How to invest in Stocks ?
It’s very easy to buy stocks today with online stock trading with the help of your stock broker who provides you an easy mechanism to buy stocks online on stock exchanges. The tough part is knowing in which stocks to invest in that can help you make money in stocks.
Below I am giving some ideas on how you can find a stock for investing in the stock market which can create long term wealth for you.
1.Understand how investing in shares make money for you.
Whenever you buy shares of any company, then in actuality what you’re doing is purchasing a part ownership of that company or in other way it can be said that you don’t buy stocks but the business of that company. An investor or stock market trader can make money trading on the stock market in two ways. The first way is to hold onto your investments and get dividends from the company, which are usually a part of a company’s profits/earnings that it gives to its stockholders. The other way to make money from stocks is to buy stock at low price and the sell your shares at a higher price . Let’s say you buy 100 shares of a company Infosys at Rs. 1000 /- a share, and the price increases to Rs. 1500 /- a share after several months. If you sell your 100 shares at Rs. 1500 /- then you’ll make 50,000 /- Profit on this stock market investment.
2. Long-term investing in shares creates real wealth.
The stock market is well known for its volatility, but the good news for investors is that those who buy stocks with a motive to hold on to their investment in stock market for long term creates real wealth. That’s why it’s very important to be patient in stock markets. So when you buy stocks of any company, then be willing to have a good strategy in place along with developing the quality of patience.
3. Understand the Business first
If you don’t understand the business of a company, then you are going to have a very hard time in stock markets. The basic concept of any investing is knowing the business of a company on a deeper level.
If you know about any business and how they operate then it will become a lot easier for you to find companies that can make you some money. For example, if you are passionate about smartphones and every day you do some research on companies who develop smartphones then it will become easier for you to select a smartphone company and understand their business. At least you will have some basic information about that company which can help you a lot when you want to buy shares of that company.
4. Understand the competition in any sector.
A company who has a unique product portfolio and less competitors will have huge earnings growth in comparison to a company where there are lot of competitors for that same product. For example, if there are 10 companies who develop smartphones then there will huge pressure on each one to compete with each other however on the other hand if there is a company which develops microprocessor for smartphones and doesn’t have any competitor will have greater advantage due to large market share and high earnings growth.
5. A company with good management
Management is the one who has to make certain decisions which impacts the value of their companies over time. This is the reason that we should always looks for companies which have strong management and good leaders. Whenever you want to invest in any company, try to do a profile check on each member of the management whether they have necessary skills and talents to run the company. A company’s performance usually mirrors the qualities of their leaders.
For e.g. Ratan Tata is known to be a great leader, a smart risk-taker, and an innovator who took his company, Tata Sons to higher levels.
6. Stock’s valuation
A major part of investing involves evaluating the worth of a stock in terms of its growth and to know whether the price of stock is expensive or cheap in comparison to its business valuations. Learn to find P/E and P/B ratio which are well known to find whether a company is overvalued or undervalued.