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Old 31-12-2009, 04:16 PM
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Default Fundamental Witch Hunt

First of all Happy New year to everyone

I have started this section in view of explaining a few fundamental jargon to beginners and nuances concerned with them.

Topic 1: Dividend is Loss of Wealth

Dividends have been a valuing mechanism for fundamentalists for quite a while. while a fair amount of discussion happened on dividends for shares. Investors still tend to value stocks based on Dividend.

I was recently going through colpal Annual Report and found a schedule on Dividends. A small part of it.

Dividend 203.99 Lacs
Dividend Tax 34.14 Lacs

As you see the tax may not be paid by you but you still lose the amount to the government from company's pocket which is approximately 1/6 of dividend you get paid. There is an solution for this the companies can buy the shares from the market and thus increase EPS and the share price. It will also help in long term by cleaning up the Balance sheet rather than giving those meager amounts as dividends.

So Dividend is NO MAGIC WAND solution for investing in stock Markets. If dividends are given it is also reflected in the price chart of the company. So it is no Gain No Loss operation. So don't go by PAYOUT RATIO of the company.

As you know the topics being discussed here are highly debated and I have expressed just my views healthy criticism is welcome. Any addition of new terms along with explanation is also welcome

AN EDUCATED INVESTOR IS AN EMPOWERED INVESTOR
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Old 31-12-2009, 04:41 PM
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Topic 2: Stock Split, Bonus Issue, Rights Issue, ADR/GDR

Stock Split: It is simply dividing the stock in to parts companies do so to increase the tradebility of stock. The stock markets react to most of the splits by increasing price. In reality is is a mere technical adjustment and bears no value to the stock. We generally don't buy a stock because the quantity bought is high/ low. The increase in demand may be slightly high but not huge

Bonus Issue: This is some thing I have never understood why companies do so it is again a mere technical adjustment though companies say that they have paid for it. I view is as mere stock spit itself.

Rights issue: It is the additional shares the company issues which the investor has a option to buy or not. they are given at a little lower price but eventually after allotment due to increase in float of company your premium may get wiped(provided premium is not large).

ADR/ GDR: These are capital rising instruments. These instruments if convertible are simply future shareholders. The companies efficiency with the funds they have raised plays a major role in determining whether they are an advantage or disadvantage. An successful ADR/GDR implies only other investor's confidence like you but it no way means an guarantee

This discussion on number of shares as a whole is only to highlight the fact that Buying those companies which value your share the way Buffett did with Berkshire Hathway's shares will help you achieve long term benefits. I generally prefer companies which issue low shares in whatever way either to employees or during mergers. Generally rising money through debt is a good way for an investor rather than through issuing shares like a printing machine.

These 2 articles are my Christmas and New year Gift to all successful future Investors. Happy New year & Happy Investing.

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Old 31-12-2009, 05:20 PM
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Originally Posted by riser3 View Post
Topic 2: Stock Split, Bonus Issue, Rights Issue, ADR/GDR

..................

Bonus Issue: This is some thing I have never understood why companies do so it is again a mere technical adjustment though companies say that they have paid for it. I view is as mere stock spit itself.

...............

AN EDUCATED INVESTOR IS AN EMPOWERED INVESTOR

It does matter....
After a bonus, face value still remains same, so - your dividend doubles
AND
Rights ratio increases.

Compound this and see the effect ....
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Old 31-12-2009, 05:37 PM
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Originally Posted by stocks.murtaza View Post
It does matter....
After a bonus, face value still remains same, so - your dividend doubles
AND
Rights ratio increases.

Compound this and see the effect ....

99% agreed! It's just that the dividend may not exactly double; it maybe a little less than double (in case of a 1:1 bonus). All the same nothing to complain about!

I love dividend & bonus. Of course, like anything else, these can't be viewed in isolation.

A dividend payout is one indication that at least part of a company's earnings are real.

Also, different investors have different strategies. Those who like aggressive growth companies which plough back their capital and those who like to get a little moolah from the shares they hold can surely coexist peacefully .

One rather special case worth looking into is Opto Circuits, an example that a company can grow and reward shareholders by way of dividend and bonus.
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Old 31-12-2009, 05:43 PM
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Hi Riser.

Happy new year.:balloon:

What you have stated may be true from a traders' perspective. But, Think it again from an investor's angle.

Why do anybody invest in a house, land, business etc.,? To generate a future flow of income Isn't it?

Hope it helps

cheers.

Prasad.
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Old 31-12-2009, 05:47 PM
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No - just a small Q

Had Infy not issued Bonus and Dividend and Splits do you think the price would have been around a lakh rs a share now?

Last edited by MurAtt; 31-12-2009 at 05:50 PM.
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Old 31-12-2009, 06:18 PM
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Originally Posted by stocks.murtaza View Post
No - just a small Q

Had Infy not issued Bonus and Dividend and Splits do you think the price would have been around a lakh rs a share now?

And another way to look at is is to look at MMTC. Poor liquidity. CMP: Rs. 34,447.30. Someone is having good fun with it.
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Old 01-01-2010, 11:57 AM
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Originally Posted by prasad View Post
Hi Riser.

Happy new year.:balloon:

What you have stated may be true from a traders' perspective. But, Think it again from an investor's angle.

Why do anybody invest in a house, land, business etc.,? To generate a future flow of income Isn't it?

Hope it helps

cheers.

Prasad.

Originally Posted by stocks.murtaza View Post
It does matter....
After a bonus, face value still remains same, so - your dividend doubles
AND
Rights ratio increases.

Compound this and see the effect ....

As I said these views are my own and they are bound to be controversial. I was feeling bad about paying dividend tax. I have illustrated above. I was talking about some kind of creativity like that of cocoa beans as dividend(read some where). I am not against any of above options(specially MMTC) but I have only warned that buying only because of stock split or bonus issue or dividend yielding companies will be a hazard again if a stock price is 37,000 odd then there will be very low speculative activity at such high price only value players will remain- mostly low volumes are expected.Berkshire Hathway costs about $1,50,000. Most of us can't dream of owning a A class stock. Thanks for your comments
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Old 01-01-2010, 06:19 PM
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Hi Riser.

The forums are for discussion and exchange of views and are not meant for criticism. What is the use of posting your version and my version and leaving it there? does it serve any purpose?

If you think we are criticising your views, then I am sorry.

But, one last suggestion from my side. Don't get confused between trader and Investor.

cheers

Originally Posted by riser3 View Post
As I said these views are my own and they are bound to be controversial. I was feeling bad about paying dividend tax. I have illustrated above. I was talking about some kind of creativity like that of cocoa beans as dividend(read some where). I am not against any of above options(specially MMTC) but I have only warned that buying only because of stock split or bonus issue or dividend yielding companies will be a hazard again if a stock price is 37,000 odd then there will be very low speculative activity at such high price only value players will remain- mostly low volumes are expected.Berkshire Hathway costs about $1,50,000. Most of us can't dream of owning a A class stock. Thanks for your comments

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Old 03-01-2010, 05:53 PM
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Originally Posted by prasad View Post
Hi Riser.


What you have stated may be true from a traders' perspective. But, Think it again from an investor's angle.

Why do anybody invest in a house, land, business etc.,? To generate a future flow of income Isn't it?

Hope it helps

cheers.

Prasad.

First of all sorry for being little late in replying due to job hunt

Ya I agree with you and I think we need to have a good discussion.

I think I want to be an investor who times well rather than a trader it took me a long time to get that point. You seem to be a good fundamental trader(I have read most of your posts).

OnMobile Global @ 353.90
Geojit BNP @35.72
Aventis Pharma @ 1,515.
Power Grid Corp@ 100.35
Opto Circuits @ 207.00
Edelweiss Cap @461.00

should i sell or wait till the market appreciates more. also post the one stock or two you would choose fundamentally among these
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