Wednesday, March 4, 2015

How to Invest Smartly in Stock Market ?

Here are some tips on how you can make money by investing in Stock Market on a Long Term basis. Personally I have been following these steps to make money.

Firstly, I would like you to learn the terms that follow :

Face Value  
It is the Original Cost of a share that goes on the Certificate.

Bonus Shares
New shares are issued to shareholders in proportion to their holdings.

Dividend
A dividend is a payment made by a corporation or company to its shareholders, usually as a distribution of profits.

Stock Split
A stock split or stock divide increases the number of shares in a public company. The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur.

Market Capitalization
Market capitalization is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks. It is calculated by multiplying the current market price of the company's share with the total outstanding shares of the company.

How do you benefit from Bonus Shares ?
When a company is running in profit it might offer to its share holders some extra shares in proportion of their current holding. Therefore, you will more shares of that company without having to invest anything extra.
For example you are holding 100 shares of certain company and it declares a 4:1 Bonus then you will receive 100x4 = 400 new shares without investing anything extra.

How do you benefit from Stock Split ?
When a company announces Stock Split the number of shares increases but the market capitalization remains the same. Thus the volume of shares available for trade increase and also the price of share becomes affordable as the face value is reduced.
For example you are holding 100 shares of certain company and it declares a 1:10 Stock Split then you will receive 100x10 = 1000 new shares of Face Value 1/10 without investing anything extra.

How do you benefit from Dividend ?
As a company makes profits it might announce dividends for it share holders from its profits. 
For example you are holding 100 shares of certain company and it declares a 100% Dividend and the Face Value of each share is 10 then you will receive 100x10 = Rs. 1000 on your investment. 

The key to earning from Stock Market is Long Term Investment. Thus, follow the above steps and invest smartly in stock market to make money as you could earn from Dividends, Bonus Shares and Stock Splits year after year.

Also Read :
How to Earn Rs. 500 Crores from Rs. 10000 ?

How to Earn Rs. 500 Crores from Rs. 10000 ?

I would like to share with you this true story where a person from a small town made Rs. 500 Crores by investing mere Rs. 10000 over a period of 30 years.

Mohammed Anwar Ahmed, 60, who was a resident of a small town named Amalner in district Jalgaon, Maharashtra. He lost his father in 1980. He received Rs.80,000 as his portion out of the sale proceeds of his farm land. 

One day by chance he met a share broker who explained how he could earn money by investing in stocks of a company called Wipro. This is how Mohammed Anwar Ahmed invested Rs. 10000 for purchasing 100 stocks of 100 face value each.

Here is how his initial investment of Rs.10,000 grew to over Rs.500 crores.
He had invested in 100 shares at face value of Rs.100 in 1980. The initial investment was Rs.10,000.

In 1981, the company declared a 1:1 bonus. He now had 200 shares.

In 1985, the company declared 1:1 bonus. He therefore had 400 shares.

In 1986, the company split the share to Rs.10. He thus had 4000 shares.

In 1987, the company declared 1:1 bonus. He hence had 8000 shares.

In 1989, the company announced a 1:1 bonus. Now he had 16,000 shares.

In 1992, the company declared a 1:1 bonus. By now he had 32,000 shares.

In 1995, the company declared a 1:1 bonus. He then had 64,000 shares.

In 1997, the company declared 2:1 bonus. He now held 1,92,000 shares.

In 1999, the company split the share to Rs.2. He now had 9,60,000 shares.

In 2004, the company declared 2:1 bonus. He thus had 28,80,000 shares.

In 2005, the company declared 1:1 bonus. He came to have 57,60,000 shares.

In 2010, the company declared 2:3 bonus. He now had 96,00,000 shares.

The current market price is Rs.500 per share. The shares are valued at Rs.480 crores.

Over the past 33 years, the company regularly paid out dividends and increased them almost every year. Cumulatively he received Rs.118 crores as dividend over the past 33 years. Thus by investing Rs.10,000, Mohammed gained Rs.598 crores.

He is now retired and donates freely to charity from the dividends he receives. His foreign educated children often advice him to sell the shares but he has kept his vow of not selling a single share till Mr.Azim Premji is the working Chairman.

My advice : Choose the Right Stock, Be Patient and Stay Invested for Long Term.

Hope you find this story of Stock Market Investment that yielded high returns over a period of time, interesting and inspiring. I am sharing this story with you because this has inspired me and I have started investing in stock market myself. But before you do that be sure to learn more about Stock Martket Invest from here.