An All Comprehensive Handbook To Enter The Stock Market

A lot of people want to invest in the stock market, but they often do not know where to start. In this blog, Kinvesto will answer some of the basic questions that people usually have regarding investments.

1. How to begin investing?

2. What kind of stocks should a new investor pick?

3. For how long shall we hold these stocks?

4. What is one supposed to do in case of incurring losses?

Disclosure: For the sake of clarity to the reader, a lot of companies have been mentioned as examples in this blog. I do not advise buying these shares, nor do I hold shares in these companies.

4 Questions That Will Help You Understand The Basics:

The aforementioned 4 questions will help a beginner to know about creating and managing a portfolio from scratch. Although I would like to add that before investing money every individual must know about his/her risk appetite because the stock market is extremely sensitive. Each new inflow has certain outflows, just like in chemistry; each action has some reaction.

In this article, I have divided investments into 3 difficulty levels that you can learn to master as a beginner.

How to begin investing?

This question forms the first difficulty level aka the primary market. I began investing from here. This level might make you gain some wealth as well as help you to enter the next level. Basically, the primary market includes Initial Public Offerings.

IPO refers to the first time when a company floats their shares into the market. These shares are sold to institutional investors as well as retail investors. All of us come under retail investors. For this level, an investor needs a few prerequisites like Demat account, a bank account with ASBA facility, etc.

After all this procedure, the companies list their shares on the stock exchange so that these can freely trade on the secondary market. (If you have any questions about how to apply in IPOs, you can contact us or simply put your question on the Forum.)

What kind of stocks should a new investor pick?

The second difficulty level comprises picking up a listed share from the stock exchange. In my first blog “Smart Observation Can Make You Rich” I had given tips about how one can start remembering stock and indices names. As a new investor, it is always advised to focus heavily on Large Cap (Big Cap) Stocks and Blue Chip companies.

These companies usually offer over 7-10% returns in a year with very less risk. How does this happen? Well, as a consumer we consume many things in a day directly or indirectly. A lot of companies manufacturing these goods are listed on the stock exchange and give good returns to their investors.

For instance, let’s consider Good Day biscuits. Many people consume Good Day biscuits on a daily basis. This product is produced by Britannia Industries. Britannia Industries is part of Nifty-50 and gives a good return to its investors.

(I do not advise investing in any blue chip or large cap stock mentioned above. Before investing in any stock please take advice or do proper research about the company. For any kind of guidance, you can also contact us at Kinvesto.)

For how long shall we hold these stocks?

This is the most difficult question to answer in an easy language since the market is unpredictable. Although, we can forecast a company’s growth depending on the season, past its growth rate. All of these terms may or may not be everyone’s cup of tea because it requires developing skills about forecasting (other things remaining constant).

I would suggest that before investing in any stock, you should create a target and a stop-loss. The set target should be feasible and once the target has been achieved, you should trail the stop loss so that you can make money.

(If you want to learn more about stop-loss and how to use stop-loss, put up a query at the Kinvesto forum.)

I have heard many people claiming that long term investments are always good. However, there are N number of stocks in the market and not all of them create wealth. In fact, some of them de-struct wealth.

What is one supposed to do in case of incurring losses?

This forms our third difficulty level of investing where we must know what to do in case we start incurring losses. Is one supposed to manage a crisis or sell the stocks?

“Investing in the stock market is always subject to market risk” is the most heard line by any potential investor. In my founder's message, I had also posed a question to the readers “Is living human life risk free?”. Well, certainly not.

My last blog ended with a note that one can make money even in a falling market. It mentioned “Value Averaging”, a self-explanatory term that means that one has to average the value. In case of a loss, one should always maintain their calm.

Understanding Value-averaging with an example:

Very often than not, investors sell their good stocks because of a fearful scenario (the same as we witnessed during March 2020). For example, I had bought 10 shares of SBI @₹200. Due to disruption, the price went down to ₹150 which meant a loss of ₹50 per share.

SBI has good growth opportunities with less NPA in all PSU banks. It shows a positive sign and I bought 10 shares of SBI @₹150. The cost of buying went down from ₹200 to ₹175 per share. In a few days the share went up to ₹200, which means that now I am in profit of ₹25 per share. This is the concept of value averaging.

A Personal Note:

In the month of March, I learnt many things from Reliance Industries Ltd. It went down by approximately 36% and many people sold their stocks. If we take a look at Reliance Industries’ share price as on September 11 2020, it was ₹2319. It means that if a person had done Value averaging at ₹900, that person must have earned a good return.

During these months, Reliance also launched partly Paid-up equity shares for their investors that valued around ₹1420. It shows that whoever trusts Reliance Industries has created 102% in the last six months!

(I do not advice the readers to invest in the above mentioned companies before doing their prior research)

To sum it up

Of course every share may not give you huge returns, but it depends on where you choose to invest your money. If you are willing to invest in a quality stock, you need not worry much about the price. There are N number of shares that have given good returns in the last six months. Many have even given upto 500% returns just because of quality!

If you have any further questions about how to average and what quantum of money to average for the same, feel free to contact us at Kinvesto.