Beginners guide for share market (do’s n dnt’s)

Beginners guide for share market (do’s n dnt’s)

First thing that comes in the mind regarding share market is ‘its risky and no one can make money by it’ but let me tell you, this perception is wrong. Let’s be frank why one should invest in a share market!!
It is because everyone (I mean most) want to be rich as soon as possible.

lets see what happens to a young investor like me (based on facts and study I have done):-

We have a job from which we try to save 20-25% every month (don’t forget restrain and determination we have to exercise not to spend it) after couple of years when we have a corpus of few lacs we might decide now I could take some risk, lets venture into share-market (after all it gives 16% CAGR much higher than what one should get in FD and policies). Mostly we might ask somebody what to do, or we ask our PR manager of demat account, some brave souls even read the crappy reports which most banks/brokers send us regularly. Personally being an Engineer I have never understood whats in it!!! All that matters is 10k laga do 15k ho jayenge ek saal me (invest 10k n you will get 15k in one year) ok done. 10k in this, 12k in this, 8k in this, 15k in this, and so on...  My target of investing one lac is done.

Initially we would monitor them regularly but as time progress our interest and monitoring decrease drastically even reduced to once a month (some people even forget what they have bought and in what quantity)

But one could earn a decent amount including tax free dividend if one would have bought so called value for money stocks (pun intended). Do it over and over again and I assure you will end up with a stocks worth few crores(adjusting inflation) in 30 years. Simple math:- A= I*((1+r/100)/r) (I might be wrong) and it work outs to be 5.4cr with a modest CAGR of 16%, not to mention 50% which we were dreaming!!!!! (Do math yourself)

Now we enter into the ugly world of derivatives and their all hell break lose. I have been the part of derivatives for last couple of years and believe me there is no mercy......

Futures and options sound very fancy and they are lucrative where on earth you can buy 250 reliance shares in just 25k!!!! Sounds amazing.... Even better buy some option of reliance and make your money 2-3 times in couple of days. I still remember my first trade, it was TATA STEEL I bought 1 lot i.e. 500 shares (somehow managed it by arranging 40k) at 374.75 sold it at 393.65 made a profit of 9450-540(brokerage)= 8900 and I was very happy. But ran out of my beginners luck very quickly and made some very bad calls and eroded almost 40% of the total capital but over the period of time I studied hard and analysed what went wrong and subsequently improved. But I am not here to tell you what I have done or what I have achieved but to discuss what one should avoid.

The first thing to remember is that the derivatives and the cash segment are altogether different things. The strategy of buying and holding till eternity doesn’t work in derivatives because at the end of every series (last Thursday of every month) one has to shell out roughly 1% of overall order value to carry forward the trade. So if someone wants to venture into the world of derivatives one has to be very vigilant keep a strict stop-loss and should be clear of its objective and options are mostly hedge tools and should be used very carefully. I don’t want to discourage anyone but my suggestion is that one should be fully prepared for it, believe me once you get hold of it you will become addicted to it (as I am!!!!)

So concluding this topic I would like to say that the share-market provides a unique opportunity for investment and one should start investing in it as early as possible (total exposure to risky asset = 100 – your age) and try to be patient and vigilant to again maximum out of it and if someone wishes to take exposure in derivative market one should be very careful and it is better to start early as you would have lot of time to build-up on the invaluable experience you would gain in it.