At a time when company managements are giving lower guidance of future growth rates in topline and bottomline, it makes it worthwhile to study companies projecting high growth rates. Such stocks have some inherent characteristics, which popularize them as growth stocks. But exactly what are these traits? Lets see the more important ones;
1.The basic assumption regarding growth stock investing is that these stocks, even in an economic downturn, come up with very high growth rates in earnings and EPS.
2.Such companies grow faster than their peer group. For example L&T is growing faster than companies mostly in the infrastructure group. In favorable business environments most companies show high growth rates. The key is which companies sustain these high growth rates even in adverse economic environments. Also whether these growth rates are sustainable.
3.These companies also show very high ROEs.
4.These companies have high PE multiples. This is because the investor is ready to pay a high price for each unit of the companies' earnings. Educomp Solutions is a good example.
Usually these multiples are greater than the multiples of the overall market.
5.These stocks have high retention rates and low dividend payout ratios.
6.These stocks are very risky and are volatile and have high betas. Areva T&D is a good example.7.The history of earnings growth is also very good
Thursday, October 2, 2008
Wednesday, October 1, 2008
RETURN ON INVESTMENT (ROI)
An investor is someone who commits money, time, or their own effort to get a return on that investment. One way to measure the value of that return is called return on investment, or ROI. Return on investment is a calculation of the amount, or percentage, that you have earned (or lost) on an investment you have made. Returns may be positive or negative. A positive return on investment would mean you earned money, and a negative return would mean you lost money. Return on investment is a percentage of the original amount you invested.
Related to return on investment is risk. Risk is the chance that you will lose money. Different types of investments will give you different returns, and different amount of risk. In general, if you invest in an opportunity with a lot of risk, then you should expect to get a higher return on investment. Low risk investments should give you a lower return on investment. For example, if you place your money in an insured bank account, your money might be pretty safe, but the return may be 1%. If you invest in stocks, you might earn 8%. However, stocks are more risky, and you actually might lose money instead.
The formula is:
ROI =
R - I
x 100
R =
Money received after
making the investment.
I
I =
Original money invested.
Example: John invests $100 in a mutual fund for one year. At the end of the year he has $108. What was his return on investment?
Answer: 108-100 = 8. 8/100 = .08 .08 * 100 = 8%
Related to return on investment is risk. Risk is the chance that you will lose money. Different types of investments will give you different returns, and different amount of risk. In general, if you invest in an opportunity with a lot of risk, then you should expect to get a higher return on investment. Low risk investments should give you a lower return on investment. For example, if you place your money in an insured bank account, your money might be pretty safe, but the return may be 1%. If you invest in stocks, you might earn 8%. However, stocks are more risky, and you actually might lose money instead.
The formula is:
ROI =
R - I
x 100
R =
Money received after
making the investment.
I
I =
Original money invested.
Example: John invests $100 in a mutual fund for one year. At the end of the year he has $108. What was his return on investment?
Answer: 108-100 = 8. 8/100 = .08 .08 * 100 = 8%
TEACHING AND LEARNING BASIC INVESTING
RISK AND RETURN LESSON PLAN
Before investing your money, you will have to understand the important concept of risk and return. Risk and return means that the returns you will get when investing your money will vary. You may even lose money. However, no matter what you do with your money, you are always taking some amount of risk. If you keep your money at home, you risk that it could be lost or stolen. If you place your money in a bank account, you risk that the returns that you get will not be high enough.
Risk and return also means that if you take greater risks, you should expect to get greater returns. If you want the possibility of getting greater returns, you need to invest your money in more risky investments, for example bonds or stocks. Different bonds and stocks even have different degrees of risk.
So how much risk should you take with your money? That depends on many different factors including your age, risk tolerance, and investment objectives. No matter where you invest your money, you first should understand the investment's risks and potential rewards.
Additional thoughts on risk and return:
The risky investment in this exercise may be stocks, or may be another type of investment. If you consider the risky investment to be stocks, many people believe that stocks outperform safe investments over the long-term, and therefore showing negative returns (as this worksheet lesson does) may give a false impression that stocks are not good investments.
Our thought is that while it has been true that stocks and bonds have historically outperformed safe investments over the long-term, in the short term you could lose significantly with them. Also, you could lose significantly if you own particular stocks, rather than a diversified basket of stocks.
Also, even though stocks have outperformed in the past, there is no guarantee that they will in the future -- that is what makes them risky investments -- even over the long-term. Many people thought stocks would always give positive returns at the top of the market in March, 2000. No investment return is ever guaranteed -- there is always a risk. We can look at historical returns to get a sense of what we may get in the future, however, the past is never a guarantee of the future.
Before investing your money, you will have to understand the important concept of risk and return. Risk and return means that the returns you will get when investing your money will vary. You may even lose money. However, no matter what you do with your money, you are always taking some amount of risk. If you keep your money at home, you risk that it could be lost or stolen. If you place your money in a bank account, you risk that the returns that you get will not be high enough.
Risk and return also means that if you take greater risks, you should expect to get greater returns. If you want the possibility of getting greater returns, you need to invest your money in more risky investments, for example bonds or stocks. Different bonds and stocks even have different degrees of risk.
So how much risk should you take with your money? That depends on many different factors including your age, risk tolerance, and investment objectives. No matter where you invest your money, you first should understand the investment's risks and potential rewards.
Additional thoughts on risk and return:
The risky investment in this exercise may be stocks, or may be another type of investment. If you consider the risky investment to be stocks, many people believe that stocks outperform safe investments over the long-term, and therefore showing negative returns (as this worksheet lesson does) may give a false impression that stocks are not good investments.
Our thought is that while it has been true that stocks and bonds have historically outperformed safe investments over the long-term, in the short term you could lose significantly with them. Also, you could lose significantly if you own particular stocks, rather than a diversified basket of stocks.
Also, even though stocks have outperformed in the past, there is no guarantee that they will in the future -- that is what makes them risky investments -- even over the long-term. Many people thought stocks would always give positive returns at the top of the market in March, 2000. No investment return is ever guaranteed -- there is always a risk. We can look at historical returns to get a sense of what we may get in the future, however, the past is never a guarantee of the future.
Account Statement
Your work doesn't stop at investing in mutual funds. Keeping track of them is as important as deciding where to invest. The account statement helps you do just that
Once you invest in a mutual fund (MF) scheme, your MF sends you a statement within seven working days that gives details of the investments. Your MF account statement is just like a bank passbook, and gives information on all recent transactions done within a particular folio.The Securities and Exchange Board of India mandates that in addition to sending account statements to unitholders as and when there is some action in the account (redemption, additional investment or dividend declaration, for instance), MFs also have to send an account statement, at least once a year, for every folio a unitholder has.WHAT TO CHECK1. Current cost and valueCurrent cost is the amount you invested in a scheme while current value is the latest market value of your investments as on the date the statement is generated. Also, the price of one unit will be the net asset value (NAV) plus entry load or minus exit load. 2. Folio and account numbersMake a note of folio and account numbers. Most MFs offer one folio number and several account numbers in the same folio for all investments under the same unitholder combination. This makes for easier tracking all your investments with same MF. 3. Bank detailsCheck your account number and bank name. If you want to change your bank mandate, fill out the slip at the bottom of your account statement and submit to your fund or agent. 4. PAN detailsIt is mandatory for you to give the correct Permanent Account Number (PAN), irrespective of the amount invested. Check your PAN mentioned in the account statement and ensure there are no discrepancies. 5. Advisor nameIf you have invested through an agent, your agent’s name and code will appear on the statement. However, if you have invested directly, these parts should be left blank on your account statement
Once you invest in a mutual fund (MF) scheme, your MF sends you a statement within seven working days that gives details of the investments. Your MF account statement is just like a bank passbook, and gives information on all recent transactions done within a particular folio.The Securities and Exchange Board of India mandates that in addition to sending account statements to unitholders as and when there is some action in the account (redemption, additional investment or dividend declaration, for instance), MFs also have to send an account statement, at least once a year, for every folio a unitholder has.WHAT TO CHECK1. Current cost and valueCurrent cost is the amount you invested in a scheme while current value is the latest market value of your investments as on the date the statement is generated. Also, the price of one unit will be the net asset value (NAV) plus entry load or minus exit load. 2. Folio and account numbersMake a note of folio and account numbers. Most MFs offer one folio number and several account numbers in the same folio for all investments under the same unitholder combination. This makes for easier tracking all your investments with same MF. 3. Bank detailsCheck your account number and bank name. If you want to change your bank mandate, fill out the slip at the bottom of your account statement and submit to your fund or agent. 4. PAN detailsIt is mandatory for you to give the correct Permanent Account Number (PAN), irrespective of the amount invested. Check your PAN mentioned in the account statement and ensure there are no discrepancies. 5. Advisor nameIf you have invested through an agent, your agent’s name and code will appear on the statement. However, if you have invested directly, these parts should be left blank on your account statement
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