Start
reading Business Newspapers:
Stock Market Investment becomes
gamble if you are firing in the dark. It is absolutely necessary to keep
abreast with the latest happenings around you. To achieve good strike rate, you
should read some of the quality business newspapers. Moreover, as we always
share that we trust foreign media more than the desi one. Besides Indian
business news, you should be aware of what is happening around the world. The
international events also have a deep impact on Indian Stock market.
Stay
Liquid
If you’re interested in stock market basics, here
are some guidelines to know
The stock must be actively traded.
The liquidity requirements level become distracting
for most traders in that you should stick to tickers with a price.
First
Stock Purchase:
Your first stock should always be
from the sector you are most familiar with. For example, if you are working in
banking sector then in all probability that your knowledge about banking sector
must be more compared to the other sectors. Always remember that if any sector
is not performing well then it does not mean that there is all round beating
for the sector. You will always find some quality stocks. For example among
all banking stocks, like HDFC Bank, Kotak Mahindra Bank and IndusInd Bank
stocks as quality stocks based on my personal research. Therefore as a stock
investor, your first stocks should be from the sector you are most familiar
with or tracking on a regular basis.
Timing:
Though no one can time the stock
market but one of the tried and tested methods is to check the following ratios
(a) P/E Ratio
(b) P/B Ratio
(c) Dividend Yield
Focus On
Value, Not Price
In the stock market, you would use your judgment to
decide what is good value, and the same discipline must apply to financial
investments. In the stock market whether a valuation is cheap, expensive or
about right the several simple metrics, in the context of growth, risk, and
quality, will help you to decide.
Test the
Waters:
Before direct equity exposure, it
is always advisable to test the waters. Now you must be wondering how to do
that. The answer is very simple, there are hundreds of free portfolio managers
available on the web. You can register a free account with one of the portfolio
managers. Create a dummy portfolio of stocks you would like to invest based on
your research. Invest the dummy amount you would have invested in reality.
Now as a stock investor start
monitoring your dummy portfolio say for a month or 3 months. You will get a
flair of the stock market and its volatility. Before actual investment, your
objective should be to create a profitable dummy stock portfolio as a stock
investor.
Don’t
diversify too much
To start with you can buy 3-4
good quality stocks. More than 10 stocks mean portfolio is as good as mutual
fund and it’s better to invest in mutual funds. You can beat the return of
mutual funds and the index by investing in few good quality stocks.
Stock
Market is NOT a MONEY MAKING Machine
As a stock investor, we always
want to double or triple our investment in a year or two. If you are entering
the stock market with this expectation then it is not a place for you. You will
be gambling with your money until unless you are the luckiest lot. As a stock
investor, you should set your expectations right before taking a plunge. In my
opinion, your expectation should not be more than 10% to 12% annual returns in
the long run.
Do
Not Let Emotions Cloud Your Judgment
In the stock market due to fear, greed, and
investors inability to control emotions many investors have lost money.
In a bull market, quick wealth is difficult to
resist. When investors hear stories of fabulous returns made in the stock
market in a short period of time. This leads them to take the risk without
really understanding the risks involved they buy shares of unknown companies.
In a bear
market, investors are afraid and sell their shares at low prices. Therefore,
when investing in stock market fear and greed are the worst emotions to feel.
Retail
Investor is a very small fish in Big Pond
To understand how stock market
operate you should understand. The market maker is the GOD of the stock market.
He may decide the direction of the market. All your analysis and research will
go for a toss if the market maker decides against the stocks shortlisted by
you. Even though the stocks shortlisted by you are quality stocks.
In other words, as a stock
investor, you have to align your investment strategy with the market maker and
FII’s. Your returns will be directly proportional to the fact how well you are
aligned with the market maker and FII’s. As a retail stock investor, it is very
difficult to find out but not impossible. You need to catch the clues and
conclude. It’s an art and successful stock investor knows it well.
Invest
Rationally:
Most of the stock investments are
driven by emotions, greed, and fear. It is one of the major reasons to lose
money in stock market. One of the examples is to buy stock based on news or
speculation without sound logic. In 2014 there was great hype created around
the revival of PSU’s and PSU stocks were labeled as future multibaggers. What
happened after that you can check yourself.
Experience
Counts and makes you wise:
The best teacher in personal
finance space/stock market is an experience. No one can teach your art of
investment except your experience. You should learn from past mistakes and try
to avoid them in future. Gradually, it will make you wiser and your strike rate
will improve. Therefore, as a stock investor, you should learn from your trading
experience.
