X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
The market needs you... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 17, 2004

    The market needs you...

    Historically, the stock markets have been known to reward long-term investors. However, the recent transaction tax announcement brought into focus, another kind of a market player, known as speculators and day traders. Broadly, the market participants can be categorized into three different heads based on their investment rationale and horizon. These are:

    Speculators: They are the people investing in a stock based on some 'tips', rumours or hitherto insider information, which is likely to be disseminated in the short-term and is likely to impact the stock prices, in their favour. To put things in perspective, these intra-day players accounted for nearly 77% of the daily volumes in FY04 for leading energy major, Reliance Industries.

    These speculators are known to play the markets and provide the much needed liquidity to the market. Also, it is this section of investors (if allowed to say so), which provides the price-discovery mechanism, as any mis-pricing is thrived upon.

    Long-term Investors: This is the investor class that every company rewards in the long term. Capital is a scarce resource and therefore, has to be put to appropriate use. Most efficient companies would attract this investor class, leading to best utilization of the money invested. It is to be noted that this, unlike debt, is an interest free capital (as companies are not bound to pay interest or dividends). The investors are rewarded in the long-term either through dividend issues, bonuses or capital gains by share price appreciation. Long-term investors are therefore a necessity in a developing economy like ours so as to help companies attain their long-term objectives. However, we would like to repeat, capital, being a scarce resource, has to be put to optimum use and therefore, investors must actually read into the companies (annual reports, press releases and research reports) before investments.

    Arbitrageurs: This section of the investors uses the market inefficiency as a tool for riskless profit. Let us say, stock 'X' is trading at Rs 100 on the Nifty and Rs 98 on the BSE-Sensex. In such a scenario, backed by deliverable securities, an arbitrageur buys the stock on the BSE while going short on the NSE-Nifty at the said prices. As a result, he delivers the stock in NSE clearing (as said earlier arbitrage opportunity exists but has to be backed up by deliverable securities). With too many arbitrageurs, this anomaly soon disappears as every one buys it at the lower price and tries to sell it at a higher rate, thereby pressurizing the markets to correct. This section of investors therefore, keeps a check on the inefficiencies in pricing across the markets.

    These are the various investor classes existing in any stock market. Now, it is up to you to identify which bracket suits you, depending on your risk profile, investment rationale and the returns expected.

    On our part, we would like to bring it to the investors' notice that not every day trader/speculator makes money. Also, the market does not always provide arbitrage opportunities. But yes, the markets do give adequate returns for long-term investors who have taken the trouble to do their homework on the companies they invest in.

    Here, we would like to quote Mark Twain who said "There are two times when one should not speculate: once when he can afford to and once when he cannot"

     

     

    Equitymaster requests your view! Post a comment on "The market needs you...". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 22, 2017 (Close)

    MARKET STATS