MARKET REACTION OVER STOCK
1:If a company paying high dividend with moderate growth then
STOCK wont be give much returns but trade in limited range
2:If a company paying less dividend, then it must grow to raise stock prices, if it obtain to achieve growth more than retention then stock price rise
3:If a company not paying any dividend, then it must obtain high growth otherwise stock fall too much.
4:If a company not paying any dividend but growing fast then it stock price rise more than growth.
5:If a company paying high dividend along with obtaining high growth its Multibagger
Suppose you have a LAND which you want to sell@15 lakh.
A person comes for purchasing and buy this land @15 lakh.
After some time you got a news that your land valuation going to rise because there is some government projects coming surrounding nearby your land.
But this news is hidden and that person who bought your land unaware.
YOU give him a proposal to sell that land back @18 lakh.
He is happily ready to sell you because he gets 3 lakh profit.
YOU bought your land back @18 lakh
Since only you know the actual valuation of your land which is going to rise, you bought it back.
This is called BUY BACK when promoters think that their share is undervalued, having sufficient cash they BUYBACK.
In the above picture you can see an apple
Its single piece and only one person can eat.
Now we want it to distribute between two people so we cut it in 2 pieces.
Now each one can get easily half – half apple.
Now problem occurred there are 4 people and an apple cut in two pieces.
So we cut it again and make it into 4 pieces.
Now single apple has been cut and distributed between 4 people, each one getting one piece.
Apple valuation doesn’t change even if we cut it into 4 pieces.
But what changes is volume
Think apple as a STOCK
and Distribution as STOCK SPLIT
The whole process is called STOCK SPLIT WHICH DOESN’T NOT CHANGE UNDERLYING VALUE But only create liquidity.
Price to earnings concept in simple words
Suppose you are a business man and bought a plot in your city Costing 20 lakh to make an house for rental income which incurs additional 15 lakh.
So total cost of investment 20+15=35 lakh
Now you get 20k/month as rental income
So in one year you get 20000*12=2,40,000
Discount it 5% for maintaining it
So you get 2,30,000 per year
So it would take around 15 years to recover your initial cost.
think it as a company ABC
Then it should trade at price to earnings 15
Suppose you are a salaried employee in a company & taken loan for housing, car and other luxury and paying monthly EMI.
Suddenly something bad happens and you loose your job and unable to get any job in near future because industry in which you work facing slowdown.
This will lead to financial distress and lead to insolvency.
Put a debt laden company by replacing yourself.
Thats why first investment rule
Check debt to equity ratio first
What drives stock market
First situation :
You have bought APPLE 🍏 @80/kg
Suddenly news came that Apple infected by some worms
Apple price drop upto 50
But did you buy overvalued apple?
Second situation : You bought APPLE 🍏 @80/kg and suddenly news came that there is shortage of APPLE this year due to some factors
APPLE prices soared upto 110/ kg
Did you buy undervalued Apple
What caused rise and fall in apple price?
Demand and supply
Think the same works for stock market
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