If you are someone who has just opened your Demat account or thinking of entering into the market but don’t know what to do next, the below 4 step process will help you get the right direction and have a pleasant experience in the stock market.
Step 1: Identify your Role in Stock Market
Understand the difference between investor, trader, and speculator. Select the one which aligns closest with your lifestyle, interests, and risk tolerance.
If you are willing to multiply your money over the long term then investing is for you. If you are thinking of creating regular monthly income then Trading is for you.
Step 2: Monitoring the Market Movements
After selecting the role you are going to play in the market, observe the movement of the market closely and read financial newspapers daily. You will get a clear idea of how any kind of financial news has an effect on the share price of the company.
Keep a daily journal to write down your ideas about the market. If you read any news, write down how the market will react the next day. By doing this repeatedly, you will develop a sense of what factors drives the market.
Meanwhile, you are monitoring the market, upgrade your financial knowledge by reading books, blogs, videos.
Step 3: Gaining Financial Knowledge
Financial Knowledge is the prerequisite for creating wealth. In the internet era, there is a lot of information that is freely available, which you can refer to gain financial literacy.
You can watch videos of successful Investors/Traders and read about their life journeys to get inspiration and get a better sense of how they have created wealth for themselves. “One Up on Wall Street by Peter Lynch” is a good book for beginners to start with.
Recommended books for beginners
- Common Stocks and Uncommon Profits by Phillip Fisher
- Beating the Street by Peter Lynch
- Learn to Earn by Peter Lynch
- Reminiscences of a Stock Operator by Jesse Livermore
Step 4: What stock to buy
At this stage, you may have a fair sense of the idea of which stock to buy and how much to buy, and when to buy in the market. At this stage, don’t get overconfidence and put all your money in the market.
Investing strategy for beginner
Always invest in a Systematic manner, which means don’t put all your money at one go but rather start small and gradually invest everything. In the beginning, Split your money into 80-20 proportions.
Invest the first 80% of your money into market leaders in the respective sector. For example, in banks, you can choose HDFC Bank, in FMCG you can choose HUL. Now invest the remaining 20% into some small-cap growing company by doing your own research.
But doing this, you can definitely play safely in the market. As you gain more knowledge, you can swift the proportion into 50-50. This strategy will help you to make a profitable portfolio over the long run.
If you think you are ready to start your investing journey. Prove it here.
Link: Stock Market Beginner Quiz.