How to Invest in Stocks for Beginners? – Part 2

For those have not seen the part 1 How To Invest In Stocks For Beginners? – Part 1

Step 3:

Let’s come to investing in stocks. Now for a new beginner okay maybe I have no idea what stock market is? So, I don’t even know how to find good stocks obvious, I don’t know what parameters are? I don’t know what ratios are. I don’t know what moving averages are? nothing I have no idea but it’s okay right you don’t have to be scared that you know, I have lack of knowledge so I’m not going to save that should not be the approach, there are simple things that you can do with zero knowledge in the stock market.

For example, the three ways to invest here is okay you might know a little bit, so you start investing in your own stocks, you’re like I know this stock is good, I know that stock is good, this is a large cap stock, this is a mid-cap stock, maybe you know how to do that research you can invest in that no problem. These are for people who have slight knowledge in the market. But people who don’t have any knowledge can go for a direct mutual fund who don’t have time to do this research and who have no idea how to start you can go find out mutual funds online and just start investing in those mutual funds. I think on very different websites you will see a crystal rating; crystal rating is very important to understand whether the mutual fund is good or bad, even the mutual fund also shows you historical returns and it tells you how much it has given in the past, how much you could have grown your money if you had done sap, how much you would get, all the data and all the information is available. So, if you have no knowledge in stocks, you can’t pick your stocks let an expert do it for you just put in the mutual fund at least you’re saving right instead of spending it.

Now the last thing, if you again have no idea but we all know historically in the past that nifty and Sensex has always gone up. It’s just an upward curve over a period of time, you can buy something called index funds or ETFS which replicate the index. So, if nifty goes up by 50%, your thing also will do really well, your portfolio will do really well. So, you just replicate or mirror the stock market but if you’re new to the market three things you can do, one obviously invests in your own stocks which you have researched. If you don’t know that don’t worry, there are mutual funds that you can invest really safe mutual funds “large cap” preferred. Because you’re a new investor and index funds and ETFS are also a good way for new people to invest. Now these are the three different ways if I have no knowledge, I’m a beginner I can invest in this.

Step 4:

Now assume you’re a beginner who’s done some research, now step number four is for people who invest in stocks by themselves. Like you’re saying you know what I’ve got little bit of understanding of the stock market, I don’t want mutual funds I’ve already put in mutual funds in ETFS, but I want to pick my own stocks and you’re a new person. Now what happens generally a new person entering the stock market will always look at making money fast. Stock market is not a very fast quick money making. You try to beat the stock market you might get hurt in the process rather play the long-term game. If I’m a completely new guy it is beneficial for you to invest in large cap companies who are so big it’s too difficult to fail for them like TCS or ITC or Reliance, again this is not a stock recommendation I’m just giving some names of big companies that are so big it’s difficult for them to fall.

So, it is wise for new investors to invest in large cap and some mid cap stocks as well but a lot of people they look at small cap stocks, small cap means small stocks and who have a low market capitalization, a lot of investors try to invest in small cap stocks because they’re like you know what the price of this stock is only 50 rupees one day it’ll reach 500 rupees I’ll make 10 times my money that’s what a lot of people think right but for a stock from 50 rupees to reach 500 rupees when it’s not an established stock it is fighting many hurdles on the way right but a stock which is already very big right and it’s growing consistently year on year with a certain growth percentage that is more safer for you. So, for a new investor I would suggest stick to large cap and mid cap do not go for that quick money kind of thing on small cap.

Avoid high volatility stocks, high volatility stocks mean multiple stocks that are hitting upper circuit lower circuit, a lot of new investors do this avoid that and avoid penny stocks a lot of new investors invest in penny stocks. What are penny stocks? Penny stocks are these stocks like one rupee, two rupee, three rupee, four rupee stocks right and you will be like I’ll invest in one rupee and it’ll become two rupees I already have doubled my money and you will see if you go to YouTube you might see a lot of videos telling the five top penny stocks of the year and you know you’ll see a lot of comments in different you know websites saying that you should buy this penny stock never buy anything in the stock market without doing your own research. If just think about it from a different perspective if making money was so easy everyone would have done it right that means it is not that easy whenever easy money is coming to you think twice okay how’s this even possible okay never fall for that trap. So, don’t get into that quick you know kind of a thing.

Now whenever you’re investing the stock market with your own knowledge you have to learn a little bit about the stock market you have to learn about the stock itself like how to do fundamental analysis of a stock? how to understand ratios? how to see the sales growth? you have to check not only this year’s company’s performance you have to check last five years company performance right you need to start reading news articles about the country, don’t take everything at face value but you start reading about the company, understand what the company does, go to their website there’s something called investor presentation it’s a beautiful ppt that companies makes where you can actually go inside and read about the company. So, download the investor presentation and start reading. If you have more time and you want to become smarter right start reading a company’s annual report every year they put out an annual report so you can start reading that, ideally if you’re new in the stock market and if you want to learn and you have this thing that you know I want to become an expert pick one sector okay focus on one sector and then start reading up on that sector I just find all the stocks in that sector and start reading up okay this stock is like this, I didn’t even know this existed in this market you see how much knowledge you’ll get and trust me when I tell you this in the stock market knowledge is more important than investing. If you have knowledge, you know how to make money in the stock market okay but run behind knowledge not behind quick listing gains and quick money from IPOS and stuff like that.

So, learn and understand how to evaluate stocks, learn and understand how to evaluate a particular industry and figure out what can be the next big thing in the next five years try to analyze and connect the dots between trends, finance is a world wide web something that happens in US will affect India as well so don’t just be stuck to Indian news learn to read everything online, something changes in US some fed rate hike changes in US and Indian market might go up and down. So, everything’s connected. Now you’ve understood if you’re a new investor and you want to invest in your own stock, you can figure out these things, you have to learn there’s no shortcut to it you have to learn but if before you learn you can start investing in large cap stocks, mutual funds, ETFS up to you.