8 Dec 2017

How can you make profits consistently?

        
       Ranveer reached his brother Rishi’s flat at four o'clock in the evening. There, along with his brother and wife Meera, was a third person waiting for him. It was Madhuri,Meera’s sister.
“She’s here with a ton of questions to ask you”, Rishi smiled.
“Are your studies over?” Ranveer asked Madhuri.
“I had first class in B.Com. I also passed the stock exchange’s exam and am now working at a brokerage firm here in Fort,Mumbai.” She beamed.
“That’s nice. How long have you been working now?” Ranveer leaned to get his cup of coffee.
“I joined about 3 months ago. I am currently in charge of a trading terminal.” Madhuri,who was standing across the room, took a seat.
“And how’s your job now?” Ranveer asked.
“She says it’s very stressful” Meera walked in from the kitchen with some snacks for them. She sat beside Rishi.
“Stress? Stress at an age of day dreaming?” Ranveer laughed.
“There are high targets we have to meet. Daily we have to make sure that the business volume does not go down. But most of our clients have not seen profits in ages.” Madhuri was concerned.
“What’s the purpose of business if no profitability to clients? With good enough profits, your present client base will be out vouching for your firm and bringing in more clients.” Ranveer always liked discussions over coffee.
“How can anyone consistently make profits?” Madhuri leaned forward in her chair.
“Nobody makes profits 100% of the time. But anyone can strive for profit in most of the transactions. It requires really deep study about business and market sentiment, I must say. For me, there are four things I focus on when looking into a company- the company’s ratios, momentum, business model and efficiency of the management.”
“I have learned about the ratios in my B.Com classes.” Madhuri said.
“That’s all good but knowing the theory and practicing it are two different things. What matters is that you practice. Many websites nowadays give us an idea about ratios of companies.It will help you to know the valuation of a stock.Avoid over valued shares and look for the shres trading at fair price.You should assess the networth,profit and liquidity factors of a business.Annual report and quarterly statement will give clarity about these things.
 Next imortant factor is momentum.It is determined from the price range in the past along with the trend. Know the present and historical trend from charts.Now,it is available in many websites.
Usually we use candlestick charts due to the clarity about price movement in it. You should practice determining whether a stock is a good or bad one, by checking all these. Spend the time until it’s becomes more of an intuition or insight.” Ranveer was completely engaged in conversation at the moment.

“What’s a business model?”  Madhuri enquired.
“That’s an easy one. You can understand that by looking for the company’s sources of income. When a company has only one source of income, the risk is high. On the other hand, there are companies that have multiple streams of income- and these have higher chances of consistent growth. For instance, the Wonderla business makes money from 3 sources- entry fees, food and beverage sales and from their resort business. Carefully running all these modes in harmony, the company will grow in the future. Competence is also an important factor.”
“You had mentioned efficiency of the management. What’s that?” Madhuri was absorbing every word.
“You’re smart!” Ranveer smiled, shifting his gaze from Madhuri to Rishi and Meera. 
“Invest only in companies with credible promoters. Also make sure that the current management has proved itself over the years. Recently many companies failed pretty badly due to the same. Read, study and practice- focused and frequently enough- success is a given!” Ranveer hoped he had made his point.
“Thank you very much! I almost had no idea about all you just said. I will learn more about these by myself. But hey! I will call you if I need to know something.”
“Sure. I have been investing for almost a decade now and I am ready to help anyone who is ready to learn.” Ranveer finished his cup of coffee.

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