Expert: Paul Henneman - 4/29/2004

Question
Hi Paul,

Thanks for your answers. As you asked about Indian Inflation Rates, I have not yet found any link where I can tell exactly about it. However, a prominent Indian Economy newspaper might cover it. Here is the link. Check it and inform me.

http://www.economictimes.com

Secondly, I wanted to know that while purchasing shares, what considerations need to be taken. If the shares are of a good company, then when we can sell the shares. Since the market goes up-down daily, so is there a risk in keeping the shares for any good time.

Regards,
Rohit.

Answer
Thank you for the follow up Rohit!
Unforunately I have not been able to find the inflation rate for India on the link you provided either. But I did find some basic information on this site:
http://www.reference-guides.com/cia_world_factbook/India/Economy/Inflation_rate_...

It estimates inflation to be about 5.4% for 2002, and some additional articles indicate that this may be falling to perhaps between 4.5 and 5% in the past year. However, this brings up what I feared. From your information, it sounds like Indian banks pay much higher interest that here in the US. But, the inflation is also higher. So if you received 6% interest on your deposits in an Indian bank, and inflation is 5%, then you are only seeing a real gain of 1%. Not good. You need more than 6% for it to mean anything for you. Your questions regarding Swiss banks is the same: the interest you could gain is not enough to overcome the higher inflation rate in India.  I want to stress that I am no expert and suggest this only based on some very basic information, it is something to seriously consider.
In order to beat 5% inflation rate, you would need to look to more risky investment such as mutual funds or stocks. As you say in your most recent question, how do you pick good stock investments? This is a tough question, one that takes years of study to become good at.  You can always sell shares of a good company at any time, but the question is when to sell to make the most profit. The market does go up and down daily, but I do not recommend that you trade daily to try to capture this. This is called 'day trading' and is extremely risky.
Instead, you should look at what the market (and the specific companies you may want to investi in) will do over the next few years. It is easier to do this than try to predict it daily. Look for strong yearly returns. Some days or week or even months will be good for your investments, some will be bad and you will lose money. But over the years you can expect to earn 15% or more return on your investments, on average, each year.
I suggest several things as you begin to think about investing in stocks.
1. Purchase a copy of "Investing for Dummies", it is a great introduction. Also get a copy of "Barrons Dictionary of Finance and Investment Terms" to keep handy. You can look up anything you come across that you do not understand. Both books are available on www.Amazon.com
2.  Start a practice portfolio on finance.yahoo.com to test your ideas and skill at stock picking right away. Track a test portfolio as if it were real money and test our your ideas.
3. Research all you can. Some good websites about stock investing: www.morningstar.com, www.cbsmarketwatch.com, and www.motleyfool.com

I hope this helps! Please feel free to follow up as always,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEReports.com
www.VEInstitutional.com