Beginners Guide for successful Stock Market Investing

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People who already have witnessed the world of stock market investing know that it’s a coin with 2 sides, one which makes you wealthier and the other decimates your wealth. Your investment strategy is what determines which side of the coin you would be facing. That been said it’s the investor responsibility to be aware of what’s good and what’s bad regarding the stock market investing to determine his path to either be a wealthier investor or a bankrupt individual.

Most of the people tend to assume stock market investing as a gambling machine where you would become an overnight millionaire or lose all your life savings and go broke. This is an idea which has been planted by people who haven’t really ever invested or who have been at the losing side of the market sue to their lack of knowledge.

Stock market is not a Palantir ball and certainly not a gambling machine, but It’s more like a machine which would reward you based on your ability to make a right decision at the right time and also, it always treats you the way you treat it.

Let’s dive in to learn more about the basics of stock market investing for a successful journey in the financial markets.

Never buy a stock because of it’s low price

One of the common mistakes done by most of the beginners in their stock market investing journey is choosing a stock which is available cheap compared to their competitors only because it’s price is low.

Although one can get the stock at a lower price but might have to pay a high cost when they realize that the stock doesn’t perform well compared to the other ones which might be rewarding it’s investors with good returns. Remember one thing that stock price reflects it’s performance and value of that company over time, this is a golden rule of stock market investing.

Always keep tracking the stock

We have heard from people saying it’s best to buy and forget a stock just to come back after some years to notice the multifold growth it gives.

This approach is also known as coffee can investing and yes there have been instances of that happening but if we look at the bigger picture, that’s not the story of everyone as we also have examples of people buying and forgetting to come back to see their portfolios becoming ‘0’ especially when they invest in a bad company.

The stock might have been a good performing company when they have bought the shares, but the performance might have drastically gone down with time and if they would have noticed it in the right time, they would have exited the stock to invest money in another good performing company.

So, that’s why one should always keep tracking the company and it’s performance post their investment to check if the company is moving in the right direction to grow your wealth, this is a key habit an investor must develop to grow in stock market investing.

How many stocks should I have in my portfolio?

In the world of stock market Investing this is the most asked question by a novice investor . Although that’s a personal choice based on one’s capital and ability to diversify the portfolio but it always advisable to have around 12-15 different companies in one’s portfolio as it becomes extremely difficult to track each company beyond that and also over diversification could bring down the overall returns of the portfolio.

Small cap vs large cap stocks

Small cap stocks are the stocks of the companies whose market capitalization is less than INR 5000 crores i.e., the total business is valued at less than INR 5000 crores. Large cap companies are valued over INR 20,000 Crores.

Small cap companies have less capital to run the day-to-day business operations and their style of operations are aggressive, these companies are very volatile investments i.e., the company can grow very fast with high profit margins or can shut their business operations after failing to make sustainable profits to keep the business running.

Because of such high volatility these small cap funds are suitable only for those people who can take very high risk and are willing to take that extra risk for a higher return ratio.

On the other hand, large cap companies operate with an optimized business approach where the risk is comparatively lower and so as the returns profile, but the business is more stabilized and less volatile.

Investors with moderate to low-risk profiles can prefer large cap companies to bet their money on compared to small cap companies. It’s always advisable for beginners to invest in large cap stocks over the small caps in the journey of stock market investing.

Buying the stock in lumpsum

Investing all your capital as a lumpsum at once can go either way depending up on the stock price after you have bought it but in either way the impact is going to be significant enough and it requires us to invest not at the wrong time to not have the losses on steroids.

The other way of investing is to slowly accumulate the stocks at various price ranges with time so as to have a healthy stock average cost to reduce the impact if the stock crashes and it’s less risky compared to the lumpsum method as we can average the overall buying price by adding more when the stock price falls down after you have bought it.

Conclusion of Stock market Investing:

As a beginner to the world of stock market investing, one must always be careful and alert to understand and learn the art of investing. The choices one makes at the beginning of their journey is what that determines the destination.

It’s just a matter of time before one tends to deviate from the process of investing and attracted towards quick money Ponzi schemes which ends up after emptying the pockets.

As an investor one must always prioritize to not lose the invested capital at the first place by following above techniques to have the return on investment following automatically as “ Stock market is a tool that transfers the money from the impatient to the patient”.

Also, please be aware that it’s your hard earned money that’s at the risk of losing if you are not following the correct approach in investing.

Happy Investing!!!  

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