Things to know before investing in Stock Markets.
Stock market is not for us. This is the
general assumption that many people have. Well sorry to break it to you, but
you are wrong. Stock market is for everyone. It is just a mechanism of
investment like your property or Fixed Deposits. We encourage you to understand
the market and start investing. Be wise and you will rise.
Following are some of the things you need to know before investing in the markets.
1)
Stock market is a zero sum
game.
Money is not created in
stock market. Money is only exchanged. The intelligent makes money while the
ignorant looses it. Profit for one is a loss for another. But that doesn’t make
it gambling. Because any investment is a zero sum game. Property, fixed
deposits anything you name as investment is always a zero sum game. Money is
not created only exchanged.
2)
Risk and reward ratio.
Stock markets are always riskier
venture than debt investments such as fixed deposits or recurring deposits. However
the higher the risk higher the probability of return. You can’t earn money in
the market without taking risk. No other investment can give you the same
amount of return as the stock market with lesser risk.
3)
Luck plays a small role as well
Some people get lucky at
times. Not necessary that they are smarter than you. But they are lucky. You
might hear stories like people buying stocks decades ago and they are now a
millionaire. They may not have had the knowledge or the expertise. But they had
the luck factor working for them. Because marrying a stock doesn’t need
knowledge, it only needs patience and getting the stock right.
4)
Index is not the true indicator
of the market.
Index is a good
representation of the markets but it is not a true indicator of what is
actually happening in the market. It is possible that the market is up but the
index is down. Likewise vice versa. Therefore always have a broader picture
when it comes to investing. Ultimately if the total inflow into the market is
more than the total outflow it means that it is a bull market or up market and
vice versa.
5)
Government promotes retail
investors to invest in the markets.
The government is always
in favour of general public investing their money in the stock market. This is
reflected in the reduced taxes that are applied on capital gains from profit
made in stock markets, simplification of IPO mechanism, proper regulation etc.
It is a very elite venture when you make profit from the markets.
6)
No one can determine the market
No matter how much you
learn. No matter how much experience you have. The market is an ocean and you
are just a hand full of water. People may claim that they knew how high or low
a stock can go, or that they had given recommendations. But what market experts
give us is only a prediction which may or may not happen. Don’t
get carried away with them. Of course the people who get the predictions right
are the ones who make money.
7)
Volatile stocks have more
potential than non volatile ones
Volatility in stocks is a
very important aspect of a stock. Only stocks with active trades show good
amount of volatility. More the volatility, faster the chances of growth in such
stocks and higher is the probability of profit. If you look carefully its the
stocks with volatility that make it into the F&O segment as without
volatility its derivatives will also not make much moves.
8)
There is no right time to
invest.
When it comes to investing
into the market, there is no right time or wrong time. There are always
opportunities for those who can see through the clouds and find the shining
star. As the market following the zero sum game, market will always have
opportunities one way or another. Only a well informed market trader is
equipped to understand that.
9)
Futures and Options are hedge
instruments.
The derivative markets are
developed as a hedge instrument market. Now for those who donot know a hedge is
a position on the opposite direction of your original position so that if your
original position suffers a loss the hedge position will provide you profit
thereby mitigating your losses or reducing them. Eg If you have 100 shares of
Reliance and you expect them to rise. However you have a fear, what if
unforeseen events push the stock down. Therefore you take a Put option for 100
shares. If the stock goes down you will earn from the put option. If the stock
rises you earn from the original buy position.
10)
Always have your Demat and
Trading account with reputed brokers.
It is always prudent to
exercise caution where money is involved. Stock Brokers are the middle man when
it comes to investing in stock markets. There are different types of brokers. Bank Brokers are Stock Brokers who are backed
by banking institions such as SBI Caps, Kotak Securities, Axis Direct etc. Then
there are regular brokers such as Angel Broking, Religare, Geojit, etc and then
there are discount brokers such as Zerodha, Upstox, Tradesmartonline, etc.
Before opening account make sure that you clarify all the applicable charges
including charges like sms charges, trade on phone charges, AMC charges etc and
also verify the authenticity of the broker.
11)
It’s not advisable to allow
your broker to manage your portfolio.
In today’s work
environment it is very difficult for working people to invest and keep track of
their portfolio. They resort to SIP or Mutual funds for investment which is not
necessarily a profitable venture. However stock brokers often intimidate you in
many different ways and mention that they provide portfolio management
services. It is advised not to allow your brokers to manage your portfolio.
Instead let your portfolio be managed by someone you trust and someone who you
believe has a good knowledge of the market. As there is always a vested
interest for the brokers with regular trading, allowing them to take care of
your portfolio can turn out to be a fatal mistake.
Thanks for joining us Have
a Nice Day
-RicherInvestor.
Written by Roger Vins (CA, MCom)
Good one ......
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