When you are just starting out in investing, it's easy to feel intimidated. In all honesty, it isn’t nearly as tricky as it seems in the beginning. The Oracle of Omaha, Warren Buffett defines investing as "the process of laying out money now to receive more money in the future." The world of investments is a large one, and there's virtually an infinite number of things to learn about investments. Investors who are successful will tell you they are continuously learning and improving their skills to succeed in the financial markets. Luckily, you don’t need to know everything there is to know about investing to turn a profit.
Basically, all investments can be categorized into asset classes like stocks, bonds and so on. Equity investing is when you buy and sell stocks in publicly traded companies. A public company that has listed its stock on an exchange can be bought by anyone who desires to become a part owner. These companies sell shares to raise capital for expansion, so it’s a win-win situation for all involved. In addition to buying stocks to profit when the stock prices are low, stock investors can sell stocks to profit from an increase in a stock's price, or buy or sell options on stocks and stock indices. Dividends may also be a source of profit for stock investors. If you own stocks, dividends can be compared to interest or a bonus per share. Stocks are traded on exchanges such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). Exchanges facilitate the trading of stocks. The stock market is complex and is continuously changing. It takes time and research to make money and manage risk.
While buying a stock, it is important to see the company’s performance. People who invest usually decode a company’s business model and do a technical/fundamental analysis. Technical analysis is preferred by day traders and they evaluate the security of trading based on the trading activity in the market. This sounds tough, but once you get the hang of it, it’s easy to do.
Tips from a not-so-famous investor:
- If you want to play it safe, opt for mutual funds. A mutual fund is a company/investment vehicle where savings of many investors are collectively invested as a single one. The money is then invested in assets like stocks or bonds and are managed professionally.
- Checking economic news is a waste of your time unless you are day trading and going for short-term investments.
- Investment plans that come with insurance are basically a big red flag.
- Follow Saurabh Mukherjea (Founder and CEO of Marcellus Investment Managers).
- Read “The Psychology of Money by Morgan Housel.
- Long-term investments usually tend to be more profitable.
- “Let’s Talk Money” by Monika Halan is another must-have book to learn about personal finance.
- Once you start investing, it is important to continue investing.
In order to become a successful investor, you should learn the concept of diversification, which is to have a variety of different types of companies in your portfolio. In the stock market, the best way to increase your wealth is to buy shares of great companies at a reasonable price and hold them for the duration of the business. Don’t wait, Do your homework and start investing asap.