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Classification of Securities: Chapter 5

June 29, 2021 by Laxman Sonale Leave a Comment

Hello friends, in today’s article we see the classification of securities from chapter 5 of the Security Analysis book. In this chapter, the author explains how people classify securities and how they wrong and the author gives the specific reason and accurate classification.

The Previous chapter 4

Classification of Securities from chapter 5 of Security Analysis book:

Classification of Securities

In this, the author gives the how the grouping of securities is mention by people

let’s see

Conventional Grouping of Securities:

So these securities grouped in two parts i.e. Bond and Stocks

In stocks contain two stocks one is preferred stocks and the other are common stocks.
Classification of Securities

So we all know those are bonds and the bondholder has the first claim on the company.

If they don’t get the interest on that bond then they have the first claim on the company Asset.

But those are stocks holders they assume that whatever the profits go on that basis they get the maximum profits on shares. (Classification of Securities)

If the shares go down or the company files for bankrupt then they lose the all money because those are bondholders who take the first claim on the company asset.

So the author says, this conventional grouping of securities is not in the right way.

So for the above conventional groups, the author gives the three objections.

  1. Preferred Stocks is grouped with common stocks (diagram image) instead that they have to group with bond.

Because Preferred stocks get the fixed income, so they one side they are a technical legal partner of a company but actually, they are like bondholder, then that type of results they got also.

This means they can not participate in the profits of the company (dividends), which means they get what is fixed, on that preferred stocks, that much amount only get them. (Classification of Securities)

2. Another problem is people compare the Bond with safety, but this is a big mistake.

So you can say, bond as a whole instrument because they have the first claim on company asset.

Safety does not depend on because they are bonds, it depends on this  the comapanies asset that defeats the obligation of the company ( means beat the bond interest payment and other companies problems)

so this point includes the real safety not on this to buy the bond and stay safe is not happen.

Because, if companies don’t have earnings and their asset not capable to pay the bond interest so without that bond is not a safe investment.

3. Title is not used rightly for accuracy purposes, saying anything to any securities just like the following example.

Preferred stocks look like stocks but actually, they work like bond and other deviation also present in financial instrument list like Convertible bond, purchase margin, Warrant, Participant preferred stocks, Non Voting stocks. so this all deviation and also other no voting stocks not we are put in this list that above mentions image, and they put in common stocks but they don’t work like that. (Classification of Securities)

Participant preferred stocks, so these are preferred stocks but we can’t put in preferred stocks, because they are participants.

So the author says, ” this all above classification is not the right way.”

So whatever the characteristics of financial instruments, they are not divided on their characterists.

then the author gives their own Classification.

So they divide them into three classes:

1. Class I (Fixed-value type)

2. Class II (Variable-Value type)

3. Class III ( Common Stock type)

 

  1. Class I ( Fixed-Value type): In this class, include the high-grade bond and preferred stocks.
  2. Class II ( Variable-Value type): In this class includes two types A) Well Protected issues with profit possibilities B) Inadequately protected issues.

A) Well Protected issues with profit possibilities: in this, the issue is well protected but has profit possibilities.

so that’s why they are variable values, e.g. High-Grade bond, Convertable bond.

B) Inadequately Protected Issues: In this have the profit, but they are not fully protected they have Inadequately protection issues, for example, lower-grade bonds or preferred stocks. (Classification of Securities)

So they have the profits chance because they are very cheap in price.

3. Common Stocks type: In this include share (stocks) that we talk about almost every time.

So now let’s talk about the advantages and disadvantages of these all classes.

  • Class I, in this the owner’s main purpose is the principle of safety and interest safety and we want steady income from these securities.
  • In Class II, the principle value changes regularly, so that why they have significance. so let’s see type A: in this, you get the safety and you have another possibility is conversion so that you can make a profit in that. let’s see type B: In this, your loss may be happening, in lots of forms and you also get lots of gain on principle.
  • In class III, In this compare with Class 2 type B

so in this difference is those are class II type B have the priority as compare to Class III and they have some protection in class II type B.

Another difference is those are Class II and type B have the profit possibilities, and in this, you get the substantial profit, so but class II type B have the limits so but in Class III in common stocks there is no limit on profits as compare to the class II type B.

So other says, ” those securities that have the characteristics of the common stock, they include in class three, whatever they name are, whatever those are like, common stocks or bonds or convertible bonds or any other financial instruments. (Classification of Securities)

lastly, the author says,” Do not classify securities on the basis of the title of the issue, but the practical significance of its specific terms, and status to the owner.”

So this is all about the classification of securities from chapter 5 of the security analysis book.

[Read more…] about Classification of Securities: Chapter 5

Filed Under: Security Analysis Tagged With: bonds, bondsholder, characterisitcs of securities, company, company securities, financial instruments, issues, securities, securities issues, security analysis, security analysis book in hindi pdf, sharemarket, sharemarket price, stocks, stocksholders, stocksmarket, the author, types of securities

One Up On Wall Street: part 2 : point to remember

February 28, 2021 by Laxman Sonale 1 Comment

In this article, we see part 2 of one up on wall street book. In this part 2, you have to remember the following point from the one up on wall street book part 2.
One Up On wall street: part 2

There is the end of Part 2 of this book, so from this book, you have to remember some points, they are as follows. (One Up On Wall Street part 2: point to remember)

  • First of all, you have identified the nature of the company, after that, you have to know why are you buying this stock.
  • After this, you have to put this stock in the above-mentioned category, which helps you to identify the purpose of that stock.
  • So those companies are big in size, that company is not easy to grow very fast, and those companies are in small size they are grown in very fast and become the multi-bagger.
  • To see the small and profitable company and they can replicate his concept in another place also, and buy that stock. (One Up On Wall Street: part 2: point to remember)
  • So stay away from the hot stock of hot industries (at present time is Tesla motor stock in the automobile industry) and which company do diversification then stay away from that also.
  • Don’t buy the IPO and wait for that stock to do good after IPO and then buy that stock, there is also potential present in that stock.
  • Whenever you work, you know more about the industry than any other professional investor, and you can identify that stock as early as another professional investor. (One Up On Wall Street: part 2 : point to remember)
  • If any expert in some field, so you can take a tip from him and don’t make the mistake to ask another field of another field expert.
  • Dull company and fancy name company stock is always better than the good name company stocks.
  • So those stock is moderate, which give the 20-25 % growth and 30% growth is ideal growth of that industry.
  • So you have to see the niche company. if you see a turnaround for those who perform very bad then see how much debt is present in that company. and which type of debt is present, type of debt is matters.
  • if the company doesn’t have debt then this type of company is never going broke. So you can make maximum money in a turnaround company. (One Up On Wall Street: part 2: point to remember)
  • So P/E ratio is important if you buy a wonderful company and their performance also wonderful, but you pay the maximum price for that stock is worthless of their wonderful performance. So company progress you have to monitor and recheck the story regularly.
  • Insider buying is good and company share buyback is also good for that company. and institutional ownership is minimum then also is a good sign.
  • See dividend record and what happens to earn and dividend in previous recession time. The dividend is given or not.
  • And stay patient, you are checking regularly stock that means stock not increase.
  • If you have doubt about buying now or later then buy later that stock.
  • If you buy stock on the basis of P/B ratio and book value ratio, then check for that is there real book value or not. most of the time the book value is not real. (One Up On Wall Street: part 2: point to remember)
  • So spend as much as time for stock that much spend you spend on buying refrigerator or air-conditioner.

At least give the one hour in a week for dedicated stock research

the previous chapter

Filed Under: One Up On Wall Street Tagged With: company, IPO, stock market, Tesla motor. Gillette. one up on wall street book

One Up On Wall Street book: Chapter 14

February 18, 2021 by Laxman Sonale 3 Comments

Hello friends, in today’s article we see the one up on wall street book chapter 14. In this book, chapter 14 is fully discussed the company that you are chosen by giving some story to them. In this book chapter 14 of one up on wall street, we see that story is perfectly running or not by rechecking the story. (One Up On Wall Street book)


How to recheck the story:-One Up On Wall Street book

1. Read quarterly reports regularly:

  • You have to check every quarterly company story by checking quarterly reports. So what you think about the company before investing in that and now after the quarterly report is the same thing is remains same or not.
  • And also check the earning is increase or not. the company store, people are visit or not and their product sale is increasing or decreasing. And also the loyalty of product is increase or remain same. (One Up On Wall Street book)
  • For understanding, this concept author gives the example of The limited company.
  • the limited company has 670 stores in the USA, in total store in the USA is about 700. So the company is spread all over the country. so explant the business of the company is there no space for traditional strategy.
  • So if a company want to expand they need the innovative idea to expand. So in that time as an investor, you have to take the exit from this company if the company nothing to do to expand. (One Up On Wall Street book)
  • The author gives another example of a company i.e. Mcdonald’s.
  • Mcdonald’s expand itself in innovative ways, they never stop to expand and increase their profit. When Mcdonald’s spread all over the USA, then they try to found the different or innovative way to make a profit, for example, is dining, breakfast and try to spread in a foreign country. so the company takes the decad of year to spread all over the world. and they also open home delivery. So this type of innovative idea uses to increase profit and spread the company. (One Up On Wall Street book)
  • Another example is the Texas Air company.
  • Texas Air company is when the author found they are in bad condition and after that, they come to the good condition. For this type of company, you have to check the story behind this miracle situation.
  • If any company is bad in fast and now is good, is that not means that this company is not going again bad condition. So for this, you have to check the company story continuously, and always the company in tracking.
  • And don’t become the emotional fool, if the company is good and stay better.
  • So Texas Air is a company that buys the continental company and they do continental company as a turnaround. (One Up On Wall Street book)
  • So the continental company is the low-cost carrier company. So Texas Air company also acquire the Eastern company. And they try to turnaround this company also. But they don’t do, because increase the customer complaints and also the employee union problem. So author also ignores this problem, but they realize this problem.
  • then the author says, they make here two mistakes, 1) Eastern company is becoming turnaround by trying Texas Air company but they don’t realize the employee problem and also their union problem. and 2) Ignore the Delta airline company, When eastern company performance is not good then that time Delta perform a very good job, so whatever the loss of the eastern company, that benefit the Delta airline company. (One Up On Wall Street book)
  • So Delta airline is the major competitor of the eastern company. So those people travel by the Delta and eastern company, they know the problem of the company and also the which one is good or bad.
  • So that people can understand which company gives the perfect investment return.

So this is all about rechecking the story of the company. So if you find the company and make the company analysis and make investment and also you have to focus on that company. I know this is a boring job, for that warren buffet says,” Investing is simple but not easy.” So people can bethink about how much company have in our portfolio, for this Peter Lync says, ” Put that much company in your portfolio, like how many children you have in your family.”

Previous chapter

making an investment is the other part following that company is the important part. So this is all about the rechecking story of the company.

Visit the value investing website: Investing math is so simple

Filed Under: One Up On Wall Street Tagged With: book pdf, company, One Up On Wall Street book, peter lynch, quarterly report.

One Up On Wall Street: Chapter 10

January 16, 2021 by Laxman Sonale 1 Comment

Hello Friends, in today’s article we see chapter 10 of One up on wall street book. In chapter 10 we see the earning process of investors. let’s see one by one.

One Up On Wall Street: Chapter 10

Earning, Earning, Earning:-One Up On Wall Street: Chapter 10

You read the before all chapter and you get the idea of investment to make money or say earn money. So to this process, you have to ask some thought to yourself in this earning process. this process as follows: (One Up On Wall Street: Chapter 10)

Read the previous chapter: Click here

 

Think to ask yourself:

  • What makes a company values and also why will it be more valuable tomorrow that is today: At this point, you have to see the company status and ask yourself the value of a company that is whatever is today, it may be changed in the future and which criteria that change in the positive way of company value. If you have a good answer in your thought they buy that company you get the absolute result of that company. (One Up On Wall Street: Chapter 10)
  • Earnings and Stock price move together: If some company stock price is more than the earning value then it is the market fluctuations. So long terms Earnings and Stock price is moving together. If earnings go higher or the stock price is low, then don’t worry the stock price follows the earnings price. that’s why Peter Lynch says Earnings and Stock price is moving together. (One Up On Wall Street: Chapter 10)
  • About the P/E Ratio: There are so many people who make the decision on the P/E ratio. So if you do also then you have to know there are three types of P/E ratio affect the stock. 1)Overprice stock: If the P/E ratio is maximum then, the stock is overpriced by the crowd of investors. 2)Underprice Stock: If the P/E ratio is minimum then, the stock is underpriced. 3)Fairlypriced: The stock price is medium than that stock is fairly-priced. That’s the common people things on the P/E ratio.
  • The author says,” To think about the P/E ratio is like how much time to take the company to recover our investment principle.” if we assume a company on P/E constant means a medium grower company then, 10 to 14 years is required to recover our money. The company is a fast grower then your money is recovered in the 7-9 years, and if the company is a slow grower, then it takes 14-20 years to recover your money. (One Up On Wall Street: Chapter 10)
  • Compare P/E ratio with industry and historical data: That you the right value of P/E which is not be followed by a crowd of investors. If you compare the P/E with historical and industry P/E then you the P/E ratio is bargain able or not. so always compare yourself with others.
  • Avoid stocks with high P/E: This type of company is followed by the big institutional investor and you have to wait in this situation time. Here our Patience quality is checked. (One Up On Wall Street: Chapter 10)

So Peter Lynch gives 5 ways that increase the earnings of the company. if the company is earning then the stock value is increased. that way as follows

5 ways to increase earnings:

  1. Reduce cost: If you want to increase earnings of your stock then, check the company expending in which area that can be reduced by any reason, if the company is doing, then your price earning is increased. So check to reduce cost.
  2. Raise Prices: If a company is increasing the price of the product, then they are directly proportional to the earnings. So check for the product price and also see the price of the limit of the product can be increased. (One Up On Wall Street: Chapter 10)
  3. Sell more product in the existing market: Check for the company sales rate, if the company is doing great sales and sell more product then it’s ok for the earnings purpose.
  4. Expand into the new market: If a company is moving and expand the whole over the country and globe then the price of earning is increasing because the company gets more sales and sells the product. So check for this purpose also. (One Up On Wall Street: Chapter 10)
  5. Close or dispose of a losing operation: Check for the unworkable machine, or the department and this company is tried and close all of his department then the price of earnings is increases.

 

This is all about the 5 ways of earning in the company, and also chapter 10 of one up on wall street book.

Visit Biotech website: Click here

Filed Under: One Up On Wall Street Tagged With: book pdf, company, Earnings, One Up On Wall Street book, peter lynch

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