Stock Traders follow Stock Investors



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Rishi Kashyap
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Stock Traders follow Stock Investors


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In this chapter of Share market course tutorial, we will see how high dividend stocks sometimes create a win win situation for Investors. We will add 1 more Financial ratio to our list which we learnt at how to value stocks and avoid stop loss.
Hope this financial ratio can improve stock market probability of earning from perhaps 45-50 % to 50-55%.

Shares name mentioned in case studies are for educational purpose only and not to be taken as recommendations. Case study stocks may have been good investment at that moment of time which may have changed at the time of reading.

Please learn share market basics & how to value stocks before investing or consult a good Investment advisor.
Rishi kashyap is not a certified Financial advisor, please contact your Investment advisor if you do not know investing

CASE STUDY
Share of companyBUYINGSOLDRETURN
PTL Enterprises LimitedPrice : 37
Date : 12-Apr-2021
Price : 51.4
Date : 19-Jul-2021
39 %
CAGR return : 240 %
PTL Enterprises LimitedPrice : 36
Date : 19-Apr-2021
Price : 51.4
Date : 19-Jul-2021
42 %
CAGR return : 317 %
Banco ProductsPrice : 148
Date : 27-May-2022
Price : 180
Date : 29-Jun-2022
21 %
CAGR return : 773 %

Before I proceed, though, here is a below transcript between me and my very close friend RL.
It was RL who told me about share market in 2005 and we both started investing in Mutual funds and Share market almost together.
I have successfully stayed with pure fundamental analysis while he learnt both fundamental and technical analysis and Price charts with time.
RL : Any stock you made profit these days !
ME : PTL Enterprises Limited as above.
RL : (takes out Technical price charts, after deep observation) You know Kashyap, you bought it at a very good price. It was very close to its support ! 2nd support was at x price but the chance of breaking 1st support was very less ! Good purchase.
ME : RL, you do realise that Stock Traders follow Stock Investors, right ?
RL : What !
ME : Yeah I mean Technical analysis is all about finding what others are doing, when others are buying, when others are selling ! (I paused not to hurt him un-intentionally)
RL : Go ahead, elaborate !
ME : I hope you do understand that these "Others" are value Investors. WE know Why to enter at this price, WE keep buying below this price and its, WE, because of whom this support is made ! I mean, think about it !
RL : Whatever ! (bit annoyed)
ME : If there was no value investor, stock traders all around the world would be trying to guess what other traders are doing all getting either more confused or creating strange bubbles !
RL : Just because you do not understand charts does not mean traders do not make money !
ME : Of course traders make money, but only after investors ! In fact the bubble, traders create when it burst, fear creeps in and again traders and speculators sell at much below price than intrinsic value in bear market !
I really appreciate traders, without them we would have never been successful in finding undervalued stocks !
Traders sell when a support is broken without even understanding why that support exist !
RL : Lets stop this debatable topic tell me why this price ?

Before I give the technical details, let me put this warning also at the start so that I do not miss it
Buying stocks, only because of dividend, is pure stupidity.


VALUE INVESTING STOCK INVESTMENT FINANCIAL PLANNING  FINANCIAL RATIOS FUNDAMENTAL ANALYSIS

Rishi Kashyap | | EDIT

Rishi Kashyap
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What are Share dividends ?
When a company has excess profits it can either re-invest its profit in its business OR distribute all or part of its profit as dividend to its share holders (plz read What are shares of Company).
Generally dividends are declared basis the Face value of share e.g. 20% of Face value of Rs 10 per share which converts to Rs 2 per share.
This Rs 2 is the dividend per share (DPS).

With so many trades executed each hour, to remove the confusion of actual share owners, company decides a particular date for dividend calculations.
To receive dividends, we need to understand certain technical aspects of dividend.
A company share is traded in large volumes each day on stock exchange like NSE and BSE.
Once a dividend is declared, company will always declare the record date with it !

RECORD DATE : This is the date when the books will be checked and tallied for the investors who are holding companies share for receiving the dividend. Generally the registrar and transfer agents (RTA) does all this record keeping (plz read Financial intermediaries of stock market)

EX DIVIDEND DATE : This date is set 2 days before Record date since it will take T plus 2 days for share purchased to be credited into your de-mat account (plz read Demat and Trading account).
Any stocks purchased on or after ex-dividend date does not carry the benefit of the dividend. In other words to get the benefit of dividend you need to buy the share before the ex-dividend date !
Ex Dividend date
Ex-dividend date effect on Share Price
When a company declares dividend the demand for the share rises proportionately. On the ex-dividend date generally the price drops down proportionately too ! Thus when investing for dividend you do not intend to loose money on price.

This led me to invest not only in a cyclic dividend stock like PTL Enterprises in 2021 but also BANCO Products in 2022.
In this chapter we will learn

  1. 1 more Financial ratio related with DIVIDEND and
  2. See how Dividend upcoming e.g. ex dividend date can be used for short term gains !

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Let us see now, how BANCO India, made me make quick money, something which I do not do often. I was tracking result date using the filters in Stock Watch list and here are the events in chronological order
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Dividend and Tax
The Company pays dividend after paying tax to the government, this however does not mean that Dividend income is tax free ! Tax Deducted at Source (TDS) applies on dividends by Shares and mutual funds since Apr 2020.
Generally 10% TDS is deducted for dividend amount above 5000 for Indians having PAN updated with registrar (your broker keeps records updated). The TDS thus deducted can be verified in Form 26AS also.

Dividend declared never received ?
The Registrar and Transfer Agents (RTA) appointed by companies are responsible for processing dividend payments. If you have any issues with your dividend, search for RTA details for the concerned company and contact them with the issue. (Plz read Financial intermediaries of stock market)

You can get all your dividend records report for the stocks in your Stock Portfolio to verify that you did not miss any dividend !

With this new learning, let us modify our
Thumb Rules for Stock Investment
  1. Default mode is DO NOT INVEST
  2. Verify Financial statement source of Information. Best is to do financial statement analysis personally.
  3. If you do not understand the financial statement, safely switch to default mode, DO NOT INVEST. Period !
  4. Check Financial ratios for fundamental analysis, if not sure, switch to default mode, DO NOT INVEST.
  5. Cannot value a stock, switch to default mode,  DO NOT INVEST.
  6. Cannot determine probability of earning, NO Margin of Safety, outside your Circle of competency, DO NOT INVEST.
  7. Keep track of Shares result Calendar and Corporate announcements in your Stock Portfolio or Stock Watch list.
    Modify MY NOTES as Valuation changes !
  8. Keep track of High dividend stocks and Dividend upcoming for investment opportunities.
    Do not ignore dividends, but DO NOT INVEST only for dividends !
Also remember once you know How much money do you need to retire, you can actually plan to live on dividend which we have discussed in Dividend growth Investing.
Before I end Value Investing section, I will try to explain what my friend once asked, If share investing is so simple, why is everyone not successful ?

VALUE INVESTING STOCK INVESTMENT FUNDAMENTAL ANALYSIS FINANCIAL RATIOS STOCK MARKET COURSE

Rishi Kashyap | | EDIT

tags  FINANCIAL PLANNING FINANCIAL RATIOS FUNDAMENTAL ANALYSIS STOCK INVESTMENT VALUE INVESTING

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