Introducing the Bodhi Newsletter!
Personal finance, investment philosophies and fun facts - all without the jargon.
Ashoka Investments Club brings to you the first edition of our weekly newsletter! Through simple, jargon-free explainers, we break down the seemingly complex world of finance — after all, why should finbros do all the talking?
Getting Started with Investing in Stocks: Opening a Demat Account
By Subham Sen
A Demat account is an electronic account that allows investors to hold and trade securities such as stocks, bonds, and mutual funds in a paperless (‘dematerialised’) manner. Similar to a bank account, stocks enter your demat account when you buy them and exit when you sell them.
Step 1: Choosing a Depository Participant (DP)
As intimidating as the name sounds, it is basically a financial institution that holds your securities in a Demat account on your behalf. You can choose a DP from a list of registered participants such as banks, brokers, and financial institutions. These can be regular brokers like Motilal Oswal, ICICI Direct, HDFC Securities, SBI Capital Markets or discount brokers(budget brokers, they do not provide any research) like Zerodha, Groww, Upstox etc.
Tip: If you’re seasoned in the markets or want to do your own research to pick stocks, then choosing a budget broker makes much more sense. Otherwise a regular broker might be helpful in providing quality research and calls on stocks to buy or sell.
*Brokerage Fees is only for cash delivery of equities i.e simply buying stocks with money, getting stocks in demat a/c, to be sold at a later date. Pricing for intraday, futures & options, currency, commodities trading are different.
**Turnover: No.of Shares X Price per share
Step 2: Gather and Submit Documents
Demat A/C can be opened completely online if your Aadhar is linked to your mobile number, using e-signature.
PAN Card
Aadhaar Card (if not linked with your phone number, then you have to visit the brokers office)
Canceled cheque or a scanned copy of the first page of your bank passbook
Step 3: Sit back and relax
Complete the account opening process by following the steps above. It will typically take 48-72 hrs for your account to get activated.
Step 4: Add Money and Start Investing
You can add funds to your demat account using UPI/Net Banking/Debit Cards. Start buying stocks with the funds (after conducting research, of course).
Buffett’s Billion Dollar Secret to Success
By Rishika Jain
Over 2000 books have been written on Warren Buffett and his exceptional investment track record. More often than not, they solely attribute this track record to his investing acumen. However, there has been an equally important factor that has helped amass a net worth of $117 billion – time.
Warren, who has been investing since the age of ten, already amassed a net worth of $1 million (about $10.3 million today) by the time he turned 30. If he had chosen a more conventional path and started investing later in his adulthood, his net worth would have been just $25,000 by the age of 30, and his financial trajectory would have looked drastically different. In fact, Buffett made 90% of his wealth after his 60th birthday!
The compounding effect can be understood by comparing him to another brilliant mind, Jim Simons – founder of the infamous Hedge Fund Renaissance Technologies. Although Simons has been compounding his wealth at an astonishing 66% annually since 1988, he falls far short of Buffett's net worth, standing at $25.2 billion. The key difference lies in the years of compounding; Simons did not reach his investment peak until he was 50, whereas Buffett had been compounding wealth for much longer. If Simons had enjoyed the same 70-year investment horizon as Warren Buffett, he would be worth a mind-boggling $63.9 quintillion! While the numbers seem impossible, they emphasize the impact of time on wealth accumulation.
Buffett's secret isn't just about the extraordinary returns he has achieved, but rather the fact that he has been consistently investing for three-quarters of a century. It's the long-term commitment to the art of investing that has set him apart. So, the next time you ponder the secret to financial success, remember that sometimes, it's not about making the highest returns. Instead, it’s about making satisfactory returns for the longest time possible.
Security Market Indexes - An Explainer
By Krishna Dixit
What are Indexes?
An index can be viewed as a carefully chosen assortment of businesses engaged in particular industries — a sort of representative sample. It's comparable to choosing a few apples from a basket rather than inspecting every single apple in the store to get a feel of the general quality. Each business is a "constituent of the index," which is the name given to this selected group.
Indexes are useful because they provide a brief overview of a significant portion of the market without going into specifics. Consider yourself a regular investor in India attempting to assess the performance of numerous tech firms. You can look at a targeted index like the Nifty IT Index rather than sifting through a large number of company prices.
Types of Indexes:
Benchmark Index: This type of index serves as a comprehensive representation of the entire market, offering a comparative metric to assess the performance of the average fund against its expected earnings. Notable examples include BSE Sensex and NSE Nifty (Nifty 50). For eg. Asian paints have churned a return of 19% CAGR for 5 years while for Sensex it is 15%.
Broad Market Index: These benchmark indices encompass more extensive groups of stocks, exemplified by BSE 100. BSE Sensex monitors the movements of the 30 largest financially robust Indian companies, while BSE 100 extends its coverage to the top 100 companies.
Market Capitalisation Index: This index evaluates companies based on the aggregate market value of their outstanding shares, as illustrated by BSE Smallcap and BSE Midcap.
Sectoral or Industry-based Index: These indices furnish a performance summary of stocks within specific industries, such as healthcare, energy, industrial goods, and technology. Examples include CNX IT and Nifty FMCG Index.
SENSEX:
The term "Sensex" refers to the benchmark index of the Bombay Stock Exchange (BSE) of India, which is made up of thirty of the biggest and most actively traded stocks. The Sensex is float-adjusted (number of shares available for sale) and weighted for market value, serving as a significant evaluation tool for the Indian economy. It was founded in 1986, making it the oldest stock index in India. Standard & Poor's (S&P) is in charge of managing it. The term "Sensex" was created by stock market analyst Deepak Mohini and is a combination of "Sensitive" and "Index."
Calculating SENSEX:
The calculation of Sensex involves a base year of 1978-79, with a static base value set at 100, although it is subject to periodic adjustments to reflect changing market conditions. This dynamic index continues to play a pivotal role in providing insights into the overall health and trends of the Indian stock market.
Free Float Market Capitalization = Market Capitalization x Free Float Factor
This factor is the ratio of floated shares to outstanding ones. Let’s assume that Asian Paints has 100 shares. Out of these 100, 70 are available to the general public and 30 are owned by the government. This means that 70 are ‘free-floating' shares and thus the free-float factor will be 70%.
Who gets to be in the SENSEX?
Listing: The stocks should be listed on the BSE for at least one year.
Marketcap: The market cap of the stock should be among the top 100 stocks in the BSE
Trading frequency: The Security should have been traded on each and every trading day for the last year
Average Daily Trades and Average Daily Turnover: The Security should be in the Top 150 firms listed by the average number of trades per day and by the average value of shares traded per day for the last year
SENSEX vs Nifty 50
Sensex and Nifty 50 are both benchmark indices, the key difference being the markets they are listed on. Sensex is listed on the BSE and tracks the top 30 companies of the BSE, while NIFTY does the same thing for 50 companies listed on the NSE. Secondly, Nifty 50 covers 24 sectors while Sensex only does 13. Apart from this, both of them are quite similar in their valuation methods and usage.
Investor of the Month: Ramdeo Agrawal
By Siddhant Goenka
The world of investing is a complex and evolving landscape. For college students eager to carve their path in the investment world, there's much to be learned from the success of individuals like Ramdeo Agrawal, the co-founder of Motilal Oswal Financial Services. Ramdeo Agrawal, who was born into a middle-class family in Raipur and has since built a portfolio worth Rs 100 crore, has shown that with an appropriate strategy and attitude, financial success is attainable.
Agrawal's constant dedication to the QGLP framework — Quality, Growth, Longevity, and Price — is the key to his success. Let's examine these essential components of his strategy:
Quality: For him, quality is connected with exceptional management. He understands that for a firm to succeed, these two aspects must work in harmony.
Growth: He also emphasises the value of funding businesses with significant room for expansion. This necessitates paying close attention to market positioning, scalability, and sector trends.
Longevity: Long-term success is Agrawal's main goal. He looks for companies that can maintain their competitive edge over time, whether it comes from brand recognition or technology perks.
Price: Ramedeo Agrawal suggests that investors exercise caution while choosing an entry price. Even the best business can be a risky investment if purchased at an exorbitant price. His strategy strikes a balance between quality and valuation.
After examining Agrawal's investment theory, let's summarize the most important lessons for college students who want to become successful investors. First and foremost, before you invest, thorough research is indispensable. Familiarize yourself with the company, its competitors, and the industry as a whole. Agrawal's success stories, such as his investments in Asian Paints and Hero MotoCorp, underscore the significance of this principle.
Secondly, patience is a virtue in the world of investing. Agrawal's portfolio has grown exponentially because he remains committed to his choices through market fluctuations, reaping the benefits of compounding. Third, it's important to diversify, but not at the expense of quality. Agrawal started off holding 225 equities, but eventually reduced that number to about 15, concentrating on high-performing, thoroughly studied stocks.
Furthermore, transparency and moral conduct in all financial interactions are highly valued by Agrawal. He believes that when investors, clients, and partners see a track record of ethical behaviour and transparent financial dealings, they are more likely to have confidence in the individual or organization. Hence, a good reputation serves as a cornerstone of trust.
Lastly, learn from your mistakes! Even experienced investors make mistakes. The purchase of Global Tele-Systems (GTL) by Agrawal serves as a timely reminder to assess what went wrong, make modifications, and proceed with increased understanding.
Ramdeo Agrawal's journey serves as an example of demonstrating that successful investing is not about making money instantaneously. Instead, it involves taking a long-term, methodical, and systematic approach. Aspiring investors can create an effective plan that withstands the test of time by using the QGLP framework.