How to invest in share market
Identify your goals & timeframes
Money is a means to an end.
The first step you need to take (even before you invest in the share market) is to identify your goals. It can be anything like your further education, your child’s education, wedding, vacation, retirement or even buying a home. These goals will be different for everyone. You need to find yours.
Once you decide on a goal, you have to calculate how much time you have till that goal.
Let’s say you have a child who is 10 years old, and one of your goals is to save money for their college. In this case, your timeframe is approximately around 8 years.
These two things (goals and timeframe) should form the basis of all your investment decisions.
Once you’ve found out your goals and your timeframe, you need to use your money to realise those goals. Money is put into assets in order to make it grow. These assets where you put your money to work is called an investment. One such avenue for investment is the share market.
What is the share market?
The share market is an online marketplace where you can buy and sell shares of a company. Investing in the share market means investing in the stocks of companies. Of course you can also buy a basket of shares through Exchange Traded Funds (ETFs).
Investing in shares is not for everybody. Unlike public sentiment, shares don’t always keep going up. There’s a LOT of risk involved in investing in shares and there can be long periods of underperformance too.
However, if your timeframe is 10+ years and you have a good risk appetite, sitting on debt funds or parking your money in a savings bank account can mean losing out to better returns in stocks.
Is the share market a right fit for me?
Who should invest in the share market? What kind of investor does it suit?
In general, shares can be used by any investor with a risk appetite to create long term wealth. When we say risk appetite, it means ability to lose money. Yes, you should be able to lose money and carry on with life. It is such money that can be invested in the share market.
You need to have a timeframe of a minimum of 10 years (could be longer too) in order to let the stock’s earnings grow & compound. As earnings grows and compounds, so does the stock price. This compounding is key to building long term wealth.
Investors take a fundamental approach or a technical approach to stock investing. The former requires understanding of a company, its financials, business, prospects and very importantly the quality of governance. Remember, this is not a one-time affair. A company you sift through and pick may see a change in its fortunes with time. Hence, as a fundamental investor you would need to keep track of your companies’ earnings and prospects. And that is not all. You should know the following as well:
- Know how to build them: You should build a portfolio of stocks and not put all your eggs in one basket. Do read our valuable article on how to construct a stock portfolio here.
- Know when to hold them and when to fold them: It is not enough that you identify good points to enter your stock. You should also know how to lock the gains by booking profits. Learn how you can effectively implement it in this article on booking profits in shares.
Technical approach is typically for shorter time frames, where one tries to identify price trends and ride it – knowing when to enter and exit. Here, you look for patterns and trends in the history of a stock price to predict its future performance. This method contains higher risk and is more suitable to people who can spend a lot of time learning and understanding chart trends and having a disciplined approach to booking profits or cutting losses.
One also needs deep pockets to consistently do this. Professional traders have a comfortable kitty they can fall back upon. They would have put away enough money for their life’s goals and would already have invested for the long-term and even have some money tucked in fixed deposits. Some professional traders even set aside an emergency fund as high as 1-year’s living cost.
For those who wish to make a living as an equity trader, having a significant chunk as capital is necessary. Otherwise, you cannot think of building wealth. Not having a substantial sum as capital brings in other risks. For example, someone trying to get Rs 50,000 a month from a capital of Rs 5 lakh would likely push himself/herself to adopt high-risk strategies that can even wipe the capital and cause losses.
If you think you are still cut out for it, learn slowly and steadily and first master the art of losing less.
Get our guidance
Through Prime Stocks, our stock recommendation and research service, our aim is to make your task of direct equity investing easier, by identifying sound stocks that can be long-term wealth creators based on fundamental analysis.
We at PrimeInvestor believe that the best way to pick stocks is to select them using fundamental analysis but trying to find the right price of entry. You can read more about our approach stocks here.
Once you decide that stocks are right for you and you decide which stocks to buy and hold, here are the basic steps to invest in share market.
How to invest in share market
Find a Broker
You can go ahead and pick literally any broker. However, there are a lot of new-age discount brokers where you get to save brokerage costs. (The downside to this is you would not be able to access any quality research there. But hey, that’s what we’re here for! 😉)
Next step is to fill out all the forms that the broker asks you to sign. Once you do that and open your brokerage account, you can go ahead and
Credit money to your brokerage account
Add money to your trading account so you can buy stocks, mutual funds etc…
Invest in share market
Use the app / website of your brokerage firm and type in the name of the asset that you want to buy.
Select the asset.
Click on “buy”.
You have now invested in the share market. But one last thing and this is important! Online brokerage platforms make available plenty of learning material for you. They equip you – so that you make money – for them. Watching a few videos and hearing free advice would definitely not amount to learning trading or fundamental investing. Learning comes through real life experience and it can take years before you can call yourself an investor or trader. Rely on sources that do not have an agenda (like requiring you to churn your portfolio to get you to pay more on brokerage). Needless to say PrimeInvestor should be your preferred source of independent research solutions. Do check us out here.