- How to invest in the share market?
A lot of investors beat huge companies like Nifty by generating profits in the range of 35 to 60 percent. Now, this can only be achieved through years of experience and losses in stock markets. Now, you may be asking yourself how to invest in share market and how to invest better.
Usually, people tend to lose money initially during investing in the Stock market. This is because the ‘How to invest better in share market’ lessons on the television does not impart any useful information.
Hence, this article is written to impart you the actual and useful knowledge on how to invest in share market in India.
How to invest in share market?
As many shareholders say, always looking into the companies on which you are about to invest is vital and active. Succeeding and gaining profits in the share markets is not like a walk in the park, nor does it happen overnight. One must always have patience and not only depend on luck. Strategies and hacks are essential in how to invest in share market. Now, there are a total of seven steps on ‘how to invest in share market.’ Make sure to jot down and understand these as they are essential in gaining profits.
Seven steps on how to invest in share market:
Step 1: Screening and Filtering the right stocks through financials.
As you already know, there are thousands of stocks listed on NSE (1) and BSE (2). It is logically impractical and time-consuming to go through every one of them. Therefore, to begin with, the ‘How to invest in share market’ guide, you have to filter these stocks effectively, you can follow these steps and criteria.
- Market cap > Rs. 500 Cr
- Sales growth> 10 percent
- Debt to equity ratio <1
- Current ratio >1
- Price to earnings < 25
These are the essential points to be noted while screening a company’s stock. Now, do not worry as there are softwares that checks these automatically and swiftly. Hence, these apps or softwares go through every share automatically and give you the preferred result.
Step 2: Select the companies you are comfortable with
Now, from the first step, all the useless and non-profitable companies are filtered out. The next thing in the guide ‘how to invest in share market’ is filtering the rest of the stocks left. To make this much more effective, one has to research the companies that they like to invest in. This can be done by viewing its profile status, profits, and other necessary information.
You can easily acquire all this information by making a simple search on Google. The three key questions to understand the company is:
- Is the company’s business simple?
- Is it easy to understand the product or service of the company?
- How is the company doing financially?
These are the three basic questions one must get answers to before investing in a particular company.
Step 3: Select companies that have a competitive advantage
After further segregation and filtering of companies based on its financial status and other factors, the next thing to do is analyze the company from Moat. Now, in terms of the share market, Moat is the advantage one company has over another company. The more full the Moat, the larger the profit line. Now, considering this point, it is wiser to invest in popular companies and have a brand name—for example, Apple.
Step 4: Find low debt levels.
The fourth step in the guide of ‘how to invest in share market’ is finding a share or stock having low debt levels. High debt levels come with higher risks. After the screening and selection process, one must do a thorough search on how the company is handling its debts and repaying it. This information is very vital and affects the share market. Hence, the company, which is reducing its debt levels, automatically increases its profit margins.
Step 5: Utilize financial ratios to select the right stocks
The secret to Warren Buffet’s success is that he uses financial ratios RoE and RoCE to select the perfect stocks. Both ratios play an essential role in the guide ‘how to invest in share market.’ Both ratios give a precise output on how the company is generating revenue and how and where it is spending it. This also results in understanding how profitable the company is and how efficiently it is utilizing its resources.
Step 6: Honest and Competent management:
The main reason people withheld from investing in Stock markets is the possibility of a fraud stealing all their money. This is entirely understandable as many companies on which people invested were doing shady things and committed fraud.
Hence, it is crucial to invest in honest, sensible, and competent managers. The managers include CEO, MD, CFO, and others.
Now, you can argue that it is impossible to know whether the management of the company is honest and competent. Well, that is not true. Here are the points you should research before investing in that company.
- Search for fraud and track record
- Read the company’s annual history and try to find any mysterious actions.
- Lookout and research on the shareholders.
Step 7: Right price to buy the stock
This is the last and final step of the guide ‘how to invest in share market.’ If you reached this step, then this means that you have narrowed down the stocks you are about to invest in. Now, the final thing is the right price of the capital.
The final thing you have to do is to find a maximum valuable company by paying a minimum price.
One thing every investor has to keep in mind is that it is always dangerous to invest in a company when it peaks. This has a probability or chance that the company’s stock value might drop soon. Hence, it is vital to choose the price of the stock.