Are you stock market beginner ?

Penetration of stock market in India is still in beginning stage. The amount of people who invested in equities is in single digit compared to Brazil, European nations and Australia. One of the reason is our interest rate have always stayed higher due to inflation rates. 

Click this link to check the current interest rates across the world (https://tradingeconomics.com/country-list/deposit-interest-rate)

Only in few underdeveloped countries the interest rates are in double digits. In most of the nations it is either on par or less than India. For sure, developed countries’ interest rates had started to go up in the last 1 year due to high inflation. Almost many countries are experiencing higher inflation in the last 40 years. 

Are you with me till now ?

In all the developed nations and in most of the emerging nations, the inflation rate started to rise only now. For instance, in US the inflation has reached almost double digits only in this year after covid. In Japan, they are trying to bring inflation as the country is in deflation for most of these years from 1990. 

In India, the inflation have stayed in double digit due to high import of crude oil and Gold. Increase in petroleum products increased related food inflation. From early 2000’s, RBI took a stance to control inflation and it started yielding results from 2010 onwards. The time interest rates started going below 10%. 

At present interest rate or fixed deposit rates in India is around 6%. 

Is this returns enough for you ? Read further if you want better returns and want to learn on how to approach stock market

Stock Market for Beginners in India :

As said by Warren Buffet on investing in the stock market, Invest in stocks whose products or services which you have been using in your daily life for a very long period of time. 

3 reasons to invest in stock market are, 

1. Longevity 
2. Cash flow 
3. Brands 

You have been using these products or services for a very long period of time, maybe right from childhood. Think of one soap ad which you have been seeing since childhood ? – Hamam 

Think of one car which has been in the Indian market for a very long time ? – Maruti 

Think of one bank which is in India for a very long time or you have been using ? – SBI, HDFC,ICICI etc 

All these products have been in Indian markets for a very long period of time. 

Cash flow of these companies are almost intact and increased in these many years. This is one of the main reasons for choosing to invest in the stock market. 

All the above are a few companies, which have created a Brand for itself. Brand image can be tarnished only when it does anything bad for themselves. All these haven’t done any such thing in these many years.

Investing in the stock market is more of investing in their business. Remember you may be working in this company or doing a business. If you want to start something as big as Hindustan Unilever or Britannia or Bata or Titan, it will take a huge effort and Money on your side. By simply buying these stocks, you can easily become part owner of these companies. 

You can be part owner of Britannia or Reliance or Tata Motors by buying few shares in these companies. 

Let us look at steps you need to follow to invest in these kind of companies.

3 step approach strategy for investing money in Stock market for beginners :

Almost 95% of the people had lost money in the stock market and their ultimate reason is that they would have invested or traded without any knowledge. 

Vijay Kedia one of the greatest investors from India, started his journey as Trader and soon realized that by investing in the stock market, he can make more money. 

Most of you believe that the stock market means trading. Buying and selling stocks on the same day. Even I had that notion in the initial few years. Later I understood that by buying and holding stocks for a considerable amount of time, you can make more money and create wealth as well.

Phil Fischer, one of the greatest investors, held on to his “Motorola”share from 1954 till his death. It was an electronics manufacturer and then invented mobiles and other discoveries over the next 50+ years. 

I know that you can’t wait for such a long period of time, but you can take note that you can ‘Invest’ this way also in the stock market. 

Anything in this world, if you follow the process and systems then the failure rate will be lower or even 0.  I had heard most of my friends and clients telling me later that they lost money in stock market running in lakhs. During this lock down, most of the business owners were in home and this is the time the losses were huge. Though there were many who made more money, there were equally higher number of people who had lost money in this corona lock down period. 

Most of them are back to their work and forgot about the losses or stock market itself. 

In this idea for investing money let us look at a 3 step approach strategy for investing in stock market which will help you if you are a beginner.

Planning :

Most important of all the steps is understanding “Why” do you want to invest in stock market ?

Simon Sinek, the author of the book “Start with Why” says that you need to start with why to define and understand the purpose of doing that activity. 

If the only intention of investing in stock market is to make more money, then you will always move towards bitcoin or doing other MLM activity. Just remember, the stock market is something new and without any knowledge if you are doing it for the first time, will it result in profitability ?

First and foremost thing in the stock market is to safeguard your capital, but in the initial days you would have wanted to make more money. So you would have invested your full amount. This is the problem most of them does. 

Define your goals in this planning stage. Do you want to invest for your retirement ? or your kids education ? or buying your dream home ? 

All these are so close to your heart and you will for sure try to understand stock market before investing. 

Execution

Now you had planned to invest in the stock market. 

Then as a beginner if you have time, try learning trading and practice with a lesser amount before investing in the stock market. If your intention is to make money on daily basis, then you need to spend time on daily basis. 

Another approach is to invest in stocks, which is like taking delivery of stocks. You can hold stocks for a day or a week or month or several years together. This is called taking delivery of stocks. Biggest advantage of taking delivery is that the losses get minimized over a period of time even if it happens initially. Any good business will grow over a period of time, hence the profitability.  

The next step in execution is to do either Top down approach or Bottom approach investing in stock market. 

Top Down Approach : 

Say you are working in Automobiles related company and know the profitability of the industry. Now, you can look towards companies across auto industry. You may invest in Maruti, Tata motors, Force motors, Mahindra etc 

Bottom Up Approach :

Here you look towards investing in companies which you are comfortable with. For example, you may be having britannia biscuits, colgate toothpaste, Nestle coffee, Titan watches, having Petrol in IOC etc 

Now you invest in these particular companies by analysing them individually.  

Till you get confidence in investing in the stock market, the best thing to do in the stock market is to invest by following the bottom approach in finding stocks.

Monitoring 

The last thing to do is continuous monitoring of stocks.  

That doesn’t mean sitting and watching daily. The biggest fear among people is that I don’t have time to monitor stocks. If you invest in the stock market instead of trading, you don’t need to monitor daily.

All you need to do is monitor quarterly/Annual results along with weekly news related to your invested company in the stock market. 

Any business will evolve and grow over a longer period. Take Tata consultancy services which was started in 1968, Wipro in 1956, Infosys in 1981 etc all took time and they were all started when Information Technology was new to India. They took the opportunity when IT grew across the world and India is catching up. 

There are negative instances like the Yes bank crisis, Sathyam crisis etc and many more scams as well but remember that the negatives exist in all areas of life. Focus on more positives and you will always end up wealthier in the stock market.