Trade Stocks and Commodities with the Insiders

Trade Stocks and Commodities with the Insiders

1) Core Concepts
What is Risk Return Analysis?
The concept of risk-return analysis is integral to the process of investing
and finance. All financial decisions involve risks of varying degrees. You
may expect to earn returns at 15% per annum, from an asset class like
equity, but the risk of not achieving that will always be there.
Return is simply a reward for shouldering risks
related to investment - greater the risk, more the
returns. Returns are measured by how much investors'
money has grown over the investment period across
asset classes such as equities, ETFs, mutual funds,
bonds and corporate FDs. While you cannot gauge
returns in advance, you can make an educated guess
on the kind of returns that you expect.
Most investment expectations depend on what has happened in the past.
Unfortunately, history doesn’t always repeat itself! Haven't we all seen the
highs of 2007, followed by the lows in 2008?
Even if you are reasonable in your investment expectations for returns,
there is the possibility that actual investing returns turn out different than
expected. You certainly run the risk of losing some or all of your original
investment.
Why is that? It is because of an uncertain future (e.g., the global economic
environment), and uncertainty over the quality and stability of
investments. In general, greater the uncertainty, more the risk. Some
familiar sources of uncertainty (or risks) that we must absorb, while
making investments are:
Business and Industry Risk
There might be an industry-wide slowdown or even a global economic
recession as we are experiencing now. That presents an uncertain future
for any business. A company might see its earnings drop significantly due
to management ineptitude or wrong decisions. A drop in earnings may
cause the company's stock prices to fall, resulting in investment losses for
investors.
Inflation Risk
The money you earn today is always worth more than the same amount of
money at a future date. This is because goods and services usually cost
more in the future due to inflation. So, your investment return must beat
the inflation rate.
If it merely keeps pace with inflation, then your investment return is not
worth much. We have seen inflation soaring up to 11% in 2008. Now, in
2019, it’s at 1-2%. Perhaps, an average inflation rate over the next ten
years may work out at 5-6%. There's enough uncertainty here too.
Market Risk
Market risk is about the uncertainty faced in the stock market, which
primarily invests in equities. Several macro and micro-economic details -
singularly or plurally - can spook the equity market. We have seen how the
massive mandate in elections has re-invigorated the market. On the other
hand, a fragmented hung parliament may have caused the market to
nosedive.
Even for a well-managed business growing profitably, its equity stock may
drop in value simply because the overall stock market has fallen.
Liquidity Risk
Sometimes you are not able to get out of your investment conveniently
and at a reasonable price. For example, in 2008, you may have found it
tough to sell your house at a price you wanted. In 2007, however, it was a
breeze to have your home sold.
There can be a phase when the equity market is merely inactive or volatile
to keep investors away. It means you can't sell your investment or get the
price you want if you needed to sell it immediately.
What are Investment vehicles?
An investment vehicle is a product that investors use to generate positive
returns.

Trade Stocks and Commodities with the Insiders