As you probably know almost all global markets (especially the emerging markets) are correcting and all of them have corrected sharply. It doesn’t matter whether you are from India or China or USA, the recent fall in stocks would have affected you.

I’m sure that you must be in a panic situation now even I’m in a panic situation. So that made me to write this blog post. I started investing in Stock Market back in 2005. But I didn’t make any significant amount of returns. In fact I have booked losses several times in range of 5 to 20% and then quit the stock market for some time. But I decided to enter stocks again back in January and started building a portfolio. I started with Mutual Funds too but when the markets fell sharply. I asked myself “Why should I invest in Mutual Funds when the Stock Market is attractive?” that made me to invest directly in stocks. And I began to buy quality stocks on every dip. The result: the stock market crash never ended it and it’s falling day by day. And I’m sitting at a loss of 10%. (more…)

Every person who invests in the market has his individual experiences to share; nevertheless there are few common misconceptions. To become a successful market player one must be well aware of the truth behind these. For instance, very often we hear people saying that the elderly are not supposed to take risks. They must be very conservative because their earnings power is limited. Well, who decided that young people could afford to lose their money? Taking another example, it is easy to say that stocks that go up must come down but laws of physics do not apply in the stock market. There is no gravitational force that pulls stocks back to even. To give you a better understanding, let us go through the widely prevalent myths in the market that one must be beware of.

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Punj Lloyd Ltd. is one of the largest engineering construction companies in India providing services to energy and infrastructure sector projects. PLL provides engineering construction services for onshore and offshore pipelines, gas gathering systems, oil and gas tanks and terminals including cryogenic LNG and LPG storage terminals, process facilities in the oil and gas industry including refineries and for power plant projects. In the infrastructure sector, Punj Lloyd Limited has worked on various civil infrastructure projects for highways, flyovers, bridges and elevated railroads. PLL’s operations are spread across the regions of the Middle East, the Caspian, the Asia Pacific, Africa and South Asia.

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Open Interest is an important indicator that can help one in ascertaining the flow of funds.

1. If the open interest rises with rise in price it is a bullish indication.
2. If open interest rises and prices fall it is a bearish indication.
3. If open interest falls and prices rise it is a sign of short covering by bears.
4. If open interest falls and prices also fall it is a sign of profit booking by bulls or liquidation of positions.

Put Call Ratio is an important indicator that can help one in gauging the future direction of the market.

1. If the Put call ratio rises then there is hope of higher prices in the near future.
2. If the Put call ratio falls it is a sign of weakness in the market.
3. Generally put call ratio is read along with volatility.
4. PCR can be calculated for Open Interest/positions or no of puts and calls traded.
5. Historically – 1.06 -2.00 is bullish. Above 2 and below 1.06 one may expect a sharp fall.

There are two types of Volatility – historic volatility and implied volatility. Historic volatility is based on historic prices of the futures and implied volatility is based on the volatility calculated from options i.e. volatility implied by premiums in options.

1. If volatility rises and PCR falls, it has bearish implications.
2. If volatility falls and PCR rises, it has bullish implications.

First, list all stocks with Price/Earnings ratios below 9. Note: Graham was writing in 1970 when P/E’s as a whole were not as elevated by technology stocks as they are today. Readers who are less risk-averse or who just want to consider a wider range of stocks may wish to vary the P/E in order to see what comes up — perhaps up to 80 percent of the average P/E of the S&P 500 would be a good start. Currently the operating average is around 18 and 85 percent of that figure is just over 15. Graham did not state if he was using a Trailing or Forward P/E ratio, but most likely he was using Trailing P/Es. I personally prefer to use Forward P/E ratios, especially if they are significantly lower than the Trailing P/E as this implies expected earnings growth and therefore possible increase in the stock price.

Once we have a list of stocks meeting the P/E criterion, we consider the financial condition of each stock, referring to the most recent balance sheet: Initially, Current Assets must be at least 1.5 times Current Liabilities. This can also be gleaned via a stock screener by displaying stocks with “Current Ratio” >= 1.5. Total Debt must not be greater than 110% of Net Current Assets (i.e. the sum of Cash & Cash Equivalents, Inventory, Accounts Receivable). Looking further back, we need to find evidence of Earnings Stability, with no deficit in the last five years, i.e. no evidence of an annual loss. Additionally, evidence of earnings growth over a five-year period is a must. This can simply be the consideration, for example, that 2004 earnings were greater than 2000 earnings.

There should be some current dividend payout. Finally, the current price of the stock should be less than 120% of the NCAV per share or Graham’s Number. Where to find this number? From the balance sheet, subtract Total Liabilities from Current Assets, and divide the result by the number of shares outstanding. Assuming you have a positive number that is greater than zero, the stock’s price should not be greater than 120% of this number.

Source: Value Investing Portal

1. Guide To Investing In Stock Market (Part I)
2. Guide To Investing In Stock Market (Part II)
3. Introducing The Indian Indices- BSE Sensex and the S&P CNX Nifty
4. Market Timing Or Time In The Market
5. Importance of Asset Allocation
6. Lessons To Be Learnt From The Recent Correction
7. Investors should have a Long-Term Horizon
8. Valuation And Valuation Techniques
9. Enter The Stock Market When No One Dares
10. How To Survive In A Bear Market - A Warren Buffett Style