Beginner’s Guide to Stock Market Investment

Warren Buffett once stated: "If calculus and Algebra was required for investing, I would have to go back delivering papers". 

 

Most individuals are afraid of investing in the stock market because they believe it is too difficult or requires a high level of qualification. However, suppose you educate yourself on the basics of the stock market. In that case, you'll learn that common sense is the most crucial factor in investing. 

 

"The first step is often the toughest," therefore, I'll attempt to make your first stock market investment as straightforward as possible. 

 

Investing is essential because "you will have to labour until you die if you don't discover a means to generate money while you sleep." And if you want to get rid of your money troubles and reach financial independence early in life, this makes much sense. 

 

You've already made the first step towards investing in the stock market. Let's get started.

 

(Recommended Read:- Top 10 Benefits of the Stock Market)

 

 

Step by Step Guide for First Investment in Stocks

 

Step 1: Create an account for your investment

 

Creating a Demat and trading account is the first step when you decide to invest in the stock market. People find it challenging to choose the most acceptable source and platform because there are a lot of them. 

 

They squander months choosing a brokerage account that may or may not have any long-term consequences. However, they do not spend a single day looking for good firms, which will significantly influence their financial lives in the long term.

 

So, to keep things easy, start with a bargain broker that charges less than others. Angel One or Upstox are the two best ones. 

 

It is  recommended to go for Angel One since they don't charge any account opening costs and don't charge any brokerage fees if you buy and retain shares for a long time. Yes, there is no brokerage for long-term stock purchases.

 

As a result, you may buy as many stocks as you like. Keep them for a long time, and the company will pay dividends straight into your bank account without any brokerage fees..  Holding stocks is where significant money is made. It will be understood well if one knows the power of dividends.

 

( Related blog: Stock Market Analysis )

 

 

Step 2: Do you want to trade or invest?

 

After you've opened your Demat account, the following step is to pick whether you want to trade or invest. Many people are already puzzled by these, yet there is a significant distinction.

 

If you purchase a property today at 9 a.m., do you phone and ask your broker about the selling price at 10:43 a.m.? I'm sure you won't. Because if you're thinking about investing in real estate you're thinking about long-term passive income from rent. 

 

Alternatively, you may sit on it for decades and earn handsomely. It is referred to as genuine investing. Trading, on the other hand, focuses on regular stock buying and selling.

 

In the case of the stock market, the vast majority of people explore option trading because they want to get wealthy rapidly (which never happens). However, the compounding effect will increase your wealth if you acquire and hold a solid company's shares. 

 

( Suggested blog: Best AI Stocks to Invest )

 

 

Step 3: Begin with a single company

 

Once you've decided to invest for the long term, there are some essential suggestions for you that will help you get started on the right foot. Initial and foremost, choose the best company for first investment. 

 

Many people feel compelled to invest even a tiny sum in ten different firms. They start guessing at this point. They treat each stock as if it were a lottery ticket, hoping that one of them would win a large sum of money. 

 

However, these are common blunders that all newcomers commit and fail to avoid. So, to prevent failure in the beginning, stay away from speculation and diversification.

 

Rakesh Jhunjhunwala bought Titan in 2003, and that was the end of it. In 2003, he did not invest in 15 enterprises at once.

 

Second, he has already achieved returns of 60,000 per cent. His net worth is estimated to be in the billions of rupees. As a result, his risk appetite (capacity to take risks) in new stocks differs significantly from ours. 

 

Because he has a lot of money, he may invest in the wrong firm that is highly likely to fail. However, neither you nor I can lose money at the beginning. If we lose our original money  we lose all of the wealth that compounding would have created for us in the future.

 

By knowing their company, you can easily choose the organisations you believe will perform best in the future. "A stock is not a lottery ticket behind every stock, there is a business to find out what it is doing," says Peter Lynch.

 

However, most consumers are unaware of how to evaluate and purchase reputable firms in the actual world.

 

( Must catch: Types of financial risks )

 

 

Step 4: Business Knowledge

 

Acquirng business knowledge is a prime step for stock market investing. The essential thing is to comprehend the business—where your money gets invested, how they generate money, and how they want to expand in the future.

 

Since several businesses such as Jio, Reliance Trends, Reliance Oil & Refinery are firms, analysing them is challenging. 

 

It is significantly preferable to invest in index funds than such enterprises since index funds have a zero percent possibility of going bankrupt and provide constant returns. 

 

However, if you want to invest in firms like Reliance Industries, you must first learn about their company. And how do they make money? You may either open an investor presentation or annual report to learn more about this.

 

Reliance Industries has six earning sectors. And they make the most of their money from the petroleum sector's oil and refinery industry. After there, it's on to the retailer and internet promotion.

 

 Majority of consumers invest in Reliance for Jio. However, they are ignorant that Jio constitutes only a tiny portion of the entire group. The stock will fall if their refinery and petroleum perform poorly in the future. 

 

Choosing a Tata Group firm is preferable since all of their companies have split, such as TCS, Tata Motors, Titan, Tata Consumer Products. So, if you believe one of them will do well in the future, you may place a bet on that stock. 

 

As a result, you might select essential organisations whose well-known goods and operations and growth are straightforward to comprehend. 

 

For example, the Pidilite industry is not prominent, but its products, such as Fevicol and Fevikwik, are extensively utilised. They may not be as well-known as IT businesses, but they still have much room to expand. 

 

Pidilite has no competition and has maintained its market domination for decades. Their stock price reflects this. 

 

So, rather than investing your Rs 1,000 in a famous name, perform a fundamental analysis. Do not consider 1000 to be a little sum. Consider the start of your first crore. (Titan has increased 600 times in the previous 18 years.) 

 

As a result, 1,000 investment rises to $6,000,000.)

 

 

Step 5: Take a simple idea and go with it

 

Hence. It's critical that you select a firm whose business is simple to comprehend. It will allow you to stay engaged for the long haul while also allowing management to focus on their primary business. It might be a long-term, growth-oriented firm that attempts a variety of techniques to grow. 

 

Suppose you look at Reliance Industries, for example. In that case, there are renewable energy and other such industries where we have no clue where they will be in ten years. 

 

Good day cookies, Maggi noodles, Fevicol, and other daily items, on the other hand, have a high degree of predictability. And your chances of losing money are slim to none here. They have been steadily increasing for decades. With the compounding effect, they'll continue to grow in size.

 

"Take Wrigley's chewing gum," Warren Buffet had suggested. I don't believe the internet will affect how people chew gum, and I don't think technology will change how people drink coke or shave." 

 

 

Conclusion

 

Concentration generates wealth, which gets preserved by diversification.

 

It's pointless to diversify the first few thousand rupees. It's more vital to concentrate on business fundamentals than on the stock price. If you're afraid of losing money, it's best to invest in index funds rather than individual equities. 

 

For making the first investment we should invest in learning about the firm and learning more about timeless investment ideas rather than gambling on stock prices. It will enable you to accumulate money over time and achieve early financial independence.