Investing in the stock market for beginners

Investing in the stock market for beginners

Investing in the stock market and making money consistently and in large quantities is something most people dream about

Investing in the stock market and making money consistently and in large quantities is something most people dream about. Legendary Warren Buffet was in India a few months ago, volumes, and more books have been written about his methods of making money in the stock market. His idea of ​​investing in value, which he ascribes to his mentor Benjamin Graham, has many followers. In this article, we look at some of the important aspects that you should be aware of while investing in the stock market. The article is for beginners and an investment horizon of 3-5 years. The article is specific to Indian investors although most of the ideas expressed are universal.

Investing in the stock market

Investing in the stock market gives superior returns in the long run and is more tax-efficient than all other forms of investment. If done correctly, you can get a 12-15% return in the long run. You can invest either directly or through mutual funds, as investing in the stock market requires patience, ability to risk, and time. Never invest in perks or just because a particular company is the flavor of the season. Reading financial reports and checking financial ratios may not be easy for everyone but you can take a look at a few things before making this investment.

Following your intuition is good if you have long experience picking stocks and if you are in contact with a flow of news about what is going on in a particular sector or company. If you are a beginner, it is best to test your hypothesis with some data before starting to buy. It might be a good idea to start by reading a business magazine that offers in-depth articles about companies or a specific sector.

If your investment decision is based on the recommendations of some popular business news channels, the result may not be very positive. It's best to take information from all media, do some study yourself, come to your conclusion, and start investing. Investing in the stock market is not a blatant science, and if you can keep some points in mind, you can also pick up good stocks and reap the benefits of higher returns. If you are planning to invest in the stock market, the first lesson is to cultivate patience and humility. Try not to invest when the market is rising. Don't think you will miss the opportunity and buy at a higher price. Always make sure to time the purchase when making sharp corrections. Always remember that success does not breed success in the stock market. Don't be overconfident if you get a few of the options right.

Choose a company to invest

There are more than 6000 shares listed on the Bombay Stock Exchange and more than 1200 shares listed on the National Stock Exchange. Several are listed on both. The exchange itself takes the best stocks [30 for BSE Sensex and 50 for Nifty] to make the index and usually picks consistently profitable companies and those that have good corporate governance and show consistent performance. So one easy way out is to pick a few of these index stocks in the downturn.

Another way is to check last quarter's performance and then select a few companies that have shown good sales and profitability growth. You can obtain this data from moneycontrol.com (website) or securities magazines such as Capital Market or Dalal Street. Then look at the quarterly performance, say 4-6 quarters of the final year, and see if operations are improving. Find consistent sales, operating profit, and net profit numbers. Increasing interest costs without a large increase in sales in subsequent quarters will indicate that capital is not being distributed efficiently. If other income contributes a large portion of the profit, be careful. Don't go to companies that have mountains of debt. You can check this on the balance sheet or just by looking at the interest paid from the quarterly results data. This way you can get a fix on the list of stocks that you need to monitor. Once you have a list of companies ready, visit their website and check out the products they manufacture. Search the Internet for news of selected companies. Get started, put in maybe an hour a week and you'll soon be surprised to find that choosing stocks isn't as difficult as you thought.

While purchasing the chosen company, specify an amount that you wish to commit to a particular share and allocate about 50% of the money and then monitor the movement. Please do not get used to daily monitoring. You can do this on weekends, and if the stock moves down, you can increase your possession steadily. If you run away, do not jump in and invest the balance; Wait for it to settle down and see if it offers value at a higher price. Time to buy in a bear market and sell in a bull market

Profit reservation

Warren Buffett's philosophy is to buy stocks, sleep on them, and make value. It is often wrong that Warren Buffett never sells his stock. this is not true. It is an exceptional stock picker