Stepping into Stocks

After graduating from college and working for a year or so, everybody around me is talking about Share Market. I felt I’m in the middle of nowhere.

What the hell is that stock Market? Why the heck people talk about it so much? This blog is to just find answer to those questions.

Disclaimers:

All informations given here are collected from unreliable sources and they are not guaranteed to be correct. All the information provided here are applicable in India. Author maintains this blog as personal reference rather than as a open book. This blog is by no means guiding you in investing in stocks.

What the hell is stock?

1. Imagine that you own a business. If you were to divide that business up into small pieces and sell those pieces, you would essentially have issued stock. Quite simply, stock is ownership in a company.

The money you raise from selling those "pieces" of your business can be used to build new plants and facilities, pay down debt, or acquire another company. A smart owner will keep at least 51% of the stock, which will allow them to retain control of the day to day activities. Any person or institution that owns over a majority of the stock is called the "controlling shareholder". Essentially, this person can do anything they want - right down to firing the CEO.

Reference: http://beginnersinvest.about.com/cs/newinvestors/f/whatisstock.htm

What do people do with Stocks / Shares?

Simply put people make money with stocks (rather loose money also). You can earn from stocks in 2 ways.

1. By selling the stock which you bought at a lower price.

2. By getting the profit share according to the number of shares you have.

What selling shares?

People buy shares to sell. Say for example you are buying the stocks of FreshTech for Rs. 40 each share. Then a new young charming man takes up the position of the CEO and FreshTech is performing like never before. Its shares reached sky rocketing price of over 400 INR each share. Then what you do is sell you shares.

You have = 100 shares.

You bought = 40 INR

You sell = 100 shares

You sold = 400 INR

So profit = (400*100)-(40*100) = 36000 INR as profit.

Look out!!! Don’t feel very happy by looking at the profit returns percentage. This will never happen though.

So what do people do?? When will they buy the share and when will they sell it.

What’s the hightime to buy and sell shares?

To make good profit, buy the share when its rate is lower and sell them when it’s higher (you are buying shares with the hope that it will move up. But need not. Look out!!).

How do we decide that price of a particular share is low or high?

Single word answer – statistics. You need to analyse the past trends and decide it. No one would come and help you out. Ofcourse they are people out there to guide you, but you have to pay them.

When ever I hear about Stocks, I also use to hear about Dividends. What the heck is that?

When a company earns a profit, some of it is reinvested in the business and called retained earnings, and some of it can be paid to its shareholders as a dividend. The frequency of these varies by country.

So to do tradings, I need to look into Market situation and then play with it?

If you want your tradings to be profitable, my answer is YES, you have to. But still you can put your money in stock without worrying about too much details of it. Mutual Funds and Systematic Investment Plan comes to your rescue.

Having said about Mutual Funds(MF) and SIP, what are they?

Mutual Funds:

It is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities.^[1] In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.

Systematic Investment Plan:

Systematic Investment Plan (SIP) is a simple, time-honored strategy designed to help investors accumulate wealth in a disciplined manner over the long-term and plan a better future for them. This disciplined approach to investing will provide you with the following benefits:

· Power of Compounding

· Rupee Cost Averaging

· Convenience

Recommended Readings:

http://beginnersinvest.about.com/cs/investinglessons/a/aaless1intro.htm

http://en.wikipedia.org/wiki/Dividends

Look out this space for more information. (Telling to myself ;) )