are also a part of the profit and loss of the company. When the company is in profit, the profits will be shared to you according the number of shares you are holding. In case of loss, though they won’t ask you, the value of the share will go down accordingly.
In a bank deposit, the risk is almost nil, though there is some risk associated with it. But in case of equities, the entire capital you have invested is at risk. But the return you get in bank deposit, which is  the interest, is always fixed and small. But the return you get in equities is always high but at the same time, if the company doesn’t perform well, then you are likely to lose the entire capital invested.
So, by investing in equities, you expose your money to high appreciation and also to high depreciation. The risk involved in equities is very high and at the same time the return is also very high. Though the risk is very high, the reward ( here it is the return from equities ) is also very high when compared to bank deposits.
The return on equities is some times phenomenal. Equities appreciate by two times or three times or more than that in a short span of time. Your capital will be doubled in every eight years in Bank deposits. But in shares, in a bull market, your capital will be doubled within few months.

Stock Market basics-2

Every body should invest to financially  protect himself for the rainy day. Investment is different from business. Business is the source of your income. What ever you invest in the business in not your investment. But some spending like buying land for the business can be a investment. So basically business and investments are different.
Investment is for the rainy day. But business is for our regular income. There are different type of investments. It may be shares, Gold, Bond, or real estate. But what you save in banks as deposits are savings. There is a difference between savings and Investment.
Savings can be done in any form. It is saving the excess money in banks or in your locker itself. Savings would not grow as it is. When your savings turn into a investment, it is likely to grow. Properly saved money is a good investment. Savings are not associated with any risk. But investments are associated by with some risk. So investments are risk capital. Where as savings are not.
So Business, Savings and Investments are three different thing. If you could identify these three things, then you have passed your 10th standard in finance. Stock Market investment is an Investment. Stock Market Investment is a risk capital