Introduction to Stock Markets: Trading & Investing PDF

Introduction to stock markets: Trading & Investing Speaker Profile Jash Vora Actuary (6 levels cleared), BFM from NM College. M.com in Business Management from UPG College. Trading and investing in markets since 2020. Ex-ICICI bank, Wealth Relationship Manager. Worked as a Wealth...

Introduction to stock markets: Trading & Investing Speaker Profile Jash Vora Actuary (6 levels cleared), BFM from NM College. M.com in Business Management from UPG College. Trading and investing in markets since 2020. Ex-ICICI bank, Wealth Relationship Manager. Worked as a Wealth Advisor for HNI clients at a SEBI RIA Fintech startup, managing portfolio of +Rs.10crores. Equity research at an AIF Category III fund. Faculty at LeapUp Edutech for Share Market oriented courses and Personal Finance related courses. Mentored 100+ students. My expectations from you Think! Trust the process! Try it out yourself! Tasks & Tests! Testimony! Why not just save but invest? Mr. Cash, Age - 30-year-old. Works at a bank. Has a wife and a 5-year-old daughter. Net saves 20000 per month which he keeps at home in his locker. The farthest he can stretch is Step up his net savings is by 10%. Plans to retire in 20 years, at 50. Is quite happy with his savings technique in all cash as he does not believe in growth, asset classes, compounding. Expects a smooth life managing all expenses with an even smoother retirement because of his strict cash savings habit. On a scale of 1 to 10, how OPTIMAL do you think Mr.Cash’s plan is? Let us plot his entire plan on a graph! Things we have not even touched upon which can disrupt his plan (which we will ignore for the simplicity of the case study) Unforseen increase in expenses Unforseen decrease in income Medical emergency exhausting his savings Natural calamity leading to unbearable losses Loss of life / loss of job / earlier retirement than anticipated Different career path that leads to change in net savings he can make  The big picture! After 20 years of hardwork, Mr. Cash is left with 1.37cr. On retirement, assuming an expense of 1lac per month (which grows at lets say 10%) with 0 income, only the 1.37cr net saving is at disposal which is expected to exhaust within 7-8 years (assuming no black swan events) Mr. Cash Isking is broke thereafter Now, on a scale of 1 to 10, how OPTIMAL do you think Mr. Cash’s plan is? Mr. Compounder Colleague, 30-year-old. Works at the same bank as Mr.Cash. Has a wife and a 5-year-old daughter. Net saves 20000 per month which he invests in a 14% return generating security. The farthest he can stretch is Step up his net savings is by 10%. Plans to retire in 20 years, at 50. Is quite happy with his savings and investments technique in as he believes in growth across all asset classes and in the power of compounding. Expects a smooth life managing all expenses with an even smoother retirement because of his strict savings and habit. On a scale of 1 to 10, how OPTIMAL do you think Mr. Compounder’s plan is? Let us plot his entire plan on a graph!  The big picture! After 20 years of hard-work and smart investments, Mr. Compounder is left with 4.96cr. On retirement, assuming an expense of 1lac per month (which grows at 10%) with 0 income, but a corpus of 4.96cr, which also compounds at 14%, this grows to 5.87cr, an increment of 75lacs, which take care of the expenses, leaving Mr. Compounder net 63lacs to re-invest. Mr. Compounder NEVER goes broke. Now, on a scale of 1 to 10, how OPTIMAL do you think Mr. Compounder’s plan is? Summary Mr. Cash Isking Mr. Compounder Colleague Retired happily at age 50 Have the same salary, family structure, constraints, standard of living and net savings perm month. What was the difference? Chooses Cash. Chooses a 14% return generating investment vehicle. Net saves 1.37cr. Net saves 4.96cr. Exhausts this within 8 years. Never exhausts his money. Broke at 58 having worked entire life and saved Has a sizeable asset base and has it growing at 14% money, having to beat inflation now onwards and annually which well takes care of all his expenses, zero figure out a way to earn again. worry of inflation or working again. What’s the clear choice you should make? The why, when, where, which and how? Why? Meet future financial requirements Create wealth and increase standard of living The beautiful by-product – to fight inflation What is inflation in layman terms? - Let us go beyond books and check in reality how inflation works! Birds eye view on the causes of inflation (Image by Onkar) Monetary Policy: It determines the supply of currency in the market. Excess supply of money causes inflation. Hence decreasing the value of the currency. The Reserve Bank of India (RBI) gives out the monetary policy in India. Fiscal Policy: It monitors the borrowing and spending of the economy. Higher borrowings (national debt), result in increased taxes and additional currency printing to repay the national debt. This, in turn, increases the money supply in the country. Demand Pull Inflation: Increase in prices due to the gap between the aggregate demand (higher) and aggregate supply (lower). Cost Push Inflation: Higher prices of goods and services due to increased cost of production. Exchange Rates: Exposure to foreign markets are based on the dollar value. Fluctuations in the exchange rate have an impact on the rate of inflation. https://scripbox.com/plan/inflation-calculator/ What are the Effects of the Rise in Inflation Rate The rise in the inflation rate can cause more than a fall in purchase power. 1.Inflation could lead to economic growth (increase in GDP growth rates) as it can be a sign of rising demand. 2.It could further lead to an increase in costs due to workers demand to increase wages to meet inflation. This might increase the unemployment rate as companies will have to lay off workers to keep up with the costs. High unemployment rate further leads to a fall in GDP growth. 3.Domestic products might become less competitive if inflation within the country is higher. It can weaken the currency of the country. How Do We Prevent Inflation? To prevent inflation, the primary strategy is to change the monetary policy by adjusting the interest rates. Higher interest rates decrease the demand in the economy. At the same time, lower rates of interest increase demand. This results in lower economic growth and therefore, lower inflation. Following are the other ways to prevent it: Controlling the money supply can also help in preventing inflation. The money supply is the total value of money in circulation in the country. In India, the Reserve Bank of India controls the money supply. Higher Income Tax rate can reduce the spending, and hence resulting in lesser demand and inflationary pressures. Introducing policies to increase the efficiency and competitiveness of the economy helps in reducing the long term costs. How will I survive if I cannot eliminate inflation out of my life? If you can’t eliminate it, mitigate it, or best, OUTGROW it! When? What we learnt right now, is nothing but components of Time Value of Money What we learnt right now, is nothing but components of Time Value of Money Present Value (PV) Future Value (FV) Monthly Investment amount (PMT) Period (N) Rate (I)  Kaun Banega Crorepati? Can I find out how much money I need to invest per month to become a crorepati if I find a 14% investment opportunity and Time Horizon of 10 years? Let us enter the variables Present Value = PV = 0, we don’t have any lumpum to invest right now, all our payments will be monthly Rate = I = 14% (as given in the question) Number of years = N = 10 (as given in the question) Future Value = FV = 1,00,00,000 (as given in the question) To find : Monthly payments (PMT) = ??? Does stepping up payments help? Understanding Sensitivities What we learnt right now, is nothing but components of Time Value of Money Present Value (PV) Future Value (FV) Monthly Investment amount (PMT) Period (N) Rate (I) Understanding sensitivities 3 major sensitivities : 1) PMT and StepUp (the greater the better) 2) Number of years (the longer the better) 3) Interest rate earned (the higher the better) Let’s assume you will start investing 1) 20000 INR with a 10% step-up, 2) for 30 years and 3) clock a decent 15% return How much money do you think you will make? Scenario Analysis Scenario analysis Does doubling up the Monthly Investment matter? How does 1% change in Return-on-investment impact? How does 1 year change impact? Does doubling up the Monthly Investment matter? How does 1% change in Return on investment impact? (-1%, i.e. 14%) How does 1% change in Return on investment impact? (+1%, i.e. 16%) How does 1 year change impact? (-1 year, i.e. 29 years) How does 1 year change impact? (+1 year, i.e. 31 years)  Who Came Up With the Rule of 72? The Rule of 72 dates back to 1494 when Luca Pacioli referenced the rule in his comprehensive mathematics book called Summa de Arithmetica. Expected Rate of Return: Years To Double: 72 72 Years To Double Expected Rate of Return