Investing in Stocks For Beginners
If you are a new investor wanting to make money , and you are struggling with questions like- How should I begin investing in stocks?- what are the things to keep in mind before I invest in a stock? – What kind of research is required to invest in stocks? – Which stocks should I invest in? How can I make money in stocks without taking risk?- then you will be happy to note that you are not alone in facing these questions. Every investor faces the same questions. And there is no one particular answer to these questions. You need to figure out your answers yourself. However, there are a few things that you should keep in mind if you want to start as a retail investor.
One most important thing you need to do is research on stocks. If you don’t want to do research, then you should not be in the stock market as a retail investor. In that case, you should invest in mutual funds that have professional management researching stocks and investing in them on your behalf. Of course, they will charge their money, but they should ideally give you more return than your stocks that you bought without doing any research. How you can identify a good mutual fund is a matter of another discussion in itself. However, suffice to say that even that will require you to do some research, though once you have identified a good fund, you will not have to do active research on stocks again.
Second important thing is to understand whether you should do day trading . Day trading is nothing but gambling, to put it in plain words. Of course, your stockbroker will be very happy if you indulge in day trading as he or she sure to make money irrespective of your loss or profit. I have not seen a retail investor who has made money consistently in day trading. Day trading is a gamble that entices many people in the hope of making a few quick bucks, but most of them go as losers. If your stock broker knew how to make quick money as in day-trading as a retail investor, he or she would have been doing it herself. He is doing what assures him good money i.e. advising you to do day trading. Options and futures- derivatives- are also like gambling. Stay away from them.
And finally, let’s discuss short-term Vs long-term investments. If you are investing for a short term, essentially you are gambling again. We will try to understand this with the help of an example. If you have invested in a stock and you believe its real value is much higher than its current price and you will make money later when the market realizes the true value of the stock. However, as happens, the price of a stock is also dependent on the liquidity situation and market sentiments. Suppose the sentiments turn negative and the stock market tanks. Most likely, your stock will also tank along with the market. If you are a short-term investor, you will have to get out of the stock after some time. If the market doesn’t turn around by then, you will have lost money on your investment. However, if you are a long-term investor, you will hold on to your stock. The market will recover one day and you will be able to sell your stock at a price, which is higher than the price you bought it for. Therefore, your chances of making money on stocks are high if you are a long-term investor. If your investment horizon is short, you should invest your money in other safer investment avenues like Bank FDs, government securities, etc.
This article is just a starting point of a discussion that has many interesting and important issues to cover. If you are interested in following the discussion, you can follow this link to my site where I will be posting further articles. Click here Basics of Investing in stocks for beginners.