by Atash Kulkarni email@example.com
If you are looking to start investing in the stock market, this article is just the one you need to read. Don’t just dive head on into the equity market before doing a prior learning about it first. Or it would be like someone who doesn’t know how to drive a car, is learning it on a Formula 1 track or in the – mout ka kua.
You’ll remember the mout ka kua right? – Our local daredevils driving cars on slanting walls – deifying gravity and pulling off insane stunts the whole time. Do you think that would be the best set up for a newbie to learn driving? I hardly think so. You would want to learn in an open road, with almost no traffic and gradually develop your skills. Then perhaps jump in the cockpit of an F1 car or drive around in circles on a wall.
I find there to be very similar analogies between driving and the stock market. For example, you wouldn’t trust yourself to drive around if you don’t know how to right? Similarly how would you trust yourself to invest in the right shares if you don’t know anything about the market? How would you know that the person driving is a bad driver if you don’t understand road judgment, yourself? Then why do you leave it to your broker to make decisions involving your money and trust them to get them right?
Well the funny thing about brokers is, even if you make profit or loss in the market, they still get paid. For them it’s all a game of numbers. The more transactions you make, the more commission they earn. They never want your money to sit idle because that would mean they wouldn’t be making any money. My intention is not to bad mouth the broker’s or anything. But that’s the way things are. If you are someone on the other side, you would think that the stock market is too complicated and very, very risky. That’s what the people inside want you to see so that you would have to trust them to make any decision about it.
You must have heard people going bankrupt and committing suicides when the markets crash. Well that what happens when people treat the market like it’s a teen-patti table. Obviously if you take a guy who has never driven and put him in the mout ka kua, it would be surprising if he survived!
So why is it important to learn basics of stock market before investing in it?
Just as every car has its basic ABCs (Accelerator, Brake, and Clutch); the market has its fundamentals – Equity, Mutual funds and IPOs and their subsets. Then, there are the turbochargers, i.e derivatives and intraday trading etc. But let’s start by understanding the basics first.
The first thing to do is to know the basics of Fundamental analysis, Technical analysis and how to read charts and identify patterns. I know all these terms sound heavy (because it meant to) but the biggest secret investors know about the market is that it is – it’s not rocket science! There are methods, there’s study and there are ways to beat it. Yes, I know you might be thinking it sounds very risky and it feels like gambling where you never know how things will work out. That’s a fair thought. But we always fear things we don’t completely understand. The only way to tackle fear is to immerse yourself in what you’re afraid of. Learn about the market first. Think like an investor or an entrepreneur. Do your through research and only then go ahead with it. In the end you are buying a stake in a company (no matter how big or small) so you need to develop an attitude of a shark! *inserts free promotion for Shark Tank*
Stock Market? A business ? – Why not!
If someone told you, ‘I’m going to give you 20,000 rupees to start your own business’ what is the first thing you would do?
Most of us would see where our passion lies. Might be cooking, art, or anything! You are most likely to pursue that. Why? – Because you have an inherent understanding of that domain. You wouldn’t even realize when and how you gathered all that information about that field. You would be confident going ahead in that direction. But would you stop there? No. You would still research more, find out what the competition is, find out your best strengths and just tick all the boxes before you get in to business.
Now if the same person were to give you 2 corer rupees, your ambitions would be much bigger. You would think of businesses that need a heavy capital investment and also the potential to scale up. A painter would want to start an art gallery; a designer would want to start manufacturing his/her own label etc.
But the background work would still be the same or more now because the investment has increased and so you want to limit the risk taken. You would do an in depth study about the industry size/growth rate, the future potential etc.
So why am I talking to you about starting businesses? What do they have to do with the stock market? Well, more than you think!
Nobody gets up and registers a company on the same day he gets an idea. There is a lot of work that has to do before you can even think of setting up shop.
Ask any businessman you know, they’ll tell you. You need to identify the markets, track the trends, analyze the supply chain and use all the marketing fundas taught in B-schools. The learning could go on forever, but the once you feel confident and your back end processes are in place, it’s only then that you’d flip the open sign. The process of learning always continues.
My question is – Why can’t people look at the stock market the same way they look at setting up a business?
Learn about it, do your research and then invest in it! It is literally, that simple. Trust me, you would land up making good money and have another source of income too! The old saying holds true – you need money to make money but dont enter the market with the expectation of investing Rs 2000 and making Rs 2 lakh overnight. That’s the fine line between gambling and investing. Like any business, start small and gradually let it grow. There’s no need to relentlessly burn cash. The best part about it is, you will have no competition what so ever from anyone. The equity market is the only place where ‘the more the merrier’. If more people come in and invest, the whole market would do better and the valuations of your stocks would increase too. With inflow of new funds, the market will be healthier and even more promising for FDI which again would only make it better and bigger. What more could one want in business – No competition (ha!)
Its time for our investments work for themselves.
My former boss once told us in a meeting ‘While making a business strategy, you decide what to do next. But you also need to decide what not to do.’ If you ponder over it for a second, you’ll see the wisdom to it. If you sit on FDs thinking ‘I’m making 7% off them annually’, you aren’t a smart investor. You are naive and lazy.
You don’t factor in the inflation rate or the taxes you pay for saving, do you?
At the end of it you have little or nothing. And those lock in periods! Don’t get me started on it. They don’t let you touch your own money or you lose you interest on it! Where’s the liquidity when you need it? By investing in the right stocks you can beat the 7% in a couple of weeks with the most minimal amount of risk! Provided you know what you are doing and have some knowledge about the market.
6 months ago, I wouldn’t dare write an article about the stock market. I dint know squat about even holding a conversation about the stock market (Yes, I am still a beginner). I still have a lot to learn, but at least my perspective towards the market has changed. I now know how to look at a company, how to sense trends that are catching on. I’m actually thinking like an investor. I have a tiny portfolio (nothing fancy) which is doing quite well. All this happened because I studied a bit about it and have an excellent guide.
Does the stock market still seem scary? Well then bear with me on this-
Look around you and really notice the things next to you. (Do it now). Pick up that object and find out which company manufacture or owns it. You will notice that most of the products or commodities that we use in your daily life are being produced by companies listed in the stock market!
BOOM!! Mind = Blown? Not yet? Let me help you with it…
Your toothpaste brand, the oil you use to cook, even Jockey (the underwear brand – yes, that one) are trading on the market. Need I say more?
Let’s drive the point home now shall we?
It’s time to be on the side where the money is being made.
The next time your girlfriend/boyfriend (gender equality FTW) wants you to take them out for a movie on a weekend, go check the ticket prices.
A general PVR ticket would cost Rs.400-500 a person for a show (and they don’t even guarantee that you get any action at end of the night! But we hope). Their shares cost around Rs.1500. PVR has become a huge brand name itself with excellent ambiance and theaters. With new screens added in smaller towns and on going expansion in metros, PRV is going to get better and bigger. Rest assured Bollywood is going to keep giving them a lot of business with the amount of movies that they mass produce.
So why do you choose to be on the side that is spending on tickets and not on the side that is making money out of PVR’s growth?
It is time to be on the right side of the money. Invest in the products you like and use regularly. That’s your basic form of research (very basic). When you buy products, you make the company grow. It is your money that they use to fuel their growth. So aren’t you entitled to get some of it back? Buy their products, but buy their shares, too. Become a small owner in the company.
You need to learn before you can EARN
The premise of this post is not to advertise about stock market coaching classes. It just my attempt to bust the myth behind the stock market and also to emphasise one key point – You need to learn before you can earn. You could do this by yourself, too. You don’t need any fancy class that promises to help you become a millionaire overnight. But in my experience, if you have a good guide (like I do) that’s half your work cut out! Also, if you are an avid newspaper reader (I’m talking economic news, not celeb or sports) you already have the tools for self-research. It is where you can spot trends and get a general idea of which sectors are doing well and which of them have the potential to grow further.
This post is meant to encourage people to enter the stock market and make them understand that it is going to be huge. India’s Population is about 1.2 billion and of those only 1.5% of them have a DEMAT accounts (the exact no of how many of them invest isn’t known). There are over 23 million (2.3 CRORE) accounts in India, with approx $1.4 Trillion valuation. That means people don’t at all in the stock market. Yet, its one of the highest rolling stock markets in the world. Only imagine if more people came on board – The valuation would be preposterous!!
So what are you waiting for?
Learn your basics of investing and then enter the market and you will see a whole different window opened up for you. Don’t be a daredevil be a smart investor. The mout ka kuwa looks fascinating for the untrained audiences but not the stunt man doing it!