Stock market investing can be a daunting task for beginners. Even seasoned investors occasionally find it challenging to maneuver and make choices in up-and-down markets. Today we will go over 5 points on how a market novice can start investing.
1. Invest in yourself before investing in the market
One of the most common mistakes people do is to venture into something that they don’t know about or have very little knowledge of. As the Oracle has said, “The best investment you can make, is an investment in yourself.” Warren Buffett knows that the mind is the most important asset that one can invest in, which is why he spent 80 percent of his day reading and thinking. So, the first step to becoming a successful investor is to start reading. One can start with the basic financial statements; such as Balance Sheets, P&L, and Cash flow statements, and then can move on to read about legendary investors who have amassed enormous wealth in the markets like Warren Buffett, Jim Simons, Peter Lynch, and Ray Dalio.
2. Clearly defining the risk and goal
Setting goals is essential in everything you do, including life and investing. Every person has different goals. A person at age of 18 may have a goal to become financially independent at an age of 30, and a person at age of 30 might want to invest in a child’s education, tuition, or marriage. If you’re older, you might desire to grow and safeguard your wealth for retirement.
3. Understand the business and invest only in what you know
Understanding the business is the first step in investing. One should always read in-depth about the product and services that the company offers. Some of the key things to know about the company are products/services, the raw material (if it is a manufacturing company), rivals, industry, risks for the business, geography where the company operates, and the management which runs the company. After carefully reviewing the aforementioned information one can get in-depth knowledge about the business of the company. The second thing for the investor is to focus on the area which matches his/her skills and expertise. An individual working in the IT industry will understand the company which provides IT services. Likewise, an individual familiar with the chemical manufacturing industry will understand the chemical company.
4. Obtain first-hand knowledge through quarterly and annual reports
In this era of the internet where information is cheap and readily available, it is hard to restrain yourself from fake information and rumors. As a beginner, one should always focus on reading annual and quarterly reports provided by companies. The companies provide these reports to the investors and explain the current state of the business. These reports provide all the data pertaining to the company’s financial situation.
5. Be practical and start early
The stock market has a lot of emotions, sometimes it becomes upbeat and exciting, and sometimes desperate and panicked. As a beginner, it is important to feel all these emotions as they help an investor to get the experience in real-time. To be a part of these important emotions one should always start early and start investing. Warren Buffett bought his first share when he was 11 years old. So, starting early is always good.
(By Siddharth Oberoi, Founder, Prudent Equity)