Investing in the stock market is one of the best ways to generate wealth. However, doing that is not easy and requires a sound understanding of the market and stocks apart from many other things. Even seasoned investors make mistakes and lose money sometimes. A beginner, therefore, needs lost of patience, discipline and knowledge about the market before getting started.
Let’s find out what a beginner should do when making investment decisions in the stock market.
1. Improve your knowledge and skills: The first thing a novice investor should do is advance his or her market knowledge and expertise before making a decision on the stock market investment. They may go to the NSE website and look for the most suitable online stock market courses to get certified in a variety of themes that may include capital market, derivatives market, investment analysis and portfolio management, and fundamental analysis. They may dispel their misconceptions about the stock market using this strategy, which also enables them to make better investment choices that will enhance their earnings and investments.
2. Be aware of risk profile and goals: An investment made without understanding one’s risk tolerance and investment objectives will have a significant impact since the investor won’t know how to respond when the market collapses. Investors are usually classified into three main categories based on how much risk they can tolerate — aggressive, moderate, and conservative. So, beginners will typically fall under the conservative risk category and will place more emphasis on minimising than on increasing profitability. A newbie should be thoroughly informed of his or her investment goals in addition to knowing his risk profile because this will help them visualize their future plans clearly.
3. Nature of investment should be long term: One should adhere to long-term investments as a beginner instead of betting on an intraday basis. In comparison to long-term investments or even short-term deals, intraday trading carries a higher risk. Trading calls for regular monitoring, and this technique necessitates extensive market expertise. However, a beginner who is in the initial stage of learning about the stock market should place emphasis on long-term investments, since in the long term rather than making capital gains the investor will also take benefit of corporate actions like dividend, bonus shares, stock split, and share buyback offers.
4. Buy the right stock: It is suggested that beginners should opt for large cap or bluechip firms with a track record of long-term growth. The explanation for this is that large cap companies often have lower volatility, making them more stable and with superior long-term growth records and future development plans. For a beginner with a low-risk tolerance, investing in large cap stocks is preferred after studying the company’s financials, including its balance sheet and income statement. Large-cap companies are well established and generally regarded as safer investments than mid-and small-cap stocks, though the returns may vary.
5. Keep a diversified portfolio: Diversification is crucial to remember when it comes to investment since it helps minimise the risk of placing all of your eggs in one basket and the possibility that the performance of your portfolio might be harmed by one stock. In light of the demand in the economy, new investors should make investments in the stocks of various sectors. Maintaining the portfolio’s overall health stable will enable them to reduce their risk and cover their losses in the event any one sector underperforms.
Conclusion
For beginners, it is important to keep in mind that thorough research and analysis will enable them to decide whether to buy, hold, add, or sell a stock. While investing in the stock market involves considerable financial risk, novice investors should consult their financial advisors first to make an investment decision based on their risk profile and goals.
(By Ravi Singhal, CEO, GCL Broking)