My answer to What are the first steps to invest in the Indian stock market?
Answer by Ruchir Gupta:
Everybody else might be able to guide you for the first steps, while I dont know if any one else will share what I am going to share, this should be the critical part before you think of investing in any stock.
Be aware of your broker:
- Go to market as an investor, in case you visit broker office regularly he will try to engage you in intraday and short term trading be aware of it. Never ever buy on Broker recommendation get the ability to identify good stocks your self.
Behave like a stingy fellow:
- Hesitate to spend money for any stock you are paying, if you bargain for everything else in life then why not for stocks. In the first few months spend time on learning about identifying good stocks.
How to Identify good stocks:
- Prospectus of top performing mutual funds: See the top performing mutual fund prospectus, the stock held by them, their yearly returns and performance , this could give you the idea where you should invest your money. Old funds are better as they have a more historical data
- Promoters Holding and Honesty: Good Companies will also be majorly owned by their promoters (as owner why will some one sell his company to outsiders if its making good profit and has enough potential?) Good companies share profits with their share holders in the form of Dividends and Bonus.
- Numerology: Use simple numerology to know if the stock selected will suit you (in case I write an article on this subject I will update the link here, I am yet testing this on my trades)
- Check the historical charts: check the historical charts of the stocks. In case you are from India then look and HDFC Bank, Kotak Mahindra Bank, Ajanta Pharma, Eicher Motars, Maruti, Bajaj Auto, M&M. All these stocks go up in 45 degree angle and even in case of any corrections fall less than the market
- Look for consistent companies: dont invest in companies which report losses or their profit falls dramatically, instead look for companies posting profits on a consistent basis. the Stock price of such companies also become less volatile.
- Keep away from Debt Companies: Keep away from the companies that have heavy debt or expensive debt (debt taken at higher rate of interest) in their balance sheet. These companies will be paying most of their profits to debtors and then what ever will be left after will be shared with share holders. Many a times nothing is left and shareholders receive their part of losses and hence stock price declines further. Eg: Reliance Communication and all other Anil Ambani Stocks
- Past performance gives faith: The stocks which have performed it the past will continue to perform, don’t buy cheap stocks because of lesser price
Key Planet and other cycles:
- is operational in all the stocks. So wait for an opportunity every seven year. * Every seven years there is great opportunity to buy the stocks at very prices. Use this opportunity to buy good stocks.
- Find out the planets that are affecting your stocks. Refer to my Other articles you will get some hints.
- 70% or more of your saving should have to in safe assets like Fixed Deposits, Bonds, Gilts. After doing that saving only you should turn towards Stocks.
- Always keep a idle cash 30-40% to buy bargain stocks
- Divide your money in to different stocks to diversify company risk
- Divide your money into different sectors to diversify sector risk
- Fix an a equal amount to invest each month, don’t change that figure.
- Wait for the right time with cash in hand
- Only invest the money which you will not need for next 20 years. Minimum investment criteria should be atleast 7 years.