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Wealth creation Wealth creation BasicsBasics

Stocks & Bonds Stocks & Bonds


Wealth creation BasicsWealth creation Basics

Stocks & Bonds Stocks & Bonds Fazle Rabbi Mohammed Fazle Rabbi Mohammed

AhsanAhsanResearch OfficerResearch Officer

Dhaka WASADhaka WASA98, Kazi Nazrul Islam Avenue98, Kazi Nazrul Islam Avenue

Dhaka-1215Dhaka-1215

M a r c h , 2 0 1 1M a r c h , 2 0 1 1


What do we mean by What do we mean by STOCK ?STOCK ?

In plain n simple:In plain n simple:

STOCK is the STOCK is the shareshare in the ownership in the ownership of a company. of a company.

Stock represents a claim on the Stock represents a claim on the company's assets and earnings. company's assets and earnings.

Generally: Shares, Equity or Stock Generally: Shares, Equity or Stock means the same thing.means the same thing.


Why does a company Why does a company issue stock?issue stock?

They issue stocks in order to:They issue stocks in order to:

Extend market share ; orExtend market share ; or

Be market leader ; or Be market leader ; or

Get bigger asset.Get bigger asset.


How does a company issue How does a company issue Stock?Stock?

A company can either borrow money A company can either borrow money from banks or from from banks or from NBFINBFIs; or s; or

Can raise it by selling part of the Can raise it by selling part of the company; i.e. : Stocks, Equity or by company; i.e. : Stocks, Equity or by Debt financing (loans/issuing bonds) Debt financing (loans/issuing bonds)


What’s the advantage to What’s the advantage to issue stock?issue stock?

The most common phenomena are:The most common phenomena are:

It does not require paying back the loan It does not require paying back the loan or interest payments along the way;or interest payments along the way;

No chances to involve into debt No chances to involve into debt financing;financing;

No chances to creating obstacle in No chances to creating obstacle in expanding market share. expanding market share.


How do we trade Stocks? How do we trade Stocks?

Most stocks are traded in capital Most stocks are traded in capital market , i.e. in market , i.e. in Stock ExchangesStock Exchanges..

Exchanges are places where buyers Exchanges are places where buyers and sellers meet and decide on a price. and sellers meet and decide on a price.

Some exchange has physical locations Some exchange has physical locations where transactions are carried out on a where transactions are carried out on a trading floor.trading floor.


Types of Market PlacesTypes of Market Places

Primary marketPrimary market :: The primary market The primary market is the first phase of stock trade where is the first phase of stock trade where investors keep their IPOs before trading investors keep their IPOs before trading at the floor. at the floor.

Secondary marketSecondary market :: The secondary The secondary market is what where people trade IPOs market is what where people trade IPOs and traded securities. People trade it and traded securities. People trade it through a network of computers through a network of computers electronically.electronically.


The The “Home Work”“Home Work” in in trading : trading :

Risk MeasurementRisk Measurement

No company or institute can No company or institute can guarantee you when the stock price guarantee you when the stock price stops in up-end or low-end; stops in up-end or low-end; and and

How long it takes to get the profits; How long it takes to get the profits;

No guarantee what percentage of No guarantee what percentage of ccapital apital ggainain you can get. you can get.


What causes prices to What causes prices to change? change?

Prices change by market forces;Prices change by market forces;

Prices change because of demand and Prices change because of demand and supply;supply;

Prices change by flow of information,Prices change by flow of information, it may be positive or may be negative. it may be positive or may be negative.


What should we look for:What should we look for:A A Value Stock Value Stock or a or a Growth Growth

StockStock ? ? Growth StocksGrowth Stocks are companies that will are companies that will

have positive earnings and have above –have positive earnings and have above –average risk-adjusted rates which are in average risk-adjusted rates which are in undervalued.undervalued.

Value StocksValue Stocks are those stocks that are those stocks that appear to be undervalued for reasons appear to be undervalued for reasons other than earnings growth.other than earnings growth.

Earnings are the profitEarnings are the profit of a company what it of a company what it makes, and in long run no company can survive makes, and in long run no company can survive without them. If a company never makes without them. If a company never makes money, they aren't going to stay in business. money, they aren't going to stay in business.


Types of StockTypes of Stock Growth Stock:Growth Stock: are companies that will have positive are companies that will have positive

earnings and have above –average risk-adjusted earnings and have above –average risk-adjusted rates which are in undervalued;rates which are in undervalued;

Defensive Stock:Defensive Stock: are those stocks whose future are those stocks whose future earnings are likely to withstand and economic earnings are likely to withstand and economic downturn; i.e. public utilities or grocery chain-downturn; i.e. public utilities or grocery chain-firms.firms.

Cyclic StockCyclic Stock: : are those stocks whose sales and are those stocks whose sales and earnings will be influenced by aggregate business; earnings will be influenced by aggregate business; i.e. steel, auto or heavy machinery industries.i.e. steel, auto or heavy machinery industries.

Speculative StockSpeculative Stock: : are those stocks whose assets are those stocks whose assets involve great risk but that also have a possibility to involve great risk but that also have a possibility to gain.gain.


Know your MarketKnow your Market

The BullsThe Bulls: a bull market is that when : a bull market is that when economy goes easy- rosy, GDP is economy goes easy- rosy, GDP is growing, people find jobs and stocks growing, people find jobs and stocks are rising. Things are just plain to are rising. Things are just plain to picking stocks during a bull market is picking stocks during a bull market is easier because everything is going up.easier because everything is going up.

The BearsThe Bears: a bear market is opposite : a bear market is opposite of the bull market. Bear occurs when of the bull market. Bear occurs when the economy is bad, recession starts or the economy is bad, recession starts or continues, and stock prices are falling.continues, and stock prices are falling.



The Relative Strength The Relative Strength Index-RSIIndex-RSI

RSIRSI : : The relative The relative strength index (RSI) strength index (RSI) is an is an oscillating indicator. It oscillating indicator. It operates within a operates within a range-bound area range-bound area between 0 and 100. As between 0 and 100. As the RSI line moves the RSI line moves higher, the price is higher, the price is enjoying increased enjoying increased strength. As it moves strength. As it moves lower, the price is lower, the price is suffering from a lack of suffering from a lack of strength. strength.

Using the RSI, have to Using the RSI, have to watch for those times watch for those times when the line rises when the line rises above 70 or below 30. above 70 or below 30. Buying or selling Buying or selling decision will come out decision will come out of one of those areas.of one of those areas.


Simple Moving Simple Moving Average-SMAAverage-SMA

Simple Moving Average Simple Moving Average (SMA) is a trending (SMA) is a trending indicator that shows the indicator that shows the volatility of daily price volatility of daily price movement; andmovement; and

It highlights the top of the It highlights the top of the price movement of a price movement of a security.security.

If the SMA is pointing up, If the SMA is pointing up, the security is trending the security is trending higher. higher.

If the SMA is pointing If the SMA is pointing down, the security is down, the security is trending lower.trending lower.


Money Flow Index-Money Flow Index-MFIMFI

The The Money Flow IndexMoney Flow Index (MFI) is an indicator with a (MFI) is an indicator with a single line that moves back single line that moves back and forth between 0 and and forth between 0 and 100. 100.

The MFI is a combined The MFI is a combined indicator. It consider both indicator. It consider both price action and volume price action and volume data into its calculation.data into its calculation.

The closer to 100 the The closer to 100 the indicator moves, the indicator moves, the stronger it is, while the stronger it is, while the closer to 0 it moves, the closer to 0 it moves, the weaker it is.weaker it is.


Bollinger BandsBollinger Bands Bollinger bandsBollinger bands are used are used

to judge the magnitude of to judge the magnitude of a stock movement and a stock movement and identify moments when identify moments when the trend of the simple the trend of the simple moving average may be moving average may be coming to an end.coming to an end.

Bollinger bands show the Bollinger bands show the expansion and contraction expansion and contraction around a simple moving around a simple moving average. The expansion of average. The expansion of the bands is based on the the bands is based on the volatility of the equity. If volatility of the equity. If the equity becomes more the equity becomes more volatile, the bands expand.volatile, the bands expand.













Fazle Rabbi Mohammed Fazle Rabbi Mohammed AhsanAhsan

has been born in Dashmina Upazilla has been born in Dashmina Upazilla under Patuakhali district in 1970.under Patuakhali district in 1970.He has passed H.S.C. from B.M. College, He has passed H.S.C. from B.M. College, Barishal in 1988. Mr. Ahsan has got his Barishal in 1988. Mr. Ahsan has got his MBAMBA from the Business Faculty of Dhaka from the Business Faculty of Dhaka Varsity in Varsity in Strategic Int’l ManagementStrategic Int’l Management in in 2008.2008.Presently he is serving in Dhaka WASA in Presently he is serving in Dhaka WASA in the capacity of Research Officer.the capacity of Research Officer.He can be reached by He can be reached by [email protected]@hotmail.com, , or +88 0155 2324656/ 01711703613/ or +88 0155 2324656/ 01711703613/ 0167028652801670286528

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