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Now a day people prefer to invest in stocks and take advantage of an increase in the share price plus regular dividend in their bank account.
Investing in the Stock Market is all about buying a stock when the share price falls and selling it when the share price rises. This is how every business works. Buying things at less price and selling it at a higher price. Right?
Here, I will teach you how to make money in the Stock Market in a proper manner.
Stock investment can create a Passive Income in two ways: Share price Increase and Dividends.
It’s very simple and easy to buy a stock, but investing in the right stock requires knowledge and experience that I am going to teach you in a few minutes.
To start investing, you need to create an account that hardly takes a minute.
Acorns is a financial company that facilitates people to invest in good stocks. You can also invest in high paying dividend companies to get a regular dividend to your account.
Acorns will also assist you to meet your financial goal. You will get a proper guide on how to make your investment portfolio.
A good company with positive growth in the future is highly recommendable for investment. Before investing in shares of such companies, you must check whether it is available at an undervalued price or not.
If you found a good company, but the share price is expensive, the best step to take just notes down the company name, wait for the opportunity in the future and start searching for another good company.
You will find more than 1000’s companies listed in the stock exchange and out of those companies you just need to find 10 to 12 companies to invest.
1. How to Start Investing in Stock Market
To buy a stock, you need a Demat and trading account. You can open an account with a good broker who is registered with the stock exchange like NYSE (New York Stock Exchange), Dow Jones Industrial Average, S&P 500, London Stock Exchange or NSE.
You need to do some basic online paperwork work which is simple and can be done in few minutes. It is also important to join a well-known broker who can take care of your investment.
Once the account is opened, you can start buying and selling of shares.
Investing in the right stock should never be sold. Logically, there is no need to sell the stock who keeps appreciating your invested capital.
2. Best Techniques to Buy a Stock
Look at things around you. What product do you use daily? Is the product’s company is listed in the stock exchange? If yes, then do your analysis and then invest in such companies at a cheaper price.
Check past 5 to 10 years performance and potential to grow more for the next 10 years. Buy a share of such companies at a cheap price.
Search for a company who keeps evolving and developing their product and services that increases its sales and profits.
A low debt company with a huge profit signifies that the management is using the resources more efficiently.
Do not invest in the companies who have high debt, because it can lead to the bankruptcy of the company or sale of the entire business at a low valuation.
Always compare the return on equity with net worth of the business. This will give you a clear picture and enable you to do the analysis.
Debt (Loan) on the company should not be twice the net worth. Some companies may show you the high return on net worth, but it’s not worth buying, because the extra profit came from Loan amount invested. If a company struggle for the short term then the company has to pay the interest on loan amount from the owner’s funds.
If owner funds get affected, the share price also gets affected spontaneously. This is because nobody wants to put their money into danger. Hence, they sell the share and invest it in some other good companies.
Read the financial statement and understand the financial condition of the company by gauging each component of the statement.
After the distribution of dividends, the retained amount reinvested in the business should increase the value of the stock holder’s share.
The reward factor with great companies should be very high. The risk factor can be managed by buying a stock at the right time and right price.
Check for Capital invested in the company and how much they are making out of it.
An increase in every year’s sales, profit and a good percentage of dividend indicate that the company has the potential to give a consistent return in the future.
The best stocks always stand fearless, even though there is a panic situation in the market. People start panicking hence, they end up selling their shares at a very low price. Here the smart people enter and take a huge advantage of a panic situation.
For safer side, invest in the index funds and gain experience on how the stock market works. The more you learn, the more chances that you will avoid loss.
Get the list of consistent performing companies who have good value in the market and gives a good amount of dividends.
Invest in such dividend-paying companies. The dividend paying companies signal the smooth running of business with profit.
3. Stock Analysis.
Technical and fundamental analysis are the two analysis which is highly recommendable to take a buy or sell decision on stocks.
Both play a very important role and also it has its own value in the investment decisions.
You should give 90 percent importance to the fundamental analysis and 10 percent to the technical analysis. Many people give 90 percent importance to the technical analysis and eventually lose their money.
Fundamental analysis of stocks shows you what to buy and technical analysis indicates when to buy.
i. Fundamental analysis
Fundamental analysis shows you the actual inside picture of the company. It emphasizes on the financial statement, valuation, financial Ratios, health of the business, competition and internal & external factors.
It talks about the valuation of business and stocks. A share price below valuation with strong fundamentals is considered as an undervalued stock.
Fundamental analysis focuses on long term investment, which is the best way to invest in the stock market.
Warren Buffet made a huge fortune by applying strict fundamental analysis. He never looks at the share price, he first does fundamental analysis, then check the price and compare it with his final valuation.
If the price of a share is expensive, he waits until the price to move down to the actual mark he wants.
Think of you are investing in a company who can give you a consistent profit regardless of competition and bad internal and external conditions.
ii. Technical analysis
Technical analysis deals with charts and price movements. Many short-term stock investors take a buy and sell decision based on technical analysis.
It deals with price movement and volume with the help of charts.
The short-term investors focus more on technical analysis. Long term investors give less priority to technical analysis.
Technical analysis gives you the advantage to earn money for a short term period, but it also requires active participation to get yourself updated with the latest news.
Long term investors use the short-term technical analysis only to buy the stock at a very low price and see the stock performance trend.
4. Important Points to Remember Before You Invest in the Stock Market
Invest in a company that is consistently sharing a dividend with its shareholders for the past 10 years.
It is best to invest in companies who is easy to understand. If you don’t understand the company business, leave it you have many other options.
Favorable long-term prospects.
It’s important to focus on Return on equity rather than earning per share.
High-Profit margin companies grow faster.
Management who are running the company is also the main factor to influence share price.
Make sure to analyze the quality of people who are running the business.
Invest in fewer companies. Maximum up to 10 to 12.
Keep the Margin of safety. It means buying a stock at a very cheap price so that even the worst time in the stock market will not highly affect your investment.
Enter in the stock when people are selling or taking an exit. This is the right time to enter as you will get the stock at a cheaper rate. You need to make sure that you have invested in a good performing company.
Patience – This is the most important thing if you really want to earn money from the stock market. Patience is the key to success in the stock market. The perfect example is Warren Buffett. He invests in good companies when it gets undervalued and keeps the shares for years.
Best stocks always give you profit regardless of any situations, because the people who are running the business they know how to fight with the difficult time and win.
Demand and supply influence the share price of stocks. High demand pushes the share price up and low demand pulls the share price down.
Check Shareholding patterns – A shareholding pattern gives you a clear picture where the total share been held. Promoters of the company should hold more than 30 percent of shares and retail investors (normal investors) should hold less amount of shareholding.
An increase in the promoter’s stake gives an indication that the company is likely to show growth. Why promoters will increase their stake for no reason?
If you are a new trader, then you must apply stop-loss to safe your investment from a huge loss.
Do your own research and make a decision. You will be approached by many sources where you will get tips and recommendations. Keep yourself away from such tips and recommendations. Think like a businessman. Do you invest anywhere without doing proper research? No right!
Sometimes you may get influenced by the low share price. Here you need to take control of your behavior and maintain discipline. Do the research and see whether the company fits in the quality parameter and then take a decision.
Always put a one-time effort on searching the best stock and invest in it for the long term. This is how Warren Buffett invests. Short term approach may not give you consistent earning.
At the initial stage, do not think that you became a master in the stock market, because of some profits in your trades. The stock market is a vast field and mastering in it takes years. It’s better to read books on famous stock market investors like Warren Buffett, Peter Lynch, and Charlie Munger.
If you invest money in the share for the long term, then you do not need to pay the tax on the profit you are making, unless you sell the share and book the profit. So, it’s better not to sell the shares if your investment is generating profits.
The stock market is not a place for gambling. Many people in the stock market start gambling and show others that they are earning money in smart short-term trading, but in reality, they do not disclose how much they have booked losses.
5. Best Time to Sell Shares
If the company doesn’t fit into the parameters, then there is no need to keep such stock into your portfolio.
You need to make sure the company you have invested is performing well and there is no fraud-related news, Management capabilities issues or product transformation issues.
If you find such issues that might continue for the long term in the future, then it’s better to move out of such shares.
A new investor should not take more than two percent of the loss. Put the stop-loss to avoid losses.
If your investment gets affected because of bad conditions for any reason, it’s better to move out from such stock and grow your skill to know what companies can fight the bad conditions. You will see some companies performing good in the worst conditions.
Get the record of such companies and do the analysis to find how they perform in the worst conditions.
Once your investment has given you enough profit that it now it becomes overvalued. Investors usually never stay with an overvalued stock. You can sell the shares and find some other undervalued stock to invest.
Investing in stocks is not easy nor difficult. You just need to learn how the stock market works and how to read the company.
It’s better to start with small money and gain experience.
Once you start earning money, then you may think to invest some more money.
Build your knowledge with the great books that we have available online. This will bring you into the reality of how stock market functions.
Focus more on fundamental analysis and less on technical analysis. Both analyses has its own importance.
Ninety percent of people have a wrong view on the stock market. It’s not a place of gambling.
It’s a perfect place for real investment.
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Founder of twomillionways.com
MBA – London
I am here to share my ideas and experience on how to make real money.