Basics of the Share Market | How can Beginner Starts Investing in Share Market | Satya Ki Pathshala
Basics of Share Market | How can Beginner Starts Investing in Share Market: Today in this article, I will provide the details of the above-said topic.
Basics of Share Market | How can Beginner Starts Investing in Share Market: Today in this article, I will provide the details of the above-said topic. It is said that if the base is good then the building is sound. So, you need to understand the Basics of the Stock Market. When you understand the Stock Market basics, you can make a lot of money.
Beginners are scared to hear the name of the stock market. It has been seen in movies that everything gets ruined by the stock market. But there are friends who claim that they are earning a lot of money from the stock market. Still, you have family members who say stay away from it, Even if you have studied commerce in school and college, the stock market was not explained properly.
But after reading this article Basics of the Share Market & How can Beginner Starts Investing in Share Market today, all your confusion will be cleared and you will know how and where you have to invest.
Basics of the Share Market
If you had invested Rs 10,000 in Wipro stock 40 years ago, it would have been Rs 700 crore today after 40 years. Now this question will come to your mind who used to have 10000 rupees then. Leave 10,000, if you had invested 1000, today it would have been 70 crores and if you had invested 100 rupees, it would have been 7 crores today.
So this is the potential of the stock market. So don't think from this example that you just jump into the stock market. Obviously, there is a risk in this market because as there is profit, there is also loss. There are many such stocks in which even if you had invested 700 crores, then perhaps they would have become 10,000 rupees today.
So as much profit as this market can give you, this market can also make you lose as much. But your loss should be minimum and your profit should be maximum, for that I will tell you which are the questions which are more to the beginners, which would have happened to you too, then I am going to give you the answer to those questions today.
Topics Covered in this article:
1. Is the stock market risk, if so, how risky is it?
2. How much return can be expected from the Share Market?
3. How much should be invested in the Share Market?
4. What is the process of investing in the Share Market?
5. Why the Stock Market has a bad image/name in Society?
6. Can you invest in the Stock Market without any Commerce knowledge?
7. How does the Stock Market work?
8. From where can you learn about Stock Market?
Is the stock market risk, if so, how risky is it?
When you're buying a stock, you're buying a very small stake in that company. That's why its name is Share that you are becoming Co-owner in that company. If you invest money in the business of a friend, you invest money in the business of a relative, and if that business does not go well, then your money will be lost. That's a risk.
In the same way, you are investing in big companies in the stock market as well like a Tata company, a Reliance company, or a Godrej company. Now if that company sinks, your money will sink. If those companies show very well good growth then your money will also grow very well. It's like investing money in a friend's or family member's business.
If the business makes a profit then you will also see your investment growing and if there is a loss in the business, then you will have to bear the loss also. In the share market, you don't get any interest, because it's not a loan.
So, there are many companies that drown and make a loss. But look at Eicher Motors, in the past 7 to 8 years, they have increased the sale of Bullet Bikes many times. Like that many times, more shares have grown. This means 1 (One) Rupee has grown 10X to 20X times.
There are many shares like this like WIPRO, TVS are the examples which have grown 10X times in 10 years. MRF is also an example, there are many more shares like these that give you 10X times the return in 5 to 6 years.
Definitely, it's risky and that's why the returns are high. Here in this article, we will see how we can use Risk Mitigation Methods to lower the risk.
How much return can be expected from the Share Market?
Again the example is the same. If you invest in a friend's business so who knows if you invest Rs-10, in the next year you'll get 10% profit or 20% profit or 30% profit. It differs a lot and cannot be a fixed criterion.
There are many shares in the market that don’t grow a single rupee, instead of fall, and some grow 4x to 5x times in a single year. But it's just about one share. When you'll enter, it will not just be one or two shares you'll invest in a portfolio of stocks, like at least 8-10 companies.
Because if 1-2 companies come out bad or drown still, you don't overall lose all of your money. That's why we invest in at least 8-10 companies in the share market. So when you get a basket of stocks, you can believe that if you have invested correctly for the long run at least 5 years and you picked good stocks then you'll definitely get around 18% to 20% in return.
This means compare to FDs, which are trending now 3x times more, and 2x times more compare to Gold and Real estate. In fact, there are many successful investors in the world who are in low-growth economies than India where the market and companies are slowly growing.
There they picked such stocks, where they get around 30% return for many years. So in India, if you are expecting a 20% return then it's not wrong. But your stock picking should be good.
How much should be invested in the Share Market?
Despite the amount of money you are investing in the stock market, it's more important which type of shares are you investing in and how consistently they give the return. if you start with Rs-1000 per month which many of us can afford starting with, we have to invest Rs-1000 monthly in the share market.
And every year increase this Rs-1000 by 15% which means the first year you'll invest Rs-1000 every month. Rs-12,000 a year. From the next year. Increase that by 15% which means you'll invest Rs-1150 a month.
And like that every year, as your income grows you go from student life to an earning member or if you get a promotion and your salary gets increased. So if you do that, starting with Rs-1000 and every year 15% increment and you are getting only 15% return on your investment not 18% or 20%. Despite that, starting with Rs-1000, after 25 years you will have Rs-1 crore.
The key is, that you have to invest for 25 years second, you have to increase the amount by 15% third you have to get a 15% return. If these three things happen, after 25 years starting from Rs-1000, you will have Rs-1 crore. So how did I calculate this?
With SIP Calculator, and using it you can figure out if you started with Rs-2000 or Rs-3000 so after what year how much will you make, you can find out yourself.
What is the process of investing in the Share Market?
The process is very simple. You only need three documents Aadhar Card, PAN Card, and Bank Account are needed. If you don't have then open one. Nowadays all the process is online. There are many online discount brokers a discount broker is because they take almost zero brokerage. So you don't need to do anything there are many online discount brokers, like Zerodha.
In 3-4 days, without any physical paperwork, your account will be opened online and you can start trading. The account opens in Rs-300 and brokerage or commission is zero to none if you are investing. So if you are buying and keeping shares and selling them after two, three days, or more then you don't have to give any commissions. It's almost free.
Some little government taxes are there which you will don't even know because that's less than 0.1%.
Why the Stock Market has a bad image/name in Society?
I tell you a simple reason this is a mindset problem. When we buy a property, does anyone thinks in 4 days the price will be doubled and I will sell it out. When someone buys Gold, they pass it on for generations but never sell it.
No one thinks that, let's buy it today then after one month when the price increases I will sell it. So we give a property the time to increase. We give gold the time to increase. But if your friends say you to come to share market and they will say this too that they made Rs-40,000 in one day, doubled their money in 2 months.
This means their expectations are wrong. They come here thinking that, to become rich overnight. You can either become rich overnight by lottery or if you gamble somewhere and if you are lucky then it can happen.
For the company that you are becoming an owner and buying share of, about that who is the manager? What is their business model? Not find out about that, and just read a chart and heard from someone and bought the shares. Then you will obviously make a loss.
So like that, in the rush of making money people buy Rs-1, Rs-2 penny stocks and there is no front and back of that company. Thinking of that if 1 becomes 2 then money doubles. But that 1 to 2 never happens, because the company is not worth it. So the most important this is when you are coming into this market don't think this market will make you rich overnight.
Like I said, a return between 18% to 20% should be expected, if more then it's a bonus. This means if you get an 18% to 20% return then your money will be doubled every 4 years. If we compare to Bank FD's then in Bank FDs, it takes 11-12 years to double the money according to today’s interest rates.
So compare to that, this market offers 3x times more. Which is enough. Don't be greedier than this. Now you have learned engineering or arts of Share Market.
Can you invest in the Stock Market without any Commerce knowledge?
Yes, you can. Which is your stream or education background that doesn’t matter. In fact, I give you two examples.
One time in the US, there was a survey where 10-year-old kids of 5th standard were told to pick a basket like 8-10 shares, and at the same time, Chartered Accountants were also told that you also pick a basket of 8-10 shares. Where Chartered Accountants, are very educated in finance and where 10-year-old kids.
But after 5 years, after seeing whose shares got more returns. Then the Kids outperformed the Chartered Accountants. Now, what do kids know about engineering, commerce, or arts? They know class 5th Maths, English, and Science. Which you have also learned.
So you are also ready to battle Chartered Accountants. Now how did they do that, understand this thing? As they are kind which companies did they choose? Cadbury, Disney, Barby, companies like this which interested them and they are customers of those products. So who knows a product better than a customer.
As the kids used their products and picked them which means those companies were satisfying their customers. So that company had to do well, that mostly happens. That's why they outperformed them. Where Chartered Accountants read long balance sheets and did know complicated financial calculations. But didn't see the ground reality.
If you are an engineer, then Real-estate, Electrical machines, select companies which make products like this. So select those companies which you can judge. One more example in general it's believed that female doctors are the best inventors. Why? They are doctors, they don't have financial knowledge.
It's because they are very busy with their professional life, personal life, and work from home like that. So they don't have time to do the number-crunching and complicated financial analysis. They use general knowledge, such as what products they like, and second, as there's no time, they invest and forget about it.
They invest in anything and don't check for 5-10 years. Because of that transaction cost decreases and compounding, which I mentioned in that SIP calculator shows its full effect. So if you don't know commerce, no problem welcome to the share market.
Why do share prices go up and down every day?
How can you predict when share prices increase, when decreasing and why companies are listed in the share market. So let's find out what's this share markets concept and why prices go up and down.
Now if you want to start a business then you need a little money. Then family members, relatives, and friends will give you. If you need some more money, then the bank will give you. But you need Rs-20,000 crore. Now bank won't give you that, nor friends or relatives.
Unless you are from the Ambani family, which many of us aren't. So in this case, who will give you this much money? The public will give you this money. This means you will tell people your business model that this is my plan, I'm going to do this, make this factory, make this car, luxury car. It will run on electricity, run on water.
But you need money. Now those who trust you will give you money. In return, you will get them a partnership in your company because they have put money in you. So you give them a partnership in your company. That partnership will be called Shares. You took the money and gave shares to those people.
Now, this is when companies took money from you and gave you shares. It might happen, that you received a share today and after 2 days you need money and want to sell those shares. The company will not buy those shares from you because they need the money and they started building the car factory with that money now they don't have money to give you.
So there should be a market where you can give that share to someone else. And we call that market the "Share Market". Where you can take shares from 4000 companies, anytime and give back anytime.
If you think that Colgate is going to do well, then anytime you can take their share from someone else through the share market. And if someone thinks Colgate going to do bad, and Patanjali will give more competition then they can sell the shares.
Because millions of people, every day are buying and selling a share in the share market. That's why you will always find buyers or sellers for your shares, most of the time. And that's the importance of the share market.
Just think if you want, you can be a part of Ratan Tata's business by buying a share with one click. If you want, you can buy Adi Godrej's, Godrej empire shares. If you want, you can be a partner of Jio, buying shares with one click.
You can buy just 1 share for just Rs-1500, at least you became a partner of Jio and can say proudly, that Jio is mine.
What are those books and sources where one can learn about investing?
There are many books. One book is Investonomy and another is Rich Dad Poor Dad. Both the books you can buy from Amazon. I am providing the links below.
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| Investonomy: The Stock Market Guide That Makes You Rich by Pranjala Kamra |
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| Rich Dad Poor Dad |
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| LEARN TO EARN by Peter Lynch |
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| THE EDUCATION OF A VALUE INVESTOR by Guy Spier |
These are the four books that you can read to be a good investor in stocks. After reading this article don't forget to leave a comment that what's the first share that you are going to buy so that we can share our opinion on those shares.
Thanks for giving your valuable time. I'll see you on the next topic. Till then take care and let others know about the stock market by sharing this article with your friends and family.
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