When I started investing, I did not make any profits because I expected overnight profit, I did not want to make efforts to choose stocks and study deeply about the companies and mostly taking tips from the so-called experts on the internet.
But, what if I tell you that there is an easy and simple way to invest!
Step 1: Open a Demat account
Want to know where to buy stocks? You may have seen movies where they show shouting orders of the stock exchanges, but these days its a rare scene. Today, there are easy options available to buy stocks online which would need an online stockbroker or a discount broker.
It's just as easy as setting up a bank account, you complete an account application, provide identification proof and choose how may fund your account by mailing a check or transferring fund electronically, or through UPI.
so, as you have a little idea about the process.
Before going into the further process, let's find out the types of investing
Types of investing - Value Investing vs Trading
These two methods are practised by the majority of the investors across the world
- Trading
- Value Investing
It would be wrong to think that trading and value investing are the same things.
Trading focuses on making frequent profits over a shorter time with the rising or falling markets
Trading involves buying at a lower price and selling at a higher price within a short period when the market is rising whereas traders also make a profit in falling market by selling at a higher price and buying at a lower price also referred to as short selling.
Now let me introduce you to Value investing.
Warren Buffett says, “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
He says you should invest in those companies which you can hold on to forever.
The advantage value investors gain by holding stocks for such long periods is the advantage of dividends and most importantly dramatic rise in the price of the stock.
such stocks are commonly known as multi-baggers as they generate so many returns.
The other advantages of value investing is that one gets to even out fluctuating in the stock price caused either by external events of industry downtrend with the belief that price will eventually recover and rewards the investor.
Income Tax Benefits
In trading, you have to pay 15% short term capital gains tax on every profit transaction you make since your holding period of the stock is definitely less than 1 year.
Whereas, in value investing, your capital gains tax is 10% irrespective of your profit being Rs 1 crore of Rs 100 when you hold the shares for more than one year.
Step2: Select your stocks
There are hundreds of companies listed on BSESensex) and NSE(nifty), you would get lost in this sea of companies unless you have a filter to screen out your desirable stock.
The investing approach that i am going to share here is the one that i practice personally.
Now, you have to filter out stocks with good fundamentals from the rest, which you can call garbage, read as much as you can about the company you are interested in.
Most of the data is present on their respective website so it's not that hard to find everything about the company. Google has made it 100x easy to research, you have tons of information on the tip of your fingers.
Below are some questions you should ask yourself while researching about the company?
- Is the company's business model simple?
- Do i understand what does it provide?
- Do i understand how that company works and how does it make money?
It is important that you understand the companies you are going to invest in so that you don't lose money.
Step 3: Number of shares to buy.
Start small-really small- just a single share to get a feel for owning individual stock and see whether you have what it takes to go through rough patches with minimal loss. you can always add to your position over time as you master.
Step 4: Choose your stock order type
Before diving in, you should be aware of some common terms
- Ask - For buyers: the price that the seller is willing to accept the stock.
- Bid - For the seller: The price that buyers are willing to pay for that stock.
- Spread - The difference between the highest bid prices and the lowest ask price
- Market order - A request to buy or sell a stock as soon as possible at the best available price.
- Limit order - A request to buy or a sell a stock only at a specific price or better.
- Stop order ( stop loss) - once a stock reaches a certain price, the "stop Price" or "stop level", a market order is executed and the entire order is filled at the prevailing price.
- Stop-limit order - When the stop price is reached, the trade turns into a limit order and is filled up to the point where specified price limits can be met.
Investors have built their successful careers buying a stock solely with two order types. Market order and a limit order.
Step 5: Optimize your stock portfolio
If you have been following the above steps thoroughly then we hope that your first stock marks the starting of the journey of successful investing.
If things become difficult, remember that every investor - even Warren Buffett - goes through rough patches. the key is just to keep your perspective and concentrate on the things you can control.
- Make sure you have the right tools. tradingview is an online social network for traders and investors where you can analyse interactive financial charts.
- Be aware of the brokerage charges.
- Also, consider mutual funds in your portfolio.
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