Since you’re new to stock investing, it’s impossible to know what to invest in or at what price. This article will outline 15 stock investing tips, so you can get started with your investing life in the easiest way possible.
The stock market is one of the world’s most exciting, but also one of the most volatile, investment opportunities. There are thousands of stocks to choose from and there are thousands of ways to play them. While there is always a lot to learn about trading, these 15 investing tips will get you off to a good start.
Here are some carefully selected tips for beginners. These are stock investment tips that I have compiled over time based on my knowledge and ideas.
By knowing and applying these tips, I have become a better investor. But more than that, they have broadened my view of investing in general.
How to apply these tips? I have made a habit of reading this article at least once a year. The advice given here covers almost every important aspect of investing in stocks. Every time I read this article, it gives me new ideas.
I’m not ashamed to say that this is one of my long-standing articles that unfortunately never got the attention it deserved. So I’m rewriting it and posting it in a new post. What do you think of this article? Feel free to tell me in the comments below.
Contents
#1. Concept note
What is the concept of equity investing?
Buy stocks of good companies at undervalued prices and then hold them for a long time (long term).
What’s a good deal? These are companies with a wide range of capabilities. What does the underpricing mean? This is the purchase price, which is lower than the intrinsic value of the share. How long is the long run? Ownership of shares for more than three (3) years is considered a long-term investment.
#2. Expected realistic returns
Buying stocks hoping to double your money in a few months won’t happen. But it is also true that there are stocks with multiple pockets on the market. But they can also grow capital at a marginal rate.
At times like today (COVID), when the markets have collapsed, the apparent one-year return can be as high as 100%. But these are just isolated examples. Under normal circumstances, it would be a mistake to expect such a return.
With a holding period of 3 to 5 years, Indian equities can provide a return of 15% per annum. At this rate, your investment will double every 5 years (line 72).
#3. No alternative to long-term holding
Even for seasoned investors, short-term stock price volatility is a mystery. In the short term, the evolution of share prices is almost impossible to predict.
But yes, there are those who do technical analysis for a living. But the unsophisticated investor is better off staying away from it. To engage in technical analysis, a thorough education is required.
What’s the alternative? An alternative is the practice of long-term investing. How do you do that? Don’t buy stocks in a hurry and don’t sell the stocks you buy in a hurry.
The main objective is to hold your shares for a very long time and benefit from compound interest.
#4. Practice makes perfect
There is no alternative to self-study. Just like you can’t learn to ride a bike by reading books, to learn how to invest in stocks you have to buy and sell stocks yourself.
Be prepared to make bad decisions. Learn from this and continue to invest. But as we learn, we must keep the following in mind:
- Suggestions for action in the media : The companies report their results every three months (quarterly). More detailed results are only available every 12 months (annually). But the media has to find stories every hour that get attention. How do you do that? To do this, they try to find reasons and meanings for every small movement in the market. Remember, this kind of bullying is unnecessary.
- Business fundamentals : So if we don’t care about media coverage, what are we supposed to do? Focus on developing your skills, identifying a solid business and valuing its true value.
Read and apply what you learn by buying and selling stocks.
An investor must first understand the company, get a feel for it, and then buy the shares.
The thought process should be as follows. We’ve been buying shoes in Bata stores since we were kids. No one has ever complained about the quality and reliability of Bata shoes. Are you an investor and want to buy shares in Bata India? I’ll buy it.
Another example.
We have seen the ups and downs of various Indian companies like Satyam Computers, Sahara Group, Kingfisher, Jet Airways, Cafe Cofee Day, DHFL, Essar Steel, Yes Bank, Bhushan Steel, Reliance Communication, Future Retail etc. Given the recent performance of these companies, would you buy shares of these companies? Probably not.
Therefore, experts strongly recommend understanding the company before buying shares. This type of equity investment significantly reduces the risk of loss.
#6. Buy when prices fall, sell when they rise
This is the simplest advice about investing in the stock market. But unfortunately, due to our psychological limitations, we cannot follow him.
We panic when prices fall. Even though the fundamentals of the company are strong, we only sell them because the stock price has fallen. This is a mistake. When prices fall, it’s a good time to buy more – not sell (restriction).
Similarly, when the price of a stock goes up, we tend to buy it without checking the fundamental data of the company. In general, rising stock prices allow us to sell, not buy.
We often hear the experts advise against negotiating too often. They also favor long-term equity ownership. It should not mislead us into believing that we can hold ALL stocks for the long term. It’s not gonna work.
For example, suppose you have bought a stock at a price of, say, Rs. 1,000 per unit. After owning the stock for six months, you find that the price has dropped to Rs. 600. At this point, you may think that long-term storage can offset the losses. But at this stage, attention should be paid to the future business prospects of the company. If the current news about the company is dismal, sell immediately.
#8. Best manager + no carpet = no investment
First, very few companies are run by great managers. Nevertheless: If the company has no moat, it will die sooner or later. It makes no sense to invest in such companies. A bad F1 team can’t win just because it has Schumacher.
Similarly, a firm with a large workforce led by average managers will perform better than a firm without a workforce led by exceptional managers.
But it’s also true that bad managers can bring down even the richest companies. Read more.
#9. Bad managers + large mattress = no investment
In my day job, I often drove with my clients. From my experience, I would say that a company led by quality management is a rarity.
Bad managers are almost like parasites. In most cases, it is these parasites that ruin the business.
As an investor, it is extremely important NOT to invest in a company run by PARASITES. Therefore, it is important to learn how to assess the quality of the management of a company.
#10. Past performance + CAPEX + cash + profitability = future growth
A company that has done well in the past may not do well in the future. That’s right. Why this uncertainty? Because no one can predict the future. But we can take a guess. How do you do that?
To judge the future, we can look back at history. But it’s not enough to look at past stock price performance or dividend history.
We also need to look at CAPEX (capital expenditure). The high level of CAPEX (over the past 5 years) is a clear sign of rapid growth in the future. Look at the company’s cash flow statement for CAPEX figures.
Companies that spend a lot on CAPEX tend to become illiquid. We wouldn’t want to invest in a company that was tight on cash. To verify this, the company’s current assets must be compared to its current liabilities (current ratioCurrent Ratio is a quick analysis tool to check the near ter... More). We want this ratio to always be above one – for a company with high CAPEX. For other companies it is preferable that the current ratioCurrent Ratio is a quick analysis tool to check the near ter... More is higher than 2.
In addition, we will monitor the company’s performance characteristics. The minimum criterion is a consistently high rate of return (ROC) – above the cost of capital.
#11. Setting the correct safety limit (MOS)
When the market doesn’t give us the opportunity to invest in good companies. Why? Because these companies are almost always overpriced.
Investment opportunities are limited in a booming market. Therefore, we may choose to invest in less popular companies. But we must not forget that we are entering risky waters here.
But we can follow the rule. We can set a higher safety margin and then buy such companies. For companies with a high degree of saturation, even a safety margin (MOS) of 10% is sufficient. But in other companies we may be dealing with an MOS of 35% or more.
#12. Long-term ownership means not buying and forgetting.
Successful stock investors often refer to the need for patience as a psychological trait. The most logical course of action for a patient investor is to hold the stock for the long term.
But patience and long-term ownership do not mean buying a stock and then forgetting about it. It also doesn’t mean that you should only look at the price and forget about the changing fundamentals of the company.
Follow-up should be thorough.
At least once a year it is good to assess the intrinsic value of a stock. A drop in the value of a company is a bad sign. Try to understand what is causing the slip. What’s going on with the company? If there is no major negative news in the news, stick to your point of view.
#13. Free cash flow guidance
People often put too much emphasis on sales, net income, earnings per share, net worth. But it’s more than that all together. What is it? The ability of a company to generate positive free cash flow (FCF) in the future.
The ability of a company to generate free cash flows in the future is its intrinsic value. A company that generates negative free cash flow has a fair value of zero. Even if the shares of such a company are trading at Rs 1, they are still overvalued (expensive).
#14. Sensitive to market peaks and troughs
Both the ups and the downs have their benefits. Peaks are the time to take profits (sell), and troughs are the time to buy quality stocks.
How do you know if the market has peaked? Look for previous peaks and look further back in time, 5 to 10 years. Now check the current level of the index and compare it with the past.
Similarly, if the index has corrected by more than 20-25%, then it is heading for its low.
15. Doing the opposite of what the market is doing
This type of investment is better known as contrarian investing. This is an investment strategy where investors make buy and sell decisions, unlike most market participants. What is the logic behind this?
When most people buy a stock, it makes the price spike. If you buy a stock at this time, you are more likely to find an overvalued stock. This is a better time to sell current assets.
Similarly, when most sell, prices fall. If we buy at this time, we have a better chance of catching the stock at an undervalued price level. Now is the time to not sell damage.
The combination of value investing and contrarianism can make equity investing almost foolproof. Recognizing the intrinsic value of a stock is the first step. Then buy it when the market crashes, making this method of investing risk-free.
Supplement
These 15 tips for investing in stocks have been compiled based on the expertise of experts like Warren Buffett.
Although I have only briefly discussed these fifteen points in this article, you will also find more detailed descriptions here. Just follow the links and you will be directed to the correct page.
I’m following this advice about stocks. Over time, the list has grown. But at fifteen, they seem to cover almost every aspect of stock investing that retail investors need to know and practice.
If something new comes up, I’ll add it to the list. If you have any suggestions, please leave them in the comment box below.
Thank you for reading and good luck with your investments.
Frequently Asked Questions
What should I invest in at 15?
If you’re asking this question, you’re likely in your 20s or 30s. You should invest in a 401(k) or an IRA.
What stock should I invest in as a beginner?
If you are a beginner, you should invest in a few shares of a company that you believe in. If you are unsure of which company, you can look at the stock market index such as the S&P 500 or the Dow Jones Industrial Average.
How many stocks should a beginner start with?
A beginner should start with about 10-15 stocks.
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