Let’s face it – investing in the stock market is tough, for every disciplined, successful investor there are over a lakh unsuccessful investors who invest on the basis of speculation. A lot of investors find investing scary too! Knowledge, discipline and a control of your emotions are necessary to invest and get great returns. The key to successful investing is understanding why companies raise funds and how do they earn their revenue.
A company needs money for their growth or expansion. They may need to invest this for research and development, for hiring new employees, for marketing, for building storage facilities, etc. They release shares to the general public, who can buy these for a predetermined price in a process known as Initial Public Offering (IPO). A company’s shares need to be listed on a stock market, like the Bombay Stock Exchange (BSE). A stock market allows investors to buy and sell shares at prices they believe are correct.
Coal India Limited, India’s largest coal producing company, has raised over Rs. 15,100 crores by selling 631.6 million shares, or 10% stake through its IPO at the issue price of Rs. 245 a share. This was the largest IPO in India.
Investors continue to trade the stock of the company even after IPO. It is because the value of the company changes over time. An investor buys a company stock, not because of what it is worth today, but what it will be after sometime. A lot of investors fall prey to speculation. People keep their ears open for speculative tips, hints, etc, which could drive the price of the stock up. However, what most investors don’t realize is that they need to read and understand balance sheets and profit/ loss statements to actually understand how a company is doing.
An investor needs to understand the industry the company operates in. He need to understand the competition, the other ancillary industries which influence the business, etc. What good investors do is they study each and every detail of the company and compare it with its competitors (national and international).
This process of studying every single detail before investing in a stock is known as Fundamental Analysis. It is believed to be one of the safest way to invest as an investor will have the entire set of data based on which he/ she can take a calculated risk. This is the fundamental which forms the bedrock for great investing. Warren Buffet has been quoted saying “An investor must invest assuming that the markets could shut down tomorrow and reopen after 10 years.”.
An investor who is able to judge the quality of a company and its management on the basis of its reports, is able to invest successfully in a bull and a bear market – as a good company is still good even if the stock market crashes.
BSE Institute brings you a course on Wealth Management, which will help you learn the nature of financial markets and the various opportunities that are available for building a solid investment portfolio. The objective of the course is to help professionals, housewives and investors develop the discipline and skills necessary for investing independently.