Tips before Buying Share

So you have finally decided to test the waters and give the Share market a try. Investing or trading in the equity market is always a roller coaster ride and is very alluring. However, be advised that just as easily one can make money here, it is equally easy to lose all of it. When you put your money in the shares of a company, you are in part being an owner of that company in the same proportion of your investment. Naturally thus, you are entitled to all its profits by the same proportion. However, you would have to bear its losses equally too.

Thus, it is imperative that one spends some quality time doing research on a company and its fundamentals before you buy its stocks. Below are a few pointers to get you started:

  • How much to invest: How much money you should put in to a stock is purely based on your risk appetite which in turn is a combination of your age, income and current liabilities. If you have just started earning, you can look to investing a greater portion of your income in equity funds. As you grow older or approach retirement, this proportion should considerably decrease, because you have less time till your retirement to allow the market to pan out and even its losses. At the same time, if you have to pay out loans or have other liabilities, it is always advisable to settle them first that risk losing your savings in the market and still end up paying for your loans.
  • Research: After you have once decided on how much you can put in each month, it's time to short-list a few companies to buy their shares. This is the stage, you will be bombarded with free advice from friends and colleagues. Though they want the best for you, what worked for them might not necessarily pan out the same way for you. Do your own research about a company – review its profit-loss statements, earnings per share and its price/earning ratio. Invest in a company only if you strongly believe in its fundamentals.
  • Buy Low-Sell High: Keep a track of the market as frequently as you can. Buy shares of a company, only when the market is on a bear run, when prices fall drastically. Equally important is to be patient and to wait for the Bull Run, to sell your shares when the market is on a rally and share prices are high.
  • Stay long: As much as possible, don't look for immediate profits. Invest in a company for the long term. Even if markets slump every now and then, a company with good fundamental will always do well, and its share prices will always increase in the long term. Book your profits regularly but stay long with your investment.

The share market is wonderful place to learn about finances and economics; a little patience will reap you great returns.

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