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How to Earn Money from Share Market

What Is the Stock Market?

In the broadest sense, the stock market is a collection of stock exchanges and other places where stocks of listed companies are bought, sold, and issued. Such financial transactions are conducted through established official exchanges (physical or electronic) or over-the-counter (OTC) marketplaces by the rules.

The terms "stock market" and "stock exchange" are often used interchangeably, but the latter usually refers to a subset of the former. When someone trades on the stock exchange, they buy and sell stock on one (or more) exchanges that make up the wider stock market. A stock market in a particular country or region may consist of one or more stock exchanges.

There are two fundamental approaches to stock market investing: -

Value and Growth

Analysts and investors use many equity selection strategies, but almost all are variations of one of the two major equity buying strategies in value or growth investments.

  • Value

Value investors often invest in well-established companies with consistent profitability over time and may provide regular dividend income. Value investing is more concerned with avoiding risk than growth investment, yet value investors will buy companies if they believe the stock price is an inexpensive bargain.

  • Growth

Growth investors frequently prefer technology companies due to their great growth potential. Growth investors seek out companies with unusually high growth potential to maximize share price appreciation. They are typically less concerned with dividend income and are more prepared to take risks by investing in small companies.

How to Earn Money from Share Market

How much money can be made on the stock exchange?

The 'HDFC Index Sensex' is an index fund. This index fund has earned an annualized return of 12.9 percent p.a. over the last 15 years. From this information, we can infer two things: -

Why people lose money in the stock market: - In the last 15 years, our index (Sensex) has expanded at a rate close to 12.9 percent every year on average.

So, why did so many people lose money when they invested in equities directly (rather than through an index). It is because they purchased the incorrect stocks. Stocks of bad companies or those purchased at an incorrect price.

How to Avoid Losing Money in Stocks

Risk-averse investors who want to invest in the stock market might purchase an index fund and hold it for 10-15 years. There is a nearly 99 percent likelihood that they will not lose money. People willing to take risks can avoid losing money by developing a stock market investment strategy.

So, do you want to invest in index funds or direct stocks? People who invest in index funds can earn close to 12% per year in the long run. It is a low-risk investment.

However, if you choose direct equities, you can expect 20-25 percent gains per year. Direct stocks, on the other hand, are hazardous. If you do not invest properly, you will almost certainly lose money.

Investing in the Stock Market Process

Whether it is stock market investing or any other type of labor, it is critical first to comprehend the general 'process' of accomplishing it. It is also critical to keep things simple. This method describes the beginning and endpoints as well as the intermediate steps. Following a process is a necessary component of life success.

What should be the procedure for investing in the stock market?

These are the five steps: -

1. Research

No matter how certain we are about a stock; it cannot be purchased without first researching it. The premise is that if urges you to buy a stock, you should not do so without first conducting your research. Buy it once you've done your homework and feel sure about it.

2. Track Performance

It is impossible to acquire stocks and then forget about them. What must be done is to keep track of one's stock holdings. Tracking is done more to exactly schedule the exit. Without tracking, a person will not know when to sell.

3. Setting Objectives

When conducting stock research, you will understand how much a stock is undervalued. Assume a stock that normally trades at Rs.100 is suddenly trading for Rs.65. Based on your study, you discovered that the company's core competencies are intact. As a result, you can expect the stock price to climb to at least Rs.75 in the next six months. As a result, you established a 6-month goal of Rs.75 (15 percent up from the current price).

4. Selling

It is just as crucial to buy the "correct stocks" as to sell them at the appropriate time. When a stock meets its target (as we saw above), it is time to sell it. When the stock holding has attained its target, sell it. Do not get greedy in your pursuit of higher returns.

5. Reinvest

This step is perhaps more crucial than the previous four combined. Just because you sold the stock does not mean you can spend the proceeds.

Ensure that the redeemed funds are returned to Step One (research). Reinvestment allows you to benefit from the power of compounding returns. The plan is to reinvest and purchase another inexpensive stock.

Invest in Stocks like an Investor, Not a Speculative

Investors and speculators are the two sorts of persons who buy and sell stocks. They frequently contradict one another. Investors may consider it a good stock. Speculators may not think it's good. Why is there a distinction? Because speculators and investors have distinct "investment ideas." Investors hope to profit from business expansion. Speculators seek to profit from stock price increases. Isn't it, however, the same thing?

The distinction is in how the two see stock profits. Speculators believe, "I don't care about the business; as long as its price is rising, the stock is fine with me." Investors believe that as the company increases, so will its stock price. The investor's approach is more grounded and reasonable. To have a better understanding, consider how they view the following stock parameters:

  • Market Value
    Investors place less emphasis on stock price than speculators. The stock price is crucial to speculators. Before purchasing stocks, investors look at the stock price as the last thing they view. An investor would consider the company's operations before the price.
  • Underlying Business
    Investors are more concerned with the company's core strengths. When they are confident that the business is sound, they turn to the market price. The strength of the underlying business is useless to speculators. They are just interested in price momentum.
  • Holding Time
    Holding time is extremely short for traders. They usually keep stocks for a few days. Their strategy is to profit by selling stocks as quickly as possible. For them, a series of small wins leads to a bigger one. Long-term holding time is important for investors. They typically hold equities for more than three years.

Conduct a Thorough Stock Analysis

To make money on the stock market, you need to understand the basic stock analysis techniques. Stocks must be evaluated in terms of their fundamental merits and price values.

People frequently skip the stock analysis process and instead buy stocks right away. However, this is an incorrect method of investing in stocks.

It is nearly impossible to make money in the stock market at this time. Before investing in a stock, the investor must determine whether the stock is overvalued or undervalued. It is more likely to find a fundamentally sound stock at a low price.

Let's have a look at the basic steps to investing in the stock market

Step 1 - Examine the Price Trend

Open the price chart to see the performance of the stock price over the last 6 months. Just note where the price has shifted (it has appreciated or depreciated). Examine the stock's simple moving averages after glancing at the price chart (SMA). Take note of the simple moving average (SMA) for the last three months, six months, nine months, and twelve months. If the SMA increases, it may indicate that the stock is overpriced. Such stocks should be avoided. Concentrate on stocks with a declining price trend.

Step 2 - Examine Company Fundamentals

In step one, we shortlisted a stock whose price is decreasing. The following stage is to determine its business fundamentals. How should it be done? By examining the company's liquidity, profitability, debt levels, growth potential, etc.

Step 3 - Verify Price Valuation

In step 2 above, we evaluated if the stock's business fundamentals are robust or not. There's one more item to keep an eye out for. It is also crucial to establish whether the pricing is fair. How should it be done? By calculating its fundamental worth. Financial ratios can also be used to determine the value of a product.

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