It may be tempting for novice investors to get a share of the stock Exchange action. Other people’s winning stories may make you wonder why you keep your money in a safe deposit box.
But, before investing, the first question you should ask yourself is how would you feel if you were to lose money in the first place? Do you know that investing in stocks can be risky? This happens especially when the indices of the National Stock Exchange (NSE) are close to their highest historical levels.
Experts advise first-time investors to enter the stock market through mutual funds. It may not be a rational decision to go into the stock market without knowing it. Initially, you should invest most of your equity capital in mutual funds.
The stock market is not a route to quick wealth. If you ignore this fact, you will soon have heartache. You may be lucky with your first investment. But then you can buy something that will keep flowing.
Try to learn the tricks of the trade from an unbiased source. Many brokerages today offer short-term learning programs on investing in stocks. These will let you know what stock trading is and why. Sensex and Nifty go up and down.
Large cap stocks are better options for beginners. These stocks are less volatile than mid and small cap stocks. The information available for large caps minimizes the likelihood of unpleasant surprises.
If a stock’s key drivers continue to be strong but its price has fallen, you should buy more. Otherwise, you should sell.
You have to stick to simple businesses that can be easily understood how they work. Experts advise to opt for companies whose products will not become obsolete in the future.
You can buy and own the shares of these companies, which enjoy sustainable competitive advantages. Analyzing the facts of the past three or four years will help you understand the growth pattern of a business.
Many businesses overwork themselves when the economy is expanding. Do not invest in such companies. You need to analyze the debt to equity ratio and the interest coverage ratio to understand the degree of leverage a business can benefit from.
A new investor should always keep in mind not to trade in the market when the Sensex is at a high level and valuations have already been stretched. New investors should also avoid initial public offerings (IPOs).
If you are starting to understand the fundamentals of trading in the National stock exchange, it can also be a rewarding commitment. Make sure you are following the dos and don’ts mentioned in this article.