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.
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.
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.
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.