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How to Invest in Stock Market Carefully?

Benazir Marjan has completed her second Masters in English Language and Linguistics from University of Liberal Arts, Bangladesh.


How to Invest in Stock Market Carefully?

People can do share business besides continuing their jobs as well. You just need to study, gather knowledge and always get in touch with the index. If you have enough courage and interest only then enter here. Otherwise, never start your investment listening to others blindly. It may destroy your capital. At first, you need to investigate properly about the company history and go through their annual reports extensively. My suggestion is, even after investment, use you own apprehension to buy and sell. One day you will be a successful trader there.

There could be two kinds of investments; long term investment and short term investment.

In long term investment, you should invest in expensive companies; those are very well renowned and established in the country. You will get cash dividend and stock dividend after one accounting year. Again, your number of shares will also increase if stock split takes place. Stock split is a corporate action in which a company divides its existing shares into multiple shares. Basically, companies choose to split their shares so they can lower the trading price of their stock to a range, deemed comfortable by most investors and increase liquidity of shares. After a split, the stock price will be reduced. In the example of 2 for 1 split, the share price will be halved. Thus, although the number of outstanding shares increases and the price of each share changes, the company’s market capitalization remains unchanged. It is good sign for long term investors as they won’t trade immediately. Number of their share will be increased. Slowly, the price of the shares will be increased as time goes. Therefore, they will be having increased number of shares with increased price with time. This strategy is only for long term investment.

In short term investment, people buy and sell shares on a daily basis to make profit. Yes, it is quiet risky. But we know if there is no risk, then no possibility of gain at all. Initially, you have to consider these three facts:

1. You have to analyze last 200 previous day’s price of a particular share. If the price is upward slopping then you can think to make a trade of that stock.

2. Try to understand overall cycle or pattern. Since 1950, most of the stock market gains have occurred in the November to April time frame, while during the May to October period, the averages have been relatively static. As a trader keep this pattern in your mind while making your short term investments.

3. Try to get a sense of market trends. If the trend is negative, you might consider very little buying. If the trend is positive, you can continue trading.

Technical Analysis: It studies the supply and demand of a stock within the market. There are five variables to consider strongly. They are:

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1. P/E ratio: You calculate the price-to-earnings ratio by dividing the stock’s market value per share by its earnings per share. To determine the value of a stock, investors compare a stock’s P/E ratio to those of its competitors and industry standards. Lower P/E ratios are seen as favorably by investors.

2. EPS: A company’s earnings per share show how efficiently its revenue is flowing down to investors. An increasing EPS is taken as a good sigh by the investors.

3. PEG ratio: To calculate PEG (price-to-earnings growth ratio) divide the P/E ratio by the 12-month growth rate. Investors usually consider a stock valuable if the PEG is lower than 1.

4. Book value: Company’s price-to-book ratio is another way to determine about a stock’s future prospect. Investors typically use this method to find high-growth companies that are undervalued. The formula P/B ratio equals the market price of a company’s stock divided by its book value of equity. Book value of equity is derived by subtracting the book value of liabilities from the book value of assets. Investors view a low P/B ratio as a sign that the stock is potentially undervalued.

5. ROE: Return on equity is calculated by dividing net income by average shareholders’ equity. A continual increase in ROE is a good sign to investors.

Never use your money in share business, which is your monthly need. Either you invest your extra money or you take time to save money to trade. Try to gather enough knowledge before your investment, analyze the market, think wisely and then invest your capital there.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 Benazir Marjan


Benazir Marjan on September 04, 2020:

Thank you very much Anusha.

Anusha from Tirupati on September 04, 2020:

Very useful information.. Nice Article..

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