My goal for investing in Stock Market is to make wealth in long term. I lost a considerable amount of money in stock market trading in derivatives. I would like to know how to start investing in stock market afresh.
Learning through books is the best way out there to start learning to invest in stock market. If you have some basic understanding of the working of companies and if you want to improve your own stock picking skills the above method will be very useful.
But if you think that stock market is not your cup of tea and you would not like to pursue stock research then ideally mutual funds and ETF (low-cost index funds) is the best option for you.
The last things you should have ever done is starting to trade in the stock market with derivatives. The derivatives are highly leveraged products. They carry with them high risk and high reward with them. If you are really looking to trading and not investing then you should start with paper trading. Although there are some disadvantages of paper trading but in the long run you are ought to benefit.
Most of the time people are confused with trading and investing. Trading can range from 5min to 1 year. Holding beyond 1 year is investing.
You can start with starting to read the below books.
In a way, @saurabhkhandelwal is right that one should start with Paper Trading but the disadvantages of paper trading can’t be overcome easily. Starting with paper trading is like asking someone to watch and learn from other driving a cycle. Limited to its ability it can be done for a very short period of time.
I am listing down few points which talk about some of the vital points that one should consider going through before starting to invest in the stock market.
1 Understand your comfort zone in taking the risk.
2 Draw a Financial Roadmap with a help of Professional Financial Consultant.
3 It is important to have a Mix of Investments.
4 Don’t start investing without your emergency fund in place.
5 Don’t start investing with pending high-interest rate credit card bills due.
6 Just to gain more money very quickly avoid circumstances that can lead to fraud.
7 Reduce your bad spending habits.
8 Understand your Big Goals in Life before starting off with your investing.
9 It is important to have a bank that is easy to handle online transactions easily with fewer charges.
10 Manage your wants and desire in equilibrium.
11 Your Spouse should be on board with your plans.
12 Good understanding of your investment options before starting off.
Read as many as investment books as possible before starting off in full fledge investing. Habits of reading books on investement should not go easily as it would cost you dear.
What is the stock market?
The stock market is a mechanism in which the shares of publicly traded companies are issued, bought and sold. It is one of the most important parts of the free market economy. The stock market helps your small money grow into big sum and become wealthy without involving the risk of starting a business. To many people, the stock market is nothing more than a gamble, but it isn’t actually a gamble.
Say you invested Rs 500 on one roll of a dice, where on your win you gain Rs x and in case of loss, you lose the entire Rs 100. While if you invest in a stock market, it’s hard when you will lose all your money unless there’s a serious problem with the company like in case of Kingfisher Airlines and there’s nothing much to explain in this regard.
How to start with the stock market for a novice?
- Start with Warren Buffett’s letters to shareholders (which is like a bible to investors). It may so happen that you face a problem with some aspects of the letters but these letters are supposed to be read and re-read again and again to keep gaining the wisdom and knowledge from it.
Download the shareholder’s letter of Bershire Hathaway (Warren Buffet’s company).
You may read the following blogs to know more about the key lessons from Warren Buffet’s letters to shareholders:
Key lessons from letters of Warren Buffett- Part I
Key lessons from letters of Warren Buffett- Part II
Key lessons from letters of Warren Buffett-Part III
- As a novice, you should read business newspapers like Economic Times, Business Standards, Mint etc and watch business channels like CNBC, Zee Business etc to get a hang of the market.
3. Start reading books like-
a. One up on Wall Street by Peter Lynch
b. The Intelligent Investor by Warren Buffett
c. Learn to Earn by Peter Lynch
Two important tips to keep in mind in the stock market are as follows-
i. Start early
ii. Money management techniques