An investor needs to have a basic knowledge of how the stock market works, if he is planning to invest on his or her own. People should have the ability to analyze numbers and filter news of they want to pick stocks by themselves. But if you have the money and don’t know how to pick stocks, you may rather then take help of a mutual fund manager. He is the one who is qualified and experienced in investing in the stock market.
A fund manager would generally prefer to start investing in diversified equity mutual fund. The investing process could start with a small amount in a diversified scheme. You can then see how the money starts growing. You can also get the opportunity of seeing your fund manager, juggling with stocks in order to make money for them. The investor can have a look at the five diversified schemes that have been giving consistent returns for the past five years.
However, do not blindly go by the returns, find out what risks the fund manager is taking in order to give those returns. You can get the necessary information through various surveys published in news papers and magazines. You can also get the data over the internet through independent mutual fund trackers. If you are willing to educate yourself about the market and stocks, you can then definitely pick stocks on your own. But remember, stock investing needs your willingness to invest the time in reading and learning about markets and companies.
You can take the initiative of kicking up stocks and investing on your own, only if you can effort to do a lot of research through reading and being able to follow the market closely. All this will take some time to arrive on perfection. All this will take some time to arrive on perfection but you need to have a similar mind set. Initially, you can start with only small sum and stay way from obscure stocks that are running on the basis of unconfirmed rumors. A novice investor should consider the following points.
- Seek information about the company
- Learn about the industry
- Get yourself involved with numbers
- Understand and be able to deal with concepts like EPS and P/E
Get information as much as possible about the company. Find the track record of the company, how it has fared in good times and difficult times. For example: If you have a look at the airline industry where you can see almost every company is bleeding, this is enough to give you an idea about the industry.
Get information and learn about how the company of your choice is placed within the industry, who its competitors are and how it tackles them. You can get the right picture about the company when you start comparing with its peers.
You need to have the patience to go through the balance sheet of the concerned company in order to check the right figures. If you are unable to take this third step, you may them as well as abandon this project of investing by your own.
Also, one should keep in mind that studying the balance sheet or profit and loss account of the company is not the same as reading a magazine. It will be quite taxing if you don’t have the aptitude towards study the balance as sheet of the company.
One should understand concepts like earnings per share (EPS) and P/E ( price to earning ratio) You may get the figures right, but you need to know what to do with them. For example, you may come across the EPS figure for a company to be quite impressive. However, if you did not notice the extraordinary income that boosted the earnings, it will than become a meaningless exercise.
Having said all this, one should know that picking up stocks on your own will not be a cakewalk. It is not easy as it sounds. I now want to end by saying two things which are as follows: 1) Do not take decisions based on whims and tips. 2) Give your stocks enough time to perform