We all have heard that equities is the way to achieve financial freedom faster but we don't know where to get started, so here is a primer about how to navigate the Indian equity market as a beginner in the stock markets.
How Should Beginners Invest in the Stock Market?
Knowing about a company’s business model
Rather than blindly following tips or market euphoria, evaluate if the company has a sustainable competitive advantage in their sector. Seek out brands that have stood the test of time or product patents that support durable future growth.
Sustainable competitive advantage is something that acts as a barrier for any other companies to enter the same business and disrupt the company. Competitive advantage can be anything from being a government monopoly, complex chemical products, patented technology or a very heavy capital investment business. In such examples it helps the company be able to defend itself by competition from other companies.
Leverage the power of time
Rather than chasing overnight success and taking unnecessary risk and ending up losing, it is much better to invest small amounts at regular intervals via SIPs and give your investments adequate time to grow and let it compound over larger periods of time. SIPs do three good things to you.
builds a habit for you to continuously save and invest as it is automatically deducted from your bank account
helps you keep investing for a longer time horizon as you don't get tempted to sell the portfolio
protects you from the ups and downs of the market.
A usual tendency as beginners people do is to time the market. They think that they can predict accurately when and how much a stock will fall or rise. This isn't true. It is impossible to predict the movement of the stocks or the market and so SIPs automatically keep investing in the market irrespective of the good and the bad times in the market.
It is important to keep a track the results of the companies that one owns in their portfolio as it helps to analyse whether the stock is overvalued, fairly valued or undervalued. Keeping track of the management interviews and their commentary on how their business would like in the coming quarters will help you make a well informed decision if you want to keep owning the stock or not.
Some other pointers include
Build a Diversified Portfolio (a couple of stocks from different sectors that are doing well)
Evaluate performance using Benchmarks like Index
Don't panic during Market Corrections
While this is the only primer you’re ever going to need, investing in the stock market can get confusing. If you want an expert to take that tension off your shoulders, just visit our website by clicking on the button below!
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