Looking for a Beginner level guide for Stock Market? You have come to the right place. As a beginner you might have many misconceptions related to Stock Market, let me clarify all of those so that you can start your journey towards successful Investing.
Misconception 1: Stock Market is so Risky. Is it?
Everyone says investing in stock market is risky but hardly a few know why it’s risky and what kind of risk it is. Investment in stock market is not risky because of the daily fluctuations that happens to the stock price, rather the risk is due to the underlying business. You never know how a particular business performs in future. Compare the scenarios where you investing your money in your Friend’s Business and say Jeff Bezos Business (Amazon) and a new company listed on Dalal Street, which one do you trust more. If you know your friend’s business strategy and his capabilities then you would probably Invest yourself in friend’s business itself rather than investing in Amazon or XYZ company on the street whom business you may not have much knowledge of. That’s why experts phrase it as calculated risk and expected returns as everything probable and anything is possible in Stock Markets.
Misconception 2: Can I become overnight Millionaire with Stock Investment?
Of course, you can. If you’re already a Billionaire, you can surely become a Millionaire. If you want to play a pure Gamble with Futures or Options, there is a teeny tiny probability of making riches. But all rich people I know follow rule based strategies strictly along with risk management techniques (to minimize the losses). You can expect at least 20-25% returns for a long term investment of 5 years by picking the right stocks and right number of stocks.
Misconception 3: I’m not CA or have an MBA to understand a Business.
Stock Market strategies are so dumb that once you make a successful strategy you just have to follow it religiously to mint money. If you work in a particular sector, you know better about the jargon and have better knowledge of that particular industry allowing you to find opportunities that others can’t. Do you think all the CFAs are spoon fed with all Industry Knowledge. Those equity research analysts work like hell and develop expertise in two or three sectors at most.
Misconception 4: Stock Investing is for rich people. I got to have a large sum of money to make any profits.
That’s total bullshit. Investing is for everyone. But you need a minimum sum of money depending one the portfolio you have made. You can invest in a stock like Zomato with Rs. 50 and you might need a sum of Rs. 40,000 if you want to invest in a stock like Page Industries. And let me clear one more thing, the stock price is irrelevant while investing. A company can split the share in future to make the price reasonable for a common investor. Since you’re just beginning it’s better to invest a minimum sum like 1000 or 10000 which can bring some kind of emotional feeling in you when the stock fluctuates. It is very much important to lose emotions and act objectively when it comes to stock market investment. Increase the amount gradually (not abruptly) as you feel confident. Never become overconfident and invest what you can’t afford to lose. Eg. it’s a very bad idea to get a loan and invest in stock market.
The trades of Shares happening on stock market is between people, not between you and the company. The company has already sold the shares to you during IPO and raised money. The current share price is just a market value of the company on stock market so that anyone can transact based on demand and supply. The exchanges NSE and BSE aid in this purpose.
And again you can’t buy the shares from the exchanges. You need to have a brokers licence to buy or sell from exchange. You can only buy from Brokers like Zerodha or Upstox. These brokers are called as discount brokers where the brokerage charged by them is almost near to zero.
Step by Step Guide to Opening an Account with Zerodha