How do people get rich from stocks?

Step 1

Understand the fundamentals of finance and accounting. Check that you understand how to read a balance sheet and a profit and loss statement. Make sure you understand key financial ratios such as PE, PB, and so on.

The desired outcome is that you should be able to identify a company's financial health by looking at its financial statements.

For example, you should be aware of the company's year on year and quarter on quarter revenue growth, year on year and quarter on quarter profit growth, as well as some important financial ratios such as the PE ratio and the PB ratio.

Time required: approximately 15-20 hours.

Step 2:

Select an industry in which you have knowledge or an interest. Read the most recent news about industry developments.

Desired Outcome: You should be able to understand the macro environment, which is outside of the company's control but has an impact on it directly or indirectly. For instance, government policies, crude oil prices, and so on.

If you choose banking, for example, you should understand bad debt and the impact of recent RBI policies on the banking sector.

Time required to begin: approximately 15-20 hours. To keep yourself updated, this will be a continuous process.

Step 3:

Make a list of companies in your field of expertise or interest.

3.a) Select the industry's top companies/market leaders.

In the banking industry, for example, HSBC.

5 hours are required.

3.b) Take a look around and identify the products/services that you enjoy. In the last ten years, for example, many people have begun to wear Jockey. It's a hit with everyone. Consider the company that sells Jockey. In 2008, the share price of Page Industries was around 450. In 2018, it is estimated to be around 30000. That is approximately 70 times return in the last ten years. Can you think of another company that has a bright future? Consider it...

Step 4:

Create a ZERO brokerage trading account. Why pay a brokerage fee on every transaction when you can invest your money for free?

Time required: A few days from the verification of documents to the opening of an account.

Step 5:

Begin slowly. Don't put a lot of money into it all at once. Continue to monitor the stock and industry, and continue to learn. Examine how the stock behaves when the market is good, but the true test is when the market is bad. Nobody is capable of making perfect decisions. Investment in the stock market is not a fixed formula, but rather a combination of experience and knowledge.

Things to remember and mistakes to avoid

• Always choose blue-chip companies ( top companies with a proven track record). Buy no penny stocks or low-cost stocks. The majority of penny stocks fail.
• Buy no stock based on advice from TV experts, friends, or others. Do not join those Whatsapp and Facebook trading groups. They are all traders, not investors. Always conduct your own research before making a purchase.
• Never get greedy and never engage in day trading. Invest for the long term at all times. Remember that you cannot double your money in a matter of months. PATIENCE is required.
• Read good investing books: Begin with Prasenjit Paul's "Avoid Loss and Earn Consistently in the Stock Market." A fantastic book for the Indian context.
• Do not put all of your money into one company. Diversify your investments as much as possible. However, do not diversify excessively.

Only invest in a company that you understand.

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