Stock market advice for new retail investors

Retail investors generally invest in the stock market without even doing basic research. Many retail investors do not even consult financial advisors before making investments. They assume that one can earn money easily based on the advice of the stock market.

10 questions share market investors ask themselves:

1. Business model of the company: believe it or not, 90% of retail investors do not know the business model of the company in which they invest. When you do not understand the business model, how can you have an idea about the valuation and future prospects of the company? You must also understand the difference between a good company and a good stock.

2. P / E and EPS: it is too good if you study other parameters such as PEG, company value, balance sheet and investment rates, etc. If you can not understand them, at least study about EPS and P / E. BSE & NSE are offering training courses for stock market investors. They help you understand the basic concepts of the stock market and how to study the balance, etc.

3. Do I know the earnings estimates? Try to have an idea about future earnings estimates. Past performance is never an indicator to understand prospects for future growth. You can get some idea by reading newspapers, magazines, research reports and management statements. Earnings estimates are not perfect numbers, but they will give you an idea about future growth prospects.

Another important question: How does this company achieve that growth? Is there any risk of dilution of capital? What happens to the debt situation?

4. Is there any risk to the valuation? This is the most important question that every investor must ask before investing in an action. The fall of the valuation will destroy the price of the shares; the risk of valuation comes from many aspects, such as poor profits, falling margins, administration (IT incursions, scams, promised actions and insider trading, etc.), changes in policies, changes in the business environment, etc.

Historical valuations are not biblical affirmations. The valuation of the sector is not a criterion. The valuation number is not constant and can change enormously according to the specific issues of the sector / stock.

You can earn good money if you invest in an action with good growth opportunities at low valuations. You can benefit from the gains and valuation improvements. It will lose a lot when the fall in profits is accompanied by a reduction in the valuation.

5. Why am I investing in this company? The investor in the stock market must have a clear idea about why he invests in that company. When you have a clear idea about an action / company, it will not get tense when the action is corrected due to weak market confidence / will not sell it for a marginal benefit.

6. Duration of the investment: I will not recommend investing in short-term stocks. It is almost impossible to predict the movement of stocks in the short term. Even good actions can generate losses in the short term due to market confidence or external factors such as global events, political events and short-term bad news such as the sale by operators, etc.

If you have enough idea about the business model of the company, you can easily get an idea about the duration of the investment.

7. Can I digest short-term corrections / shocks? According to the legendary investor Warren Buffett, one must prepare for a 50% correction in an action in the short term. We saw what happened in 2008: even good stocks such as ICICI Bank and Larsen & Toubro collapsed due to rumors and weak market sentiment.

8. What happens with the management? Every company is not an Infosys / Godrej. Quite frankly, I do not understand why stock exchanges allow investments in one cent shares, especially in the Bombay Stock Exchange. It is very difficult to have an idea about the quality of the management of small businesses. If you read newspapers and magazines regularly, you can have an idea. The experience teaches you many lessons.

9. How much should I invest in this action? Many retail investors can not afford the services of the best portfolio managers. Therefore, they usually make mistakes due to lack of sufficient knowledge and experience. Quite frankly, many investors have no idea about their risk profiles. Portfolio allocation depends on the risk profile, the nature of the stock and the visibility of the profits and other related factors.

One should always save money for the average / emergency needs.

10. Do I have enough mental strength? Investors in the stock market must have discipline, mental strength, guts to make difficult decisions, stay calm in difficult times and behave against the crowd, etc. You should never follow the crowd. You should never deviate from the basic principles of investment. Many investors stay away from stock markets when stock markets collapsed and when stocks are traded at incredible prices. Frankly, that's the best time to invest in stocks.

How many of us have guts, maturity and investment vision to make decisions against mob / herd / crowd? Like it or not, the bull market, the bear market and the normal market are common over a period of time. One must prepare mentally for the fluctuations of the stock market. But, good actions help you earn money in the long term.

The most common perception among retail investors is that stock markets are the easiest tools to make money. That is why they invest based on stock market advice without doing research.

Stock market investors should ask themselves a basic question before investing in an action: Do I know what I am doing?

Note: Please consult with financial experts before making investment decisions.