Journey of Novice Investor by Samrat Sridhara

My romance with Stock Market began from an early age when I was probably in my 7th standard when my father would talk to me and teach me couple of his tricks. Owing to financial constraints he couldn’t purchase much of sizable equity. I have begun investing directly in equity little late. Here are some tips which I have picked up from the journey so far, which I believe has just started. You can read it with a pinch of salt as these are based on my introspection. Let us start from where most middle class would begin

Your first pay doesn’t matter: I know you’d want to yell, ‘Of course it does you moron!’. Here Ladies and gentlemen the following applies to those who want to create wealth through Stock Market. That said, why first pay isn’t important. Recollect your classroom grades? How many of them topped the class? One? Two? Or May be Three? If you drill down further, toppers need not necessarily would have topped every subject. There must be other students, probably including yourself who would have topped one or the other subject. If you have chosen Stock Market as your subject to specialize in the ‘Real’ college (world). 

Stop comparing yourself with others and learn the trade of the job. Pick a job which you’d love to work as. Even if you end up in a job which you had to pick up because of some constraints, pick up important skills like – Execution, Team work, being Sincere to your job, Conviction, Learning attitude, Follow up, Voicing out your view. Though all skills are important, I would personally rate having a view and voicing it out a notch higher. Having a view and expressing it doesn’t make you adamant. Present it politely. But have one. Remember the time when you were a single cell organism and expressed your views correctly and how you’ve now turned into a functional dynamic multi cellular organism, negating millions of your siblings’ views?

                  

How should I start? Initial years, start by investing in yourself. I know you’d want to roll your eyes. Let me ask you how many of CAs, CAT aspirants, MBBS aspirants or International level sportsmen that you know achieved success in first attempt. If you’re one of them congratulations. I am talking about most of us who are not successful in the very first attempt. Common do not feel bad about it, we have already stopped comparing ourselves with others from previous point remember? What made others successful? Preparation. A really thorough one. You can exaggerate with all the superlatives you want to. Now may I ask you for what joy do you want to appear in the final examination called ‘Stock market’ without preparation? There are veterans who are learning each day probably even after 20 years of experience. Preparation gives you courage to face initial hurdles which are common.

How do I invest? Any ledger entry begins with Credit and Debit. Check on your earnings and expenditure. With your initial salary, pick up a house close to your work place. Any travel beyond 45 mins kills your productive time. The lesser the commute time to work the better. (please do not mix up with ‘on work’. Unless you’re in sales, our performance systems do not capture the time taken for commuting as Productive, though ironically the time you start to work is considered as beginning the job!). Get yourself some professional certifications which can help you reach next level in your career. Pick up a hobby and make it a habit. Travel to a destination with in your budget be it your grandparents house. Ear-mark some amount for investments. Use it to buy Term-insurance plan (contact Mr. Sanjeev Sharma at +91 9417007659 to know best insurance plan for you*), some tax-saving instruments (contact Mr. Kumar Bhatia at +91 9769321013*) etc., gradually shift to philosophy of spend after you made your savings. Know small leakage points which you wouldn’t otherwise bother, for example if you have set a standing instruction with your bank to make your mutual fund payment, some banks charge INR 25 excluding taxes. So if you’re investing in four mutual funds – that is INR 1,200 per year going down the drain

Investor vs Trader: Though most people use the words interchangeably. They are as different as Nelson Mandela and Morgan freeman. Both investing and trading are fields in themselves. Both at times test your nerve and grit. Both question your hypothesis. Till such time you decide your game, ignore what your neighbor earned. Ignore news. Every news has two facets, one, what media wants you to know and second, the reality. Till you have an opinion never trust any news on face-value, explore more and more. Read about Warren Buffet, Charlie Munger, Peter Lynch, subscribe to Prof. Aswath Damodaran’s classes on Youtube. As a tip you can start with purchasing stocks, try beating inflation or FD rates. Assess your nature. Do you get nervous when stock market fluctuates? What’s your risk taking ability etc.,? Till you get comfortable with how Mr.Market deals, never even look at trading with real money. Keep doing paper trading till the time you have understood your nature and your risk profile.

How to pick stocks? Once a Russian Chimpanzee beat 94% of bankers. Do not be that Chimp though. Pick a company whose business you understand. Try and understand the economics of the business. Follow the sector closely. Do not invest all your money at one shot. Try and invest in intervals and in increments. For example if you plan to invest INR 10,000 rather than purchasing stock at one shot, buy stock in amounts of INR 1,500 – 3,000 and 5,500. (Well this is where you should have your own view) and most importantly set a stop loss. This is where learning Technicals of stock market can help you minimize your losses. Never speculate with your money. Investing in bad companies is like drinking poison and hoping that you’d not die or sleeping with a Cobra and not knowing when it is going to bite you.

Should I go for IPOs? Vidya Balan has a famous dialogue in ‘Dirty Picture’, "In a film, only three things matter: entertainment, entertainment and entertainment and Silk is entertainment. With all the listing gains, IPOs may look like a heroine calling out your name. Do not even venture there, unless you’re very sure about the company. Most IPOs are a route for initial investors to exit. Read any draft red herring prospectus (oh by the way, did you know the synonym for red herring? a clue or piece of information which is or is intended to be misleading or distracting) you’ll get to know most of the disclaimers and realise that initial investors who would have lent money at 15% compounded on a quarterly basis are forcing a company to let them exit and want public to share the burden of debt. Do not become a source of entertainment for investment bankers.

When should I sell? If you had made it this far, you should know, you are your own judge. If you are comfortable with a price which a bidder is quoting, you should sell. Profit taking is also equally important. Unlike Warren most of us do not own the capacity to purchase a company or change its management in the initial stages. What then should be our premise? ‘Buy low and Sell high’.

Author: Samrat Sridhara. Samrat is passionate about Stock Market and is working as a Market Pricer in an hitech industry. He loves to read and share his experience with his friends.

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