Decode the Code of Stock Market
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Yes, stock market is like a “coding” for a newbie in the market. At first it seems very complicated but once you get used to it, it will be ‘a piece of cake’.
Let’s see how to decode this.
When a new person came to stock market usually, he is in hope of multiplying his/her money in ‘as short as’ period.
But, my dear friend the ‘Hope’ doesn’t work in the stock market. And especially hope of quick returns not at all works.
What works in stock market or in any other profession is your:
- Knowledge
- Support or Mentorship.
- Experience.
- Fund and Sourcing.
- Dedication.
- Professionalism.
Now, you might have some questions in your mind and you might want to bombard me with those questions but wait and read rest of the blog, your questions will be answered automatically.
Let’s start with the importance of Stock Market in One’s Life.
The value of the Stock market can be understood from the fact that you are reading this, if life for you is just about fulfilling your basic needs, then maybe you have reached the zenith of spirituality. But since you are reading this, it could be assumed that you are an average human being for whom money matters and so do the Stock Market.
You would have surely thought to yourself at some point in life, ‘If I had enough money.’ But the fact is nobody knows what ‘enough’ money is; i.e., how much does it amount to?
Now, when you are not sure of the amount you wish to have, what happens as a result you will not be able to earn from stock market. So, if you are beginner in the stock market, first find the purpose why you are coming to stock market i.e. the end goal which you want to achieve (for example some might want to invest their money in Stock Market for his/her child’s marriage).
Now, stop for 1 minute and think about the goal for which you are coming to stock market, and make sure you are not coming for quicks returns.
Let’s move further, allow me to help you with some basics about stock market………
But wait..
Before, moving further let’s clear one thing in mind i.e., Basic concepts of shares:
- The basic concept of issuing shares by a company is not to make you quicklyrich.
- A company’s capital is divided into smaller units called shares. A “Share” is a term used to describe a part of the ownership of a company. If you own a share of the company, you hold the ownership of the company. Thus, you are entitled to receive the share of earnings of that company.
- The concept of issuing the shares to general public by the company is raising capital either to “expand its business” or to “foreseeing its current capital requirements”.
Big Profits!!!! Ahhhhmmm…
The world is full of illusions. What looks right may not be the best choice for you. This is even more true while handling money.
There’s only one possible outcome when you make a wrong choice with your money—you lose it! So, you need to be more cautious in your money matters.
Expecting higher profits is good, but not especially when you are a beginner.
Now, let me hold your hand and take you to the world of stock market where you will learn the following topics:
- Why Investing in the Stock Market?
- Understand What Stocks Are?
- How to invest in share market in India?
- How Do You Make Money as a Shareholder?
- What Factors Do I Consider before Investing in Stocks?
- Qualities You Need or You DON’T Need to Be a Good Investor
1. Why Investing in stock market?
Investing in the stock market is one of the best ways to create a sustainable pool of savings. When searching for the best way to get inflation beating return what’s the first thought that comes to your mind?
A bank savings account?
Naah!
Savings in a bank account only generates fixed interest income. Since there’s not much risk involved, the earnings are also less. It is a mode to keep your money in a safe place and you don’t multiply them.
Now if we talk about Investments. Investing in stocks comes with its own set of rules or conventions. If you have to do too many calculations for buying a stock, then, it’s usually not worth investing in that stock.
2. Understand What Stocks Are?
When a company sells stocks, it essentially sells parts of its business.
Needless to say, the owners will not give up on huge parts of their business. They offer a very small portion of the company’s value in stocks. So, when an investor buys a share of the company, he becomes a part-owner of the company.
The investor is entitled to a percentage of the profit, and his liability is only limited to the share value. The benefit is that despite being the owner of the company, you don’t bear the losses beyond your investment value. The other advantage is that due to the presence of a stock exchange, you can quickly sell or buy shares of any other company at any time you want.
Note: when you own the stock of any company you are not part of the organization’s management in any way. Ownership is one thing, and management is another. Still, you benefit from the stocks if you trade them since their value will fluctuate over time.
3. How to invest in share market in India
Investing in the stock market can be tricky, especially for individuals who are new to this world. That said, the investment process has become hassle-free nowadays as individuals can allocate their funds to shares through various digital platforms.
Here are the steps that you need to follow to buy stocks easily from the comfort of your home:
Step 1: Open a Demat account and make sure that it is linked with your bank account to carry out transactions smoothly.
Step 2: Sign in to the Demat account via the mobile-based application or web platform.
Step 3: Pick a stock (suppose Trident) that you want to invest in.
Step 4: Make sure that you have sufficient funds in your bank account to buy the shares that you wish to purchase (Trident ltd.).
Step 5: Purchase the stock at its listed price and specify the number of units.
Step 6: Once a seller reciprocates that request, your purchase order will get executed. you will receive the shares in your Demat account.
Learn more about Demat account by Clicking Here.
4. How Do You Make Money as a Shareholder?
When you hold a share of the company, there are mainly two types of incomes you may earn. One is the dividend income, and the other is the increase in the value of the investment.
Let’s understand each of these.
- Dividend income– The profits earned by a company are either reinvested in the business or given away as a part of earnings to its shareholders. The part of the profits of a company that is given to shareholders is called dividends.
- Appreciation of the value of investment– One of the primary reasons to invest money in the market is to see the value of investment getting appreciated.
Example, you bought 1 share at Rs.100 and after 1 year its market value is 1,000 so your capital appreciation or profit is 900(1000-100).
5. What Factors Do I Consider before Investing in Stocks?
1) Understand the Stock Market:
The first step to becoming a successful investor is to know the basics of the stock market. Share markets are one of the most attractive investment destinations for young investors. You can grow your wealth by investing practically but making hasty decisions can quickly cause you to lose your money. So, it is very important to know the process of stock trading.
2) Investment objectives:
The first & one of the best share market tips is to identify your investment goals. You may be looking to fund your children’s education, or you may need money for your wedding. Additionally, you can invest your money to buy an asset or simply grow your money. The investment objective is not universal and alters with every investor. Hence, you must pick stocks after taking your financial goals into account.
3) Trading or Investing:
Trading requires regular attention and expertise. If you are a market expert and want to make trading in stock markets your primary profession, you can give it a try. Otherwise, it is better to start as an investor. As you gain experience and understand the market, you can also start trying your luck in trading with limited capital first.
4) Choose Stocks of Established Companies:
If you are new to stock market then choose those companies that have robust businesses and a great brand value (for example Reliance, TCS, Infosys, etc) are less likely to suffer huge losses. Though they might not provide high returns in the short term, they are a good investment for the long term. The data of companies that give regular dividends and bonuses are easily available online.
5) Start Analyzing Yourself:
It is never advisable to rely entirely on the suggestions of market experts and that would be one of the best share market tips to follow if you want to grow. Instead, it is a good idea to analyse the market yourself and study the market movements regularly. This will help you make informed decisions and reduce the risk of losses. Once you start analysing regularly, you can get a hold of the market and identify the movements correctly.
6) Avoid Derivatives:
Derivatives like Futures and options are sophisticated instruments that require stock market expertise. You can purchase much more stake in derivatives than in stocks. This is because the margin money required is very low and is usually for a specified short-term duration.
However, investors get blinded by this and forget that these are complicated instruments. It is usually expert investors who play in the derivative markets. Therefore, it is better to avoid them until you get a hold of the trade.
6. Qualities You Need or You DON’T Need to Be a Good Investor
(a) Qualities You Need are:
- Patience
- Learning ability
- Emotional stability
- Courage to go against the market trends
- Willingness to give up short-term desires to build enormous wealth in the future
(b) Qualities You DON’T Need are:
- Expensive software to analyse complex graphs, and charts
- High IQ
- Technical, mathematical and accounting skills.
Conclusion
A stock market is a place where you wake up to see a new trend every day. It is not only a place where you see stock’s buying or selling. What you see is ‘the trading of human emotions (The Greed and the Fear)’.
Decoding: If, you are new to stock market remember “patience” is the key for successful Investing as well Trading.
Happy learning!!!!
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