Today, I have received another mail from a beginner investor asking tips to start investing in stocks. My mailbox generally getting number of similar mails and I am personally answering to them all. WHAT IS NEXT?
I thought it would be a good Idea if I post an article in my blog and send the URL to those who asking similar questions in the future. This will help them to understand each and every detail on direct stock investing as well as ease my job by replying to each and every similar queries. If you are a beginner investor, this article will be enough to get all necessary information that you need to know because, it covering each and every point that a beginner investor need to know about investing.
For your better understanding, I am dividing this article into four parts. In the first part, I will provide all the most needed information for a beginner investor, what is stock and stock market, how it is working etc... In the second part, explaining the necessary points that a beginner investor should keep in mind. Third part, I will talk about the facilities required to start stock investing. Finally, I will cover the parallel investment instruments that an investor can opt to get the same benefits of investing in stocks directly.
Part 1: What is a stock and stock market?
In simple word, 'stock' is a single piece of ownership in a business. 'Stock Market' is the place where all the stocks listed for people to buy and sell. Click the "Download" here or the button in the top menu of this blog and download the file "The Financial Market Guide" to read it full. After reading this, you will be familiar with all the terms that associated with investing and investor.
part 2: Points that beginner investors should keep in mind
For a beginner investor, direct stock investing is not recommended due to lack of knowledge and experience. Getting adequate knowledge is a time taking process with lots of required efforts. If you are entering to direct stock market investing as a beginner, there are enough room for errors and losing money. Chances of misguidance are another disadvantage.
To begin with stock market investing, you should understand different style of investing.
Share trading: This is commonly using by day traders. It is a buy now and sell after little time strategy. It is just like gambling and risk of losing money is 100%. A beginner investor shouldn't move with such investing approach and should be avoided the same.
Value investing approach: It is a buy and hold strategy. This is the right approach for anyone who really want to enjoy the classic investment style and increasing wealth gradually. Success of this strategy entirely depends time and quality of the stocks that an investor selecting. Legend investors like Warren Buffett and Benjamin Graham are the best examples for those who practically used and succeeded with value investing strategy.
To get the required qualities of a value investor, you are required to read lot of books on the experience and investment methods used by succeeded value investors. This will put you to the safe side by understanding the style and idea that legend investors like Warren Buffet, practiced and successfully implemented. For your best reference, below are the two books I greatly recommending for you to purchase and read:
1. Common Stocks and Uncommon profit by Philip Fisher
2. Intelligent Investor by Benjamin Graham
As a beginner investor, if you really like to follow the successful value investing style and required to achieve all the skills to be a good value investor, I highly recommend you to buy and read both of the above classic guides.
First guide, Common Stocks and Uncommon Profits" will teach all necessary lessons to have adequate knowledge on all considerable points when selecting a company. It finally shapes you to identify excellent companies to invest among thousand of listed companies in the stock market. Take a look on the 8 cutting edge investing principles Philip Fisher explained in this book for investors.
Second guide, The Intelligent Investor, will give you the most required qualities of investors to get investing success. It also give you the ideas of selecting stocks at right time. It is the best guide to learn an investors required approaches to the stock market at the time of volatility or stock market crashes. It will also teach you the required qualities of a value investor for making profitable decisions.
Part 3 - Facilities required to start stock investing.
As you aware, this is the online era. Everything is in your finger tips with the magic of internet. You can now buy and sell share from anywhere in the world using your online trading account. At the very first, you need to approach a good stock broker to start and online account with them. Once after getting the account, you can start buying and selling stocks using internet by following the simple guidelines on how to purchase and sell shares and other instruements. You have required to work a little before finalizing a stock broker and online trading account. "I have written an excellent article explaining the criteria to select an online investment account with a stock broker, enable you to understand what are all the required qualities of a good stock broker and online trading account.
Part 4 - Parallel investment instruments
In this part, I intend to cover all other available investment instrument in a market that a beginner investor can select till getting enough knowledge and experience to buy and sell stocks directly.
Mutual Funds - Applying to a well diversified mutual fund using "Systematic Investment Plan (SIP)", help an investor to get same exposure like investing stocks directly. Through mutual fund, an investor investing his/her money to the bunch of stocks and getting the benefit of managing the money by well experienced fund managers on his behalf.
Index Funds - Another option for a beginner investor to invest into direct equities and grow money with time and economy. You can purchase index funds in two ways. First, most of the mutual funds have index funds and you can apply for one or two with them. Second, knows and ETF - Exchange Traded Funds - another kind of index funds that you can purchase directly from stock market using your online trading account like purchasing any stocks.
In my best opinion, as a beginner investor one should start investing in equities using Systematic Investment Plan and/or purchasing ETF through trading account using Dollar Cost Average methods. Once after getting enough knowledge and experience, he can start investing in stocks directly.
You can dig more into this blog to get all the necessary information that need to keep in mind as a direct equity investor. My best wishes to those reading this article.
WHAT IS NEXT?