spotting Undervalued Stocks: A SIMPLE APPROACH

Who wouldn't want to stumble upon a gold nugget weighing 100 ounces? Every physically fit individual would readily take to hunting for gold nuggets whether these were just strewn on the ground or stuck into the rock. The temptation is simply overwhelming.
But there are some initial costs which must be incurred to equip one self for a meaningful Gold Safari. It is these costs or the capital requirement which scare away many a would be-gold hunters from pursuing one of the most attractive and promising vocations. A complete gear for gold mining would include dredgers/excavators, electronic metal detectors, water pumps shovels and sifters all of which can cost humongous amount of money.
What if the entire gold mining gear could be rented? Oh! that would be a great thing. Want to see how popular such a strategy would be? Set up a gold mining gear renting agency, and you will have queues in front of your store long before the sun is out.
And if you thought the Gold Rush is over, you would be wrong. It is very much there. The long winding queues outside your store are indicative of the presence or existence of a potential rush for gold hunting which is somehow not surfacing so overtly. The only thing which has changed during the intervening years (between the Gold rush of California, USA and non-cash stock market) is the change in the venue. In fact the level of activity in the territory which seems to hold the entire gold potential of the Earth in the virtual sense today is many times more than what was witnessed in the nineteenth century stampede for Gold on the West Coast of America.
It is time to release pressure on your patience and cool your inquisitiveness, The new venue for gold hunting is the Derivative market. Equity trading or investing is not only a proven but is also perhaps the best bet worldwide to beat inflation and to create wealth to meet life's financial goals including that of raising a sufficient corpus to take care your needs during your retirement.
But equity trading (in the cash market - BSE) requires large sums of money which are often beyond the means of most of the retail investors or votaries of equity investing. They are much against their preference and inclination forced to not only keep away from the market but also compelled to smother their keenness to test their investment skills.
But trading in derivatives market is like renting the mining gear for gold hunting. One can participate in equity trading activity in a significant way by committing only an insignificant amount. No wonder ever since the Securities and Exchange Board of India (SEBI) agreed to trading of derivatives in the country, derivates have become the darling of the retail investors. If the volume of business in the cash and derivative market were taken as the level of popularity of the way investors prefer to trade in equities, then derivates far outpace the cash market.
As the word itself implies, derivatives commonly known as Futures and Options do not refer to any stock or security in particular. They refer to contract involving sale or purchase of certain number of shares at a given date and at a given or predetermined price. The whole transaction is executed without bringing in the total value of the underlying security which has been traded or is the basis of a contract. By enabling people to trade on margins i.e., just by bringing in a small percentage of the total value
of security traded it enables whole lot of equity
enthusiasts to participate in the equity trading activity thus lending the much needed breadth and liquidity to the market.
In normal trading in the cash market, one has to have Rs.one lakh to trade in securities worth Rs.one lakh at any given time. But in the derivatives market, the same objective can be achieved by committing only 10 percent of this amount. Who would, therefore, not like to take advantage of the facility made possible by derivatives to take a plunge into the equity market and partake of the great wealth creation opportunities that it offers.
Nobody will mind your dallying with derivatives, so long as you keep in mind that they have the
potential to ditch you without assigning any reason or
without any apparent cause. Wisely used derivatives can serve a great purpose in as much one can
manage the risk equity investing is proverbially impregnated with.