So you are done with the formalities suggested in my previous article “How to Start Investing in Stock Market”. Once you have got your account for share trading opened next phase starts with buying the first stock of your portfolio. Before starting the discussion let’s make some assumptions regarding investor’s profile:
- Investor is totally new to stock market with very little knowledge
- He is starting with a capital of 20000
- We are not aiming to buy a stock which will give unrealistic returns. Return in the range of 15% to 20% on annual basis would be fine to start with
As the investor is new we will focus on high level indicators which one should take into consideration before placing the first Buy order.
Important Point to keep in mind before taking a buying decision
Regarding the overall market
Just have a cursory look at the index value (Sensex/Nifty) and find out if the market is trading at top, bottom or some intermediate value. Thumb rule to follow is:
- Take a buying decision if the market is at bottom/intermediate level’s
- Defer buying decision if the market is at top
If the market is trading at top there is ample chance you will lose money in the short run. Wait till the market reverses its direction. Trust me you will not have to wait for long as market will fall sooner than later. Remember patience and emotional control is key to success in stock market.
Choosing the sector
Let’s say overall market scenario is conducive for buying, the next question arises i.e. which stock to buy. To find the answer to this question just think about your profession/job profile. You might be working for a company or might be self employed selling goods or services related to a particular sector. You must be aware of big and profitable companies of the sector you are employed into. You must be aware about the business they do and the future prospects of these companies. Make a list of companies of this sector which are listed in the stock market. This is your target list i.e. the blue chips of the sector you very well understand. You can also include companies from other sector if you understand their business well. The only condition is their future prospect should be good.
Selecting the one
So you are ready with the list. The next step is to do high level research regarding all the stocks of this list. Focus on the price of the stocks. The price should not be round all time highs or all time lows. Some intermediate level is recommended for entry as chances of losing money is less here. Listen to some good business channels to gaze the perception of other investors and analysts regarding this company. Search for corporate governance issues related to this company on the internet. If you do not find anything seriously negative about this company then this is the one which you should buy.
It’s clear from the discussion above that plain common sense is required to buy your first stock. As you are starting with a capital of 20000 it’s recommended to buy stock worth 10000 only and keep the rest for averaging in worst case scenario. More on this in other article so stay tuned.
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