How can you get started?

Different strategies and tips which are used by some of the best investors

A comprehensive guide to help you start investing in stock market

There are a lot of questions and confusion when starting out.

• How to get started?
• How much money you need to get started?
• and many more?

Not sure why these things are not taught in schools. These are the basic necessities to preserve and grow wealth

Financial Audit

Many people have financial advisors who take huge commissions to provide some value. They beat the market sure, but marginally unless you are paying some hedge fund manager.

They charge annually on the total amount invested whether the market is up or down. They get the cut.

The issue is that, most of you all can easily do it yourself.

One of the first thing you should do even before you start thinking about investing is a full Financial Audit.

I know you might be eager to start investing but this is incredibly important that you do this.

Why? Suppose you have 50k in unpaid Credit Card bill which are very high interest rate debt and usually charge in the upside of 20, 30 or even 40% annually. You should mind paying those off before you start investing. It is really important to be realistic about on how much you can make in the stock market specially as a beginner.

Yes, there are ways to make huge money in stock market doing intraday trading in couple of days. Some people are able to do using penny stocks and small cap stocks. but that is not for everyone.

Statistically, developed market like from US gives around 10-12% annual and emerging market like India give around 12-15% in longer periods of time. This is what you get doing index investing but you can beat the market by picking individual stocks

Warren Buffet did the same, he started small and look right now where he is. One of the richest person in the world. Any one can do this and beat the market.

Now, if you are done with the financial audit and do not have too much of debt or high interest debt you can consider investing in the stock market.

I will suggest start to set some money aside to invest. You can start with any amount but I read the book, "The Richest Man in Babylon" and if you are serious about growing your wealth you should definitely read this. So this book say you should invest at least 10% of your income and rather it states, pay yourself 10% first when you get salary and then plan for other expenses.

There are basically 3 different strategies which you can use to invest in stock market.

Now, lets talk about the first strategy

Fundamental Analysis

It is used by 80% of the people for investing. This is what people like Warren Buffet and Charlie Munger uses or even influencers like Akshat Shrivatava stresses about to lean more and more for investing.

The strategy behind is very simple. You identify undervalued stock and purchase them. But the difficulty arises in determining whether the stock is undervalued or not.

In Fundamental Analysis, people study different financial ratios and metrics of the company and analyse them.

Let’s have a homework for everyone in this video.

Each listed company which trades in the stock market has to release data to the public.

Pick any company which you know about or are interested about and google three different statements of the company:

• Income statement
• Balance Sheet
• Cashflow

This will give you some understanding about the company.

So the homework will be to How to read and understand these?

Once you are done with that please add the company name and what you found about the company in the comment box.

Few important ratios to understand and go through for every company before making a purchase.

• P/E ratio
• Earnings Per Share
• Current Ratio
• Quick Ratio
• Debt to Equity Ratio

Now, if you want to understand more on the Fundamental Analysis - this is the book for you. It is called The Intelligent Investor by Benjamin Graham and he is the mentor of Warren Buffet.

It is like the Bible of Investing. You need to pick this book and read if you really want to learn investing. In the first chapter itself, Ben Graham says about what is the different between Speculation and Investing, How to minimise the risk and increase the potential reward.

You should never confuse investing with gambling and start buying stocks with your gut feeling. You should create your own investing thesis and follow it to the core. Everyone has one. It involves logic, Maths and Statistics to determine if the stock is going to go up or down.

Always invest with long term goal. It seems boring in short term. Investing money and not seeing it grow. It grows but you will need to give time and once you give time it is pretty rewarding.

Technical Analysis

If you can use all the three strategies that we are discussing in this video, you can do really well. So, let’s touch briefly on both the remaining strategy starting with Technical Analysis

It is used my 10-20% of people only. If you do not know what it is pick up this book called Technical Analysis for Dummies.

This is for people who are looking for short term trading

• Day Trading
• Swing Trading

For People who like to get in and get out quickly of the stock to make quick money.

They observer various charts and patterns and metrics to predict the price.

I’m not doing this right now because it requires a lot of time and working a day job and doing this is not a practical thing. If you are not giving 100% in analysis you are going to lose a lot of money.

I prefer doing Fundamental Analysis and try to buy stocks for longer term say 5 years or 10 years or even longer. But it is good to know both because you can use Fundamental Analysis to identify good stock and Technical Analysis can help you to find the right strategy to BUY the stock.

Though in long term it does not make too much of a difference but it will be really bad to buy a stock and it falls for let’s say 10-15 or even 20% which you could have easily saved buy doing Technical Analysis

Behaviour Analysis

There is this third strategy called, Behaviour Analysis, which is not used primarily along but can be used together with other strategies.

There is a famous quote by Warren Buffet which can give insight about this strategy because it seem simple but it is really difficult to follow. The quote says, “You need to be fearful when others are greedy and greedy when other are fearful”

Really what this strategy will do is, you can analyse how people are thinking to figure out if people are freaking out and selling to decide on what to buy or sell the stock. Majority of people are emotional and react quickly based on news.

Let me share an example of Asian Paints. It was in news some time back due to a whistleblower incident and people reacted as if the company is going to get closed down and the stock fell by 15-20 %. There was no change in the company fundamentally. This was a good buying opportunity as it literally rallied back to its previous high.

People who bought made good money in a short time

This is the power of Behaviour Analysis

How to Find a Stock?

Now enough with the strategies, let’s talk about how you should approach which stock to pick? What’s the best way to do that?

Now for the topic in hand, the best way to start with this is to find a company that you are already familiar with. Something you use on daily basis or you work in this company.

That can be the starting point to analyse.

Like, TCS Zomato Asian Paints, HUL. Or something like Paytm. Once you understand this could even open your eyes if you are working in companies like those. If you are able to find something that you already are aware of, it will give you an upper edge compared to others.

There is a great book about this called One Up On Wall Street by Peter Lynch. He was the fund manager in 80s and 90s. This is a great book and you should consider starting with if you are interested in finding companies to invest. Great for beginners.

How I personally do?

List out all the companies about which you know about either from work or experience.

Run all fundamental analysis against them and try to find out which all stocks are undervalued or at which price it should be a good entry point.

Keep watching them.

Now if you do not want to start investing which could be of any reason, there is no harm in learning and improving your knowledge and create a mindset of investment.