Every individual who comes to the stock market comes with the desire to earn well. The stock market is one of the most lucrative avenues of making money, as it provides better returns than other avenues.
Stock market will give you thousand opportunities to earn. In the Stock market everyone is earning something or else losing. Every now and then there are plenty of trades takes place in the stock market which may result in profit or loss sometimes.
But there are very rare people who are really making a big profit from the stock market depending upon their strategy and analysis or depending upon their source.
There are broadly two types of people in the market, the traders who buy and sell stocks frequently and don’t hold stocks for a long time and the investors who believe in holding stocks for a long period of usually more than 2 years.
People lose money in the stock market because they are active traders with no knowledge of the stock market.
2.0 WHAT IS STOCK MARKET?
The stock market refers to a place where shares of pubic listed companies are traded. A stock exchange facilitates stock brokers to trade company stocks and other securities.
A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers.
An Equity Share [Stock], normally known as ordinary share is a part ownership where each member is a fractional owner and initiates the maximum entrepreneurial liability related with a trading concern.
Equity shares are the main source of finance of a firm. It is issued to the general public. In simple terms, the stock market exists to provide liquidity to the securities of companies that raise money from the General Public.
Equity shareholders do not enjoy any preferential rights with regard to repayment of capital and dividend.
They are entitled to residual income of the company, but they enjoy the right to control the affairs of the business and all the shareholders collectively are the owners of the company.
These types of shareholders in any organization possess the right to vote.
3.0 WHY STOCK MARKET IS PROFITABLE?
Many people made millions and billions from the stock market. Earning money by investing in the stock market is not that easy it is a matter of “picking” the right stocks, trading rapidly, being glued to a computer screen or television set, and spending your days obsessing about what the market did recently.
Making money in the stock market is not as easy as some people have thought. However, it is not difficult either. If you have the right mindset, the right strategy, and proper risk management, you should be able to see good results.
Being rich or successful in the stock market is a journey in which you have to learn everything before enjoying it. Investing in stocks is one of the best steps you can take toward building wealth.
The stock market can be split into two main sections: the primary market and the secondary market. The primary market is where new issues are first sold through initial public offerings (IPOs).
Institutional investors typically purchase most of these shares from investment banks; the worth of the company “going public” and the number of shares being issued determine the opening stock price of the IPO.
All subsequent trading goes on in the secondary market, where participants include both institutional and individual investors.
4.0 HOW DO WE MAKE MONEY OUT OF STOCK MARKET?
There is no best way to earn in stock market. Because every person’s risk appetite and risk return profile is different from the rest. So, there are many ways to earn in the market and there was never a contest between every investor/trader to find out the best.
There are two ways of earning from the stock market viz. (i) Trading, and (ii) Investing.
Trading is what we will do for the short term which involves risk factor, but it can also generate large profit if you have the talent & patience to use the momentum of the market.
Whether the market is positive or negative, we can do trading on both sides in the F&O segment which requires less capital compared to investment which we usually do for the long term.
Trading can be beneficial in case you don’t have large capital, or you can’t hold for a long time.
Investment in the stock market for the long term can make you rich but that required lot of capital and a lot of patience too. Impatient people can’t get money through investment.
If you start investing in this pandemic situation, where most of the sectors are at years of low like metal, auto, finance, banks, etc. If you wait for 2–3 years from now, you must be getting 100% to 500% returns in 2–3 years. But as I said, it requires a lot of patience.
5.0 GUIDELINES FOR INVESTING IN STOCK MARKET
Here are some guidelines which will help you to achieve what you want here:
- Focus majorly on the fundamentals of the company. So, what do I mean by the word FUNDAMENTALS? It is actually, understand the basic business of the company you are investing in. Understand their operations. Understand their competitors. Understand why you chose a particular company of a particular sector.
- Choose a sector which you can analyse well. May it be any sector. If you are into medicines, choose Pharma. A Software Engineer? Choose IT. Interested in Cars? Choose Auto. Into banking? Choose Banks. It is as simple as that. But make sure whatever you choose, you should be good at it.
- Analyse how much effect that sector has on the economy of the country. How that sector performs throughout the year? What things causes the sector to perform well? How does the sector gets affected by various political, economic or social things?
- After the analysis, find out the top listed companies in that sector. If you are familiar with some big names in that sector, choose them first. Now, find out the reasons the companies you heard of, why are they the biggies in that sector? What are the things these companies are doing due to which they are ruling that particular sector? Find out the competitors of that company. If yes, how much market is captured by competing companies? What advantages a particular company has over the others? Find out the best 3 in that sector. Now you are done with sector analysis of your choice and you have short listed top 3 depending upon your analysis.
- Now wait for some time and track those 3 companies which you shortlisted. Understand how the stock prices of those companies are affected by day to day happenings. If possible, try to learn the basics of balance sheets. Not the formulas, but what does those numbers indicate. Learn to compare numbers of the companies you shortlisted.
- And finally, invest in the top company out of those three you shortlisted. If you still doubtful about which is the top one, invest relatively in the all the three companies in the proportion you would like to.
Repeat the same process for other sectors and diversify your investments to minimize the risk.
It doesn’t matter whether you want to learn it or not, whether you learn it from your country specific stock market or wall street, the rules won’t change, they never will.
One should know that stock market is not game to play or a place where making money is easy, it is platform which demands knowledge, expertise and patience.
Every single human being should learn to invest money even if you don’t have time. Nobody knows what’s going to happen tomorrow, what’s going to happen if you lose your job tomorrow?
What’s going to happen if tomorrow you have to leave your higher education because of some financial reasons?
Prepare yourself in a way that even if you are jobless, unlucky enough to peruse your higher education, failed to qualify some most important exams, unfortunate enough to sit at your home because of recession, you still can generate your income from a source that has been made.
Categories: MUTUAL FUND, IPO AND EQUITY SHARES