The Stock Market Jungle You Never Knew About

The Stock Market Jungle You Never Knew About

Until now, we were aware only of the bulls and bears of the stock market. Well, the market dwells a lot more creatures than these two. Read the story to find out which is the best fit for you.

Crux of the Matter

Bulls

  • Much synonymous to how a bull strikes upwards with its horns, the symbol represents a positive sentiment in the market.
  • The prices are expected to rise, thereby inducing heavy buying.
  • In market lingo, a bullish trend depicts an expected upward rise in price

Bears

  • The polar opposite of the Bulls.
  • Just like how a bear drags down with its claws, a bearish trend is a sign of pessimism in the market
  • Bears believe that the prices will fall, making individuals sell their holdings.

Rabbits And Tortoise
Derived from the KG story of Rabbit and Tortoise, these two animals depict a very peculiar type of investor traits.

  • Rabbits: Individuals who take very short trade positions and wish to get quick returns.
  • Tortoise: Slow and steady investors who look onto the long term return and usually clung upon their investments, even amidst the volatility.

Snails And Chickens

  • Snails: These are investors satisfied with low returns and are pretty conventional in their choice of investment mediums.
  • Chickens: Referred to reckless investors who put their money at random without any deliberation. Know for blindly following a bull run or bear squeeze. They often lose more than they gain.

Pigs And Sheep

  • Pigs: They are investors who are slaughtered in the stock market because they are the most greedy, emotionally unstable and unrealistic investors.
  • Sheep: Referred to investors who follow the herd and are majorly dependent upon the tips from experts. They are generally the last to enter the bull market and exit the bear trend.

Dogs And Stags

  • Dogs: They are stocks that have been beaten down the most. The price has hit the rock bottom and thus investors tend to buy them as the only future way is to move upward.
  • Stags: Referred to opportunist intraday traders. Irrespective of the market trend, they are on the lookout for profitable bets.

Sharks And Whales

  • Sharks: These investors signify danger. Sharks trade collectively on some dubious stock – attract retail investors – push the stock price up and soon start exiting their positions by booking huge profits.
  • Whales: They are institutional investors with the potential to move the entire market through their one large-sized transaction. Infamous for manipulating the market through their deep pockets.

Curiopedia
  • In the early 1600s, the Dutch East India Company (VOC) became the first company in history to issue bonds and shares of stock to the general public. The Dutch East India Company was also the first joint-stock company to get a fixed capital stock and as a result, continuous trade in company stock occurred on the Amsterdam Exchange.
  • The greater fool theory proposes that you can profit from investing as long as there is a greater fool than yourself to buy the investment at a higher price. This means that you could make money from an overpriced stock as long as someone else is willing to pay more to buy it from you.
  • In folklore, the witching hour or devil’s hour is a time of night, typically between 12 and 4 am, that is associated with supernatural events, whereby witches, demons and ghosts are thought to appear and be at their most powerful. The last hour of stock trading for the day is often termed as Witching hour by regular traders.

Buffett Partnership: The Story Before Berkshire Hathaway

Buffett Partnership: The Story Before Berkshire Hathaway

Regarded as the investment guru, Warren Buffett once said Berkshire Hathaway was “one of his worst investments.” Don’t agree, right? He invested in the company in the early days of his long investment journey. In this story, we’ll have a look at the initial phase of Buffett’s investment journey and see if we too can get some inspiration for risk taking.

Crux of the Matter

A Timeline Of Buffett Partnership

1956

  • 25 year old Warren Buffett started Buffett Partnership Ltd. with 7 partners with capital of $105,000 of which $100 was his own.
  • His partners were: his mother, sister aunt, father-in-law-brother-in-law, college roommate, lawyer.
  • He charged no management fee, took 25% of gains beyond a cumulative 6%, and even absorbed all losses.

1962

  • With all partnerships consolidated into Buffett Partnerships Ltd, operations are moved to Kiewit Plaza, an office where they are located to this day!
  • Minimum investment is raised from $25,000 to $100,000.
  • Warren Buffett discovered and started buying stock of a Textile manufacturing company Berkshire Hathaway (BH) that was trading at $8.
  • Buffett once said BH was the dumbest stock he ever bought!

1963

  • Buffett sold Dempster, a windmill manufacturing company bought in 1962 for 200% profit.
  • Buffett Partnerships became the largest shareholder at Berkshire Hathaway.
  • Due to a fraud, American Express’ shares fell to $35, which Buffett bought while the world was selling.

1965

  • Buffett picked up 5% stake in Walt Disney for $4 million.
  • American Express traded at double the price from what Warren had bought.
  • Buffett took control of Berkshire Hathaway in board meeting, naming Ken Chace company’s President.
  • Warren’s personal net worth reached close to $7 million.

1967

  • Buffett Partnership was worth $65 million when Buffett wrote to his partners that he found no bargains in markets of 60s.
  • American Express was at $180/share – a $20 million profit on investment worth $13 million.
  • Berkshire Hathaway took over National Indemnity insurance for $8.6 million.
  • In 1968, Buffett Partnership earned more than $40 million in a year with total value at $104 million.

Liquidating Buffett Partnership
Buffett liquidated the assets of the partnership and in return gave shares of BH to his partners. Warren’s stake was valued at $25 million.

“I would continue to operate the Partnership in 1970, or even 1971, if I had some really first class ideas. I just don’t see anything available that gives any reasonable hope of delivering a good year and I have no desire to grope around, hoping to “get lucky” with other people’s money. I am not attuned to this market environment and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.”

 Warren Buffett in a May 1969 letter

  • Buffett earned an annual return of 31.5% in comparison to Dow Jones’ 9.1%.
  • His goal was to outperform in bear markets and average performance in bull markets.
  • He favored a conservative approach, avoiding permanent capital loss.

“I make no attempt to forecast the general market — my efforts are devoted to finding undervalued securities.”

Warren Buffett

Want to know the key ingredient of Warren Buffett’s success? Click here to read about it in detail.

Summachar brings you this story in collaboration with Finmedium that can be found on Instagram at @finmedium and on the web here.

Curiopedia
  • Benjamin Graham was a British-born American economist, professor and investor. He is widely known as the “father of value investing”, and wrote two of the founding texts in neoclassical investing: Security Analysis (1934)  and The Intelligent Investor (1949).
  • In 1988, Buffett began buying The Coca-Cola Company stock, eventually purchasing up to 7% of the company for $1.02 billion. It would turn out to be one of Berkshire’s most lucrative investments, and one which it still holds.
  • In August 2014, the price of Berkshire Hathaway’s shares hit $200,000 a share for the first time, capitalizing the company at $328 billion. While Buffett had given away much of his stock to charities by this time, he still held 321,000 shares worth $64.2 billion.

How A Reddit Forum Made Wall Street Lose Billions – I

How A Reddit Forum Made Wall Street Lose Billions - I

What is the logic behind a perennially ailing GameStop that suddenly got fortunate with its stock making an exponential rally? Let us try to understand how a Reddit community group was able to manipulate a suffering stock and turn the huge Wall Street hedge funds down.

Crux of the Matter

What Is GameStop?
GameStop is an ailing brick and mortar game retail company based out of the US. Due to the pandemic and its conventional business format, GameStop’s revenues had hit rock bottom.

What Is Shorting?

  • Shorting involves selling a stock that one does not own.
  • One sells it in anticipation of the decrease in stock price.
  • Usually, a broker provides the service of loaning a stock.
  • Let’s say, Mrs X first sells 1 stock for $5, meaning she owes her broker 1 share.
  • Brokers charge interest on the loan, and of course, the stock is to be returned.
  • Let’s say the price of the stock decreases to $4, and Mrs X covers her position (buys back the stock).
  • By buying back she’s in a way returning the stock to the broker.
  • And in the process, she made $1 [sales price of $5 less purchase price of $4)].

Here Comes The Wall Street Bets

  • Wallstreetbets is a fast-growing Reddit board with more than 2.4 million followers.
  • A few weeks ago one of its members noticed a considerable short position taken by a hedge fund, Melvin Capital on GameStop (GME).

The Unusual Twist

  • Some users on r/wallstreetbets suddenly started convincing the group to buy the GameStop stock, reportedly with a tentative intention of punishing the short-sellers.
  • To everyone’s greatest surprise, the convincing worked
  • Retail traders started buying GME as much as they could.

How Can Musk Not Be There!
An already fiery rally was made wilder with a tweet made by Elon Musk. For the record, Musk hates short-sellers. The tweet alone was responsible for a further 50% surge in external trade.

The Phenomena of Short Squeeze

  • Continuing the previous example, if instead of stock price falling down to $4, it rises to $7, Mrs X would face a loss of $2 ($7 – $5) if she buys back at the increased price.
  • It should also be noted that the loss can be unlimited, as the price can go up limitlessly.
  • A short squeeze occurs when traders like Mrs X are forced to buy back (cover their positions) in case of a massive spike in the price of the stock they have shorted.
  • During a short squeeze, the price of the stock would increase even further when shorters are covering their positions.

Losses In Billions
The hedge funds who had taken short positions on GME were now forced to close their positions by purchasing shares at an exorbitant price. The estimated loss is more than $5 billion.

Curiopedia
  • Reddit was founded by University of Virginia roommates Steve Huffman and Alexis Ohanian, and Aaron Swartz in 2005. As of 2018, there were ~330 million Reddit users, called “redditors”.
  • Robinhood was founded in April 2013 by Vladimir Tenev and Baiju Bhatt. As of 2020, Robinhood had 13 million users.
  • Wall Street’s name refers to a long-gone wall that was erected in the 17th Century by Dutch settlers intent on keeping out the British and pirates. The physical location of Wall Street is in lower Manhattan, where the New York Stock Exchange is housed.

What Is The Key Ingredient Of Warren Buffett’s Success?

What Is The Key Ingredient Of Warren Buffett's Success?

Warren Buffett is an American investor, business tycoon, philanthropist, and the chairman and CEO of Berkshire Hathaway. He popularized one of the most favoured market indicators, the Buffett Indicator (BI). But what exactly it is and how does it work? At a time when experts are cautioning investors of a stock market bubble, let’s find out what the indicator says.

Crux of the Matter

What Is Buffett Indicator?
The indicator is called the Buffett indicator (BI) due to its popularization by Warren Buffett. BI is one of the most favoured market indicators. It can indicate whether a particular market is overvalued or undervalued, and can help in forecasting the market

Buffett indicator = Stock Market Capitalization/Gross Domestic Product

Understanding The Terms
GDP
Gross Domestic Product is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year.

Stock Market Capitalization
It is the value of all the publicly traded companies calculated by multiplying the total number of shares (of each company) by the current share price (of each company).

How It Came Into Prominence?
The use of the stock market capitalization-to-GDP ratio increased in prominence after Warren Buffett once commented that it was “probably the best single measure of where valuations stand at any given moment.”

Inferring Buffett Indicator
Through the Buffett indicator, if investors find a stock market in an economy undervalued, they should ideally buy stocks in that market by selling stocks owned in an overvalued economy. That way, the valuation will be set right and the investor is likely to profit.

BI Of India
However, determining the valuation of the market depends on the historical average of the Buffet Indicator.

  • For instance, Indian markets have had a BI Ratio of 75% on average and have rarely crossed 100%.
  • The low ratio is attributed to India’s unorganized sector that is unlisted.

Rise In India’s BI Ratio
Because India’s historical average has been between 70 – 80%, a 98% BI Ratio is cautioning investors that the market is overvalued.

The market cap-to-GDP ratio has been volatile as it moved from 79% in FY19 to 56% of FY20 GDP in March 2020 and now stands at 98% of FY21 GDP.

Motilal Oswal Securities

Markets Are High
Recently, the Indian benchmark index SENSEX touched the 50,000 mark for the first time. But the market has been spiralling downwards since then.

Summachar brings you this story in collaboration with Finmedium that can be found on Instagram at @finmedium and on the web here.

Curiopedia
  • Buffet founded The Giving Pledge in 2009 with Bill Gates, whereby billionaires pledge to give away at least half of their fortunes. As of August 2020, the pledge has 211 signatories from 23 countries with over $600 Billion in pledges.
  • Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. High-profile proponents of value investing, including Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value.
  • According to the Forbes Global 2000 list and formula, Berkshire Hathaway is the eighth largest public company in the world, the tenth-largest conglomerate by revenue and the largest financial services company by revenue in the world.

Why Is US Delisting Chinese Stocks?

Why Is USA Delisting Chinese Stocks?

As straight as a Jalebi, this deal has managed to gain all the footage since New Year’s Eve. A derivative would be easier to understand when compared with this case of NYSE delisting the Chinese stocks. A rare event wherein NYSE has seemed as a flip-flopper, let us try and dissect the chunks of this not so simple case.

Crux of the Matter

But First, Terminologies

  • Delisting means the removal of listed security from a stock exchange, thus barring all further trades in that market.
  • Secondary Listing is when the company is listed on stock exchanges other than its primary listing exchange (market where its IPO was released).
  • American Depositary Shares (ADS) are equity shares of non-US Companies held by US Depositary Bank and are available for purchase to American investors.

The Turn Of Events
November 12, 2020: The executive order passed by Donald Trump banned US  investments in Chinese firms that are linked with the ‘military of People Republic of China’.

Trump claimed that Beijing is exploiting US Capital to finance the development & modernization of its military through its civilian corporates listed in US Stock Exchange. Moreover, China has never complied with the US Audit Standards reasoning them with national interest of Mainland and thus the Chinese firms lack financial transparency and accountability

The Delisting Plan
As per the November orders,  the New York Stock Exchange (NYSE) had decided to delist the stocks on New Year’s Eve.
The three telecom firms within gunshot were:

  • China Mobile Limited
  • China Telecom Corporation
  • China Unicom Hong Kong Limited

Changing Course

  • January 4, 2021: The NYSE announced that it is not going to delist the Chinese firms under the rubric that they had consulted with the relevant regulators.
  • January 6, 2021: NYSC again changed the plan and decided to carry on with the delisting of the Chinese telecom majors on January 11th. The decision came after Treasury Secretary Steven Mnuchin criticized the decision to grant pardon to the firms.

Aftermath

  • These Chinese firms made their secondary listing in the Hong Kong stock market. Thus, all international investors will still be accessible to the firm. 
  • Investments will now be going into HK’s Index instead of the US markets, whereas significant money inflow may still come from US investors.
  • The firms said that US investors who wish to continue investing can get Hong Kong Listed Shares in return to their American Depositary Shares (ADS) deposit in a predefined proportion. 

The Undecided Part
Will Joe Biden continue with this executive order or will he further reverse the decision? The question remains unanswered and so does the sustainability of this delisting. 

Curiopedia
  • The Shanghai Stock Exchange is one of the world’s largest stock markets by market capitalization at $4.0 trillion as of November 2018. Unlike the Hong Kong Stock Exchange, the Shanghai Stock Exchange is still not entirely open to foreign investors and often affected by the decisions of the central government.
  • The bid-ask spread is the difference between the prices quoted for an immediate sale and an immediate purchase for stocks, futures contracts, options, or currency pairs. The size of the bid-ask spread in, security is one measure of the liquidity of the market and of the size of the transaction cost. If the spread is 0 then it is a frictionless asset.
  • A ticker symbol or stock symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers or a combination of both. “Ticker symbol” refers to the symbols that were printed on the ticker tape of a ticker tape machine.