Stock Investment – The Basics for Beginners

For people who are just starting off their journey in the stock market, things often seem quite confusing. Before entering this market, they usually hear different tips and tricks from multiple people. If they start searching on the internet, there will be thousands of reels and ads popping up on their mobile phones all the time. Everyone will be telling them some new tricks to follow in the market, and this creates even more confusion among them. Many newcomers quit at the very beginning because they do not want to lose their money. But just wait for a while, the basics are not that tough to understand. To begin with the stock market –

What exactly is a stock?

A stock is a share (part) of a company that is available in the market for trading. People buy it at a certain price pre-decided by the company. When you buy a particular stock of a company, you become a part owner of that company, also known as a shareholder, as you are holding its shares.

Now, when it comes to the price of that share, it totally depends on the performance of the company. If the company grows well, the share price will go up, but if the company does not perform well, the stock price goes down in the market. Although there are other indicators as well that decide the price of a stock, which we have already discussed in our article on “Economic Indicators,” as a beginner, you should first understand how the price of a single stock can go up and down.

Where can you trade these stocks?

In India, we have stock exchanges like NSE (National Stock Exchange) and BSE (Bombay Stock Exchange), and stocks are traded only on these exchanges. As a beginner, you can think of them as normal marketplaces where things are bought and sold, and you can simply buy stocks from any of the available platforms.

Also, we have two indices, Sensex and Nifty 50, which track the performance of top companies on a particular day. When you hear people talking about the market being up or down, these indices are usually what they are referring to.

How can you make money from this market?

Coming to the most important part – making money from the market. It sounds very exciting at times but is equally risky if not backed with proper knowledge and experience. There are two major ways through which you can start making money from the market –

Capital Gains

Let’s say you buy a stock at Rs. 100 and sell it later at Rs. 110. The margin of Rs. 10 will be your profit, and that increase in your capital is called a capital gain.

Dividends

Dividends are the extra benefits that a company gives to its shareholders just for holding the stocks. Although this benefit is not provided by all companies, there are many companies in the market that share a part of their profits among shareholders in the form of dividends. So, this becomes an additional income for people who are holding those stocks.

The No. 1 Rule Every Beginner Should Know

“Risk & Returns go hand in hand.”

So before entering the market, you should clearly understand that higher returns come with higher risk. It will never be a situation where you will get the “best of both worlds.” To understand this better, you need to compare returns first.

You can think about traditional FDs where you deposit money in a bank in the form of a fixed deposit and receive fixed returns – low risk, low returns. Now, since you are planning to enter the stock market, be prepared for better returns along with higher risk.

Basic Terminologies

Demat Account

To start your trading journey, you must first open a demat account. This account will hold your stocks digitally. Getting a demat account is very easy and requires minimal documentation. You can get it activated through any broker or broking application.

Portfolio

It is simply the basket of stocks and investments that you are holding. Let’s say you have 100 shares of one company, 150 shares of another company, and 100 shares of some other company, everything will be visible in your portfolio. It can also include your other investments like mutual funds, SIPs, etc. You can directly check the performance of your holdings through your portfolio.

Broker

You cannot directly buy or sell shares in the market. You need a broker in between to handle all the transactions. There are multiple options available these days like Groww, Upstox, Zerodha, Univest, etc. Apart from these, banks also have their own securities platforms meant only for trading and investment purposes.

Bullish Market

A bullish market is a trend where the market goes up. During this phase, market sentiments are positive and people usually start buying more stocks.

Bearish Market

In a bearish market, the market goes down and market sentiments become negative. People get scared and tend to sell their holdings, which again reduces share prices as demand becomes lower.

Summing Up

One major rule of investment is “Don’t put all your eggs in one basket,” which clearly means that you should never invest all the money you have set aside for investment into the shares of a single company. Keep your investments divided among various categories and assets.

Many people consider stock investing to be sheer gambling, but the truth is that you will feel so only if you enter the market blindly. The real difference comes from knowledge, patience, and discipline.

Discipline is also very important in investing – never let yourself become too happy with good returns that you start investing beyond your limits, and never become too disappointed with losses that you stop investing completely. Stay alert, keep learning, and keep growing. Also remember that theoretical knowledge alone is not enough; you need practical experience to understand the reality of the market.