Stock market basics for beginners : 5 tips you must implement while investing

 Nobody wants to loose their money but you know what stock market is not fair for everyone. The purpose of every person who enters into the stock market is just to multiply their money and build a wealth. But you know what it is too volatile maybe the share  you are seeing today in bullish situation can be converted into bearish tomorrow. So as a beginner you never know till how much time you have to hold the stock sometimes you will got panic  by seeing the downfall in the market if you are a beginner then even 15% of fall can scare you. Many beginners use to invest without any analysis yeah may be your luck will gonna save you and give you some good returns but you will have to face the losses soon. I am not demotivating you but  I just want to let you aware from the losses which may occur if you invest without any analysis. So in today's article I am gonna give you some stock market basics tips.

If you don't know how the stock market works I suggest you to read this article.

Tips of investing for beginners

1. You just cannot invest by just seeing the products

Analyzing the stocks is sounds easy that we just have to see the products of the company if the products are good then we can go for that company. But it's not like that my friend investing in a company by just seeing it's PE and PB ratio and it's products is not enough. If you remembered what happened with the ruchi soya their products were not just good enough but they are dominating the market but still company had bankrupted because of bad management. So you need to analyze the company at every parameter then you should make your decision whether you will be invested in the company or not. Checking the management of the company, a little research on the manager if they were in some fraud cases in the past history. Also check the company is only increasing their revenue or profit also, how much the debt company has, ROE, shareholding pattern, etc. Look "analyzing the company is not all about how the company performed till the date it's about how it will gonna perform". Yeah, in the beginning, you can start with a little money as soon as you learn to analyze the stocks you can increase your investments.

2. Make a diversified portfolio

Many people use to invest in a specific sector. Yeah personally am also like NBFC sector too and almost 50 % of my investment is in the NBFC sector but it doesn't mean I will not invest in other sectors. Diversifying of portfolio is very  important as it decreases your chances of loosing money. Let say I have invested my all the funds in the NBFC sector and in future if this particular sector will starts to fall down due to any reason then I have to bear the losses. You can choose 1-2 stocks from every sector and 3-4 stocks from the sector you like and trust the most. If you invest using this strategy and if a particular sector will gone bearish still it doesn't affect that much to your overall portfolio. 

3. Go for market leaders

Many beginners when enters into the stock market they easily got attracted to the penny stocks which has almost negligible existence in the market in the hope that it will double their money soon but most of the time they got loose their almost half of the money. Investing in those companies is like finding the next titan company from thousands but yeah if your luck is too good maybe you will got doubled your money but will said to be gambling instead of investing. Investing in  penny stocks makes you the pawn of big traders whom purpose is just to make profit in penny shares by trading. So instead of investing in penny shares you should go with  the market leaders who's got the highest market  share in their industry. Yeah they will not double your money in a year but if you analyze well and choose good stocks from that market leaders too you can get a decent returns of 15-20% which is said to be good returns for investors. I want to give an example of colgate, in India if anybody goes to buy a toothpaste to any retail store most of the people asks colgate instead of toothpaste. So, just imagine how badly the colgate has been dominating the toothpaste industry.

4. Always look for long term

Suppose  your friend offering you a partnership in his business in returns of some funds because he needs to expand his business then what you will do? Of course first you will checkout the whole business model then you will see how much profit potential that business already have then you will find out whether the profit of the business are gonna increase if you invest your money in that before becoming partner in your friend's business. Then why in stock market people use to sell their stock soon instead of holding the stock. If you have the correct answer of this question please comment down. Now I will give you the answer. You know what is the mindset of most of the people is just to make profits instead of buying the ownership and hold it for the long term. I am telling you from the day we use to invest our money with the mindset that we are buying the whole company from  that day we will try to analyze well and hold the stock for the long term which results low probability of losses. Seriously tell me if you will open a retail store business then will you close it in 1-2 years because it is not giving you profit in a shorter period? Of course not! Then why people do this in stock market. If you have heard about the Warren buffet then you may know that he earns his 95% of the Wealth in the older age. Can you tell me what made him the successful investor ? Yeah you guessed it right because once he buys the stock he use to hold the stock for the lifetime.

Read here ; How to choose your first stock?

 

5. Be aware of market

Once you made your portfolio then keep your eye regular on your portfolio what is going in the market. You see what happened recently almost every country had a massive fall down in their economy because of the pandemic covid-19. Now if it results in losses then it also had many opportunities for investors. Many good fundamental stocks were available at the discounted price. It depends on you my friend how well you manage the market. Holding the stocks doesn't mean that when we know the market is going to be crashed still we doesn't  do anything. An intelligent investor will be the one who exits at the higher and enters in the same stock when available at the lower price. Market gives us many opportunities to book profits if we think a particular stock is in bullish situation then we should book our profit by exiting for the shorter period and we can buy it again at the lower prices.

suggested book; How to avoid loss and earn consistently in the stock market by prasenjit paul

 

Bottom line....

These 5 tips are the basics of stock market if you are planning to enter into the stock market then you must implement these 5 tips while investing. If  any stock mentioned in the article because of example please don't take it as a investment tip. If you have any query regarding this you can comment below.