Set your goals and be clear why you are in markets
For someone starting out in equities, the idea of goals appears to be quite abstruse. How do life goals gel with equity investments? Here is an explanation. You start with the question; why do you want to invest in equities. For example, if you are looking at equity investing as a 20-year plan to save for your retirement, then you are better off with equity mutual funds.
If you want to trade in and out of the market, don’t worry too much about the long term. Focus on chart patterns, stop losses and profit targets. In trading, discipline matters more than skill. Finally, if you are looking at multi-baggers to grow your money via direct equities, you are a medium to long term investor. Invest exactly as you would invest in a business. Be clear about why you are getting into equities!
Open a trading and demat account
Once you are convinced about investing in equities (it is essential), the next step is the modalities. You must approach a reliable broker where you can open your trading account and demat account. While you put your trades in the trading account, the demat account holds your equities and other assets. It is like a bank account for stocks.
An important part of the account opening process is KYC (Know your Client) registration. This calls for submission of identity proof, address proof and, at times, income proof. Once the documents are submitted, your account is opened in 5-6 days and you are set to invest.
Activate online trading and put test trades
You have the choice of trading offline (calling the broker and placing orders) or online. it is always advisable to trade online. You can either trade on the internet using your PC / laptop or download the app and trade on your smart phone. This method is simple, transparent and you have full control over the trade.
Once you place the order, you can check the status of the trade executed. It is better to start with small test trades and ensure that the entire process flow is working fine, including demat credits and bank credits. This gives total control over the trade process.
Ensure that your online security is taken care of
If you are trading on the net or on mobile apps, online security is paramount. Ensure that passwords are not too simplistic and you change them regularly. Update the anti-virus and anti-malware software regularly so that nobody is able to hack your account.
Also be cautious about how you access your trading account. Use dedicated internet connections. Accessing your online trading account in cyber cafés or over public wi-fi is best avoided. Above all, make it a point to log out of your trading account when it is idle or you plan to step away from the terminal. These small safety steps can go a long way.
Research your stocks thoroughly
You cannot get away saying that you don’t understand stocks. It is your money after all. If you want to invest in equities, you have to research your stocks. OK, you are not a professional analyst so you don’t have to project cash flows and apply sophisticated models.
You can still learn the basics of charting. You must be able to read a company research report and take a view on the stock. Keep tabs on the news flows pertaining to stocks you own and monitor how they impact stock prices.
Start with realistic expectations
One reason a lot of people get into stock markets is because they heard stories about how their friends or neighbours made a fortune in stocks. Don’t make these your expectations. Over the long run, equities can generate much better returns than other asset classes like debt, FDs or even real estate. For that, it is essential to stay invested for a long time and ensure you are invested in quality stocks.
For example, in equity mutual funds, you can hope to earn 12-14% CAGR over the long term, whereas in a well designed equity portfolio, it can be 2-3% higher than that. If you happened to buy Reliance in March 2020, you would have earned 100% returns in less than 3 months. But, this is an exception and not the rule. It is, therefore, important to set realistic expectations before getting into equities.
There is no great rocket science about equity investing. It is a gradual and systematic process. If you are looking at value creation, then you must start off in equities today!