10 Most Asked Questions in the Stock Market

The individuals who are starting their journey into investing through the stock market may have many questions.  They might be confused about how to invest in the stock market? Or what homework is to be done before investing in the share market? that will help to select the right stocks for investment which will reap huge benefits in the long-run.

Here, we have tried to cover some of the questions that individuals would have who are planning to invest in the stock market or are already market players (investors) in the share market.

1. How to find good companies as there are many publicly listed companies in the Indian stock market?
An easier way is to use a stock screener. A stock screener is a tool to choose a few companies from a pool of all the listed companies on a stock exchange using filters. The individuals can apply some filters like valuations, the market cap of the company etc. The filters should be specific to the industry that the individual is analysing and get a list of stocks based on the criteria applied.

2. How much time should I spend while researching stocks?
It depends on whether the individual is selecting the stock for trading or for long-term investment. If the individual is trading in stocks, then there is no need to spend a lot of time on fundamentals. Rather, here the person should read charts, trends, patterns etc and get more involved in the day-to-day market activity.

On the contrary, if the person is investing for the long-term then more time should be invested while studying the stocks. It is essential to check the fundamentals of the company, its management, financial, competitors etc if the investment horizon is of more than 1 year.

3. Where can I get the company’s financial report and other information?
The company information is easily available on stocks exchanges (NSE, BSE), company website under investor relations or about us section of the website. The information is also available on other financial websites like money control, screener.com etc.

We also recommend reading annual reports of the company to have a deep understanding of the company’s business and its future prospects.

4. Should I invest in the upcoming IPOs?
IPOs are the products of the bull market. The companies generally get public when everything is good in the market like people are optimistic, the economy is doing well to earn listing profits. The real test of a company is during the bear market i.e how they survive in the falling market.

If the individual can find such IPOs that are very promising (good business model, strong financials, efficient management, decent valuation etc), then feel free to invest in them.

Also read: What to consider before investing in an IPO?

5. Is investing in small-caps more profitable than bluechip companies?
Small-cap companies have the potential to grow faster compared to bluechip companies. There can be a number of hidden gems in the small-cap industry that are yet not discovered by the market. On the other hand, large-cap companies have already proved their potential to the market.

Besides, the quality of stock is more important than the size of the company. There are a number of large-cap companies which has consistently given good returns to their shareholders. Overall, investing in small caps can be more profitable than large caps only if the fundamentals and future prospects of the business look promising.

6. Should I invest in stocks when the market is at high?
If the market is high, then start making the watchlist of stocks. Keep an eye on the stocks with good fundamentals. If the investor finds some good stocks and is ready to invest, then avoid lump sum investment. Average out the stocks, this will reduce the chances of buying stocks at a high price.

7. What kind of stocks should be avoided for investment?
The individual should avoid investing in stocks having low liquidity. The low liquidity makes it hard to trade in these stocks. Additionally, finding the data for analysing these companies might be hard as information on public platforms is generally not easily available. Thus, lack of research may result in loss-making investments. Additionally, one should also avoid investing in penny stocks.

8. How many stocks should I buy in my portfolio?
The portfolio should not be over diversified as over-diversification does not yield good results and it becomes difficult to keep an eye on all the stocks. Similarly, the portfolio should not also be concentrated in one or two stocks/ industries as a tremendous fall in the price of one stock will adversely affect the overall portfolio performance.

Usually, investors can have 8-10 stocks in the portfolio depending on the amount of investment.

9. How much returns can I expect from the market?
A stock portfolio will include multiple stocks. Sometimes, some stocks will perform exceedingly well, while some will not. The portfolio return will be the result of performing and non-performing stocks.

In the bull market, the portfolio will give attractive returns (the benchmark index Nifty gave a return of ~67% from April 01,2020 till December 18,2020. However, during a bad market- the returns can be as low as 1-2% or market returns can also be negative.

10. How can I track my stock portfolio?
To be a successful investor it is important to do portfolio analysis at regular intervals. But how exactly to track your stock portfolio? Is it only checking the stock price movement? Or is there much more to check?

The individual can read this on How can an investor track his equity (stock) portfolio?