If you want to start investing in share market, but you don’t understand how to invest in the share market, then read this article after reading this, you can easily understand how to invest in the share market
Investing in shares provides high returns due to the power of compounding. A demat and trading account is a must to start trading in the stocks. Don’t worry! We already written an article on How to Open Demat Account
Demat Account opened very easily online and quickly. The essentials required for opening an account. Bank account, Broker, AADHAAR, PAN Card, Bank statement and personalized cheque
Also Read- Basics of Share market- Complete Guide
The share market can help you make a lot of money, but you can lose your money if you don’t know how to invest in the share market. Therefore, there are a few things you must know before you dive into the share market. Let’s get started.
How to Invest in the Share Market
Investment Strategy
Individuals must analyse the share market scenario to frame an appropriate investment strategy. Share market investor must identify stocks that suit their needs. For example, if an individual wants an additional source of income, investing in dividend-paying stocks is appropriate. Choosing growth stocks is a precise approach for investors who want to develop their assets.
Never jump blindly into stock markets
Many times it happens that while talking to someone, the discussion heads towards the share market, and also how the share market helps investors make huge money. You might never have invested in the market, but after hearing about all those things you also decide to buy some shares. You should invest in the share market after getting the basic knowledge about it and in accordance with your financial goals.
Before starting to invest in stock market educate yourself first
Before making your first investment in the share market, take the time to learn the basics about the stock market and companies of the share market. Your focus will be on the individual companies in which you are investing in the relationship with the broader economy and the factors that drive your stock. Some significant regions you should know about before you enter the market are:
Understanding financial ratios and definitions such as PE, EPS, ROE, and Market Cap etc.
Learn basic fundamental and technical analyses. Trading basics, rules, and terminology as market order types including market orders, limit order, stop market orders, stop limit orders, trailing stop loss orders, and other types commonly used by investors.
Growth of share market direct relationship with the economy such as inflation, GDP, fiscal deficit, crude prices, rupees values against dollar. People lose cash in the markets because they simply jump to the market without knowing the market cycles of the economy and investment.
Timing
Entering the market at the right time is one of the most important share market basics overlooked by investors.
Buying at the lowest price level the recognized stocks will maximize the future earnings that investors can earn. On the other side, it is lucrative to exit the inventory when it trades at the largest cost.
Although no one can time the stock market, the following ratios are one of the tried and tested methods.
(a) P/E Ratio
(b) P/B Ratio
(c) Dividend Yield
The Stock Market is NOT a Money money-making machine
You must have heard the story about investors who made their huge wealth through the share market. Many believe that the share market is like a money-making machine
As an Individual, we always want to double or triple our investment in a year. If you are entering the share market with this expectation then it is not a place for you. Unless you’re the luckiest person, you’ll be playing with your cash. Many individuals forget that many individuals lost all their wealth, while some were compelled to sell their private property to cover the market loss. Before taking a plunge, you should set your expectations as a stock investor. In my view, in the long run, your expectation should not exceed 10% to 12% annual yields.
Don’t diversify too much
“Diversification is a protection against ignorance, don’t diversify too much.” For those who understand what they are doing, it makes very little sense.” – Warren Buffett
To start you can buy 3-4 good quality stocks. More than 10 stocks mean the portfolio is as good as a mutual fund and it’s better to invest in mutual funds. By investing in a few excellent value shares, you can beat the yield of mutual funds and the index.
Don’t let emotions impact your investment
In the share market due to fear, greed, and investors’ inability to control their emotions many investors have lost money and Separate your emotions from any particular stock many investors end up losing money
When investors hear stories of fabulous returns made in the share market in a short period of time. This causes them to take the risk without really knowing the dangers of buying unknown companies ‘ stocks.
In a bear market, control your fear and don’t panic and sell shares at rock-bottom prices. Many investors are afraid and sell their shares at low prices.
Avoid Leverage
Leverage simply means the use of borrowed money to execute your share market strategy. Banks and brokerage firms can provide you with cash to purchase stocks in a margin account. It sounds good when the stock market moves up, but when the stock market or your inventory comes down consider the other side. In that case your loss you lose your hard-earned money Leverage is, thus, a tool, neither good nor bad. However, it is best used after you gain experience and confidence in your decision-making abilities. Therefore limit your risk when you are starting out to ensure you can profit over the long term.
The term must be looked at while making an investment decision.
Management
The management is most important factor to consider before investing in any company or stock. The management will be the driving force behind the future direction and success or failure of the company.
Business model
Warren Buffets always says that don’t invest in a company whose business you don’t understand. The first thing that any investor must look at is the business that the company operates in.
Financial analysis
This is also one of the major factors that investors should look at. It includes doing a detailed study about the company’s financial position and performance over a long period of time. Such a study is commonly known as ‘fundamental analysis’.
Competition in the industry
The company’s competition is another major factor that you as an investor should look at before deciding to buy or not to buy that company’s share.
Dividend yield
Dividends are a form of income from shares and regular dividend-paying companies do provide some comfort that their profits and cash flows are stable enough for them to keep paying dividends each year.
Value
One of the major deciding factors in whether stock is bought or not – is the valuation phase. While the business model, management, fundamentals, and market positioning of the company may be the best, if the stock is trading at valuations that are unwarranted, then it is not worth buying the stock. If you understand how to invest in share market then please comment.