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Wednesday, September 14, 2011

A beginner’s guide to stock investing – a guest post

Most new investors jump into the market when the Sensex is near a peak, and there is a feeling of euphoria all around. That is precisely the wrong entry point. Investors tend to shy away from the stock market when bears are on the prowl and even well-known and well-established companies trade near 52 week lows.

Nishit feels that bear periods are great times to do your homework and get ready for entering the market once things improve. In this month’s guest post, he explains the steps that novice investors can take for building wealth through stock market investments.

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I often face this question from my colleagues: How do beginners begin investing in stocks? The fear factor is what prevents many people from investing. The first step is often the most difficult one to take to start as an investor.

One of the first things to do is to start small. Start with a capital which you can afford to lose. The ‘tuition fees’ are needed to be paid to the markets. Till one actually invests (and loses some money), one cannot get a feel of the markets. Now that one has earmarked a small sum to play with, the next step is to identify a decent online brokerage. Most of the novices are normally fixated with the amount of brokerage one has to pay. That should be the least of one’s concerns. Remember you are an investor, not a trader. Best is to stick to some big player like ICICI Direct or HDFC Securities.

So, we have allocated funds and have an online account in place. What next? Now comes the most interesting part. Nothing beats reading. While your account is being opened, do start reading. Read the Economic Times daily, and the Hindu BusinessLine on Sundays. There are several good books for reading, like Beating the Street and One up on Wall Street by Peter Lynch; Rich Dad, Poor Dad by Robert Kiyosaki. Once one has read up a bit, one can read the grand daddy of all investment books, The Intelligent Investor by Benjamin Graham.

When buying a stock, make sure you are clear in your mind about why you are buying the stock. Start off by buying blue chip stocks. Remember if one makes losses initially it may put off the investor from investing for a lifetime. Stock picking is a fine art and one improves with time.

Also, start of by visiting blogs and websites like www.equitymaster.com to get a feel of the markets. Make sure you review your portfolio once a week. A portfolio should contain about 5-10 stocks. Next is keep track of earnings and news related to one’s stocks by visiting www.nseindia.com

Often, the process of seeing a blue-chip winner is more interesting and satisfying than the actual profits one makes. Each of us is a specialist in the field where we earn a living. Start off by exploring stocks in your area of competence. A doctor could explore Pharma stocks, an IT engineer the software companies, and so on. Also, ask your friends and relatives about companies in their domain of expertise.

The housewife is one who has a vast circle of competence. She knows which items are popular in the grocery store and can look at investing in those companies.

Those folks who find doing all this cumbersome and boring, mutual funds are the easier way out. HDFC Top 200 is a blue chip fund with a portfolio of good companies which has returned compounded 23.58%, which means Rs 10 invested in 1996 is now Rs 196. 20 times returns in 15 years. In this case, sit back, relax and enjoy your life.

For all Mutual Fund Investors, www.valueresearchonline.com is the mother of all sites. One can research one’s fund here and invest.

To create wealth, stock market investment is a must. It is not rocket science and even the lay person with a bit of reading up can become an informed investor.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan.)

1 comment:

Ajay said...

One of the simple, practical and realistic article for a first time investor.