How to buy your first stock? – Points to consider

Stock market investments have become highly popular over the decades, especially in recent years. The Indian markets have seen a huge influx of investors and traders that have taken a plunge in stocks and are trying to create a good corpus to secure their financial future. The sole purpose of every investor and trader is to create successful portfolios but the key question is where to start. Every investor faces this concern and undergoes a lot of trial and error in the thought process while buying their first stock. Given below are a few key factors that can help investors choose their first stock to buy and eventually create a good portfolio. 

How to choose your first stock for investment?

Choosing the first stock can be quite nerve-racking for some investors. The steps that can be followed to choose the first stock for investment are mentioned below.

1. Choose an industry and company to invest in

There are a horde of investment options in the stock markets and it is nearly impossible to track every industry and the top investment choices in them. Hence, the primary step in choosing the first stock for investment is selecting the target industry. Investors need to gather all the primary information relating to such target industries, as well as information regarding the top companies in the industry and the closest competition. 

2. Evaluate the product of the company and its ability to scale the business

The next step after selecting the industry and the company is to understand the product of the company. If the product is in demand and can be adapted to the changing needs of consumers, it can be a good bet even in the long run. The other aspect to be considered is the scalability of the business and its ability to increase the level of operations that can be beneficial to the bottom line of the company. 

3. Evaluate the financials of the company

The financials of a company are often called its bones which tell you the exact health of the entity. Therefore, an investor needs to analyze the financial statements of the company before following the principles of fundamental analysis. A company that meets the required parameters and matches the risk perception of the investor should be a good bet to start with. 

4. Evaluate the market trends and the demand for the stock

The financials of a company are used for its fundamental analysis, but the task is not completed yet. Investors need to analyze the markets too and the current trend as well as the market sentiment for the company can help in gauging its demand. Stocks of a company that are showing positive trends and are backed by good momentum should be preferred by novice investors. 

5. Understand the risk and return expectations

Most often novice investors copy the portfolio of stock market stalwarts and aim to be as successful as them. However, the key to having a sound portfolio is to create your own path. The risk-return perception and investment model of such stalwarts are different and have been curated after years of experience. Therefore, it is important to understand one’s own risk capacity before copying a portfolio. Also, there has to be a reasonable expectation of returns from the investment. One cannot expect their wealth to double overnight. 

What are the steps in buying stocks?

Discussed above are the tips or steps that can be used while buying the first stock in the portfolio. However, investors also need to be aware of a few essentials or basic requirements in stock investing. These are highlighted hereunder. 

1. Open a Demat account

There are many brokers providing real-time brokerage services and user-friendly interfaces. Investors can choose from these multiple options to open a Demat account which is the primary requirement for investing in stocks. The choice of a brokerage firm can be based on factors like cost-effective investment options, ease of using the mobile-based application or their web portal, real-time access to portfolio and tracking, etc. 

2. Determine the number of shares you can buy

The next step is to determine the target company and the number of shares that can be bought by the investor. This will depend on the availability of funds that can be invested and the duration of the investment. 

3. Always invest using surplus funds

One of the golden rules of investing in stocks is to always invest using surplus funds. The volatility of stock markets can sometimes lead to potentially wiping out the entire corpus in the portfolio if there is a significant downtrend and investors are not able to back out on a timely basis. Therefore, it is prudent to invest only after investors have sufficient funds to meet their routine obligations. 

4. Track the portfolio

Post investing in stocks, investors need to constantly monitor their portfolio to ensure that they are aware of any turn of events that prompt a timely exit from their positions. Tracking the portfolio allows investors to invest in alternate options if their current investments are no longer yielding desired returns or if the risk of investment no longer matches their expectations. 

Conclusion

There was a time when investment in stock was often considered to be as good as gambling and was met with fierce resistance from the elders of the family. However, with the increase in the available knowledge leading to increased investor awareness, investing in stocks is no longer confined only to the elite or people that are considered to be highly intelligent. It is a game of correctly ascertaining the probability of profits or losses through investment and accordingly shaping the portfolio. Therefore, with such easily available knowledge, the decision to buy the first stock is no longer extremely difficult or ambiguous. 

FAQs