Basics of Stock Market- Part 1

In the present scenario, India has no dearth of so-called ‘Investors’. One with a mobile, internet connection and some cash in the bank account, without any knowledge of investment, is entering the stock market with the belief that one day he will become the ‘Big Bull’. The very term ‘Investor’ comes with the word ‘Investment’ and investment is nothing but banking on one’s own knowledge in the fundamentals of the companies and the right sense to perceive and predict the financial doldrums in the country. In most cases, the so-called ‘investors’ lose their financial zeal within a year as in most of the cases, good stocks do not end up giving magical results and those need real patience to yield handsome returns. In this article, we are going to study some basic concepts of the stock market, which will benefit the new entrants to have control over their personal financial goals.

It is often noted that nothing entices the new entrants more than the penny stocks. They are cheap, easily available, and hugely advertised stocks by their sufferers. Remember, if you are entering the stock market and investing all you have in a penny stock worth less than ten rupees and you are dreaming big to become a billionaire one day with that stock, you are just fooling yourself. Unfortunately, social media and so many channels will be full of videos making pompous claims on the probable gigantic returns in near future and you will be prompted to buy those stocks. Do you know why they are pushing you so hard to buy those stocks? Because there are no buyers of those stocks and they themselves are stuck in the gutter of those stocks. These stocks are penny stocks because the companies are either closed or on the verge of being closed and the people with basic knowledge do not buy those stocks and that is why the values never shoot up. True, one in a hundred penny stocks may perform well if the company starts doing well and there is a turnaround in the cash registers of the company because of some paradigm shifts in the management. But then, you cannot blindly pick such stocks unless you are very much aware of the fundamentals of the stock you are eying on. Never buy stocks because those are cheap. Buy only if they have strong fundamentals and even if their value is less presently, they have a bright future ahead. And even if you are done with your research, do not invest all your resources in one go. Invest in little installments and wait for the quarterly results to come out. If you see that the company is continuously performing well and gaining profits on a trot, invest small amounts of your hard-earned money. So first basic concept, the myth of penny stocks turning into blue chips is completely false and it is only your basic understanding of the financial skeleton of a stock that is going to save you during the financial turbulences.

See you soon in the next part.

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