Narach Investment

STOCK MARKET INVESTMENT RULES


The stock markets or equity markets are large market places or trading platforms in the modern sense of the word; where investors buy and sell equity shares or part ownership of various corporations representing various industries and services. To engage in this exercise of buying and selling equity shares the investor would be required to follow certain rules, to enable a successful and profitable conclusion to their transactions or trades.

We would get to these rules presently. However, investors are well advised to tread with caution and attain a certain level of comfort with the system they propose to implement. After all a system which works for one person may not necessarily work for another person. A dry run on paper would be in order for a period of time before the investor implements his or her system in real time in the stock markets. Further, we would restrict the application of these rules to the equity markets or the cash market. The other two sub-markets being Options and Futures which are different investment instruments with their own risk-reward profiles and require a different set of rules.

The stock market investment rules are listed below:

1. Make investments in the larger companies with price-earning ratios (P/E) of 10 or below.
2. Keep investments limited to the top 2 - 3 companies in each industry or service group.
3. Invest in companies operating in high growth (or sun rise) industries.
4. The price-earning ratio and earnings per share are important tools to estimate the fair value of shares.
5. High price-earning ratio implies that:

6. Low price-earning ratio implies that:

7. High returns can be earned from high priced stocks with reasonable price-earning ratios. The best investment opportunities usually lie in the most unexpected places.
8. Apply the theory of contrary opinion:

9. Preferential allotment should be treated as subsidiary opportunities for making money.

10. Rights issues enable fresh investment without dilution of ownership. It enables investments at prices below the prevalent market price of a stock. And also enables step up of dividend yield substantially.
11. Bonus shares expand the total shares outstanding, trading volume and liquidity of the share. It also raises the dividend amount and gives tax benefits. Further, it also acts as a signal confirming good future prospects of the company.

12. Timing your buys:

13. Timing your sells:

14. When to sell: