Understanding the Stock Market
Many people look to the stock market to enhance their hard-earned money more and more each year. Some people are not even aware of their investments, because they can come in the form of pensions with their place of employment. The company invests this money in efforts to increase your retirement funds. In order to fully understand what is happening with your money, you should understand how the investments work.
The stock market is an avenue for investors who want to sell or buy stocks, shares or other things like government bonds. Every day a list is produced that includes indexes or companies and how they are performing on the market. An index will be compromised of a special list of certain companies,
A share is a small portion of a PIC (public limited company), owning one of these shares will give you many rights. For example, you will gain a portion of the profits and growth that the company experiences, additionally you will obtain occasional accounts and reports from the chosen company. Another exciting feature of owning a share of a company is the fact that you are given the right to vote in various aspects of what happens with the company.
Once you purchase a share of a company you will receive something called a share certificate, this will be your proof of ownership.( however most of trading now a days is thru internet and you receive digitally signed contract from your broker ) This certificate will contain the total value of the share, this will likely not be the price that is listed upon the exchange and is specifically for reasons of a legal matter. This will not affect the current value the share currently holds on the market.
Typically, as a shareholder, you will receive your profit in the form of a dividend; these are paid on a twice per year basis. The way this works is if the company makes a profit, you will as well and on the opposite end of this spectrum if they do not make a profit, neither will you. If a company does extremely well their value increases, which means the value of the share you own will as well. If you should decide to sell your share, you will only benefit from it, if the company has experienced growth.
The sensex upward movements...... will it last?
- In my opinion there are few factors which will help in maintaining the upward momentum in spite of all the hue & cry of global recession & weak market trends in US market.
- UPA stable government for next five years has done it all. All of us are aware of how market had responded with a 2100 points jump in a single day to the newly elected Congress led UPA.
- Always play safe and invest in stocks which are active counters with high volumes.
- Try to figure out the 52 week high n low of a stock and accordingly judge the correct time to purchase.
- If a stock is already at its high then the upward movement of stock will be primarily because of its profits and any latest news attached to it. For ex – during rail budget, one can normally observe the upward movement of industries related to rail. Similarly if a stock is at its 52 week low, then also we need to be careful in buying such stock as they can decline further, resulting in loss.
- Always study the market trend and go with the flow.
- Do your complete study of fundamentals, graphs, 52 wek high-n-low & related news before buying any stock.
- . Share market not always gives profit.
- Day trading can be risky and addictive too, always do paper trading before entering into day trading. It’s a big myth people carry, that one can take home at least 5% of whatever amount he/she will invest by the end of the day. Its not practical unless and until you are doing it full time with in depth knowledge of graphs and entry and exit points.
- The less greedy you will be the more profit you will earn.
- Stay away from bogus companies, which claim for 500% return out of your capital in a month.
- Either be a long term investor or be a short term. For long term choose wisely the co. with outstanding growth and strong fundamentals. See the graph and make sure they are growing co’s.
- For small term investor, you will have to study market very closely and the related news. One can earn great profits (25% – 30%) in two to three months time.
- Always stick to stop loss and target profit range.
- Maintain portfolio wisely. Never invest the entire amount in one single stock or in one sector.
- Short term strategy - If xx stock is currently at 100 and you have a capital of 10000, then better invest half only with a stop loss figure around 95-96 ( meaning that if the stock go lower then 95, better exit from it) and target of 125-140 ( meaning once the stock reaches 125-140 range , better book profit and exit).
- Long term - But if you know the fundamentals of co, and sure of it going further, then better remain invested for long term and in future when it dips down below 95, then repurchase to average it out. Remember profits in long term are always outstanding. A stock can move from 10 to 200 in a year’s time.
- Always keep at least 15% cash. Invest this in fundamentally strong companies which become available at cheap rates during crashes.
- Invest a fixed sum regularly. It is called SIP, (Systematic Investment Plan). It may be weekly/monthly or yearly or any fixed number of days.
- Share market not always go upwards, it crashes when it’s overpriced. Foreign investors and local operators play a major role. Always look for what mutual fund companies are buying and what they are dumping.
- Stock price movement is just more than a simple graph. Fundamental analysis helps you to identify potential winners which can be multibaggers. Technical analysis helps you time the markets. If you are a long term investor, Fundamentals play a more important tool. If you are a short term trader, Technical analysis, news, rumors play a more important role.
- Last but not the least, make some rules before entering into share market and stick to those rules.
- There is enough money for everyone, but be smart and only invest in co’s with sound fundamentals.
Happy Trading!!!!!!!
Will keep you posted with current market trends.
