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Looking to invest in stock market? Here are 10 things to know before you start investing

Looking to invest in stock market? Here are 10 things to know before you start investing

Looking to invest in stock market? Here are 10 things to know before you start investing
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By CNBC-TV18 Jul 31, 2019 8:25:13 PM IST (Published)

You can never be sure in the stock market, as sometimes it moves as per the investor sentiment. Over the long-term, investors like Warren Buffett, Carl Icahn have placed their biggest bets on companies out of favour or during times of market stress.

Stock markets can be bizarre for a lot of people who are not accustomed to the nuances of its working. The charts, graphs, stock movements can be as overwhelming as the trading floor and sometimes it may all appear to be just gibberish. However, understanding the basics makes all the difference.

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Here are ten tips or topics for the budding investor in you:
  • Buy low, sell high. It sounds very simple, yet things getting cheaper may feel like a bad thing. However, this fact is not mutually exclusive: the current bull market will end, and over almost any long-term horizon stocks have proven to be beneficial investments that generally grind higher, Steve Schaefer of Forbes writes.
  • You can never be sure in the stock market, as sometimes it moves as per the investor sentiment. Over the long-term, investors like Warren Buffett, Carl Icahn have placed their biggest bets on companies out of favour or during times of market stress. While long-term gains for stocks at large have historically been a safe bet, individual companies are inherently riskier, Schaefer says.
  • Since you are starting out, it is best to familiarise yourself with the exchange filings available on the website of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). All the listed companies have to file about every single detail related to company finances to potential conflicts and risks with the Securities and Exchange Board of India (Sebi) which are made available on the exchanges. Regulatory filings will also detail any senior management changes, acquisitions, and stock transactions by executives or board members. While many weathered investors can make their own mind about investing in a stock, others have to still do our homework.
  • Think about long-term investment opportunities. Trading based on quarterly earnings and economic data points on the automated trading platform is not a good strategy for a budding investor. Invest in stocks or sectors which have given a better result in the long-term despite them being dismissed by the market and weakened by the economic conditions and industry dynamics.
  • Dividend-paying stocks aren’t immune from declines, but they do offer a degree of insulation that others don’t, says Schaefer, citing the example of investor Kevin O'Leary. Shark Tank investor O'Leary said that a bulk of S&P 500 companies' returns over the years have come from dividend payout and not from price appreciation.
  • There is not a single perfect metric that can differentiate between the good and the bad stock. Be it a professional or an amateur like yourself, everyone has their different set of yardstick with which they measure the financial health of a company. It could be price-earnings ratios to dividend yields and profit margins.
  • There is no thumb rule in the stock market when it comes to differently priced stocks. A triple or quadruple-digit priced stock may be expensive to buy for a new investor but buying a relatively lower valued stock in 100 units may not be a better strategy. Think of investing like grocery shopping — there’s a reason you go to the store with a list instead of just deciding what to buy based on price tags, Schaefer advises.
  • Selling stocks that you have held on to for less than a year will trigger a short-term capital gains tax as ordinary income. Taxes, therefore, can take a bite out of your profits earned.
  • Make sure you know the stocks, as well as the type of buy or sell order properly before entering the trade. A market order, for instance, will be executed as soon as possible, whatever the prevailing market price. A limit order, by contrast, will only complete the transaction within price parameters you’ve established, says Schaefer.
  • Take market news with a whole shaker of salt, Schaefer said. The stock market has been grappled with the news of the global trade wars for over a year now which has made many stocks dull and has slowed down the global economy. As an investor, the news flow driving day-to-day gyrations in the market should be taken as interesting reading rather than a reason to make or change strategy.
  • Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
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