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Investing in stocks, a tricky biz
Traditionally, the stocks, shares and equity are investment instruments issued by the corporations or joint-stock companies with a view to raise funds to meet their business needs. Thus, it represents part ownership in a corporation and entitles and the investor becomes a part of that corporation\'s earnings and assets.
Historically, there are three major asset categories – shares, bonds and cash. Let us understand how one can invest in stock markets
Traditionally, the stocks, shares and equity are investment instruments issued by the corporations or joint-stock companies with a view to raise funds to meet their business needs. Thus, it represents part ownership in a corporation and entitles and the investor becomes a part of that corporation's earnings and assets.
These shares can be divided into: the common stock, which gives the holder of shares to exercise right to vote and general body meetings; and preference stock, which has no voting right but guarantees return in the form of dividend annually. Earlier, these shares used to be issued via certificate also known as security, but after introduction of online trade into stock markets, share certificates are issued in electronic form.
Benjamin Graham, market mentor of Warren Buffett, says the best way is to treat investment as a business. Thus investing in stocks is a tricky business. It means, before jumping into stock markets, it is wise to know the basics of stock investing.
The first lesson:
Although optimist myself, I will say investing in stocks is risky to the extent that you may even completely lose the investment amount in one go. I am right, even if I start the lesson on a negative note. It is because; investing is not an easy task, more so, when people come with high hopes. It is like a bubble and nobody knows when it will burst. Having cautioned enough, if one still likes to invest in stocks, here is how?
Benjamin Graham says in his classic book ‘The Intelligent Investor', "To achieve satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks".
The investment decision always should be individual, and if one decides to invest in stock, then choose carefully.
For the beginners: when you decide to buy shares, you have to pick the company more carefully, as you are going to become a part-owner of that company. First, look for the information on the company, and the best tool today is to use Google.
Try to understand the business of the company and enquire with other stake holders like dealers, customers and general public. This will give a broader knowledge about the company's health. Then start mining the balance-sheet and cash flow statement, which are available in the company website or the BSE, NSE websites.
It is only when you get satisfactory answers to all your questions and gain enough confidence in the company, that you start investing in it for long-term, say about 5 to 10 years.
To become a successful investor, you require money (for sure) but also patience besides confidence in your investment decision and the company. However, one should continue searching for more information about the on-going affairs of the company, till such time one stays investing in it.
By:KVVV Charya
