In the earlier post i cleared some misconceptions about Investing being associated with gambling and why investing ASAP is a really good decision.
To know how to invest in a particular stock , one needs to look at the stock or the company. To look at a company a person needs to know how the business works and what events/political decision/global decisions will work for their company and what will not.
How to Start?
Warren Buffet , Charlie Munger say that their main job is reading hundreds of pages everyday!
Mr Raamdeo Aggarwal , Chairman of Motilal Oswal is also known to be a avid reader.
Knowledge is everything in the stock market , and therefore to gain such knowledge I do the following things and i suggest you to do the same:
-The most important thing to invest is Money. Start saving right away , if you are not able to save anything , start it now. Usually the definition of savings is taught as Savings = Income – Expenditure but it should be Expenditure = Income – Savings.It means save first , spend later , this way you would save each month/payday.
-Read Economic Times Newspaper everyday
-Read Books everyday (for books check the finance books review section on my website)
-Read Online news sites such as Business Insider India , Bloomberg , Google , Quartz , BloombergQuint , Google News , Moneycontrol.com
-Watch this video of how a business starts from zero to a listed company on the stock exchange. A Brilliant video by Bill Ackman( https://www.youtube.com/watch?v=WEDIj9JBTC8 )
How do you profit from Stock Market
An Investor can benefit mainly from two things via his investment in stocks/Financial instruments:
-Capital Appreciation : You buy a share at 100 Rupees , after 5 years it becomes 1000 rupees due to company’s consistent growth in earnings and business expansion. Your profit here is 1000%
-Dividends : You buy a bond/debenture at 100 INR , which will pay out 9% for 10 years. And after 10 years , the company will redeem the bond at 150 INR. So your earnings are 50 (150-100) + 90 (9% of 100 into 10 years) – 60 (average inflation 6% each year) = 80 INR. Your profit here is 80%
A thing to note here is that bonds have limited profits due to the safe nature of bonds. Bondholders are paid first in case a company goes bankrupt. Shares on the other hand carry unlimited profit and unlimited risk and also they are the second to be paid after bondholders in case the company goes bankrupt. That is why investors seeking more returns invest in equity shares.
An investment of 10,000 INR in Wipro IPO in 1980 would be more than 535 Crores today. That speaks for itself. But all is not rosy in stock market , some stocks have even eroded 99% of the invested amount
Stock Market Movements
A company’s stock in the Stock markets moves due to two things mainly:
– Investor Sentiment (cannot be quantified in any way)
-Positive or Negative News ( such as good or bad company results , employee strike etc. Good/bad news can be measured and thus a consequence can be judged to a fair extent unlike in the case of Investor Sentiment)
How to Get started?
You gain knowledge on how businesses and their stocks work , you read newspapers daily and follow the local/global business news everyday. You also know how stocks may move with respect to a news. The next step would be to open a demat account.
How to Open Demat Account
You can choose a variety of brokers to open your demat account. Please note the charges levied by the brokers such as Annual maintenance charges , service charges , Delivery and intraday trade charges.
Once you zero in on a broker , you need the following Documents:
- Pan Card
- Aadhar Card
- 6 Month bank Statement
If you have all of the above , you can easily open a demat account.
In the next article , i will tell you how to look at stocks, some financial definitions and meaning and how to select a stock based on some parameters.
Hope you liked the article,