Elliott wave theory for stock novices!!

It is indeed share market novices need some more concrete learning before formulating their strategies to enter in to the stock market. As a novice myself i suggest wave theory is extremely fascinating.  Just go through it.............

The Elliott Wave Theory is named after Ralph Nelson Elliott. Inspired by the Dow Theory and by observations found throughout nature, Elliott concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves. In fact, Elliott believed that all of man's activities, not just the stock market, were influenced by these identifiable series of waves.

Definition of Elliott Waves

In the 1930s, Ralph Nelson Elliott found that the markets exhibited certain repeated patterns. His primary research was with stock market data for the Dow Jones Industrial Average. This research identified patterns or waves that recur in the markets. Very simply, in the direction of the trend, expect five waves. Any corrections against the trend are in three waves. Three wave corrections are lettered as "a, b, c." These patterns can be seen in long-term as well as in short-term charts. Ideally, smaller patterns can be identified within bigger patterns. In this sense, Elliott Waves are like a piece of broccoli, where the smaller piece, if broken off from the bigger piece, does, in fact, look like the big piece. This information (about smaller patterns fitting into bigger patterns), coupled with the Fibonacci relationships between the waves, offers the trader a level of anticipation and/or prediction when searching for and identifying trading opportunities with solid reward/risk ratios.

There have been many theories about the origin and the meaning of the patterns that Elliott discovered, including human behavior and harmony in nature. These rules, though, as applied to technical analysis of the markets (stocks, commodities, futures, etc.), can be very useful regardless of their meaning and origin.

Simplifying Elliott Wave Analysis
Elliott Wave analysis is a collection of complex techniques. Approximately 60 percent of these techniques are clear and easy to use. The other 40 are difficult to identify, especially for the beginner. The practical and conservative approach is to use the 60 percent that are clear.

When the analysis is not clear, why not find another market conforming to an Elliott Wave pattern that is easier to identify?

From years of fighting this battle, we have come up with the following practical approach to using Elliott Wave principles in trading.

The whole theory of Elliott Wave can be classified into two parts:

�	Impulse patterns
�	Corrective patterns

Elliott Wave Basics � Impulse Patterns
The impulse pattern consists of five waves. The five waves can be in either direction, up or down. Some examples are shown to the right and below.The first wave is usually a weak rally with only a small percentage of the traders participating. Once Wave 1 is over, they sell the market on Wave 2. The sell-off in Wave 2 is very vicious. Wave 2 will finally end without making new lows and the market will start to turn around for another rally.

The initial stages of the Wave 3 rally are slow, and it finally makes it to the top of the previous rally (the top of Wave 1).
 

At this time, there are a lot of stops above the top of Wave 1.
 

Traders are not convinced of the upward trend and are using this rally to add more shorts. For their analysis to be correct, the market should not take the top of the previous rally.
 

Therefore, many stops are placed above the top of Wave 1.

 

The Wave 3 rally picks up steam and takes the top of Wave 1. As soon as the Wave 1 high is exceeded, the stops are taken out. Depending on the number of stops, gaps are left open. Gaps are a good indication of a Wave 3 in progress. After taking the stops out, the Wave 3 rally has caught the attention of traders.
 

The next sequence of events are as follows: Traders who were initially long from the bottom finally have something to cheer about. They might even decide to add positions.
 

The traders who were stopped out (after being upset for a while) decide the trend is up, and they decide to buy into the rally. All this sudden interest fuels the Wave 3 rally.
 

This is the time when the majority of the traders have decided that the trend is up.
 

Finally, all the buying frenzy dies down; Wave 3 comes to a halt.
 

Profit taking now begins to set in. Traders who were long from the lows decide to take profits. They have a good trade and start to protect profits.This causes a pullback in the prices that is called Wave 4.
 

Wave 2 was a vicious sell-off; Wave 4 is an orderly profit-taking decline.
 

While profit-taking is in progress, the majority of traders are still convinced the trend is up. They were either late in getting in on this rally, or they have been on the sideline.
 

They consider this profit-taking decline an excellent place to buy in and get even.

 

On the end of Wave 4, more buying sets in and the prices start to rally again.
 

The Wave 5 rally lacks the huge enthusiasm and strength found in the Wave 3 rally. The Wave 5 advance is caused by a small group of traders.
 

Although the prices make a new high above the top of Wave 3, the rate of power, or strength, inside the Wave 5 advance is very small when compared to the Wave 3 advance.
 

Finally, when this lackluster buying interest dies out, the market tops out and enters a new phase.

Elliott Wave Basics � Corrective Patterns
Corrections are very hard to master. Most Elliott traders make money during an impulse pattern and then lose it back during the corrective phase.
 

An impulse pattern consists of five waves. With the exception of the triangle, corrective patterns consist of 3 waves. An impulse pattern is always followed by a corrective pattern. Corrective patterns can be grouped into two different categories:

�	Simple Correction (Zig-Zag)
�	Complex Corrections (Flat, Irregular, Triangle)

Simple Correction (Zig-Zag)
There is only one pattern in a simple correction. This pattern is called a Zig-Zag correction. A Zig-Zag correction is a three-wave pattern where the Wave B does not retrace more than 75 percent of Wave A. Wave C will make new lows below the end of Wave A. The Wave A of a Zig-Zag correction always has a five-wave pattern. In the other two types of corrections (Flat and Irregular), Wave A has a three-wave pattern. Thus, if you can identify a five-wave pattern inside Wave A of any correction, you can then expect the correction to turn out as a Zig-Zag formation.
 

Fibonacci Ratios inside a Zig-Zag Correction

Wave B

Usually 50% of Wave A Should not exceed 75% of Wave A

Wave C

either 1 x Wave A or 1.62 x Wave A or 2.62 x Wave A

A simple correction is commonly called a Zig-Zag correction.

Complex Corrections (Flat, Irregular, Triangle)
The complex correction group consists of 3 patterns:

�	Flat
�	Irregular
�	Triangle

Flat Correction
In a Flat correction, the length of each wave is identical. After a five-wave impulse pattern, the market drops in Wave A. It then rallies in a Wave B to the previous high. Finally, the market drops one last time in Wave C to the previous Wave A low.

 

Irregular Correction
In this type of correction, Wave B makes a new high. The final Wave C may drop to the beginning of Wave A, or below it.

 

Fibonacci Ratios in an Irregular Wave

Wave B = either 1.15 x Wave A or 1.25 x Wave A

Wave C = either 1.62 x Wave A or 2.62 x Wave A

Triangle Correction
In addition to the three-wave correction patterns, there is another pattern that appears time and time again. It is called the Triangle pattern. Unlike other triangle studies, the Elliott Wave Triangle approach designates five sub-waves of a triangle as A, B, C, D and E in sequence.

 

Triangles, by far, most commonly occur as fourth waves. One can sometimes see a triangle as the Wave B of a three-wave correction. Triangles are very tricky and confusing. One must study the pattern very carefully prior to taking action. Prices tend to shoot out of the triangle formation in a swift thrust.
 

When triangles occur in the fourth wave, the market thrusts out of the triangle in the same direction as Wave 3. When triangles occur in Wave Bs, the market thrusts out of the triangle in the same direction as the Wave A.
 

4. Horizontal Triangle : 5-wave triangular pattern composed of 3-3-3-3-3 sub-wave structure.
5. Double Three : abcxabc pattern composed of any two from above, linked by x wave.
6. Triple Three : abcxabcxabc pattern composed of any three from above, linked by two x waves. 
   
7. Alteration Rule If Wave Two is a simple correction, expect.....
   

Wave Four to be a complex correction.
If Wave Two is a complex correction,
expect Wave Four to be a simple correction.

Simple  diagram of correcting the wave:

        ___Ajith Bsc MBA

                                                                                                                                       

If intraday is your metier then you must know

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  Intraday is a tricky business even for some experienced wizards in the field, although none cant master everything. But the following phrases are very propitious if you are an 1st time speculator .
  
  
  
  
  

  
  
  
           If index is in positive from yesterday and the share you are holding is in minus then it should be cut and if intraday trend of index is in buy then one should buy a stock in which is in plus.
  
  
  
  
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  If index is in minus then one should look to short stocks which are minus and not stocks which are in plus. 
   
  
• It is not necessary that a stock which is weak today during intraday trading might be weak tomorrow also, simultaneously if a stock is strong today might not be strong tomorrow
  
  
  
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  If US Markets have gone up overnight, the markets here in all probability will open strong, so one should be quite careful when buying stocks as the general psychology of public is to buy when good news is there.
  
  
  
  
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  Being a contrarians is very important while trading intraday.
  
  
  
  
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  Stop loss is a must while trading intraday.
  
  
  
  
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  Always trade in very liquid stocks i.e. which have very high volume because as entry and exit can be very fast in such stocks.
  
  
  
  
• Do paper trading before you actually start trading so that when you start making paper profits, then shift to actual trading.
  
  
  
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  Keep your volume constant e.g.: if you trade in five lots of nifty future then trade in five lots only. This position can be increased only when you are satisfied with your trading for a month. It should not be that one day you buy five lots and next day you trade in ten lots and third day you get a loss and stop trading for two days.
  
  
  
  
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  Fear and Greed are at maximum levels while trading intraday so always have less position when you are new to intraday trading as otherwise you will be mostly under tension.
  
  
  
  
  

Essential investing Principles by Charlie Munger

Charlie Munger is the partner of Warren Buffet and is considered by many to be the brain behind Buffet’s success. I found his investment principles which are worth reading.
Risk – All investment evaluations should begin by measuring risk, especially reputational.

• Incorporate an appropriate margin of safety
• Avoid dealing with people of questionable character
• Insist upon proper compensation for risk assumed
• Always beware of inflation and interest rate exposures
• Avoid big mistakes; shun permanent capital loss
  -

Independence – “Only in fairy tales are emperors told they are naked”

• Objectivity and rationality require independence of thought
• Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of your analysis and judgment
• Mimicking the herd invites regression to the mean (merely average performance)

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Preparation – “The only way to win is to work, work, work, work, and hope to have a few insights”

• Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
• More important than the will to win is the will to prepare
• Develop fluency in mental models from the major academic disciplines
• If you want to get smart, the question you have to keep asking is “why, why, why?”

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Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom

• Stay within a well-defined circle of competence
• Identify and reconcile disconfirming evidence
• Resist the craving for false precision, false certainties, etc.
• Above all, never fool yourself, and remember that you are the easiest person to fool
  -

“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

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Analytic rigor – Use of the scientific method and effective checklists minimizes errors and omissions

• Determine value apart from price; progress apart from activity; wealth apart from size
• It is better to remember the obvious than to grasp the esoteric
• Be a business analyst, not a market, macroeconomic, or security analyst
• Consider totality of risk and effect; look always at potential second order and higher level impacts
• Think forwards and backwards – Invert, always invert
  -

Allocation – Proper allocation of capital is an investor’s number one job

• Remember that highest and best use is always measured by the next best use (opportunity cost)
• Good ideas are rare – when the odds are greatly in your favor, bet (allocate) heavily
• Don’t “fall in love” with an investment – be situation-dependent and opportunity-driven
  -

Patience – Resist the natural human bias to act

• “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
• Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
• Be alert for the arrival of luck
• Enjoy the process along with the proceeds, because the process is where you live
  -

Decisiveness – When proper circumstances present themselves, act with decisiveness and conviction

• Be fearful when others are greedy, and greedy when others are fearful
• Opportunity doesn’t come often, so seize it when it comes
• Opportunity meeting the prepared mind; that’s the game
  -

Change – Live with change and accept unremovable complexity

• Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you
• Continually challenge and willingly amend your “best-loved ideas”
• Recognize reality even when you don’t like it – especially when you don’t like it
  -

Focus – Keep things simple and remember what you set out to do

• Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat
• Guard against the effects of hubris (arrogance) and boredom
• Don’t overlook the obvious by drowning in minutiae (the small details)
• Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”
• Face your big troubles; don’t sweep them under the rug....

These are the excerpts from  Charlie Munger's speeches. I hope it will be very useful for an independent investor more than any thing else......

Herman Van Rompuy reigns supremacy. Will he deliver?

Herman Van Rompuy (Flemish Christian democrat) could become the first president of the European Council. The man who, just one year ago unexpectedly and reluctantly became the Prime Minister of Belgium, has now been chosen to take one of the top jobs in Europe.

The other top job created by the Lisbon Treaty - foreign affairs supremo - has gone to the EU Trade Commissioner, Baroness Catherine Ashton from the UK..
Earlier, the UK government had said it was no longer pushing for former PM Tony Blair to get the presidency post.
Mr Van Rompuy, 62, had crucial French and German support. He has a reputation as a coalition builder, having taken charge of the linguistically divided Belgian government and steered it out of a crisis.

Herman van Rompuy:
"Every country should emerge victorious from negotiations" .
"Even if unity remains our strength, our diversity remains our wealth," he said, stressing the individuality of EU member states.

US President Barack Obama said the appointments would "strengthen the EU and enable it to be an even stronger partner to the United States".
"The United States has no stronger partner than Europe in advancing security and prosperity around the world," . Though wishes are flying away from around the globe, there are some scepticism surfacing because these little known guys may not be as powerful as the job itself possessed.
In an EU that prizes consensus, compromise and operates as a supranational coalition of different countries, interests, and political forces, Van Rompuy's talents for persuasion and conciliation look to be his prime qualifications for the job of chairing EU summits and trying to harmonise the EU agenda. His appointment frustrated those eager to show greater European muscle abroad by giving the job to a household name like Tony Blair. The criticism is that in an international crisis, Van Rompuy does not have the stature to stand alongside Barack Obama, Vladimir Putin, or Hu Jintao and that Europe will be relegated to the second division of international powers.

In his prime role as chair of EU summits, he is likely to be more the servant of European national leaders rather than their master, another factor in his success.

Non negotiable deal?

Time is nearing on, Nature allows no time to format a plan to combat against inevitable climate change... From the Indian perspective, government persistently insisting on share per capita and also this peninsula wants for the historic accountability for the industrially developed nations... Time is running out guys,If not never to achieve the deal, It is extremely difficult when we postpone this matter.Poor coastal countries are the immediate victim of the climate change especially the countries like Bangladesh, Maldives, Costarica are feeling the heat right now itself. Barack Obama and other leaders have confirmed what has been likely for some time – that there won't be a legally binding deal coming from next month's Copenhagen climate change summit. Instead, and as many insiders have been saying for months, the talks will need to continue into 2010, with a deal hopefully thrashed out during the course of next year. More time might help politicians come up with a workable solution, but time is not on our side.


While politics is sometimes about compromise and being flexible, unfortunately it is not possible to negotiate with nature. The longer the world delays in putting in place the aggressive emissions reductions needed to avoid dangerous levels of climate change, the more risk we are placing before our children and grandchildren. The science tells us that to have a reasonable chance of keeping global average temperature increase below 2C (compared with the pre-industrial average), humankind will need to begin a global cut in emissions within the next five years or so. That will require planning and clear strategies to change energy and land use patterns.


The reasons the world has thus far been unable to do this are familiar enough. Present patterns of economic growth rely on vast quantities of cheap fossil energy, and while countries are not prepared to look at different economic strategies, solving the global climate challenge is virtually impossible. In the west we have become accustomed to ever-increasing levels of material consumption – and developing countries wish to have that too. The result is massive and increasing pressure on natural resources, land and water. And then there is the matter of global inequality and how it will be possible to cut poverty while reducing emissions and to put in place strategies that will enable countries to adapt to what are now already inevitable climate change impacts. Who will pay for that, and how, remains unresolved.


These are really big issues, but leaders need to face them and others with a renewed sense of urgency. Perhaps a wartime analogy is apposite. At the start of the second world war, the US and Britain demonstrated a remarkable ability to rise to a grave challenge. Public support for action was galvanized, and new technologies were deployed on a vast scale in a short time. Both of these things happened, in part through clear and inspirational political leadership. And perhaps this is what the world needs now – some leaders who are prepared to speak of the threat as it really is, and to inspire societies to rise to it with an appropriate response. If we don't get that in 2009, we will certainly need it during 2010.


Each day that goes by the threat grows, each day we delay means more pain and cost in the future. We must urge countries to use the Copenhagen summit to raise humankind's collective ambition, and to see 2010 as the time when that is converted into an action plan that will work. Ball is on Copenhagen whether we like it are not it is our destiny to take the responsibility which we are accountable for... Time will tell the truth about our commitment until lets hope for the best.

Emerging miscellaneous relationship in Tamil Nadu

It is labyrinth for guys who are going through this article, especially who are traditionalist or conventional thinkers around India. There are many more things which are happening around us for past two decades due to information technology. Globalization brings more and more cultural mixtures under one dome. It is indeed a pleasure to see multiculturalism in India. Technology brings the inconveniences of being so close yet we enjoy the privilege of closeness that our ancestors never imagine. There is a well profound euphoria arises these days due to the advent of technology which revolutionized our life once for all. For every good thing there exists always the negative side.

Mobile phones and relationship patterns:

Urbanization of a village or a town is vaguely interpreted by how the mobile-phone connections are circulated. Though business and relationships are nourish because of that, it is imperative to consider that there is an another part of a prism exist. Never before in the history, the seducers are proliferating day by day. To be honest, innocent girls are the victim in the hands of mobile-phone seducers. Spreading female phone numbers are becoming very common these days among the college goers and to the extent in offices too. Girls are making themselves vulnerable in the name of liberality. It’s not a trans-national culture or something like that. It is purely a behavioral thing which we need to be address. None cannot abnegate the truth hidden underneath in it. Propensity of general public is to accept this gullible sin. Don’t view this matter with western spectrum because it is nothing to do with culture. Even good girls and house- wives who are not easily subdued are forced to do it so. Examples are countless to explain here. Millions of girl’s chastity is at stake here. Indian tradition holds high value, don’t derail it. Girls are relentlessly tormented by these heinous torpedoes. Insane girls fall prey eventually.

Anecdote:

Bubbles are waiting to burst. We are going to witness one of the worst relationship disaster in contemporary history. People who think this as a moral policing are themselves to be blame. Whether u like it are not, people will realize when they directly affect by this scenario. In one case mobile-phone seducers are efficient enough to seduce a police woman. So status and position in the society will not be the protecting shield against these enigmatic offenders. These peoples may so nearer or dearer to u, a person who holds high moral values are the one who can escape from this menace. I don’t think government intervenes in this matter. Pertinent solutions are yet to be found so awareness is the key here.

Points to escape from the offenders:

A) Don’t chat with strangers.

B) If anonymous callers crossing the moral line, seek your parent’s help.

C) Vulgar smses are should not be taken in to consideration.

D) Be bold enough to retaliate.

E) Seducers may kindle your innate sexual desires, beware of that.

F) Avoid strange calls as far as possible.

G) All independent women cannot be Indira Gandhi or Jhansirani, so accept your limitation.

H) Above points are for whom consider chastity holds priority, for others go ahead and enjoy.

I) Don’t be the victim of niche, it can backlash when u be least expected.

Summary:

Being under the shadow of a family is not a constraint anymore. Scientifically psychic nature of a female is to be seduced easily one way or the other. So being rebellious is not a problem unless it affects your future significantly. It’s never too late for females to cover under the shadow of males via…. Father, Brother, Husband, Son…. of the all, honesty to family and its values is the ultimate shield against the debauchees.

Recession hits the indian dreams hard!!

Recession is no more related with commerce and corporate terms, it is just more than that affecting lifestyles, relationship etc... Aspiring students of prestigious institutions and studies are now unemployed. Inspirations are now turn in to frustrations. pupils whom are pursuing flashy gadgets or planning an expensive trip to pleasing destinations are just called off thanks to recession. The worst amongst the all is flirty relationships with neighbors and friends. Because money is one of the major constrains in maintaining the relationships, no longer love and affections are the key ingredients for a relationships.
We can just condoles for the people who lost their jobs, wages cut etc... But what it hurts more is whenever our our closest are affected by this scenario. pupil having brilliant academic records are now satisfied with low profile jobs. Making both ends will will be extremely difficult from there on.... Pupils who just completed their happy final years are now realizing the harsh reality of unemployment. Their dream of getting high profile jobs are getting diminishing day by day. These pupils turns peoples are now facing stiff competition against "lay-offed" veterans. May their dreams will be rejuvenated and revived by the end of the next fiscal year(expected) . Right now optimism is alarmingly low.

The rise of difficulty:
Legalizing LGBT's rights(so called), hiked oil prices, rising unemployment rates, low GDP growth, cross border terrorism, dubious weather, unhealthy political practices makes the life in India very hard. Now only the fittest of the survival only survive!

Ways to find good company in BUFFET's way

Picking a good company to invest is not an easy job to done in a profitable manner but if we want to be successful we must master that art so initially i suggest to follow the veteran WARREN's way to be followed because perhaps he is the best investor that the world ever known. Many aspiring investors think that buying stocks blindly based on ‘recommendations’ from others who claim to be ‘experts’ either on a newspaper, magazine, T.V or brokerage report, is ‘stock picking’. If you have still not learnt a lesson despite having lost significant amount of money already by following this technique, then reading ahead is probably too much effort that is not worth it anyway. I guess some things never change, as the 18th century philosopher Georg Wilhelm Friedrich Hegel once said - “We learn from history that we do not learn from history”.

For the others that want to really learn how to choose stocks on their own and are willing to do a little homework before plunking down hard earned money, who could be a better teacher than Warren Buffett? - The most successful investor in the world with a 40-year track record of picking stocks (and buying companies) that have generated average returns of 20% p.a (this definitely questions the credibility of the lofty claims that some of our own ‘experts’ make about generating 50%-100% returns p.a.). His approach to investing is one of the few out there, that can be termed as ‘simple’ (not to say that it is ‘simplistic’ by any means, else everyone who follows him would have become billionaires!). But, there are many who started with a few thousands worth of Berkshire Hathaway (the company run by Warren Buffett) shares that are now worth many millions. Wouldn’t it be great if you too could learn his approach and apply it to investing on your own? Actually, as utopian as the goal may seem, all the tools required for practicing investing like Warren Buffett are readily available and supplied by Buffett himself. Yes! I am talking about the letters written by Warren Buffett to his company’s shareholders every year dating back to the 1970’s. They can all be downloaded free of charge from www.berkshirehathaway.com. (psst! I happen to have some of the earlier letters that are not posted on the website, incase anyone of you is interested). These letters lay out pretty much everything that an investor needs to know including what mistakes to avoid - by learning from Buffett’s own mistakes, which have been thoroughly analyzed by none other than himself.

Buffett Philosophy

Buffett’s investment philosophy is based on ‘Buying good companies at bargain prices’. Let’s take the first part – ‘buying good companies’. How do you identify a good company? Is it the one with the highest sales growth? Highest profit growth? Highest profit margin (i.e.profit per rupee of sales)? Largest market share? The list can practically go on and on given the number of financial ratios available. But, what is ‘the’ most important parameter that helps gauge how good a business is? Before I introduce what I like to call ‘the God ratio’, let me ask you a question. What do you ask for before you put your money in a fixed deposit? It is probably “What is the interest rate offered?” i.e. “What is the return that you are going to get?” right? Well, businesses can also be benchmarked in a similar manner based on the returns they generate.

Assume you have inherited Rs1 crore, you have an opportunity to either start a business using the capital or invest the amount in a fixed deposit. You have two business ideas - one is a restaurant and other is an ice-cream parlour. After detailed research, here are your findings. The restaurant business is expected to generate Rs. 10 lks profit per annum. The ice cream parlour on the other hand is expected to generate a profit of Rs 15 lks per annum for the same investment amount of Rs 1 crore. The third option is to invest your money in a fixed deposit that will pay you an interest of 9% p.a. Which option would you pick? Obviously the ice-cream parlour, right? Why? Because it offers the highest return-on-capital i.e. 15 lks / 1 crore (15%). This is higher than the 10% offered by the restaurant business and also higher than the 9% that you would get from the FD option. According to Buffett, it is this ratio – the ‘return-on-capital’ (‘the God ratio’) that sets apart a good business from a poor one.

Fast forward into the future: your ice cream parlour is in its fifth year of operation but unfortunately you have never been able to generate more than Rs 10 lks per annum profit (i.e. 10% return-on-capital). You have tried everything you could but you just can’t seem to get the business to produce a higher return-on-capital. You look up the fixed deposit rates – they remain at 9%. What would you do? If you were a rational businessman, you would rather sell the enterprise, park you money in FD & relax, while still earning almost the same profit!

To summarise, it doesn’t pay to be in business, if the business can’t earn in terms of return-on-capital, a rate that is higher than what you could otherwise earn by just parking your funds and receiving interest at almost zero risk. So you may ask, what is the ideal return-on-capital for a business? 15%? 20%? or 30%?

Actually, I don’t know! It depends on your level of risk aversion. After all, businesses carry a higher risk than FD. So it is fair to expect a higher return. My opinion is, the return-on-capital from a good business needs to be greater than 20% p.a.

What’s so special about high return-on-capital companies?

Not many listed companies in our country have a track record of earning more than 20% return-on-capital. But still they continue expanding, by hiring more people, opening more branches, spreading abroad, acquiring companies larger than themselves using debt and just growing mindlessly, sometimes even faster than their competitors that earn higher returns on capital. How are they able to do this? The answer is…by raising more and money from the public or from other investors who are too enamoured with the ‘growth story’. But is such a growth that depends mainly on raising more capital but produces low returns on the capital, sustainable? Probably not. Even if it does, it is never going to produce above-average long-term returns to the shareholders. Because, over the long term, return on your investment in a company’s shares depends on the return-on-capital that the company generates for itself.

Companies that ‘consistently’ achieve a high return-on-capital can be considered to be ‘fitter’, as they are likely to have long-term advantages of some kind. This advantage protects them from competition and helps them continue to earn above-average profit by using relatively less capital. If you are a long-term investor who wants to buy and hold stocks, it is these companies that you want to own shares of. Having said that, you need to note that there is a gap between a good company and a good investment – it is called ‘price’ i.e the price at which you buy the shares of the company. In my forthcoming articles, I will discuss simple techniques to compute the return-on-capital for a company and to arrive at a bargain price for acquiring shares of companies that have a track record of ‘consistently’ generating high return-on-capital. This combination of buying above-average companies at below average prices will help you to reap above-average return on your investment for many years to come. so peoples better to follow him is the best initial option.

LTTE percieved interpretation

Finally the mission accomplished as far as Srilankan army and their racist
president rajapakse is concerned. But what it meant for tamils? Biased
media will never reveal the cold truth underneath it. I am not an adherer
of LTTE nor any linkage with them. But what prompt me to write is that BETRAYAL
of Indian govt and political parties. Ashamed to say that i am an Indian,
because of the following reasons....

TN political parties used Eelam as tool for attain their political profits

Indian govt done nothing to prevent the genocide in Island nation.

These SO CALLED political pandits and diplomats wasted ample time
in the name of designing BEST? solution for this indispensible
problem.... Still making!!!!

In a global village international communities along with India who
self procliamed as regional heavy weight done nothing to prevent them

UNO iS it still functioning now??????????

Obama where u gone man? R u too busy in shaking hands with world leaders?


Considering the size of this tragedy, it is the biggest genocide in Asia after
post worldwar 2. Ultimately LTTE mino's will now rest in peace but not in this
world. For them they are released from Hell ie... LANKA. { incidentally they
consider it as heaven poor fellow patirots....}

Perceived cynicism is creeping inside me. Now god only have to save
eelam tamils because there is none other to assist them. But ground reality
is very worse than the imagination. Perhaps now only tamils needs the
patriotism ever than before to pursue their dream of HOME LAND!!!!!!!

Ajith Bsc MBA pursuing cosmopolitan

Fall of LTTE !!! Dimnishing Ealam dreams