Where and how to invest in stock market
For any new trader, the biggest question that haunts him is where should he invest? There are thousands of stocks listed on the exchanges and it’s confusing to the newcomer. Are you also confused about where you should invest as a beginner?
This article will guide you on the steps, which will help you towards becoming a successful investor.
The beginner should trade only the Blue Chip Nifty 50 stocks for almost a year
The beginner is full of energy and is raring to go,but after a stroke of beginner’s luck, the newbie ends up blowing up loads of money. If you want to script a different story, follow the following steps.
- A beginner should only trade and invest in the nifty 50 stocks for the good six months to one year of his investing career. The National Stock Exchange does the job for the investor by selecting the best stocks from each sector based on certain criteria and only that includes the selected stocks in the index.
- Due to their strong fundamentals, liquidity and Nifty 50 mutual funds and ETFs, chances of manipulation in these stocks is negligible.
- Though these stocks are also volatile moving in tandem with the market, chances of losing the entire capital in these stocks is less.
- The first recovery is observed in the Nifty 50 stocks. Hence, if you buy the index stocks, whenever the markets rise, these are the first stocks to show movement.
- It is easier to track a group of few stocks in each sector instead of following hundreds of stocks.
- Each bull market has its set of leading sectors and stocks. Usually, these leading stocks are from the Nifty 50.
- If you are able to consistently earn profits in your first year of trading the Nifty 50 index stocks, it’s time to diversify and look at other investing opportunities outside the flagship index world.
Intermediate investors should invest in the Nifty 100 stocks for almost a year
Once you cross over from a newbie category to an intermediate trader after consistently earning profits for a year, it’s time to broaden your horizon. Though the Nifty 50 stocks are the best, they are so well researched and followed that the market doesn’t give opportunities to pick multi-baggers in them.
Hence, it is time to search for more stocks, which can be winners. Nifty 100 offers that opportunity.
- The Nifty 100 consists of the best 100 stocks listed on the NSE, based on certain criteria. Hence, you are still in the safety of investing in the best stocks.
- With experience, when you identify the growth sectors likely to lead the markets up, the 100 stocks give you an opportunity to select from a wide variety of stocks in the sector. Many times, though the Nifty 50 stocks start the rally, they are overtaken by the other stocks during the length of the rally. Thus, you stand to earn better returns if you choose the right stocks to invest.
- The NSE actively manages the Nifty 50 index. There are times when the stocks of the Nifty 100 get selected for inclusion in the main index, such stocks offer superior returns as the index funds lap up these stocks to balance their fund.
- After a year of successful investing in the Nifty 100, it is time to broaden your horizon further and develop an ability to earn multi-baggers, which will make a large difference to your account size.
The expert traders should research and invest in the midcap stocks along with large caps
After spending two years in the markets, successfully investing in the blue-chip and index stocks, the investor understands the risks and has developed successful strategies to deal with the upturns and downturns. Hence, such investors should increase their investment duration for the very long-term and try to identify the large-caps of tomorrow.
- Large chunks of money are made when the investors discover stocks with a potential to become leaders in their field. Such stocks are identified at an early stage by the investors and are held on for years, until they reach their full potential.
- Stocks like Titan, Lupin, and Karur Vaisya Bank are examples of midcap stocks purchased at the right momentby the famous investor Rakesh Jhunjhunwala. These stocks have given exponential returns to Mr. Jhunjhunwala and he has held some stocks for more than 20 years in his portfolio.
- However, not all mid-caps realize their potential. There are many stocks, which show great promise, but then fizzle out either due to mismanagement or changing consumer behaviour. Hence, we advise the investors to indulge in mid-caps only after they have gained enough experience in investing and money management.
- Directly starting the career with mid-caps can be a recipe for disaster.
As an investor, all the three types of investing elaborated above can be profitable with low risk depending on your money management principles.
However, most newbie investors first turn to the stocks, which are quoting at very low prices. These stocks are called as penny stocks. These stocks are widely publicised with ads appearing on all the major stock market-related sites.
So-called experts claim to have made millions for their clients by purchasing a stock at Rs.2 and selling it at Rs.14, thereby earning 7 times the initial capital. Nonetheless, for each success story, there are thousands of investors who have lost money investing in penny stocks.
Investors avoid penny stocks
At times, there are a few stocks which are punished heavily and are sold down to a penny stock level, but their management remains strong and committed. Such stocks can be looked at only after thorough research and testing one’s analysis.
Other than such occasions, investors should stay away from penny stocks.
- Though a few stocks have large volumes, others can be illiquid. Only a handful of rogue entities manipulate the stock and raise its prices. After having earned their profit objective, such manipulators dump the stocks. As the liquidity is low, many times the investors can’t sell the stock and are stuck with a dud for ages.
- The penny stocks are generally the last to move in any bull market and are quick to fall when the bull market reverses. Hence, timing these is very difficult, investors are generally stuck with such stock for years.
- Penny stocks are similar to gambling than investing. Here the stocks are not chosen based on their fundamentals, the emphasis is more on rumours and news.
The penny stocks quote at ultra-low prices because of a grim future and a bad management. Investors should stay away from such stocks.
Investing either full-time or part-time can generate large amounts of wealth with the right approach and patience. The journey from a newbie to an expert is long and arduous. However, if the investor follows the approach detailed above, he is sure to enjoy the riches, which comes with investing. The approach, in…nutshell is given below.
- Beginners should start their investing journey from the Blue chips. The Nifty 50 consists of the best stocks, these should be the first step in the journey to becoming a successful investor.
- Once the first hurdle is cleared consistently with profits for a year, the trader is now at the intermediate level. He should now expand his universe of stocks and dive into the stocks listed under the Nifty 100 index. This will not only offer more stocks to select from, but will also offer a larger number of stocks from the sector, which is outperforming the markets.
- After two years of successful investing, investors can search for hidden gems in the midcap universe. The midcap stocks, which move on to become large caps in the future offer astronomical returns. As identifying these hidden gems requires expertise, we advise investors to invest in them only after they have gained experience.
- Stay away from penny stocks. Maximum money is lost by the newcomers in penny stocks. The risk in investing in penny stocks is the maximum, the stock can go to zero and many such stocks stop quoting on the exchanges and are suspended for not following the norms. You end up with stocks which have no value, hence avoid trading them.
- Investing is profitable only when the stocks are held for the long-term. Always remember the quote from the great investor Warren Buffet. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
Tags: nifty50, nifty50 index, nifty50 stocks, penny stocks