If you have chosen to read this article, it must be a sign that you are willing to learn slowly and steadily the art of investing in the share market. Congratulations! You are now part of the minimal 2.5% of the Indian population that is willing to invest in the share market.
Before you begin your journey, remember that the most important part of investing is to stick to the process; profits and losses are a part of the journey, but you can only be a successful investor if you trust the process and not the results. Your profits are only the outcome of your trust in your process, and while it is easy to say this, it is incredibly difficult to follow for most investors.
Just a note before we start, ₹1000 is a very good amount to start investing in the markets with. While it may not give you a heavy earning potential, it will provide you a steep learning curve without the fear of losing too much money in the markets. You don’t need to be an expert to test the tides of the markets with ₹1000 as long as your sole aim is to learn and not to earn.
Tip No. 1) Invest in just one or two stocks
₹1000 is not a lot of money to invest in the markets as far as quantity is concerned. For a company share that is worth ₹200, you can only afford to buy a maximum of 5 shares. In fact, there are many fundamentally spectacular companies that have a share price higher than ₹1000, which means you will not be able to buy even 1 share.
Keeping this in mind, it is recommended that you keep your mind away from concepts like diversification and focus on the process of investing in only one or two stocks that you can comfortably keep track of. There will be many companies that you can potentially invest in, so it is recommended to choose just one or two, for now, to ensure you have purchased your first couple of stocks.
But how do you choose which stock to buy?
Tip No. 2) Invest in companies you are aware of (preferably from the Nifty basket)
Legendary Wall Street Investor Peter Lynch wrote in his bestselling book “One Up On Wall Street” about the benefits of investing in companies that you understand properly. In fact, a batch of 7th grader students outperformed the S&P 500 Index (Standard and Poors Index, the American equivalent of the Nifty indices) and almost 99% of all mutual funds by just investing in companies they know, the products they know, and the businesses they understand in their mock portfolio.
The kids watch cartoons on Disney, and so invested in Walt Disney stocks. The kids drink Coca-Cola and so invested in Coca-Cola shares. The kids played Topp Slam Attax trading cards, and so invested in Topps. The kids saw their parents use Apple Computers, and you know the drill. This is a very simple investment philosophy that has allowed 7th grader students to outperform most professional investors.
Of course, you must note that not all stocks in the kids' portfolios became successful. But a good majority of them did, as they were obviously selected after conducting due diligence like reading earnings, debt, previous growth history, etc. But the fundamental idea of selecting the companies remained the same.
For an Indian investor starting out, you can follow the same philosophy these 7th graders did. To start with, look at companies in our Nifty 50 index and see if you identify any of them. These companies are typically the fifty most reliable companies in the Indian economy and are a good place to start your journey.
Tip No. 3) DO NOT INVEST IN PENNY STOCKS
Penny stocks are those stocks in the Indian stock exchanges that are worth anywhere from ₹0.50 to ₹10. While this range can vary from person to person, the definition and risk profile typically do not. Penny stocks are extremely risky and volatile stocks and represent companies that are very small and/or very unstable.
Yes, you will find people who have invested in penny stocks early on and have made a fortune as the company grew. However, these cases are as rare as they come and you should be extremely cautious while investing in these. As far as beginners are concerned, it is recommended to not invest in these shares at all until you know what you are doing.
Tip No. 4) Gauge your expectations for your returns
Remember that you are investing only ₹1000 in the share market right now. Even if you receive a 100% return on your portfolio of one or two shares, that will only be 1000 rupees more, which won’t mean anything in the long term by itself.
Remember that the Nifty index grows by an average amount of 9-10% compounded every year and if you are able to make a higher return than that, it’s already a winning situation. But your main aim is not to focus on the returns as such, but to focus on the learning curve right now.
Tip No. 5) Be calm and patient
Legendary investor Warren Buffett started investing in stocks at the age of 11. It took him twenty-one years to make his first million, another twenty-two years to make his first billion, and is now worth nearly $100 billion at the age of ninety. Now, while this growth in his net worth shows the sheer power of compounding, remember those twenty-one years is a loooooooong time. You have to learn to be calm and patient and persevere in the market to ensure you make money in the long term. Be careful with your stock picks, hold them for an appropriate time period, and wait patiently.
Once you’ve got a strong grip on the market with ₹1000, you can proceed to invest higher amounts of your hard-earned money in the share market and hope to make it a good source of income in the coming years. All the best!