How to start in Stock Markets? - Indian Context

Would you like to become a business owner without ever having to show up at work? I am sure all of you would. I am not talking about you getting a windfall gain through dowry; I am talking about you holding shares of a listed company on stock markets.

You must be wondering what this stock market is? No, it is not a place where you sell goods, it is a place where securities (like shares and bonds) are bought and sold. ‘Share’ means a share in share capital of the company. In simple terms, if you buy some shares of a company you get part ownership of that company. Sounds good? Yes, it is very simple – but there is always risk involved in it. Why do I say it is risky? The value of a share can go down for several known and unknown reasons.

So how does one go about buying shares? How can I become a successful investor like Warren Buffet? FYI – Warren Buffet is widely regarded as one of the most successful investor in the world. Before you buy shares, you should know where and how you can buy them.

Step 1: First open a Trading and Demat account with a registered broker. I don’t understand what this Trading Account or Demat Account mean, can you elaborate? ‘Trading Account’ – Just like you need a bank account to debit and credit cash, you need a trading account to buy and sell shares ‘Demat Account’ refers to dematerialized account which holds all your share certificates in electronic form rather than paper. How would you do that?

Simple, go to Google and search for registered brokerage houses in India you will find so many companies like HDFC, ICICI, SBI etc. Go to any brokerage house website you want to open your account with and call the toll free number available on the website – within few minutes a representative from that company will fly into your house to give all necessary details of opening a new account.

Step 2: After collecting information of two or three brokerage firms you might decide to open an account with one who charges less brokerage charge and gives you good customer care support. What is a brokerage charge? When you buy or sell shares you will have to pay .5% or even less charge for that transaction. What other expenses do I incur when I buy/sell shares? You pay service tax and some other taxes for that transaction. How will I know about these charges? You will receive a report onto your email the same day or the next day of your trade.

Step 3: After having decided to open a Trading and Demat account. You should mentally prepare yourself to sign several pages of application form Ah! Once you are done you need to wait for few more days to get your account activated. Yuppie! You’re done with registration and activation. What next? You need to put some money into your account. How much?

Start Small – Don’t put all your money initially. First, learn about yourself and the market. What kind of player are you? Are you an Investor or a Trader or a Gambler? Gamblers are those who treat market as casino and play with it - never become a gambler unless you are a rich guy and you just want spend..spend..and only spend. Trader is an opportunist, who takes advantage of mispricing and makes profit from excessive greed and fear. An Investor is one who is optimistic, who has a long term view, who is ‘buy and hold’ types – who does lot of fundamental analysis of the company and buys shares which he thinks would do well in future.

Don’t get excited and jump without thinking – start learning about stock markets. What is NIFTY? What is SENSEX? How to analyze a company? How to select a good company in the current scenario? Read articles, books on fundamental analysis like ‘Warren Buffet way’ by Robert Hagstorm.

Now I know the basics of stock markets, what next? Observe the market. How it is behaving? Why is it going up/down? What do so called experts on the news channel say? You may wonder “how long should I observe the market?” The answer is “till you become completely familiar and confident about your decision to buy some company stocks/shares”. Try to get details about Price-Equity Ratio (P/E Ratio), Market Cap, Volumes etc of the company you are interested in -understand the business model. Shortlist one good stock which you think would do well in future and can give you above average returns – Invest in small quantities.

Don’t relax - keep tracking the company you have invested in; have a target price in mind; sell shares when you reach the target. Always good to be prepared for uncertainty, isn’t it? Have max fall of the share from your buying price you can afford to lose in mind; if the price of the share falls below that value; sell them by booking loss.

Practice and have a strategy that gives you good returns and learn from your mistakes.

Remember, stock markets are not a place to become rich overnight. Only few people are successful in this profession. Lastly I would like to end by a quote by Warren Buffet “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years”

posted under Management, Stock Markets |

The Information Junkie