Beginners Guide to Study Indian Stock Markets
How do you study markets, especially if you are just about starting out in the markets?
The market is an overload of information and analysis and hence you need to need
to choose the useful information out of this overload. A good starting point for
you to start off in investing is to start studying the stock markets in detail.
Here is how you can go about it.
Why it is essential to study the market
As the great investor, Peter Lynch, once said, “There is a company and a business
behind every stock. Just try to understand what the company is doing and how it
is doing.” These two basic questions should answer most of what you need to know
about a stock. When you study the market and the stock, you get the real insights
about investing. Buying a stock is like buying any other asset. You need to understand
the environment and the cash flows that the business can generate over time. That
is the determinant of value of any asset and the same is the case with markets.
How to start off studying the stock markets
Read the prices in detail and understand analytics
The stock price page of the newspaper is not just a collection of open, high and
low prices. It is a storehouse of insights. It tells you about earnings, P/E ratio,
dividend yields etc. The stock page also tells about 52-week highs and lows and
also about stocks that are uptrend versus downtrend. At a macro level, there is
the index analytics and the A/D ratio of the market as whole. In short, the stock
page is what you should start scanning first and foremost.
Keep a scrapbook of news and events
Market is extremely dynamic as it constantly reacts to news, events and other macro
stimulus. The best you can do is to keep a scrapbook of all such news each day and
then observe how it impacts the stock prices. Don’t give too much credence to rumours
and expectations but focus on the news that has actually happened. Especially focus
on the macros like rates, inflation etc.
Take a view on the market as a whole and on few stocks
As a trader or an investor you need to understand the market at two levels. At the
macro level, what is happening to the index and the market valuations overall and
what is happening to stocks at a micro level. It is only when you have both these
views that you can actually take an appropriate view on individual stocks. This
is an important part of your learning process.
Create a dummy portfolio and monitor on a continuous basis
What does all this finally boil down to? You need to understand that with a dummy
portfolio. Create a dummy portfolio with actually outlay and evaluate how you take
calls, how you interpret positions and how you perform. You can observe this for
a period of 3-4 months before you are prepared to actually put money in the market.
This is called simulation and it manages to bring you as close to the real market
experience as possible.
Fine tune how you enter the stock and how you should exit the stock
This is the most important job of an investor. They need to fine tune how they enter
stocks and how they exit stocks. In fact, you actually make money only when you
exit the stock and therefore your ability to time your exits matter a lot. What
do you evaluate here? There are a quite a few questions to answer. Are you interpreting
triggers correctly on most occasions? Are there too many opportunities you are missing
out? Are there stocks you are holding for too long and missing out the opportunities
to sell? Do you sell out in a hurry? And so on…
Here is where learning ends and action begins
The real action can only begin when you commit real money into a real trading account
and get shares into a real demat account. Two things to remember here!
There is nothing like putting your money on the block
Simulation can take you up to a point but you can never get the real feel of investing
unless you put real money. It does not matter if the money is small but open a trading
account and start buying shares into your demat account. That is when you actually
Observe how you react to situations
This is a lot more important. When you buy or sell a stock and the price goes against
you that's when you feel the panic. You start worrying when the money you have invested
is depleting on a regular basis. If you can take cool and calculated decision in
this situation then you have taken your first important step to being a sound investor.