STOCK MARKET 101
Before we get into investing in stock markets and all other good shits, lets first understand what stock market is? Is it safe or not? And all other basic queries.
WHAT IS THE STOCK MARKET ?
A stock market, equity market or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowdfunding platforms. Investment in the stock market is most often done via stock brokerages and electronic trading platforms. This is what Wikipedia says. You will be thinking,” why the fuck I’m here then”? Don’t worry I will not leave you hanging. So in simple language Consider the stock market as a very big tree with a lot of branches. Also in a jungle (World market), there are many trees.
On your tree, there are a lot of leaves, branches, tattered branches, old branches, old leaves, new leaves, the main trunk, roots etc.etc.
The tree is your stock market (economy). Leaves are traders/investors. They sit on different branches. Money (bullish) is like the wind. Sometimes it is pleasant and makes the tree grow other times it is very nasty and many leaves fall out of the tree (weak hands).
Investors who are sitting on strong branches and have a better understanding of these seasonal rains and cyclones will weather the market very easily.
Do you know how this tree progresses?
Whenever the rain or cyclone comes, a lot of weak leave fall in the ground and thus convert to manure and nutrition for the rest of the tree!
- Choose a good tree and good strong branch (Like core services like banking, pharma, energy, telecommunications).
- Enter the market when things are fine.
- Believe that season will change from rosy and cozy to draught to winters to whatever.
- You must sell your shares only when a tree (economy) dies or your branch is irreparably broken.
- Remember in the event of cyclones, everyone is leaving their branches (weak hands) and seats (On branches) are available for cheap. Grab only good branches since on each branch, be it weak or strong we have weak old leaves.
- Money is water or liquidity in the markets. Don’t pour liquid in markets when it has enough. Pour when it has less.
- Don’t marry a branch or tree. Sometimes old branches are although strong doesn’t grow fast. Switch to new fast-growing branches.
Now you know how a money plant works on a very basic level.
LET'S START WITH SOME BASIC QUERIES OF STOCK MARKET THAT WE GET,
1. I WANT TO START INVESTING BUT I DON'T KNOW ANYTHING ABOUT STOCKS, CAN YOU EXPLAIN?
“Price is what you pay for a stock
Value is what you get from stock.”
1. Open an online Demat+Trading account
Find a good online stock broker and open an account.
Become familiarized with the layout and to take advantage of the free trading tools and research offered to clients only. Some brokers offer virtual trading which is beneficial because you can trade with play money.
2. Read books
Books provide a wealth of information and are inexpensive compared to the costs of classes, seminars, and educational DVDs sold across the web. My personal all-time favorite is Intelligent Investor by Benjamin Graham and How to Make Money in Stocks by William O’Neil.
1. RICH DAD, POOR DAD
2. THE INTELLIGENT INVESTOR
3. ONE UP THE WALL STREET
4. THE RICHEST MAN IN BABYLON
5. FOOLED BY RANDOMNESS
3. Read articles
Articles are a fantastic resource for education.
Recommended websites for investment education are
4. Find a mentor
A mentor could be a family member, a friend, a past or current professor, co-worker, or any individual that has a fundamental understanding of the stock market.
A good mentor is willing to answer questions, provide help, recommend useful resources, and keep spirits up when the market gets tough.
All successful investors of the past and present have had mentors during their early days.
Even Forums can be another source of questions and answers.
Two recommendations include Elite Trader and Trade2Win.
Just be careful of who you listen to.
The vast majority of participants are not professional traders, let alone profitable traders. Heed advice from forums with a heavy dose of salt and do not, under any circumstance, follow trade recommendations.
5. Study the greats
Learning about the greatest investors of years past will provide perspective, inspiration, and appreciation for the game which is the stock market.
and Paul Tudor Jones,
One of my favorite book series is the Market Wizards by Jack Schwager.
6. Read and follow the market
News sites such as Yahoo Finance and Google Finance serve as a great resource for new investors.
For in-depth coverage, look no further than the Wall Street Journal and Bloomberg.
By monitoring the markets each day and reading headline stories investors can expose themselves to trends, 3rd party analysis, not to mention economic concepts and general business.
Pulling quotes and observing fundamental data can also serve as another good source of exposure.
TV is another way to monitor the market each day with CNBC being the most popular channel.
Even turning on CNBC for 15 minutes a day will broaden an investor’s knowledge base.
Don’t let the lingo or the style of news be a nuisance, just simply watch and allow the commentators, interviews, and discussions to soak in.
Beware though, over time you may find that a lot of the investing shows on TV are more of a distraction and are overall full of junk recommendations.
This is a natural evolution; you are not alone!
7. Consider paid subscriptions
Paying for research and analysis can be both educational and useful.
Some investors may find watching or observing market professionals be more beneficial than trying to apply newly learned lessons themselves.
There is a slew of paid subscription sites available across the web, the key is in finding the right ones for you.
8. Go to seminars, take classes
Seminars can provide valuable insight into the overall market and specific investment types.
Most seminars will focus on one specific aspect of the market and how the speaker has found success in utilizing their strategies over the years.
Some seminars are provided free which can be a beneficial experience, just be conscious of the sales pitch that will almost always come at the end.
When it comes to classes, these are typically pricey, but like seminars, it can also be very beneficial.
9. Buy your first stock or practice trading through a simulator
With your online broker account setup, the best way to get started it to simply take the plunge and make your first trade.
Don’t be afraid to start small, even 1, 10, or 20 shares will serve its purpose of getting you in the game.
If trading with real capital is not possible initially, consider using a stock simulator for virtual trading.
A variety of online brokers offer virtual trading for practicing.
One of the most common mistakes traders make is to go all-in and try to score big with a full portfolio position out of the gate.
This is an often painful mistake and why many new investors suffer big losses early on.
Proper portfolio allocation is extremely important.
And my favorite one,
10. Follow Warren Buffett
For the majority, trading will be losing proposition.
Warren Buffett, the greatest investor of all-time, recommends individual investors simply passive index instead of trying to beat the market trading on their own.
According to Warren Buffet
There are two rules for money-making.
Rule no 1: never lose money.
Rule no 2: never forget the first rule.
So to conclude all I want to say is the more you learn, the more you earn.
So read, learn, and become proficient.
Who knows maybe you have the potential to become the next Warren Buffet.
2. HOW WILL I LOSE MONEY IN STOCK MARKET?
There is only one reason for loss:
A lot of jargon is unnecessarily thrown in to explain the causes of the loss in the market.
There is just one simple reason for the losses.
Loss occurs when you sell at a price lower than you bought a stock, index, or option.
There may be reasons for selling at a price lower than the buy price, but the fact remains the same as stated above.
Let us now look at the reasons for selling at a loss.
(A) Trade went wrong :
One buys or short sells a stock based on some analysis, tip, or gut feeling. Profit can be made if the price moves in the right direction.
It does the reverse.
You have entered the trade as a day trade. It has to be closed on the same day.
After a while, the stop loss gets hit and you have made a loss.
Or you decide to take a hit ( if trading without a stop loss) at some point and exit.
This type of loss is perfectly alright.
It is part of the trading plan and is not caused due to emotions.
The losses incurred due to emotions hurt in a big way and need to be avoided.
(B) Loss caused due to Hope :
This is the biggest reason for the big losses.
Trade goes wrong.
We do not exit and let our emotions control us and we keep waiting that the trend would reverse and the trade will ultimately become profitable.
Sometimes it does.
Mostly it does not and causes some very serious damage to the profit and loss account.
HOPE can cause very big losses.
It should be tempered with practicality.
(C) Losses caused due to GREED:
We take a trade and it becomes profitable.
We look for and wait for more profits.
While we are waiting and hoping the trend reverses.
What was a decent profit turns into a small loss? We wait further and it becomes a big loss.
Such losses can be attributed to the emotion known as GREED.
I am not against waiting.
Big profits will never happen without some decent waiting.
But while waiting, we have to be alert for the reversals and take exit through trailing stop loss.
That way, some of the profits would be taken rather than facing a loss.
I am a very big advocate of waiting in profit.
I emphasize the trailing stop loss equally.
But we are all humans. We make mistakes.
Markets punish mistakes with no mercy.
3. WHAT SHOULD I DO WHEN MARKET CRASHES? SHOULD I RETIRE?
For the majority of investors, retiring amidst a significant economic event such as the COVID-19 outbreak is not advisable if it can be avoided. For clarity, this is not to say that you can only retire under optimal economic circumstances. But during periods of extreme uncertainty and volatility is usually not the time to make life-changing major financial decisions, again, if you can avoid it.
Many workers are being laid off, or perhaps facing a forced early retirement as a result of the virus, so it’s important to recognize that these decisions aren’t always within our control and to ensure you’re financially prepared for an unexpected job loss, particularly later in life.
Your investments deserve more than thoughts and prayers
The best time to prepare for an inevitable downturn in the market is always before one happens. However, there are still actions you can take to ensure your finances are well-positioned to participate in the recovery. While we all hope this is the last time we’re facing a global pandemic, we know this isn’t the last downturn long-term investors will face. We expect the market to go up and down—we can’t control when or why—but we can change how prepared we are for it.
If you have cash, you should buy it. Buy as much as you can. Because you can’t know where you are in the crash – ie: still going down, at the bottom, or coming back up the other side – you should spread out your buying over a few months, maybe as long as six months, until it’s obvious that the market is clearly in recovery, in which case you throw in the last of your cash and sit tight.
Unless you’re very skilled at the stock market and know-how, and have the time, to do a very in-depth analysis of hundreds of companies, I highly recommend that you don’t try to pick stocks. Instead, put your money into very low-cost ETF’s (index funds), such as one of the three main S&P 500 ETF’s.
If you’re already fully invested with no spare cash, as is often the case for investors, then as Johnpaul Obienugh says, don’t do anything. Just sit tight.
Remember, the market ALWAYS recovers and eventually, always goes on to greater highs. It’s been doing this for the last 140 years, and I see no reason why it should be any different now.
4. HOW MAKE CAN I EARN BY STOCK MARKET INVESTMENT ?
About 18 % Return on investments. Strategy, buy a good F&O stock one lot. I mean the actual stock and not in Futures. Sell Higher Call Options every month continuously for gains. Even if the stock goes down the Call Option sold will bring down your holding cost. First, it depends on how much you want to invest or you want to start with.
Returns will always depend on someone’s risk that means how much you are investing or how much you are putting on the stack. It’s easy to earn 15k-20k INR daily by investing 5-6 lacs. You need to follow some basic rules as I mentioned in my previous answers like BUY on support & SELL on resistance, Don’t trade against the market trend, Never do multiple trades in a day, Etc.
5. IS IT SAFE TO INVEST IN STOCK MARKET ?
Yes, it’s safe to invest in Stocks, as Stocks are one of the most used investment options for all the investors around the corners in the world. If such a mass is investing in stocks, it might be one of the safest ones. If you can control your emotions and handle market volatility, then go for it.
So, to end I want you to know something, as Warren Buffet said, “MARKETS ARE FOR PATIENT PEOPLE”, you need to know that one bad decision of yours can lose you a lot of money and on the other hand, a good decision can make you a lot of money.
Hey! I am Sarthak Sarangi the CEO of makemoneyonline.org.in. I hope that you are finding our articles quite helpful and informative. Our team has been working day and night to provide you with the best possible and legitimate sources of income online. If you have any queries feel free to contact us.