Portfolio Management: Stock Market Investing

Discussions with people of various age groups, with different educational backgrounds, engaged in different types of activities, belonging to different income groups often reveals a general perception that stock market investing is risky, akin to gambling, always loss-making, highly speculative and can have severe adverse financial implications. This chapter intends to update the participants about the nature of the stock market, introduce them to the established tools and techniques of stock market investing, hand hold them for informed decision making, at the same time highlighting the riskiness of random decision making on the basis of hearsay. It is an awareness exercise aimed at dispelling certain myths associated with this market, at the same time providing readers with the tools for trading in this market. Many of us may not be aware that even if we directly stay away from the stock market, our savings are deployed in this market by insurance companies and mutual funds. Yes, it is true, that these financial institutions are manned by experts in this area. However, it is our savings that they are using and it is our responsibility to understand the basics of this market.

 Stock markets are dynamic in nature. This dynamism stems from changing fundamentals of companies, changes in the macro-economy –both domestic and international, and changes in market sentiment, something

that cannot be explained and which at times has no rational basis. The stock market, like any other market, has buyers and sellers and there are goods (shares of companies) that are exchanged for a price. However, the goods are not demanded for their own sake, but are a means to increase wealth to enhance future consumption. It has attracted hordes of individuals, across all sections of society, with various degrees of knowledge and education, whose only objective is to make money, quickly and lots of it. There is an inherent greed factor in this market, and overall it makes it very difficult to predict market movements. In spite of this, academicians and market analysts have tried to make sense of this market, and they have provided some analytical structures of analysis. It is only that very few market players have