Basics of Stock market – A Beginners guide

Table of Contents:

1. Introduction to Stock market
   • What is Stock Market?
   • Why Stock Market Exist.
2. Differences between stock and shares
   • What is Stock?
   • What are shares?
3. Things to consider before buying any stock
   • Purpose of Investing
   • Analyze the company
   • Fundamentals
   • Dividends and bonus
4. Bull Market vs Bear Market
   • Bull market
   • Bear market
5. How to invest in Stock Market
6. Diversified stock portfolio

1. Introduction to stock market

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• What is Stock Market: Stock market is a platform where individual or institutional investors who can buy or sell their stocks in a stock exchange.  Most popular stock exchanges in India are    NSE(National Stock Exchange) & BSE(Bombay Stock Exchange).  NYSE(New York Stock Exchange) & NASDAQ(National Association of Securities Dealers Automated Quotations) are popular Stock Exchanges in United States of America.

• Why Stock Market Exist: If a particular company wants to increase their business capital, then they will list their shares into stocks in a stock market by IPO(Initial Public Offering).  So, the investors can buy their shares and resell them later.  If the company makes profit, then the investors also get benefit and company will share the profits to the investors by using dividends policy.

2. Differences between stock and shares

• What is Stock: Stock is a financial term which represents part of ownership in one or more companies.

• What are Shares: Share is a financial term which represents part of ownership of a particular company.

3. Things to consider before buying any stock

• What is the Purpose of Investing: First we need to understand ourselves the purpose of investment and why I’m buying this stock. Because in the modern world most of us don’t have enough time to analyze the stock completely, maximum retail investors working in a different field and they want to invest in a Stock market to multiply their money.  But the real fact is you will end up losing your money if you invest in any stock without analyzing. Each investor will have different goals so choose your goal and set the target and achieve it.

• How to Analyze the company:

The following key things we need to check for the company.

• What kind of business is the company doing?
• Have the company products are in demand in the market?
• Check the company’s growth in the last five years, the profits should have increased gradually.
• What is company’s current debt?

• What are fundamentals in stocks: The key fundamentals areP/E Ratio, P/B Ratio, ROE, ROCE, ROA, EPS, Dividend Yield, Debt to equity, etc.,

• Dividend and Bonus:

What is Dividend: Dividends are two types i.e) 1. Cash Dividend 2. Stock Dividend.  Cash Dividend are sharing some part of profits to the shareholders and it will directly credited into your bank account if you are holding the stock on Ex-date.  Stock Dividend are paying stocks to the shareholders instead of cash.

What is Bonus in Stock: Bonus is like gifting stocks to the existing stockholders in some ratios. For example, if the company announces Bonus of 5:1 ratio then if the investor has 5 shares then it will be increased to 6 shares.

What is Share split in stock: Share split is increasing number of shares by decreasing stock price to attract new investors to invest more.  For example, if the company stock price is Rs 100/- and the company announces share split of 1:10 then the stock price will reduce to Rs 10/- and if we hold 1 stock then it will increase to 10 stocks.

4. Bull Market vs Bear Market

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• Bull Market: Bull market is defined as share market index will reach to new high with at least 20% from the recent low with in a period of 3 to 4 years.
• Bear Market: Bear market is directly opposite to Bull market. The index will reach to new low with at least 20% from the recent high with in a period of 3 to 4 years.

5. How to invest in Stock Market

Follow the below steps to invest in Indian stock market:

• Open Demat and trading account using the Referral Link in Zerodha.
• Login into your demat account.
• Add the fund from your bank account to demat account equity.
• Select the shares and buy/Sell as per your wish.

6. Diversified stock portfolio

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Before starting to invest in stock market you have to choose at least 4 to 5 different sectors, each sector you need to choose 2 to 3 standard companies and add into your watchlist.  For example, if you have 1000rs in your equity then invest that 1000rs into different companies from different sectors.  This type of investment will save you if any particular sector is not performing, even during the bull/bear market.