In stocks investment, attitude is more important than knowledge. In any market if certain discipline is followed, it is not difficult to invest directly in stock. Simplest way to enter in stock market is to start a SIP (Systematic Investment Plan) in an index mutual fund. This means investing some amount of money regularly in multiple stocks. This might seems little boring. So let’s see how easy is to invest in stocks directly without understanding much fundamentals.
Stock picking: Pick any market say US, India, Australia or a nation where one is resident of. Just pick the main index of that market eg. DJIA for US, Sensex for India or ASX 200 for Australia. These index are composed of top companies of a country. So we are only talking about investing in stable and blue chip companies. This is safe and right step for starters. From these list of companies, try to pick one company from each sector. This will make your portfolio diversified.Now check the history of that stock by looking 1 year or 5 year price graph. Now only pick those companies where price is out of favor or trading lower.
First Buy : Split your money into smaller transactions. You also need to figure out the expenses incurred for trading a stock e.g., brokerages, taxes etc. You have to be careful that your transaction money is not too small that these expenses are very high. your cost should be between 0.5% to 1%, but not 5% OR 10%. Now based on that transaction value buy a stock which looks best in terms of price. Don’t rush to buy another stock immediately. Just give some time to make sure that you enter at different points in a market.
Trading : Now keep discipline of selling a stock if it goes beyond 10% or buy same stock if it goes below 10%. The % can be different from 10%. It is just to make sure that you have exit strategy as well.Keep in mind the dividend paid by stocks. The stock might be splitting. Slowly you will start learning about the broad concept of market.Initially, you can make a habit of doing one transaction per month. Also selling only if making profit on a transaction means “never loosing money”. Make sure that you are not keep buying a single stocks if it is keep on falling. This trading is better than investing in index fund as you have more control over individual stocks. This way you can reap the benefits of fluctuations of individual stocks.
Markets : In emerging markets like India , even the blue chip stocks are comparable with growth stocks of developed countries like US and Australia. So it tends to fluctuates a lot. This can be seen in the five years or 10 years graph price of stock. As these stocks fluctuates a lot, it is important invest less and keep cash as a risk management strategy.
Time : Always keep longer horizon in mind for returns in stock investment. It takes nearly 10 year to understand a market, next 10 years to make money and next 10 years to protect that money. Also benchmark your return against inflation, fixed deposit or market returns on an yearly basis.
It is a good idea to start conservatively to be in market for long time. If you suffer losses initially, you might be put off and won’t enter again for long time. Once the real money is involved, you will try to learn about traded stocks on TV or Internet. you can improve the discipline as you go along. Slowly but surely you will understand the intricacies of stock market. This is the path to financial independence.
Posted by dsodhi 
