Once upon a time, at the edge of the village called Investment, lay a dark scaryjungle called the Stock Market. For first-time investors, the stock marketrepresented fear of the unknown, with major shakes of volatility and loss ofmoney. It signified a place where you could easily get lost.
For the brave few who dared to venture through itsuccessfully, the stock market represented a place ofexcellent return on their invested money. Seeing the successof these brave souls, the elders of Investment asked them toguide the others to these roads of wealth as well. Whatfollows below is the advice they gave others who wanted tounderstand and profit from the roads leading through thestock market.
The stock market is in itself a complete universe with its own language,rules and players. Many times, common people can make sense of howthe market will behave while at times, it is so unpredictable that even theexperts are left confused on what will happen next. One thing is forcertain, that in the long run, the market is the most profitable and themost effective at posting higher returns on investment than any othertraditional avenues for financial wealth.
• Stock Markets traditionally function within an Exchange that is the chief enabler for all transactions that take place.• When you trade in equity, you are not just buying a stock, you are in fact, buying a share in the company you choose to invest in.• Before you choose to invest in the stock market, do your homework. Ask yourself why are you looking at investing in stocks, what kind of stocks are you looking at investing in, why would you be investing in these stocks, how has the company been performing overall and does the same justify your investment.• Remember that the price for the shares you buy is dependent on other factors like the industry it operates in, the political and policy climate in addition to the company.
Thus, to start your journey, you need to understand how companies functionand how their performance will affect the value of the equity you buy. If youbuy a stock because the company is posting profits, paying good dividends foryour trust in them and is expected to perform better given the trust you andother shareholders have put in it, then you would be investing your money. Ifyou don’t see the company making any profit, but you believe, theyeventually will, that would mean you are speculating and taking a risk withinvesting and that would make you a speculator.
Of course, if your instinct is right, you will make a lot of money. If not, it willbe a loss. Thus in addition to performance, pay attention to the followingeveryday idioms that also make sound financial sense –• Don’t put your eggs in one basket – While the stock market does provide lucrative returns vis-a-vis other avenues of investment, it is advisable not to put all your savings in one place. As per your age, risk appetite and other financial obligations, please diversify your investment portfolio to take advantage of financial wealth creation. Feel free, however, to keep the highest investment for equity
• Ignorance is not bliss – There is no excuse for not doing your homework. Investing your hard earned money in stocks is not a trivial exercise. Read up on the Company you choose to invest in through online and print articles along with annual and research reports. Understand what P/E, PSR, Asset, Debt, Earnings etc mean. Read, read, read and then read some more starting with this – – Earnings – This denotes the revenue that the company has earned during the financial year and is an indicative of its performance. – Debt – This is the money the company owes various individuals or institutions for money borrowed. This number should be ideally lower than the assets owned by the company and its ratio to Earnings should also be lower than the year that went by. – Equity – How many shareholders does the company have? Have the numbers increased from the previous year? Has the price per share of the company consistently ,albeit moderately ,appreciated? – Price-to-Earnings ratio (P/E) – P/E refers to the comparison between a company’s current stock price in relation to the average earnings per share over the last financial year or expected earnings in the coming financial year
• Discretion is the better part of valour – Listen to your instinct and learn to leave when you need to leave. Being foolishly brave or taking undue risk would only mean loss of money. Learn when to follow signs and leave the table with the maximum chips
• A chain is no stronger than its weakest link – A company does not work in isolation. Its performance is governed by various internal and external factors. So ensure you study not just about the company, but also about the industry, environment and global trends to make astute decisions
• A man is known by the company he keeps – Invest in sourcing and follow a good certified broker, for it is this association that will determine your success in the markets. Listen and follow the advice of your broker completely. Hence, find someone who understands you and also wins your trust with solid performance and track record
• Too many cooks spoil the broth – While on the subject of brokers, remember to find just one and learn to trust him. Having a backup plan may in some cases, end up backfiring badly if you get two diametrically distinct recommendations. Choose a broker and ensure you stay loyal for at least six months or more, before you change your mind and find another• Be waiting in the wings – Be quick to spot opportunity and act on it. Thus, its good to always have money on the side in case good opportunities come by
• Thus did the good people of Investment, learn to manoeuvre the tricky roads of The Stock Market. Join them with your bag of tips and enjoy the trail and the quest for increased financial wealth and independence. Happy Investing!
• Registered office: Kotak Securities Limited, 1st Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400021. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, OTC INB 200808136, MCXSX INE 260808130.• Disclaimer: Investments in securities are subject to market risks, please read the SEBI prescribed Combined RDD prior to investing.• Correspondence Address: Infinity IT Park, Bldg. No 21, Opp Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Tel no: 66056825.