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”
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