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Things to know and do before investing in stocks

by Tom Fogden
September 6, 2020 - Updated on August 23, 2021
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What to know about stocks before investing? If this is a question that is plaguing you, the answers are all present here. Investing in shares and stocks may actually help you combat inflation while growing wealth sizably for the future along with giving you attractive returns. However, remember that there are risks inherent to these investments and considerable knowledge, experience and wisdom are needed for successfully setting up your portfolio. When you suitably understand and analyze the Indian stock market, you can actually time your investments to perfection and earn handsome returns although you should be prepared for market volatility, other risks and should know when to withdraw without getting greedy.

How to start investing in share market

Learning about the share market needs constant efforta and perseverance. You should make a note of the below-mentioned tips before you venture into stock market investing.

  • Do not make this a blind foray– Many a time, it may so happen that you get influenced by your colleagues or friends and stories of how they are making good money through trading or investments in the stock market. You may have never invested in stocks but post-hearing about the possibilities, you decide to invest in buying some shares/stocks from aktier for begyndere. Yet, if you have forayed into the market as a means of capitalizing on a trend of sorts, you will have forayed into it blindly and for all the wrong purposes. You should only invest post obtaining necessary knowledge about the stock market and ensuring that the investment is in sync with your financial objectives.
  • Stock markets are not unlimited money-generating machines- We all know how much fun it is to watch your favourite movie in a theatre but when it comes to buying the shares of the same brand say, PVR shares or other company shares, remember that stock markets are not money-making avenues which will turn you into a millionaire almost overnight. Forget all those mythical tales you have heard about investors suddenly making it big in the stock market. It is true that several investors have profited immensely from their investments in the stock market but this was only possible due to their experience, strategies, knowledge and experience along with financial discipline. You should never forget that there are numerous people who have lost whatever they had through their stock market investments.
  • Invest time in gaining knowledge– If you want to know how to get knowledge about the share market, the best way to achieve the same is by educating yourself constantly. Self-education always works with regard to gaining more knowledge about the stock market and its basics. Prior to making the first investment, learn more about the stock market basics and individual securities. The adage- It is not a stock market but a market of stocks holds true in this context. Emphasize more on the individual securities that you are purchasing along with their links to the Indian economy and factors that may drive the growth of the stock in question.

A few core areas that you should be familiar with include financial metrics, definitions including ROE, EPS, PE and market cap and also popular methods for timing and selecting stocks in tandem with technical and fundamental analysis. You should be familiar with terms like stop market orders, market orders, limit order, stop-limit orders, trailing stop-loss orders and other such types which are commonly used by investors in the market. Take into account things like GDP, fiscal deficit, inflation, crude oil prices and rupee values against the dollar.

  • Invest just your surplus money- Always invest your surplus funds only. Most people make the mistake of investing money that they cannot afford to do without or lose. Stock market investments are risky and this means that you may lose your money owing to market fluctuations or volatility. Systematic risks are unavoidable when the portfolio is diversified while there are other stock-specific market risks as well which you may avoid. Set your own risk threshold taking into account your financial position, retirement objectives and age and thereafter invest with surplus funds which are not your emergency reserves or money allocated for meeting other necessary expenditure.
  • Do without leverage- This means usage of borrowed funds for executing your plan in the stock market. In margin accounts, brokerage firms and even banks may lend you cash for purchasing stocks. This could be good when markets are rising but when they fall, your loss will not only eat into the initial amount you invested but you will also have to pay interest on the money borrowed from the bank or brokerage firm. Steer clear of leverage and use it only when you have gained ample confidence or experience regarding your ability to make
  • Do not blindly follow the herd– A herd mentality is not at all recommended for investors; do not be influenced by actions taken by your peers, neighbours, acquaintances and relatives without understanding current market trends and underlying stock movements. Do not invest in a stock simply because everybody you know is investing in the same. Do careful analysis and homework before choosing your stocks. Prior to investing in any company, you should carefully understand its core business.
  • Do diversify the portfolio but over-diversification is avoidable- Do not have all your investments in a single stock. Have a well-diversified stock portfolio which will help you lower risks and save you from monetary losses even if some stocks do not do well. Avoid over diversifying your portfolio since an increase in stock volumes till a certain threshold will help spread out risks but beyond a certain stock figure, the investment will not get ample scope to grow as well.

On a closing note

Have a disciplined approach towards investing and never try to unduly time the market. Start out with smaller amounts and gain more knowledge and experience before spreading out and increasing your investments. Have practical and realistic expectations pertaining to returns as well. Keep tracking your investments in a bid to assess how they are performing.

Tom Fogden

Tom Fogden

Tom Fogden is a writer for Twollow with a range of experience in the world of tech publishing. Tom covers everything from cybersecurity, to social media and website builders when he's not reviewing the latest phones, gadgets, or occasionally even technology books.

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