Be greedy when others are in fear,Be feared when others are greedy - Warren Buffet.
Stocks are like any other investing instruments for making profits which must be bought after a thorough research and due diligence.Before diving in deeply into the stocks,first let me write about the important aspects of investing in stocks and what temperament one should need for investing in stocks.
What is a stock?
A company involved in a legal business need money to expand their business so that they can make more money and sell their products or services in various parts of the country.The company has got two ways of raising money.
One is getting a loan from Banks and Financial Institutions and pay the principal back within the stipulated along with the interest.
Second is raising money from Public through stock market by selling shares of their company.
In India,SEBI(Securities and Exchange Board of India) is the regulator and takes care of monitoring of securities in India.Any company which has desire to enter into stock market should comply with the regulations and policies instituted by SEBI and should get clearance from SEBI followed by a through analysis of the company by SEBI.
BUYING SHARES:
a)IPO:
For the first-time when a company enters the capital markets also called as Stock market it is called as Initial Public Offering(IPO).Based on the company's demand in the market place,amount of money they anticipated to expand the business,the price of each share for IPO will be calculated.Again we need a DEMAT account to invest in IPO.
b)SECONDARY MARKET:
Once a stock gets listed after IPO,anyone can buy or sell shares in the market through demat account.
c)DEMAT ACCOUNT:
All the companies shares which are publicly listed in an exchange can be bought or sold using Demat account.Since we cant buy the shares directly in the exchange we need to open an account called DEMAT through a broker.
WHY WE NEED TO INVEST IN STOCKS:
There are several reasons for investing in a stock:
1.Making Profits:
Of course,the end goal for any investment would be to make profits.Good quality stocks can give stupendous profits and based on the earnings the company announces dividend for each calendar year.
2.Owning a business:
Investing in a stock is like owning a business.Each share we buy gives certain ownership in the company.When we are buying a company,we are buying the business,we are becoming the one of the owners of the company and based on the amount of percentage we hold,we get voting rights in the company;s decision.
3.Liquidity:
When we buy a land,in case of emergency if we want to liquidate in certain circumstances we will not be able to sell it off immediately for several reasons.
On the other hand,stocks can be bought and sold anytime during market hours.
Flip-side of owning a stock would be discussed in a separate article later.
TEMPERAMENT ONE SHOULD HAVE FOR INVESTING IN STOCKS:
1.Controlling Emotions
One should not loose his/her control if price of a stock goes up or down drastically in a day or week.Some stocks move everyday,some will not move at all for months,some would go down after we bought.
2.Prices variations:
Owning a stock is like owning a land.Do we check the price of the land after we bought?Same applies to Stocks as well.We should not be driven by the prices of the stock rather the business value should determine the price which we should learn to calculate.Because a stock which has no earnings can touch 1000% increase in a year and a stock with good earning would be beaten by 100% in a year.So,the price is not the real reflection of a business.
3.Long-term Investment:
Stocks should be purchased only for long-term with a time horizon of more than 3 years.As Warren Buffet says our holding period for stocks is forever.We should go to stock market only for making huge profits,not just 10% or 20%.Any good stock which is held for more than 3 years would give huge returns.
Stay tuned for more articles.
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