If you’re wondering how to start investing in the stock market, I suggest you start small by only putting money that you are willing to lose. The amount could be as small as 1000 rupees or a small portion (1-2%) of your monthly salary which you would otherwise spend on a movie outing or restaurant meal.
Invest this money in a company that you like. If you are thinking how to find a company that you like, look out for products that you use in your daily life. In your own house or office. Which toothpaste or hand-wash do you use?
You could also visit a nearby shopping mall, spend some time there and check what people are buying. Are they visiting Westside? Visit a supermarket and check the popular products that people are buying there.
Once you find the products that you like, flip it and check the name of the company. Does it read Colgate Palmolive or Hindustan Unilever or Dabur? If you like buying clothes from Westside, then ‘Trent’ is the company.
Now it’s time to research a little more, we’ll keep it simple for now:
- Check if the company you like is listed in the stock market.
- Check the price it’s currently trading for.
- Check the graph for the last 5 years (you can do this on moneycontrol.com or screener.in)
- Now go ahead and buy a small quantity of two or three companies that you like.
- Do not worry, remember that you are buying shares from the money that you are willing to lose.
- Keep the quantity very small. Buy one share of Hindustan Unilever (currently 1700 rupees), 2 shares of Trent (currently 420 rupees) and 2 shares of Dabur (currently 425 rupees).
- It’s important to remember that we are only buying these shares to learn.
- Your next task is to track the price movement of the stocks every day or once in two days. What this does is, it lets you experience the ups and downs of the market.
- In the next few days, the stock you buy will either move up or go down. When Trent falls by 1-2%, you will feel disappointment. If it falls by 5-10% you will start to feel the fear of losing money. Fear plays a very important role in the market (more on this in another article)
- But if the stock becomes positive and starts going up. You will feel like investing more money. This feeling of buying more when price is going up is also very important for the market and that feeling is called Greed.
- The battle in the stock market is always between Fear and Greed.
- For now, all you have to do is experience the market and how you feel when the price is going up and down.
Spend a minimum of 6 months doing this. Invest a small portion of your income and experience the stock market. This experience will prove to be invaluable in your investing journey. It will give you important lessons and build a strong foundation for you to build on.
Some of your might ask, why can’t I do the same thing by investing in a systematic investment plan (mutual fund). The reason for this is, most mutual fund investors know nothing about the market. They increase their investment when the market is going up and decrease their investment when the market is coming down. Some of them even close their Mutual Funds when their investment goes down.
What they need to do is exactly the opposite. Invest when market is going down and slow down when Nifty or Sensex is reaching its all time highs.
Directly investing in stocks by yourself will give you the experience of the market cycles (ups and downs). The learning that you get, will also help you in your mutual funds investments.
For now, buy your first few stocks. Invest small and invest in the beginning of every month with discipline. Track the price movement of the stocks. Don’t buy or sell more. If you have time, read some news related to the companies that you have purchased from Economic Times or Money Control. It’s okay if you do not understand much, just spend some time reading.
Do this for 6 months and you’ll end up learning quite a lot.