How to Start Investing in Stock Markets for Beginners
Investing in stock market can appear to be quite simple for those of you have been
in markets for a long time. But for first time investors it can be quite astonishing.
The volatility of the markets, the large number of companies, and the plethora of
variables can all make stock market quite investing. The answer could lie in adopting
a methodical approach to investing.
What is a Methodical Approach to Start Investing
It is never good idea to jump into the markets with a big chunk of your savings.
It is always better to do it gradually and learn along the way. There are various
segments of the market like the IPO market, intraday market where you can test waters
before getting into investing full time. When you start investing, it is more important
that you do not lose your capital than about making big returns. If you invest a
tidy sum in the market and lose 25% in a week then you are most likely to be discouraged.
That would be doing injustice to your wealth creation capacity.
5 Steps to Sock Markets for Beginners
Stick to your circle of familiarity
You may wonder how a non investor can have a circle of familiarity. That is not
the point. If you are working in the software industry or the steel industry, then
have familiarity with that industry. Use your insights to identify and invest in
a stock in your industry which you believe is doing very well. That is how you can
start off investing in a small way.
Do a thorough study and invest in 2 or 3 stocks
It is essential to diversify your risk but don’t start off with a portfolio of 12
stocks. You must start with just 2 or 3 stocks and track them closely. If you have
12 stocks, then you don’t invest enough in any of them and you also don’t do justice
in tracking these stocks. The smaller your universe of stocks the better it is in
the initial days of investing.
Try out the IPO market which is well regulated
Not all IPOs are good and not all IPOs are bad. The reason we are suggesting IPOs
is that they tend to be a lot more transparent considering the due diligence at
that stage. Also such IPOs can list at a substantial premium and you can get an
exit early from the stock. That will reinforce your faith and confidence in the
markets. But talk to your advisor before selecting an IPO.
Invest in phases rather than jumping in
The good old phased approach is all the more relevant when you are investing for
the first time. You don’t want to buy a stock and then see the stock going down
by 15%. Allocate your corpus gradually and try to grasp the significance of technical
charts and news flows. When you invest gradually, your risk is lower and you also
get a much better price in the market.
Monitor your investments as you learn the ropes
Even the smallest of investments require to be monitored. Size does not matter.
Investing and monitoring is about discipline. You need to monitor your stocks based
on charts, news, earnings flows, macros etc. This is a learning process and you
should make the best of it. Your investments can yield the desired results only
if they are closely and properly monitored in terms of performance, and cues.
What you should NOTdo when you start in the markets
As an investor who is just starting out in the markets, there are a few rules about
what you should not do. Here are two such things to avoid when you start out on
Don’t take a very big risk to begin with
If you are planning to invest Rs.1 lakh and you put 90% of the money in a single
stock based on a WhatsApp that is a very bad idea. That is not the way you start
off investing. Invest based on an understanding of the stock and investing gradually
and spread your risk.
Start as an investor not as a trader
Intraday trading and momentum trading are good once you have familiarity with the
market movements. Don’t try to start out with these kinds of attempts. To begin
with try and stick to investing for the long term. Trading can follow at a later