Which stock market investment tips for beginners can actually be used by newbies?
It is a fact. One can find plethora of stock investing advice on internet.
But hardly any content is written, targeting beginners.
I bought my first stock in year 2008. I was a beginner then.
After almost a decade, it still feels like a humble beginning.
Yes, stock market investing is like this.
If one becomes its student, it will teach so much each day that, it always feels like a new beginning.
Each lesson learnt about stocks, opens a new chapter about business.
Stock investing is not only about money exchange. It is actually a business philosophy.
If beginners follow a right philosophy, success is like guaranteed.
To succeed in stocks, one must understand business.
Begin with right vision…
One such investor/ business man is Rakesh Jhunjhunwala.
He is popularly known as the Warren Buffet of India.
It is said about him that, he made his first million from stock market before he turned 30.
What does it prove?
If one can pick right stock market investment tips, even beginners can earn fame.
But it is also a fact that, in stock investing wisdom does matter.
And to majority, wisdom comes with age and experience.
So a young man should venture into stock market with caution.
Idea should be to, first do the following:
- Become a student to stock market.
- Learn every day about stock valuation.
- Gather wisdom about “what is a good business”.
- Follow few key stock investment tips.
None of the above 4 ideas will work in isolation.
Sum-total of all of these, can help a person to pick good stocks.
In this blog post we will talk about SL NO. #4, top 20 stock market investment tips for beginners.
#1. Fix Goals & Time Horizon.
Before you buy your first stock, have a clear idea about why you are investing in stock market.
Ask yourself, what alternative investment options are available apart from stocks.
When you know why stocks is best for you, look deeper into your requirements.
Ask your self, Why’s and When’s.
- Why you are buying stocks (goal)?
- When you will need the invested money (time horizon)?
If time horizon is short, like less than 3 years, think hundred time before investing in stocks.
When time horizon is moderate, like 3/5 years for car down payment, stocks will still be risky.
If time horizon is longer less than 5 years, go for quality and undervalued stocks.
It is important to first have a clear picture about your needs.
Then fix an investment goal and give it a necessary time horizon.
Always remember, stocks are a long term investment vehicle.
#2. Educate yourself in stocks.
What are stocks?
In isolation, stocks are nothing but a worthless piece of paper.
But the thing that backs a stock, makes it valuable. What backs a stock? Business.
Which are the favourite stocks of BSE & NSE?
- 532540 and,
What are these numbers? These are codes, given by BSE to the stocks.
See, without their names, how meaningless they sound.
These stocks are liked by people because of the business that they represent.
- 532540 represent TCS and,
- 500325 represent RIL.
Had 532540 represented a small grocery store (and not TCS), would it still be so popular? No.
Had 500325 represented sick company like Kingfisher Airlines (and not RIL), would it still be so popular? Never.
[Note: in 2010, Kingfisher Airlines stocks were trading at Rs.80. In 2015, it price was Rs.1.5]
So what is the point?
Stocks on its own means nothing.
A good stock is one:
What a beginner can do?
Step #1. Learn how to identify a good business.
Step #2. Learn how to check if a stock is undervalued or not.
#3. Start investments in smaller amounts.
What you have done till now?
- You know your goals.
- Investment time horizon is known.
- You know which are good stocks.
This is the time when you can venture into the stock market.
But the advice will be to go-slow.
A beginner, must build-upon his/her experience, before committing big investment.
How to build experience? Start investing in smaller amounts.
Pick the stock that you have analysed, and buy only 1 or 2 numbers of it.
Idea is to, not spend more than 8-10% of monthly net savings, initially in stocks.
I started my stock investment journey with just Rs.1,000. I wanted to test the waters first.
Rs.1,000 was that amount, that even if lost, would have not troubled me.
#4. Keep a Risk Threshold.
In stock trading term, people call it “stop loss”.
But in investment, there is no stop loss.
Frankly speaking it is not necessary to have a “stop loss” for expert investors.
But a beginner cannot ignore the phenomenon of “stop loss” in stocks.
Stop loss for a trader is different. Suppose a trader has set a stop loss of 10%.
If the stock price falls by say 10%, the stocks will be sold.
What is a stop loss for an investor?
Investors do not need stop loss. Why?
Suppose you are Warren Buffett, and you bought shares of a company XYZ.
Soon after its purchase, the price of XYZ fell by 25%, would you panic and sell stocks?
Of course not.
Because when Warren Buffett buys stocks of a company, he knows that it has strongest business fundamentals.
Stocks of such companies may fall today, but it is bound to reach new heights in times to come.
Hence, investors do not bother too much about price falls. They need no stop loss as protection.
They believe their research work.
#5. Avoid External Advice.
In case you need help in deciding which stock is best for investment, choose a right financial advisor.
Do not invest by simply listening to what is said in the print media or Television.
You may be using social media for getting ideas about good stocks, but this is not the right way.
Do your own stock research (see SL No #2.). Avoid external stock advice as they are often delayed.
Such stock advice are also (often) result of superficial research work.
Always pick stock based on your own goals and research.
#6 Don’t let emotions make decisions for you.
Emotions can let you act in two ways:
- Buy stocks, as everyone is buying.
- Sell stocks, as everyone is selling.
In Bull market, more people are buying stocks. Hence you will find euphoria in such times.
In Bear market, more people are selling stocks. Hence you will find more panic ridden people in market.
When market is rising, people buy as emotions are upbeat.
When market is falling, people sell as emotion is of pessimism.
It is very important to learn, when to buy and sell stocks.
But if one lets their emotions take charge, they often buy and sell in wrong times.
- When pro-investors buy stocks?
- When everyone is selling.
- Similarly, when pro-investors sell stocks?
- When everyone is buying.
#7. Review Investment Portfolio.
Suppose you are an investor who has been in stock market for last 15-20 years.
Such a person will often have more than handful stocks in portfolio.
Suppose this person bought following stocks 8-10 years back:
- DLF &
By mistake, these stocks got carried over till year 2018.
What has happened to these stocks in 2018? They are not more than dead-beat today.
This is one reason why, an investor must review his/her investment portfolio every 6 months.
Though, too frequent review is not advisable, but for me, 6 month works well.
Check for any uncanny price falls or price rises.
In case of any unnatural movements, make sure to perform the stock analysis again.
Anyways, all stocks (even healthy ones) of investment portfolio must be analysed once every 2/3 years.
#8 Diversify investments:
Remember the age old saying of, ‘don’t put all your eggs in a single basket?’
The same theory holds true for stocks as well.
Never invest everything in one stock or sector.
If that stock goes down, there is a 100% chance of making losses.
Instead, spread your investment across various assets, stocks & sectors.
This will protect the investment for potential big losses.
A great way of investment diversification is, buying other assets in addition to stocks, like:
- Debt Funds.
- PO savings plans.
- Real Estate Property.
- Balanced Mutual Funds etc.
#9. Avoid using leverage.
One might come across a lot of complex trading strategies like use of leverage.
They guarantee to triple-money in short time. These strategies work.
But for only selected few.
Common men is not in that elite group.
Leveraging is basically borrowing money from brokerage firm for trading.
If one make profit, it good.
But in case of loss, the apathy gets amplified.
It is best to avoid leverage investing, until one gains experience as well as confidence in one knowledge and decision-making abilities.
To quote Warren Buffet – “Risk comes from not knowing what you are doing”
#10. Never invest money you need.
Investment should be done only using the spare money.
Never invest your retirement savings in stocks.
Avoid investing child’s education funds in stocks if you need it after 2-3 years.
Never sell any physical asset to put that money in stocks.
Do not invest more than 8-10% of your monthly savings in stocks.
Why these checks are necessary? Because you are a beginner.
Even pro’s take very calculated steps while buying stocks.
Thumb rule is, only invest that money in stock that you can afford to throw down the drain.
#11 Start Reading Financial Reports.
Do you know what are these reports?
- Balance Sheet.
- Profit and Loss Accounts.
- Cash Flow statements.
If you do not know, your exposure to stock market must always be indirect and limited. Why?
Without knowing how to read these reports, one can never know the difference between a TCS and a Kingfisher Airlines.
If you want to put more savings (more than 8-10% each month) in stocks, learn to read and comprehend these reports.
#12 Futures and options are for traders.
As a beginner, it is best to keep things simple!
It is advisable to invest money in stocks, and avoid trading in all forms.
Future and options are tools used by expert stock traders.
Trading in such derivatives are practiced by only professional day traders.
A beginner investor must avoid it at all times.
#13. Choose stocks whose business you understand.
There are many stocks available for purchase.
It is best to start with stocks whose business seems quite straightforward.
Means, those companies whose business can be easily understood.
For example, it is easier to understand the business of companies like:
- Shoe manufacturer (example: Bata).
- Paint manufacturer (example: Asian Paints).
- Maggi Noodles manufacturer (example: Nestle).
Compare these stocks with that of L&T. What they do as part of their business:
- Construction – infrastructure, Civil work, building construction etc.
- Power plant construction.
- Material Handling equipment manufacturing and installation.
- Design and supply of heavy engineering equipments.
- Design and supply of defence equipment etc.
So what do you think, which line is business will be easier to understand?
L&T business is too complicated for a common man, as it is hugely diversified.
Similarly what TCS does?
It has a lot of things happening in parallel like:
- Software development,
- Infrastructure development etc.
If one has deeper know-how about companies like L&T & TCS, buying such stocks can be profitable.
But generally speaking, a beginner must stick to “understandable businesses”.
Such business’s generally has fewer and simplified product lines.
#14. Do not buy new stocks all the time.
One must not keep buying new stocks all the time.
Instead, the focus should be deeper research of few stocks.
This is what Warren Buffett calls, building ones circle of competence.
Upon deeper research, following two conditions may arise:
- Holding stocks are found to be better.
- Holding stocks are found to be less valuable.
In condition 1 – More of such stocks should be purchased.
In condition 2 – The stock holding of such companies can be reduced.
When one is reducing ones stock holding (selling), decision to buy new stocks can be taken.
But buying a new stock means, more research work.
Researching stocks is not so simple.
Ideally, a trained long term investor like Warren Buffett may take several months to draw conclusion about a stock.
So if a person is buying new stocks too soon, it is a sign that enough research is not being done.
This may lead to future losses.
#15. Buy stocks systematically.
If one is not an expert of stock research, it is better to buy stocks systematically.
First step will be to screen stocks. This can be done even by novice investors.
The result of such screening may give you 4-5 reasonably good stocks.
Identify 2/3 out of those 4/5 stocks, and prepare its purchasing schedule.
Split the purchasing schedule in span of 12 months.
What does it mean?
Suppose you have Rs.12,000 available for investing in stocks.
“Purchasing schedule” of 12 months means, Rs.1,000 must be invested each month for next 12 months.
This way one can take advantage of Rupee cost averaging.
In cost averaging, one typically buys:
- Lesser shares when the price is higher and,
- More shares of the stock when the price is lower.
This is what every investors desires to achieve, right?
#16. Know when to book profits.
One of the common mistake made by beginners in stocks is, failing to book profits.
This can be explained using an example.
- A person bought 10 shares of a stock for Rs 100. (Investment: Rs.1,000)
- In a matter of 3 years, market price of this stock rose to Rs.150 (Market Value: 1,500)
This is a investment growth of 14.5% per annum (in 3 years).
An investment which gives a return of 14.5% in 3 years horizon can be considered good.
Suppose the person had the following investment goal in mind:
- 12% p.a. (minimum return) – when held for 3 years.
- 14% p.a. (minimum return) – when held for 5 years..
- 16% p.a. (minimum return) – when held for 7 years.
As the stock has generated more than 12% p.a. in holding period of 3 years, the person can think of profit booking.
This is one of the easier ways to ensure profit booking without miss.
Important is to note the following:
- Goal setting must be done.
- Realistic returns must be targeted.
- Holding time must not be set below 3 years.
#17. Track investment portfolio online.
It is a nice idea to ensure easy tracking of ones stock holdings.
How to do it?
One can use following free online portals to track their stock holdings:
Tracking ones stock holding online using these portals is more than useful. How?
First, it allows the user to get a summarised view of all holdings.
Second, details of individual holdings (stocks) can also be seen.
#18. Try not to time the market based on momentum.
Want to buy stocks at its bottom and sell at peak?
On hindsight it might look possible. But practically it is like impossible.
That is perfectly fine.
Even veteran investors find it difficult to exactly time the market. Why? Because it is difficult to do it.
So what is the better way? Remember the concept.
Buy low, sell high.
All stock market intelligence and philosophies end with these 4 words.
One must buy stocks at low price, and sell them at a higher price.
If this is not happening, stocks will become worthless for its investors.
How to ensure it?
Start to time the market based on stock’s intrinsic value, and not on its price movements (momentum).
#19. Always buy stocks for long term.
If one has to invest money for short term, look elsewhere.
Stocks are such investment options that is reliable only in long term.
Yes, this might confuse you.
There are stock traders who buy/sell stocks every day and earn their living.
So how we can say that stock investing is a long term strategy?
To clarify this doubt, we have to understand that, investing and trading are two different things.
- Stock investing is a long term strategy.
- Stock trading is done for short term.
But be reminded that, stock trading is more like gambling.
It is always advisable to stay away from gambling, right?
#20. Stock-help is available?
If you have any issues with stock picking etc, better is to ask for help.
Who will help?
People who know and practice stock investing.
Where we can meet such people?
- Online blogs/websites.
Though relying on others for stock picking is not advisable, but it is still better than investing-blindly.
My suggestion to beginners will be to rely on building know-how about stocks.
Do not get mesmerised only by the “act of buying & selling stocks”.
Buying and selling should come mater. First learn about stock valuation.
It is always better to wait, learn stock research, and then buy stocks.
Stocks purchased like this is bound to make money for its investors in long term.
Have a happy investing.