Stock market is one of the biggest wealth creators in India. It is the most popular investment option that provides ample opportunity to multiply your capital. There are number of ways or strategies through which you can do stock investment. The stock investment strategy varies from one person to another as it majorly depends upon your financial goals, risk appetite and investment horizon. In this article, we will walk you through the strategies that you can use while investing in stocks.
Stock Investment Strategies
- Invest in Business, Not Stocks
One of the important principles of stock investment is that you must invest in the business and not in stocks. This means that if a business is viable and has a bright future, the stock price will ultimately move up. You must avoid looking at the market trends and other noise and study the fundamentals of a company. Purchasing the stock of a company having a good business and whose probable future performance seems bright will help you in earning higher returns. This, however, requires research, long term commitment and patience to hold the stock for the long term.
- Be Passionate About What You Buy
When you make a stock market investment you must be passionate about the companies where you are putting your money. Being passionate here means that you must keep each and every information about the business of the company. This is because often the investors get trapped by buying stocks just by looking at the financial statements. Instead, you must conduct deep research about the various ratios like price to equity, debt to equity, EPS, etc. When you invest in companies by looking beyond the financials, you are likely to make higher returns and keep them for a long period in your portfolio. Thus, getting into the deep details of the company should be your mantra for stock market investment.
- Invest in Companies Whose Business You Understand
You must make the stock investment in those companies whose business you understand easily. To become a successful investor, you must be aware of the various activities of the company and sector in which you are investing. However, sometimes it might not be possible for you to get or understand each and every detail of the company. In such cases, as an investor, you have to factor that as uncertain risk. Moreover, value investors look for simple business model companies because in such companies even incompetent management cannot cause much harm to the business.
- Invest in Well Managed Companies
It is no secret that the market has always been harsh on companies that have poor management quality. Therefore, before making stock market investment, you must find companies that have a good set of management. Good management can do wonders for a company. There have been many cases in the past where investor’s stock market strategy has been to invest money in companies with good management and they have made huge profits in the long run. Good management always ignores the market value of a company and focuses on business growth.
- Ignore the Market Most of Times
When making the stock investment, you must ignore the market. This is because you are making an investment in the company and you will hold on to it until the fundamentals are good. The market may have a temporary effect on the price of the stock but in the long run stocks with strong fundamentals will give you good gains and help your portfolio grow. There would be times when there would be huge sell-off in the market and holding to the stocks during such period is the key to success.
- Diversify But Don’t Over Stress
It is a known fact that a diversified portfolio is the best portfolio. However, one should not overstress on diversification. This is because there can be a scenario in the market where only a few stocks are having a good run and adding them in large quantities would be against the diversification theory. In such situation, a value investor invests more money in stocks where the upside is obvious rather than keeping his capital idle.
- Be Consistent
Always maintain a consistent approach to be successful in the stock market. Investors always seek the best stocks to buy today and in the process forget to maintain discipline. You can build and maintain your portfolio well when you are consistent with the strategies, your financial goals and have the patience to hold stocks for the long term. Taking irrational decisions when the market is volatile can prove to be fatal and it is against the basic rule of investing in the stock market.
The above mentioned are a few strategies for investing in stocks. The best stock to buy today shall always be the one that successfully meets your research and analysis benchmarks. If you want any more assistance for stock investment, you can contact IndiaNivesh Ltd. We assist you in creating wealth through our customised solutions. We aim to exceed our client’s expectations in all endeavours.
Often when people begin their investment journey in the stock market, they are swamped with multiple questions in their mind. The very first basic question that comes to the mind is how to determine which stock to purchase and which to avoid. Well, the answer to this question is - stock charts. The stock charts help you in evaluating and gathering all the important information that you must consider before purchasing a stock. By learning stock pattern analysis you can not only become a successful investor but also a successful trader. In this article, you will be learning the different aspects of stock chart reading. Let us first understand what are stock charts? What are Stock Charts? Stock chart is a sequence of prices plotted on a graph over a different timeframe. The y-axis i.e. the vertical axis of the chart represents the price and the x-axis i.e. horizontal axis of the chart represents the time period. Learning and understanding stock chart reading may look like a tough task initially but with little practice, you can master the art. All you need is the correct understanding of the basics of chart reading. They can help you predict the future price movement correctly. Let us now understand the various aspects of stock charts. What are the aspects of Stock Charts? Price and Volume The charts are generally divided into two parts; the price of the stock and the volume of the stock. For correct stock chart analysis and reading of stock chart patterns, it is important to read both price and volume together. This is because if you look only at the movement of the price you would not know how genuine the buying or selling is. For example, a stock has fallen over 5%. Initially, it may look very bad but if the fall is with lower volumes than the average, you may continue to hold the stock because the selling is not done by large retailers who drive the market. The same is the case when the stock is rising but with lower volumes. This rise in the stock price could be fake because when the big players enter the stock there would be a huge rise in the volumes. Moving Average Lines Moving average lines are very important to understand the performance of a stock. They represent the movement of the share price over a period of time. With the help of moving average lines, you can understand whether the stock is overbought or oversold by large retail participants. The mutual funds and big institutions follow the stock chart patterns and change their positions in stocks when the price rises or moves below the moving average point on the graph. The key moving average points can be a 50-day line, 15-week line, etc. When the stock falls below the benchmark moving average line, the big players often sell their holding and exit the stock. Similarly, when the price moves above the benchmark moving average line, the big players enter and the stock price can rise sharply. Relative Strength Line Relative strength line helps to identify if the stock is a market leader or laggard. This is done by comparing the performance of a stock with the index i.e. Nifty or Sensex. A sharp line rising upwards on the graph indicates that the stock is outperforming the market while a sharp line downwards is an indication that the stock is a laggard and underperforming the overall market. The stock comes in the leadership territory when the Relative Strength line is rising for a breakout and set for a new high in the market. After learning about the various aspects of stock charts, let us learn about some of the basic stock chart patterns. Stock Chart Patterns Daily Stock Chart A daily stock chart on a graph represents the movement of the stock price on a specific day of trading. The day traders use daily stock chart patterns to take intraday positions. The chart has multiple moving day averages like 50 days, 100 days, etc. which the traders monitor continuously to take positions. When the stock rises sharply it is represented by a sharp line rising upwards and when the stock falls, the graph shows a sharp fall in the line. Weekly Stock Chart Just like a daily stock chart represents the stock price movement on a single day, similarly, the weekly stock chart represents the price summary of stock for a single week. This chart is generally used to forecast the price of stocks for the long-term. The weekly charts can display longer-term data on the screen which makes it easy for the analysts and investors to determine the long term trend of a stock. The new investors often get confused between the weekly and daily charts. The confusion is mainly regarding which charts are suitable for them. This section of the article will try to resolve that dilemma. Daily Vs. Weekly Charts The daily charts are said to be good for the traders who are looking for volume and price action on an intraday basis. The stocks on daily charts are said to be giving a breakout when it breaches the 50-day line on either side. On the other hand, for long term investors, weekly charts are ideal. These charts forecast the long term price of a stock along with its trend. It also keeps the investor's emotions under control as they can take wrong decisions looking at the volatile daily chart movements. The Bottom Line There is no doubt about the importance of stock charts in the share market. You can decode the price movement on charts and take advantage of it by making profits. If you want to learn more about stock chart reading and indulge in trading or investing based on it, you can contact IndiaNivesh Ltd. We are one of the most trusted and value-enhancing financial group with new technologies in India. Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
We all know how various companies and industries raise funds for their short term requirement through the money market. However, when they need funds for long term, capital market is their source. The capital market is just like the money market but with a difference that funds raised in the capital market can be used only for long term. In this article, you will learn about the concept of capital market in detail. Let us first understand what is the capital market? Understanding Capital Market Capital market in simple words means the market for long term investments. These investments have a lock-in period of more than one year. Here, the buyers and sellers transact in capital market instruments like bonds, debt instruments, debentures, shares, derivative market instruments like swaps, ETFs, futures, options, etc. Let us now understand the types of capital market. Types of Capital Market The capital market is of two types i.e. Primary Market and Secondary Market. Primary Market The primary market is also called “New Issue Market” where a company brings Initial Public Offer (IPO) to get itself listed on the stock exchange for the first time. In the primary market, the mobilisation of funds is done through right issue, private placement and prospectus. The funds collected by the company in the IPO is used for its future expansion and growth. Primary markets help the investors to put their savings into companies that are looking to expand their enterprises. Secondary Market The secondary market is a type of capital market where the securities that are already listed on the exchange are traded. The trading done on the stock exchange and over the counter falls under the secondary market. Examples of secondary markets in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). After learning about the types of capital market, let us now learn about the capital market instruments through which money is raised. Ways of Raising Funds Offer through Prospectus In the primary market, the prospectus is used to raise funds. The company invites the investors and the general public through an advertisement known as the prospectus to subscribe to the shares of the company. The shares or debentures are allotted to the public on the basis of subscription. If the company receives a high subscription then allotment is done to them on pro-rata basis. The company hires merchant bankers, brokers or underwriters to sell the shares to the public. Private Placement Some companies try to avoid the IPO route to raise funds as it is very costly. Instead, they give investment opportunity to few individuals via private placement. Here the companies can offer their shares for sale to select individuals, financial institutions, insurance companies and banks. This way they can raise funds quickly and economically. Rights Issue The structure of capital market allows the companies in need of additional funds to first approach their current investors before looking at the other sources for finance. The right issue gives the current investors the first opportunity to make additional investments in the company. The allotment of right shares is done on pro-rata basis. However, if the current shareholders of the company do not want to exercise their rights, the shares can be offered to the public. e-IPO e-IPO means Electronic Initial Public Offer. e-IPO is an agreement between the stock exchange and the company to offer its shares to the public through online mode. It is a fast and speedy process. The company here needs to appoint registrar to the issue and brokers to accept the application received from the public. The above mentioned are the ways of raising funds through the capital market. Let us now learn about the various functions of the capital market. Functions of the Capital Market Helps in the movement of capital from the people who save money to the people who are in need of it. Assists in the financing of long term projects of the companies. Encourages investors to own the range of productive assets. Minimises the transaction cost. Helps in the faster valuation of financial securities like debentures and shares. Creates liquidity in the market by facilitating the trading of securities in the secondary market. Offers cover against price or market risks through the trading of derivative instruments. Helps in efficient capital allocation by way of competitive price mechanism. Helps in liquidity creation and regulation of funds. The above mentioned are the functions of the capital market. The capital market performs its functions with the help of buyers and sellers who interact and transact. The structure of the Indian capital market is well regulated and highly organised. The capital markets may be sometimes termed risky because they do not give fixed returns annually. But when looked from a long term perspective, their performance has always been good and rewarding for the investors. If you want to learn more about the capital market or put your savings in the capital market, you can contact IndiaNivesh Ltd.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
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