What’s in store for new entrants in the Stock Market?

04 October, 2023


          
            Investment Advisor Bangalore

A beginners’ guide: Understand the fundamentals of the stock market

“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”

– WARREN BUFFET


As you grow ahead in life, the value of money and investments are appreciated and become a frequent topic of discussion. Trying to oscillate between the best investment opportunities and how to do it, you often stumble upon the stock market. But is the stock market for everyone? Is investing in stocks for beginners? Being a fresher again at something while you are at the zenith of your established career can be intimidating. And of course, threatening if the subject is something that has never been in your growth trajectory. Well, that's how great learners are born. According to the data from CDSL & NSDL as of 31-Aug-2023, the total number of demat accounts skyrocketed to a new high of 126.50 million. So, it is fair to say that the stock market is a great place to make money, perhaps a level playing field and a place where an investor doesn’t need any qualification to trade.

Difference between Trading and Investment

It is no surprise that the maximum number of people get enamoured by the stock market to make easy money, but does that really happen? Beginners in the stock market do not understand the polarity between investments and trading. In order to make quick cash and of course the social media influence, has pushed them to look at the stock market from one-sided perspective - Trading, which may or may not be favourable.

So before entering into this space, understand the purpose of your investment. Ask yourself if you want to make active money through the stock market or it could just stand as a purposeful investment opportunity. In either of the scenarios, a deep understanding of the stock market is necessary, hence be a student and be ready to learn.

Stock Market is not always green

The current market situation defines India’s global situation and the growing interest of the world to invest in India, but that’s how it will be every day?

One common misconception among beginners in the stock market is the expectation from the index- Sensex and Nifty 50 to always be green. We all love green especially when our portfolio portrays the same colour but it isn't the same situation always.

Invest in the business, not in someone’s words

The increase in stock recommendations at the behest of certain companies has definitely reached the radar of SEBI but as investors, one should avoid investing in companies or funds on "expert" recommendations who are not certified by SEBI.

To identify which sector to invest in, you can consider factors of investment flow, increase in demand in a particular segment, climate change, any subsidy provided by the central government, and investments/ grants promised by the central government. These are just common and a few factors to consider in the industry type for investment.

Learning in the stock market never stops but it is always recommended to research on your own, learn the technicalities, understand the market and then make a move.

Stock market for new entrants


Understand there is always a learning curve and a guide can help you navigate in the initial years

"When you learn to walk, you will fall, you will get hurt, you will practice, you will learn to balance, you will experience euphoria when you get it right the first time… all this is part and parcel of learning to work your investments as well. You need to spend the time to learn the market movement before it becomes intuitive. In between you will face losses, but look at them as your initial falls."

You will learn to have a financial plan, you will learn how the market works, and maybe you will need a guide to help you navigate the first few years. Because you know that the market will grow. There are no two ways about that. Fear and Panic lead to the selling of equities which have only received a temporary setback in terms of business lines. It is important that your financial consultant deciphers whether the macro conditions are conducive for wealth creation on that particular stock or if is it time to exit. Conversely, greed and excitement could also lead to excessive buying, a clear link to emotion while investing. Finally, it is about maintaining balance and controlling our emotions which leads to success in investing.

In the initial phase, new investors need their investments to be managed by a financial planner who is able to read the movement of the industry to help people in their financial goal attainment and wealth creation. Think of these people like your family members who helped you learn to walk. They are in the best position to help you exit stocks or equity investments based on macro conditions or up stock as required in a downturn using reserve “cash” kept specifically for times like this in debt instruments which can be redeemed instantaneously.

To be truly successful, your financial planner should be able to calm you in turbulent times and reign you in during the euphoria. Don’t let your emotions get the better of you. Has there been a time when you either panicked or became greedy and bore the brunt of it in your investment? We would love to hear from you on how you reacted. Leave a comment below on your thoughts.

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