How to invest in a stock market - for new investors

I have gathered my experience in the share market based on my involvement in the market over last 30 years and I thought of writing down some tips for the new comers in the market on how to make money in the stock market. People generally think that stock market is a gamble but over the years I realised that stock market is a lot of analysis and analysis, there may be a flavour of luck in it but at the end of the day it’s the hard work which pays off in the market. People think that they can make a quick money in the market and maybe they can double their money in a short span but that’s not the case. One can definitely make money, not double it in short span but if patiently invested for a long time then definitely can achieve good returns. The stock market over a period of 10/15 years can give a CAGR around 15%, however it’s the smart investors job to earn better returns in that market. So, my tips are as under, but before I give my tips, I would like to clarify that these tips are only for the new entrants in the market and not for the stalwarts.

1.    Identify your role - before you start investing in the market just identify your role in the market. Are you an investor or a trader? The reason is the strategies applied by both these are completely different. Being trader is a full-time activity and unless you have sought a deep technical knowledge about the market from some expert, don’t even think of becoming a trader. You can be an investor in the market where you are putting your hard-earned money to get some decent returns while doing whatever profession/employment you are doing but a trader is someone who works only in the market and he don’t have any other activity other than trading in the market. So, you have to be very clear about your intentions when you want to enter into a stock market.

2.    Make A proper financial planning of your funds before investing in the market - when you are an investor in the market ensure that you are planning it properly on the source of funds which are invested in the market. Do the proper financial planning and identity the funds which are to be invested in the market. Remember that stock market is a risky game even for the experts so unless you have done proper planning for all your other financial obligations, don’t invest your hard-earned money in the market. Make it sure that the money invested in the market is your own money and not borrowed from someone else. The stock market is cyclical and sometimes there may be a delay in earning those returns which you had in your mind when you stated investing but if you have borrowed the money then you have fixed payment schedules which may completely hamper your financial planning.

3.    Good stock or bad stock - There is no good stock or bad stock, it’s the timing when you are entering and when you are exiting that matters. Even a bad stock can give good returns if invested at the right time and good stock can give poor returns or even losses if invested at the wrong time. So, ensure that you are investing at the right time and exiting at the right time. Invest when the price is going up and exit when the price is going down. Now how to know this, there are different types of technical analysis available which suggests when to invest and when to exit so you need to learn that properly before investing and unless you know it don’t invest in the stock market.

4.    How to choose the stock - Never ever jump on any stock unless you have done a proper study of that stock. Don’t rely on the quick tips to make your money double, you will surely make your money less than half, if you are investing based on those tips. Understand the industry, study the financials for at least 3 years, plot the trends, check the past performance, do your analysis and then select the stock. Remember the bargain you do when you buy any goods in the market where you ensure that you are buying a good quality product , you need to do the same thing while investing in the market as you are putting your hard earned savings in the market and you must be fussy while you are investing. Once you have chosen your stock wait for the right opportunity and time to jump into the stock 

5.    Keep the target of investment time and returns - before you buy any stock, decide the time horizon you want to be associated with the stock and the kind of returns you are expecting from the investment. Every stock based on its own potential gives some estimated returns in a specific time horizon, make sure that your expectations and time horizon matches with that stock else it will be a game of mismatch. Make your timelines based on your financial planning calendar and check your milestones and plot them in your investment plan and match the stock which can give the expected returns in the expected time.

6.    Set goals of returns - before you start getting invested, set the goals of the returns you are expecting from the investments. Keep in reviewing your returns and take appropriate decisions of investment to achieve those returns. Align your stock pickup plan with your expected returns plan. The stock which you choose must have a potential of higher yield than your expectations as any low yield in those stocks can also match your expectations but a stock just matching your current expectations can give lower returns than expected in a bear market.

7.    Cash your profits - when you choose the right stock at the right moment, it will show some good returns. When you think that your stock has reached its potential returns, start encashing the returns, do the profit booking in a systematic manner. Remember you have to multiply your wealth and not just sit on it, so encash the profits and redeploy those profits back in the market to create and recreate the wealth. Remember that stock market follows a cyclical pattern, whatever goes up never remain there permanently so sale when it’s up and reinvest when it’s down. Don’t get so much emotionally attached with a stock that you will find hard to encash the profits. If you have liked some stock and think that the stock can always give positive returns then keep on investing, encashing and reinvesting in that stock at the right moments. You will create an ocean of profit with each drop of profit.

8.    Averaging the stock price - when your stock starts showing a degrowth and you are in a red zone and you see a less chance of rebound in a short span, just get rid of that stock and don’t try to buy the stock at lower price just with a hope that your total cost of investment per unit is lowering. Remember that even after fresh buying at a lower price, you are still in a red zone and you are wasting both your time and money on a non performing stock. You have limited money and limited time so better invest in a better performer than a laggard. The cash loss incurred in a stock can be covered in cash profit of some other stock, if right decisions are taken at a right time. Don’t get fancied with the names, get fancied with returns and look at the total investment as a single pool and calculate the total returns.

So this is all from me guys, so keep investing and make money but remember that in a long run there are no short cuts in making the money. Do let me know about your feedback on this writeup.