Stock Market Investing – A Primer for Beginners
Investing in the stock market and making money consistently and in large quantities is something that most dream of. The legendary Warren Buffet was in India a few months back and tomes and more tomes have been written on the methods that he adopts to make money in the stock market. His idea of value investing, which he credits to his mentor Benjamin Graham, has many followers. In this article we look at some of the important aspects that you need to be aware of while investing in the stock market. The article is for beginners and for an investment horizon of 3-5 years. The article is specific for Indian investors though most of the ideas expressed are universal.
Investing in Stock markets
Investing in the stock market gives superior returns over the long term and is more tax efficient than all other forms of investment. If done rightly you can get a return of 12-15% over the long term. You can either invest directly or through mutual funds.Stock market investing requires patience, risk-taking capability and time. Never invest on tips or just because a particular company is the flavor of the season. Reading financial reports and checking financial ratios may not be easy for everybody but you could look at a few things before making that investment.
Going by your gut instinct is good if you have long experience in picking stocks and if you keep in touch with news flow on what is going on in the sector or the particular company. If you are a beginner it is better to test your hypothesis with some data before you jump in to buy. It would be a good idea to start reading a business magazine which gives in-depth articles about companies or a particular sector.
If your investment decision is based on recommendations by some popular business news channels then the outcome may not be very positive. It is best to take information from all media, do some study yourself, arrive at your own conclusion and start investing. Stock Market investing is not rocket science and if you can keep in mind a few points, you too, can pick up good thcb stock stocks and reap the benefits of higher returns. If you plan to invest in the stock market then the first lesson is to cultivate patience and humility. Try not to invest when the market is running up. Do not think that you will lose the opportunity and buy at a higher price. Always time your purchase when sharp corrections take place. Always remember that success does not beget success in the stock market. Do not be overconfident if you get a few picks right.
Choosing a company to invest
There are more than 6,000 stocks listed in the Bombay Stock Exchange and over 1,200 stocks listed in the National Stock Exchange. Many are listed on both. The stock exchange itself takes the best stocks [30 for BSE Sensex and 50 for Nifty] to make the index and usually picks the companies that are consistently profitable and those that have good corporate governance and show consistent performance. So one easy way out is to select a few among these index stocks in a downturn.