The share market has a very simple definition. It’s where shares are bought and sold. Along with shares; bonds, mutual funds and derivatives are traded on the stock market.
The share market consists of the primary and secondary market. A Company raises funds through the primary market. Companies use the primary market to list on the stock exchanges like NSE and BSE. Companies issues shares to the general public for the first time through IPO’s. The Company goes public through IPO.
Investors buy and sell listed securities in the secondary market. These transactions require a broker. You can buy/sell shares on stock exchange like NSE or BSE using stock brokers like Zerodha, ICICI Direct, Angel Broking, Sharekhan, IIFL, HDFC Securities and Motilal Oswal among others. Investors can sell shares in secondary market and make an exit.
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Herd mentality is the tendency to mimic actions of a larger group. Common to sheep, the herd mentality also applies to stocks.
Many people don’t understand what they’re doing in the stock market and hence the herd mentality. You may be heavily influenced by the actions of acquaintances, neighbours or relatives. If everyone is investing in a particular stock, you too would do the same.
This example helps understand why herd mentality must be avoided. Warren Buffett the stock market guru is a close friend of Bill Gates. He never bought a single Microsoft stock even when it was a growing entity, just because he never understood the business. Set your own rules and avoid the herd. Research and sound analysis prevents falling victim to the herd.
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Never buy or sell stocks unless you have done the research. This is really simple to understand. First-level thinkers look to scratch the surface. They buy and sell based on market reactions. Research helps bring the long-term impact in decision making. The line of thought is clear, “It’s a good Company, lets buy the stock.”
So how do you get to know if a Company is good? Well, keep yourself updated with the latest financial news. Make sound decisions based on the news.
Check the performance of shares in the portfolio. Rebalance if necessary to maintain strength in the portfolio.
To understand the performance of shares, it’s important to compare with a benchmark like S&P BSE Sensex or CNX Nifty. You can also compare with peers to get an idea on the performance of shares.
Never time the markets. Always spend time in the market. If you try to time markets, you will lose money. It’s wise to remain invested in stock markets for the long-term. “The stock market is designed to transfer money from the active to the patient.”
Pick the right stock and stay invested for a long time. As Warren Buffett says, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
There are some rules for the stock market never to be missed. Never invest without a goal. Only invest money you can afford to lose. Do your research before buying stocks. Start with a passive investment in stock market. Never be over-confident in stocks. Follow the buy and hold strategy.
Follow this sound advice to make money in stocks. Check revenue of the Company. Stock prices increase with growing revenue. If a Company is making money, stock prices rise. Check the bottom line or profits of the Company. If a Company is making profits, share prices go up. Check the debt of the Company and also the debt equity ratio. This gives an idea of a Company’s financial leverage. Check dividends as a Company pays dividends only from the profits.
You feel a whole range of emotions when investing in the stock market. These could be optimism, thrill, anxiety, fear, denial, depression, hope and relief. Stock markets and emotions do not mix.
Try these tricks to relieve stress from the stock market. Listen to music after trading. Stop trading after 3 consecutive wins and losses. Never look at profit and loss when trading. When trading ask yourself, “Am I scared”. If the answer is, yes, exit immediately.
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