Before a stock market company issue shares towards money from investors for share trading purpose, they must go through a diligent process and review methodologies set by Securities and Exchange Board of India (Sebi). After the allocation of shares for open market, a stock market company is required to publish details about the shares in its prospectus, past performance data on the earnings. It must also clarify about its operating costs and other additional fees, and its rate of trading (annual turnover) in the investments. Still there are certain factors that you must consider before trading in stock market.
Beware of So Called Stock Trading Gurus
Do you want to know how to invest in stocks? It is easy to invest in stock market but very complex to understand the nuances of earning profits from it. Without experience, it is highly advisable to purchase shares through stock brokers of the market.
There are several ads posted by self-proclaimed stock market Gurus in social media and search engines who outrageously declare that they can offer you high returns in stock trading. Use your common sense, before committing your investments through them. A simple research can easily inform you that 5 to 6 digits returns on stock market trading are well outside the realm of reasonable expectations for stock performance. The company owners would themselves buy back all shares if it was ever possible. Do not fall into the trap of tall claims of such brokers.
Investing in Individual Securities
You will find several brokers pursuing you to invest in individual securities guaranteeing higher returns.
Stock picking is not easy needs experience, time and deep research. Before buying an individual security (stock or bond or fund), you should know about the background of the company you’re putting your hard-earned money in.
Do not proceed further if you are not aware about the company.
Basic questions asked can save you from investing in risky stocks:
- What products or services does the company offer?
- What are the future growth prospects about company’s product and profitability?
- How is the company’s competition doing?
- How long the company is into existence?
- Does the product and services offered by the company depend on natural resources?
- Do technological upgrades and changes impact business of the company?
- How much actual debt does the company have?
- Do the company owners have expertise in their products or are mere investors?
Diversification in Portfolio
Diversifications are loss absorbers. You can limit your risk by keeping different stocks in your portfolio. However, it involves huge sum of investments to maintain diversification. Individual stocks do not offer much diversification options. You should take services of discount brokers. For example, when trading in stocks, you must expose your investments in companies belonging to different sectors, from government to private corporations. Not properly diversifying your stock investments may lead to huge loss in future.
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