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Top 5 Stock Tips for Beginners

David — Fri, 08 Oct 2010 19:37:54 +0000

Do you always want to run away from the idea of stock trading because you just do not understand anything about it? If your answer is ‘yes’ then it’s time to reconsider your notions. Trading in the stock market can be both fun and of much interest, provided you know how the market works.

It might be worth mentioning that many people have been lucky enough to earn millions in the stock market overnight while some have lost fortunes. So if you want to try your hand at stocks then better take some preparation. Here are a few tips which would help you to invest in stocks in a sensible manner:

1) Buying and selling of stocks frequently-a major mistake

Some people, mostly beginners, trade their securities rather too often. It might be due to the tips they hear on TV or the advices that are bombarded by the friends. These things can make you feel that you need to sell your current holdings and buy what’s recommended. However, this doesn’t work out. You only manage to make your broker rich in the process because he rakes in trading fees. If you buy and sell frequently, then the benefit will be negligible compared to the losses. Being greedy does not pay in stocks. Remember what Jim Cramer says: “bulls make money, bears make money, hogs get slaughtered”. This habit is not tax friendly either. You would often need to pay short term capital gain tax instead of long term long term capital gain tax which is lower.

Also Read: Sold the Shares; Do I have to Pay Tax?

2) Do not panic

Stock market is essentially for investors who like to experiment with their money. Here, Fear of losing may sink your ship. Of course, you ought to be prudent and cautious while investing in stocks but it is very important to hold your nerve when the market goes down. To win in the long run you should sell only when it yields you proper money. People who are driven by panic are prone to buying high and selling low.

Also Read: How to decide when to sell Shares?

3) Understanding stock market strategies

You should be aware of the basic investment strategies before you put your right foot forward. Warren Buffet believes that it is wise to invest in stocks that are undervalued by the market. He rightly points out that if you choose stocks with lower potential but higher price, then it might make you a winner in the long run. This kind of stocks usually grows faster and earns more than people expect. Technical analysis is another strategy that is widely used. Here, charts are used to predict the movement of stocks. It should be noted that this technique works best for short term trade rather than long term investments.

Also Read: Don’t let the Sensex Guide Your Senses!

4) Choose your broker carefully

Finding out the suitable broker for you can make a difference. While most people settle with brokers that their friends or relatives use, it might be useful to get yourself the best broker by doing some research. You should make sure that your broker has certain qualities. Firstly, the broker should allow you to place trades online. This is important because placing a trade online saves you quite a few bucks compared to doing the same in person. Secondly, don’t hire a broker who charges high fees. More often than not, their advices are not useful. Moreover, if the fees are quite high then it will eat your profits. Finally, if you are a novice then choose a beginner friendly broker. Some brokers are geared more towards veteran investors and their intricate methods may confuse you.

Also Read: Some facts your Broker does not tell you!!!

5) Beware of stock market scams

Stock market has its share of shady people but if you are careful then you are safe enough. Stay clear of offers which promise more than 50% return. Likewise, a guaranteed return is a doubtful case. Only a bank CD or Treasury bond can assure you of a guaranteed return. Scam emails informing you about “a golden investment opportunity”, are of course scams. Surprisingly, many people fall for it. Also remember that whenever someone tries too hard to sell you something, his motives are perhaps questionable.

Also Read: 4 Golden Rules of Equity Investing

Investing in stocks is not as difficult as it seems. If you have some basic ideas then stocks can be a very lucrative proposition. So remember the above points and give stocks a try.

This post is submitted by our Guest Blogger, David Brown. David is the founder of fileyourbankruptcy.org, where he writes articles on Personal Finance. He is also associated with monsterhols.com, quicklyprofit.com, darngoodblogging.com, debtincome.com and allfinancialforms.com.

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[Video Tutorial] How do Stock Markets Work

Amandeep Singh — Sat, 20 Feb 2010 10:26:40 +0000

Everyday we see new companies formed and when they are able to grab some business in the Markets and want money to expand, they come out with an Initial Public Offering (IPO) wherein they collect the money from the market for their future ventures. This forms the very basics of Stock Markets. We have written various articles on explaining the basics of Stock Markets on EquiTipz. Some of the Articles are listed below:

While surfing the Internet today, I found a very interesting Animated Video on YouTube explaing the whole phenomenon how Stock Markets Work, What Makes the Stock Prices go Up and Down, and many more interesting information, which I thought to share with the readers. This funny but very informative video explains how companies go public and sell stocks to the investors. A basic primer of the capitalist system and how it is making our lives better. When we remember the basic purpose of the stock market, we can better understand why income investments are the best. Good companies use our initial capital to create goods that are in demand in the world markets. Buying and selling feverishly is inefficient and not effective.

So, watch out the video below which answers many questions and reveals many interesting facts.

Hope you have enjoyed the video and it has helped to clarify many of your doubts about the stock markets. If you still have any questions in mind, please feel free to ask in the comments form below.

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How to invest in the share market?

Gagandeep — Fri, 15 Jan 2010 16:27:46 +0000

Making money by investing in the Indian stock Markets is not a child’s play. For an investor to make money in this big market with tens of hundreds of stocks, there are a number of aspects to be considered in order to clinch success and walk out being the ‘Smart Investor.’ For instance, a day to day graphichal analysis is a very important thing to be considered.

Stock Market needs Smart Work more than Hard Work.

In order to succeed one needs to act smartly rather than working hard and spending hours in front of the computer with the ‘ticker’ going ‘Green’ and ‘Red’ and reacting to the fluctuating prices of the stocks held in your portfolio

credit: zoonabar

And keep one thing in mind, Tips and rumors regarding the shares wont help you much. A close watch is to kept on the stock news side by side tracking the developments happening in the company. Keeping a track of the Results of the companies, the order they grab, changes in the company hierarchy and the money on the company’s books always helps in having an edge over the others.

Read: Don’t let the Sensex Guide Your Senses!

One needs to carefully select the stock for investment. And one thing worth highlighting here is that rather than keeping 30 different stocks in your portfolio, you should stick to 4-5 good stocks as keeping track of more than this number may be next to impossible. One needs to know the valuations at which to buy a stock and sell a stock . Dealing in a particular sector may be much beneficial rather than going for different sectors. For a fresh investor it is important to have knowledge about the basic ongoing price and trend line. For a successful pick, various acquisitions and mergers are also to be considered.

The bottom line here is, to stay invested in these times in quality stocks and keep accumulating whenever there are downfalls.

If you are new in the world of Stock Markets, the following articles will definitely of help to you.

First Time Investing – Learn How Not To Fail On Your Debut

How to get over the fear of Investing?

3 important things to know as a new investor!!!

4 Golden Rules of Equity Investing

What are your views about the basic principle to invest in the share markets. Share your views in the comment box below.

This is a guest post by Gagandeep Singh who also writes regarding Latest Movies and Movie Reviews at MoviesTemple.

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Don’t let the Sensex Guide Your Senses!

Amandeep Singh — Thu, 17 Dec 2009 07:43:47 +0000

Investors generally form their views on equities by looking at the movement of the BSE Sensex. When they see Sensex rising towards the green territory everyone runs to buy thinking that they are missing on gains and the same happens when the Sensex shows sharp dips. They discuss among themselves and friends that it is better to stay away from equities.

The devotees of equities share a different picture; they argue that whatever be the situation, equities yield superior returns over a long term. But the sceptics highlight that the Sensex crossed 4,600 a long time back in 1992. It has since gone up and down several times. For example, in January 2005 the Sensex was trading at around 6,600 and one could say that a close to 44% increase over a period of 12 years (around 3% per annum) wasn’t much to show for the last 12 years – surely this is long enough for the market to have delivered the superior performance it is capable of. (Data Source: BSE)

The fact is that an equity market is much more than a benchmark index. The BSE Sensex represents only 30 actively traded large companies in the market. Apart from this index offering only 30 stocks, the Indian equity market offers an immense variety of other investment opportunities also, which are clearly ignored by the investors. Active equity fund managers have demonstrated that they can look beyond the index and spot various companies that can deliver much better returns for the investors as compared to the returns from Sensex. The graph below shows the compounded annualized growth of the BSE Sensex, compared to the returns from actively managed funds over five different periods up to ten years.

Compounded Annualized Returns (Image Source: Fidelity)

Over all these periods, the actively managed funds have clearly outperformed the Sensex as a whole. This is the benefit of active management. The Active fund managers make their own decisions about which shares to buy in the funds’ portfolio. Some of these managers use statistical analysis; others follow fashion.

Difference between a passive or index-tracking fund and an actively managed fund

A good active fund manager will choose stocks on the basis of thorough research, seeking companies with the potential to reward their investors. Passive or index-tracking funds, on the other hand, attempt to replicate an index, such as the Sensex, by holding the same stocks and in the same proportions. Investment decisions are often made by computers and no research is involved so these funds usually have lower charges. When you invest in actively managed equity funds your returns are dependent on the stock selection skills of the fund manager. Active management has worked well in the Indian market and there appears to be no reason why it should not continue working as well in the future.

The three unwise Investors (Image Source: Fidelity)

A passive or index-tracking fund holds stocks not because they’re worth investing in, but because they’re in the index. And it has to hold them as long as they stay in the index, even if they are over-priced or are even not performing as desired. An actively managed fund, on the other hand, holds a stock because the fund manager wants it in the portfolio. Your Investment advisor will be able to help you select actively managed equity funds that are right for your particular circumstances and goals. You’ll be investing in equities without having to worry about where the Sensex is, or where it’s likely to go.

What is your opinion regarding investing in the Stock markets. How should one go about investing? Please share your views in the Comment form below.

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First Time Investing – Learn How Not To Fail On Your Debut

Amandeep Singh — Tue, 14 Jul 2009 02:27:00 +0000

As discussed in the earlier posts like 4 Golden Rules of Equity Investing and 3 important things to know as a new investor!!!, I am again going to write for the investors who are still in the dialema whether or not to invest the very first time. And even if they make their mind to do so, then will I make any profit out of it, will I lose all my money. So, I am again taking the perspective of the very first time investors.

As I said, every investor has had to go through the phase of first time investment. The most successful people in the investment market has been through this tricky junction at some point of their life. So, how does one avoid those double minded questions when he/she is investing for the first time? So how does one prepare oneself for the best possible outcome.

1.Decide the mode of investment: When you are investing for the very first time, the most important thing to choose is a solid way of investment. One of the oldest ways is to invest in a savings bank account, which would give you good returns and is generally not much comparable to other means of investment. There are other ways to ensure higher returns, but this could be a bit risky for the first time investors. So, only after having complete knowledge of all the investment options available, one must opt to the option that suits his/her portfolio the best.

2.Proper understanding of the selectedbest investment option: One cannot make profits consistently if one lacks knowledge about the investment market. If one is investing in a bank, he must have a clear idea about the rules and policies associated with the investments options, and must plan according to it. If investing in the stock market, it is extremely important to have thorough knowledge about the market. One should be totally sure about the basics of the market, and its functioning before making an investment in the extremely volatile marketplace.

3.Choosing the best broker or investment advisor: If you are investing in stock market, one needs to find the proper broking firm that would offer the best online trading facilities at a moderate price. There are some broking firms that have special orientation programs for people who are in the market for the first time to invest. One must consider these factors while choosing a broker. In case of other forms of investments, it is better to consult a financial advisor. Nevertheless, one must be careful to select a solid and loyal financial consultant, which would provide the proper guidance through the initial phase.

4.Being positive about the investment: The fear of making losses ideally should not stop one from taking investment decisions. There are people who are over cautious and the fear of losing money and create a position where they fail to act. Particularly in stock market, in the most likely case, everyone is bound to experience loss in their initial trading days, but once the basics are grasped, the profits that follow make more than enough to cover the initial losses. Therefore, one should always be confident about their decisions, and the fear of losing money should never break their confidence. Moreover, an investor should commit his energy and time along with money while making an investment. This is because of the simple fact that money cannot make money, unless it is being worked upon and that can only happen when our complete efforts are committed to the cause. So, go ahead invest and make profits

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Read: How Rs 1 lakh grows to Rs 50 lakh in 25 years

Read: Earnings per share (EPS) ratio & what it means!

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4 Golden Rules of Equity Investing

Amandeep Singh — Fri, 22 May 2009 16:42:00 +0000

IF you want to invest in equities, there are only four things you need to remember.

1. Choose the right company
Look for superior and profitable growth. The company should earn at least 20% return on its shareholders’ capital.

Ideally a long-term investment perspective (more than five years) allows you to participate in the company’s growth. At the short end (3-6 months), share performance is driven more by market sentiment and less by company fundamentals. In the long run, the relevance of the right price diminishes.

Must read:
• How to get over the fear of Investing?
• 3 important things to know as a new investor!!!

2. Be disciplined
Stock investing is a long, learning experience. You will make mistakes, but also learn from them. Here is what you can do to ensure a smooth ride.

–> Diversify your investments. Do not put more than 10 per cent of your corpus in one stock, even if it’s a gem. On the other hand, don’t have too many – they become difficult to monitor. For a passive long long-term investor, 15-20 is a healthy number. Use this asset allocation tool to find out if you need to invest beyond equities.
–> Research and analyse your company’s performance through quarterly results, annual reports and news articles.
–> Get a good broker and understand settlement systems
–> Ignore hot tips. If hot tips really worked, we’d all be millionaires.
–> Resist the temptation to buy more. Each purchase is a new investment decision. Buy only as many shares of one company, as fits your overall allocation plan.

3. Monitor and review
Regularly monitor and review your investments. Keep in touch with quarterly results announcements and update the prices on your portfolio worksheet at least once a week. This is more important during volatile times when there can be great opportunities for value picking!

Also, review the reasons you earlier identified for buying a stock and check whether they are still valid or there have been significant changes in your earlier assumptions and expectations. And use an annual review process to review your exposure to equity shares within your overall asset allocation and rebalance, if necessary.

Ideally, revisit the Risk Analyser at every such review because your risk capacity and risk profile could have undergone a change over a 12-month period.

Also read: Strategies For Successful Investing

4. Learn from your mistakes
When reviewing, do identify and learn from your mistakes. Nothing beats first-hand experience. Let these experiences register as `pearls of wisdom’ and help you emerge a smarter equity investor.

Also read: How to make money in the stock market?

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How to get over the fear of Investing?

Amandeep Singh — Tue, 28 Apr 2009 12:40:00 +0000

Most people shy away from investing because they are afraid of losing their hard earned money. No doubt, losing your hard earned money is a frightening prospect. But try to recollect, you were equally frightened when you went to school for the first time or when you were learning to drive.

Investing in stock markets can be a risky affair. But not investing can prove a bigger risk. Considering the rate of inflation, the real value of your money is depreciating everyday. If you let your money sit idle in your savings bank account or at the most invest in Fixed Deposits, you are not helping your money grow much.

The younger you start investing, the better it is. Consider this recent stock market fall as “upto 50% off” sale. Now is a great time to invest before the stock markets start climbing again and you feel left out.

Below are the common excuses people give for not investing and strategies to overcome them:

1. I don’t want to lose all my money
If you don’t want to lose all your money, the strategy is pretty simple. Don’t put all your eggs in the same basket. Diversify. Mutual Fund is an excellent vehicle to achieve diversification. A typical mutual fund scheme invests in 50-60 different stocks. Some examples of good diversified mutual fund schemes are: Reliance Growth Fund, SBI Magnum Contra, DSP ML Equity, HSBC Equity, etc.

2. I don’t know the right time to invest
No one knows the “right time” to invest. As such there is never a right time to invest. No one can predict the exact time for market rise or fall. The best strategy to follow is to invest regularly. By doing that you take advantage of “Rupee Cost Averaging”. Rupee Cost Averaging strategy involves investing a fixed amount regularly. For this fixed amount, you end up buying less quantity when the prices are high and more quantity when the prices are low. Systematic Investment Plans (or SIPs as they are popularly known) of mutual fund schemes help you achieve Rupee Cost Averaging

3. Ups and downs of investing give me sleepless nights
You should never get obsessed with the daily prices. Tracking the prices daily not only will make you lose sleep but also tempts you to tinker with your investments every now and then. History proves that a passive investor ends up making more money than an active trader. But that does not mean you should never re-evaluate your investments. Do it on a periodic basis and not daily.

4. I don’t have the time and knowledge to manage my portfolio well
This is a really lame excuse. For people who don’t have the time or knowledge of investing, there is professional help available. There are banks, broking houses as well as qualified independent financial guides (like EquiTipz) who offer investment advisory services.

With large institutions like banks, your investment options become limited or biased because these intitutions are generally associated with only a few fund houses and insurance companies. Whereas with independent financial advisors, you are free to choose invesment products from any company you like.

5. What if need the money?
You should plan your investments in such a way that a part of your money is invested in liquid investments (viz. money market mutual funds or liquid funds) which can redeemed at a short notice without any charge. The remaining money can be divided into short term and long term investments.
Also Read: Important things to know as a new Investor>>

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3 important things to know as a new investor!!!

Amandeep Singh — Fri, 17 Apr 2009 15:16:00 +0000

You need to KNOW some “unforgettable basics” before you enter the world of investing in stocks. The stock market is a field dominated by savvy investors who know the ins-and-outs of the market. For people who are not “on the inside”, the stock market can be a VERY dangerous place. :

Don’t even consider “tips” that tell you about “hot stocks”. Consider the source: There are many people in the market who put in all their time and effort in promoting certain stocks. They do this because they have their money invested in those stocks. If they can get enough people to buy the stock and they can get the stock price to rise, they will sell the stock for a huge price, the stock price will crash and they will walk off to promote another stock.

Always use your own brain: It’s extremely important. You must always use your own brain. Relying on the advice of others, no matter how well intentioned it may be, is almost always a complete disaster. Make sure you dig in and really examine the “facts about the companies” before you invest. Ignore press releases which have very little substance, and rely on “hype” to tell the company’s story.

And finally the most important tip!!!
Only invest money you can afford to lose!! Sure this is a basic point, but many many people miss it. You should only invest money that you can honestly afford to lose!! Everyone enters into investments with the idea of earning big profits, but in many cases, this never works. (Especially if you are new to investing in the stock market!)

Please understand that the above tips are tips for beginners. Once you really get into the stock market you do not need to follow these rules anymore. But if you are a new investor, you MUST follow these rules. They are for your own safety.

But then again, nothing comes free. Everything has a price. You will have to loose some money, make some bad decisions and then only will you really understand the market. You cannot understand the market by just looking at it from far. By following these rules, you will basically not loose too much!

Next – How to decide which stocks to buy? >>

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How to make money in the stock market?

Amandeep Singh — Fri, 17 Apr 2009 14:43:00 +0000

Inroduction

This article is a COMPLETE guide to the basics of making money in the stock market! If you are considering investing in the stock market, you MUST read this article! We have explained all the concepts and talked about all the “myths” that people have about the stock market!

What are stocks?

Definition:

Plain and simple, a “stock” is a share in the ownership of a company.

A stock represents a claim on the company’s assets and earnings. As you acquire more stocks, your ownership stake in the company becomes greater.

Note: Some times different words like shares, equity, stocks etc. are used. All these words mean the same thing.

So what does ownership of a company give you?

Holding a company’s stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim to everything the company owns.

This means that technically you own a tiny little piece of all the furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company’s earnings as well.

These earnings will be given to you. These earnings are called “dividends” and are given to the shareholders from time to time.

A stock is represented by a “stock certificate”. This is a piece of paper that is proof of your ownership. However, now-a-days you could also have a “demat” account. This means that there will be no “stock certificates”. Everything will be done though the computer electronically. Selling and buying stocks can be done just by a few clicks.

Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, “one vote per share” to elect the board of directors of the company at annual meetings is all you can do. For instance, being a Microsoft shareholder doesn’t mean you can call up Bill Gates and tell him how you think the company should be run.

The management of the company is supposed to increase the value of the firm for shareholders. If this doesn’t happen, the shareholders can vote to have the management removed. In reality, individual investors like you and I don’t own enough shares to have a material influence on the company. It’s really the big boys like large institutional investors and billionaire entrepreneurs who make the decisions.

For ordinary shareholders, not being able to manage the company isn’t such a big deal. After all, the idea is that you don’t want to have to work to make money, right? The importance of being a shareholder is that you are entitled to a portion of the company’s profits and have a claim on assets.

Profits are sometimes paid out in the form of dividends as mentioned earlier. The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you’ll receive what’s left after all the creditors have been paid.

Another extremely important feature of stock is “limited liability”, which means that, as an owner of a stock, you are “not personally liable” if the company is not able to pay its debts.

In other legal structures such as partnerships, if the partnership firm goes bankrupt the creditors can come after the partners “personally” and sell off their house, car, furniture, etc. To understand all this in more detail you could read our “How to incorporate?” article.

Owning stock means that, no matter what happens to the company, the maximum value you can lose is the value of your stocks. Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets.

Why would the founders share the profits with thousands of people when they could keep profits to themselves? This is the obvious question that comes up next. This what the next section is all about!

Next – Why do companies issue stocks? >>

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