Here are 5 Things you Should Know before Investing in the Stock Markets

A disciplined approach to stock market investing can bring you rich returns over time. The following is a list of the 5 things every beginner investor must know before investing into the stock markets.

1. Its a long term game

Equity, like any other form of investment, will bring returns only when you hold them for a sufficiently long period of time. When you buy an equity share, you pick up a proportionate stake in the company and its business. As the business grows over the years, so will the value of your investment.

Most companies would go through intermittent periods of ups and downs. However, strong businesses would survive the downs, capitalize upon the ups and ultimately grow over time.

2. Trading is not the same as investing

In the stock markets, there are investors and then there are traders. Investors play the long term game while traders frequently buy and sell in order to capitalize upon the short term fluctuations in stock prices.

Trading, however, is risky and leaves one exposed to any sudden and adverse swing in stock prices. For beginners, investing is always the safer bet.

3. Its Economics 

Prices in the stock markets are determined by the interaction of the forces of demand and supply.

Consistent growth in sales and profitability, ability to generate cash surplus are some of the factors that drive up stock prices. Similarly, negative growth rates can lead to a fall. Certain businesses are cyclical in nature and their valuations are generally steeper during the peak seasons. A lot also depends upon the condition of the industry (including the outlook about its future) in which the company is operating in. Again, the overall investor sentiment can dictate the market movements.

An informed investor would keep these things in mind while arriving at his buy and sell decisions. Moreover, as the factors outlined above keep changing rapidly one has to consistently monitor his/her investments and determine whether any changes are needed to his investment portfolio.

4. Brokers are not always right 

Brokers make money every time you buy or sell a stock i.e they make money whether or not you do. So take things that they say with a pinch of salt.

5. Be penny-wise 

Yes, penny stocks can double your investments in no time. And, then they can wipe it all out equally quick as well. Most of the most in penny stocks are influenced by market rumours as any reliable data about them is hardly available. Moreover these stocks are susceptible to price manipulations which makes them extremely risky investment bets. Stay away is all I can say.

Thanks for your time. Happy Investing!