[Guide] How to start investing in the stock market? 2020 Beginner’s guide!
Table of Contents
In this article, I’m going to tell you everything about the stock market you need to know as an investor and start investing with the minimum amount possible.
The whole article will be based on the fundamentals, essentials, and my opinions on investing in the stock market.
Introduction to the stock market
So, you can consider the stock market as a simple market where companies sell their shares to raise funds through an IPO after they are done with angel investors, and VCs.
In a more simple way, when you start a company, you with your partner invest some money, and when you need some more money angel investors and venture capitalists invest in your company in return for some equity. (if you are growing, obviously!).
Then when you need large funds and can’t get to any private investor, then you convert your company from private limited to public limited by issuing some amount of shares, in exchange for which you get money and the company gets listed on stock exchanges from where people can buy or sell shares of your company.
Why stock price fluctuate?
As I already told you that you list your company’s share and then people can buy or sell it.
Stock price completely depends on the demand and supply rule, which means that if more people are willing to buy the shares then the price will increase but if more and more people are willing to sell your company’s shares that they had, then the price will surely drop.
The falling and rising of the price solely depend on the image and news of the company in the market, one fake news can completely destroy someone’s company.
Stock market capitalization
A stock market capitalization is the sum of total shares multiplied with the price of one share, like:
If a company has 5 million shares listed and the price is 100$ per share, then the company’s valuation will be $500 million.
Stock market capitalization helps you to check in which category a company falls and help to determine similar companies.
Share price v/s value
Share price and share value are really two different things.
A share can be more valuable than its price, and if the price is high, don’t consider that the share is valuable.
The share price is defined on the basis of the demand and supply rule, which means how many people are willing to buy or sell your share.
But the value depends on the goodwill of the company, management of that company, core values of the company, and the future of the industry to which the company belongs. (obviously!)
What are the dividends?
Dividends are payments sent by companies to their shareholders on a quarterly basis.
Those people who invest in the companies that pay dividends are mainly called “Dividend investors”
Let me clear it for you, like a company had revenue of $10 million, after paying salary to all employees, left is $9 million, after maintenance and marketing and other stuff, left is $6 million.
And the left $6 million will be paid to all the shareholders on the basis of equity they hold.
But, dividends are not always good, think over it, why the company is not reinvesting that money for higher profits next time. Huh!
Companies often offer higher dividends to attract investors, despite they are broke. So, never select companies on the basis of dividends.
How to create a great portfolio?
A nice portfolio is really necessary for a trader.
Portfolio refers to a collection of stocks you have, like 100 shares of company A, and 200 of company B, mean a bunch of stocks.
Your portfolio shows how wise you are in the stock market or trading.
Always make your portfolio dynamic, never choose stocks over the same industry, like choose one from healthcare, one from FMCG, one from IT.
It will surely help you survive if any one industry got down due to a market crash or some pandemic.
And at last…
How to buy stocks or start trading right away?
So to start buying stock, you will need a broker to act as a mediator between you and the stock market.
Apparently, there are two types of brokers:-
Traditional brokers are explained by their names they are in the market for a long time. But these traditional brokers charge too much for the service they provide, sometimes they may ask you for a yearly membership which does not come cheap, and sometimes also some percent of your stock investments.
But the stock market is no exception from the revolution of technology.
Nowadays, discount brokers are more in the norm.
Many online discount brokers are really good and provide services at very low or no commission.
Like groww, Zerodha, upstox, 5paisa, angel broking to list a few.
And the documents required are:
4.Bank account passbook/ statement, etc.
And you will need a trading account to buy and sell stocks with the stock exchanges and a demat account to hold the stocks/shares you bought.
So, to wrap up this article, I would like to tell you that never trust anyone or any tip because the stock market doesn’t work on tips.
The stock market works on your knowledge and the research you have done. (Obviously)
Thank you for keeping up with this article.