Friday, February 19, 2010

Economy Double Dip

This i have taken from seeking alpha website. From it one can make a small guess where our economy can head in coming days

Thursday, February 18, 2010


1. Do not walk behind me, for I may not lead. Do not walk ahead of me, for I may not follow. Do not walk beside me either. Just pretty much leave me alone.

2. The journey of a thousand miles begins with a broken fan belt and leaky tire.

3. It's always darkest before dawn. So if you're going to steal your neighbor's newspaper, that's the time to do it.

4. Don't be irreplaceable. If you can't be replaced, you can't be promoted.

5. Always remember that you're unique. Just like everyone else.

6. Never test the depth of the water with both feet.

7. If you think nobody cares if you're alive, try not filing your taxes.

8. Before you criticize someone, you should walk a mile in their shoes. That way, when you criticize them, you're a mile away and you have their shoes.

9. If at first you don't succeed, skydiving is probably not for you.

10. Give a man a fish and he will eat for a day. Teach him how to fish, and he will sit in a boat and drink beer all day.

11. If you lend someone $20 and never see that person again, it was a wise investment.

12 . If you tell the truth, you don't have to remember anything.

13. If you keep on doin' what you're doin', what you've got is all you'll ever get.

14. Everyone seems normal until you get to know them.

15. The safest way to double your money is to fold it in half and put it back in your pocket.

16. A closed mouth gathers no foot.

17. There are two theories about how to argue with women. Neither one works.

18. Nobody can talk and learn at the same time.

19. Experience is something you don't get until just after you need it.

20. Youth is wasted on the young.

Wednesday, February 17, 2010

Explaination of Rights Offerings

Here is the nice explanation on Rights Issue picked from a website

Rights Offerings

An often overlooked means of raising new capital is through a rights offerings or rights issuance. Rights issues occur when a firm sells new shares to those investors who have "rights." Rights give their holders the right to buy the new shares at the subscription price. To see how these work, an example is necessary.

The first step is to determine how much the firm needs to raise. For our example suppose a firm needs to raise $50 million dollars. Currently they have 22 million shares outstanding at a price of $25 a share. The next step is to determine a subscription price. The subscription price is the price at which the rights holders purchase the new shares. In this case let the subscription price be $15/share.

In the United States it is common to give a right for each share. So there will be 22 million rights granted. How many shares must you sell?

Number of new shares = (Amount you need to raise) / (subscription price)

So in this case:

$50,000,000/$15=3,333,334 new shares

How many rights will be needed to buy a single new share?

(Number of rights granted) / (Number of shares being sold)

22,000,000 / 3,333,334

6.6 rights / new share

The next logical question is what each right is worth. Unfortunately that is not quite as easy to answer. The first thing that must be done is to calculate the price of the stock after the issue and after the new shares have been sold. To do this we make some assumptions. Notably we assume that the everyone will exercise their rights (we can relax this later but it is generally a very good assumption), and more importantly that the investment opportunities will not change and further that the rights issuance does not change the operations of the firm. If this is true, then pricing is quite simple:

Overall equity value after issuance = Equity value before issuance + amount raised

= (shares * Price) + amount raised

= 22,000,000* $25 + $50,000,000

= $600,000,000

Total number of shares (post issuance)

Number of shares outstanding before the issuance + new shares issued

22,000,000 + 3,333,334


Price per share = new total market value / new number of shares

= $600,000,000 / 25,333,334

= $23.68

Now we can calculate the value of each right.

New price = subscription price + [(number of rights needed) * ( value of each right)]

$ 23.68 = $15.00 + [( 6.6) * (value of each right)]

Solve for the value of each right

Right = $1.315

Note that ex-right price plus value of right = old stock price.

23.68 + 1.315 = 24.995= $25.00

This can also be found by

Right price = (Old price - subscription price) / (number of rights per new share + 1)

=($25.00 - 15.00) / (6.6 + 1)


= $1.315

If these rights are deemed as transferable, they can be sold on the secondary market. Most rights offerings involve transferable rights.

Link where we can get some more information

Friday, February 12, 2010

Budget Deficit and Greece Problem...issue 1

Though the world economy is coming on to tracks there is a possibility that it might get derailed because of budget deficit of many countries is increasing including india and if this continues until they make some measures to decrease the gap by increasing taxes , reducing public expenditure (it would be great if they reduce government running expenditure rather than on money they spend on people..but i guess they(politicians ) do the later..will see that in coming days) and making public sector companies more accountable to owners(public) ..Though i believe Govt should spend more in times of depression kind of times we are see now a days is once a life time chance..only history books will tell this in coming days..but Govt at some point of time should reduce this expenditure on public other wise there budgets will become after reducing this they should be in quick position to collect the funds from market or else if another slump happens then they will be in very bad shape i guess...atleast they should have enough funds by another slump so thay they resume pumping liquidity back into system...

Now guess why am talking all these things now is coz of late am hearig news in western media about Greece having budget deficit of over 13% and more...and also they fudged statistics to enter in Euro Zone..and there is also talking going about Euro going down...that inturn will make Dollar also low at some point...this is indeed is sensed by Chineese i guess and they quietly did a a monetary tightening today ..which inturn is warning to normal investors to not to go for risky assests like equities..And this effect is seen in Dow going down by 1%..will see what our nifty will do on monday...

Wednesday, February 10, 2010

Stock Option Greeks

brief video on Stock Option Greeks which are used pricing the options

Monday, February 1, 2010

Investment Related Books

  • Lynch, Peter, and Rothchild, John. Learn to Earn: A Beginner's Guide to the Basics of Investing and Business, 1995. A good place to start for the true novice. Written at a level anyone can understand.
  • Malkiel, Burton A. A Random Walk Down Wall Street, 8th ed., 2003. A must read for anyone seriously interested in understanding investments. Extremely well-written, humorous, and well documented. A thorough reading of Malkiel will give you a good understanding of the world of investments and finance. This is a book you will want to save for a long time.
  • Lynch, Peter, and Rothchild, John. One Up on Wall Street, 1989. Lynch's first book on Wall Street. Read what he says on page 165 about stocks with high P-E ratios: "If you remember nothing else about p/e ratios, remember to avoid stocks with excessively high ones. You'll save yourself a lot of grief and a lot of money if you do."
  • Lynch, Peter, and Rothchild, John. Beating the Street, 1993. Lynch talks about how a grade school class picked winning stocks, just by paying attention to what was around them, and beat most of the pros.
  • Haugen, Robert A. The New Finance: The Case Against Efficient Markets, 1995. Value Stocks (low price to book value) consistently yield superior returns, with lower risk, than do growth stocks (high price to book). It appears that the cheap companies are those in trouble, and in competitive markets many of them eventually turn around. The expensive stocks are those which have been doing great, but entry erodes their profits and brings them back down to reality.
  • Fischel, Daniel. Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution, 1995. An alternative view of Milken and the "decade of greed." Argues that Milken was railroaded by a conspiracy of ambitious prosecutors and corporate leaders who felt threatened by Milken. The book gives good insight into Milken's long-term impact on corporate restructuring.
  • Buffet, Mary, and Clark, David. Buffettology, 1997. A good synopsis of Warren Buffett's approach to what is called "business perspective" investing. Mary Buffett, the former daughter-in-law of Warren Buffett, details Warren Buffett's journey from Benjamin Graham to Philip Fisher and Charlie Munger and to his own synthesis of how to choose stocks.
  • Shiller, Robert J. Irrational Exuberance, 2000. In reading Shiller's descriptions of past speculative bubbles, one has the rather eerie sense that we are reliving what we have gone through before. Shiller does a masterful job of detailing those factors, economic and particularly psychological, that lead to speculative booms.
  • Siegel, Jeremy J. Stocks for the Long Run, 1998. Siegel demonstrates convincingly that stocks have outperformed other investments by a wide margin, at least over the past, in U.S. markets, with a broadly diversified portfolio, and with a long time horizon. This book, as much as any other, provides the basis for the "Gospel of Stock Market Investing," the good news that if you just put your money in stocks and hold on for the long run you will come out ahead.
  • Smithers, Andrew, and Stephen Wright. Valuing Wall Street: Protecting Wealth in Turbulent Markets, 2000. Tobin's q, expressed as a ratio of market value of stocks to the replacement cost of their underlying assets, appears to be mean-reverting over long periods of time. When q has been very high, as it has been recently, stock returns over the next ten years have tended to be low.
  • Lowenstein, Roger. When Genius Failed: The Rise and Fall of Long-Term Capital Management, 2000. John Meriwether, of legendary fame from Michael Lewis' Liar's Poker, combined with two Nobel Prize winners to amass a huge pool of capital and then convinced banks to lend much more for investment in their hedge fund. Then excessive leverage and a series of improbable events brought it crashing down. A fascinating story of hubris run amok and how the Fed at last had to intervene in an impending crisis.
  • Lewis, Michael. Liar's Poker: Rising Through the Wreckage on Wall Street, 1989. A fascinating story of life on Wall Street, at least as it was in one firm twenty years. Michael Lewis describes how he entered Solomon Brothers as a young trainee, how he mastered the game and rose through the ranks, and then how he left a bit jaded.
  • Lewis, Michael, The New New Thing: A Silicon Valley Story, 2000. Here Lewis describes, through the career of Jim Clark (Silicon Graphics, Netscape, and Healtheon), how the "new economy" firms were able to raise vast sums of money from venture capitalists well before they had any real prospects for profit. This turn in financing set the stage for the rise of the dot.coms and then for the collapse of so many of them.