Investing Insights: Weekly Q&A for Stock Market Newbies - Part – 37

 Hello readers, we are happy to announce that our team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A for Stock Market Newbies”, to spread the basic stock market knowledge to the beginners.

This is your go-to resource for demystifying the stock market from the scratch. Each day, we will present 10 carefully curated questions with answers that will cover essential concepts, strategies, and terminologies. Whether you have just entered into the market, or trying to starting your stock market journey, or looking to strengthen your foundation, our weekly post will guide you through the basics and beyond, making investing accessible and understandable for everyone. Happy reading.

 

Day 37: Basic Stock Market Concepts

1. When should Beginners Sell their Stocks?

 

Valid Reasons to sell:

 

 1) The original investment thesis breaks (e.g., company fundamentals deteriorate)

2) You need the money for important financial goals 

3) The stock becomes extremely overvalued

4) You find a significantly better opportunity

5) To rebalance your portfolio (selling winners to buy underperformers maintains diversification). 

 

Bad Reasons to sell: 

 

1) Short-term price drops

2) Media panic 

3) Impulse to "lock in" small profits

4) Boredom with "slow" stocks. 

 

Have clear sell rules before buying any stock. For long-term holdings, review companies quarterly - has anything material changed? Avoid selling just to "book profits" on winners - let quality compound over decades. Similarly, don't hold losers hoping to "break even" if fundamentals have worsened. Selling decisions should be as disciplined as buying decisions, not emotional reactions.

 

2. What Records should Beginner Investors Maintain?

 

Keep organized records of: 

 

1) All buy/sell transactions with dates, prices, and quantities 

2) Dividend receipts

3) Brokerage statements 

4) Annual portfolio performance 

5) Investment thesis for each stock (why you bought it) 

6) Tax-related documents (especially capital gains) 

7) Company research notes.

 

Maintain separate files for short-term and long-term holdings since tax treatment differs. Track your overall asset allocation across stocks, bonds, cash etc. Recording your thought process helps avoid repeating mistakes. Use simple spread sheets or portfolio tracker apps. Good records help during tax filing and when evaluating your strategy's effectiveness. They also prevent fraud - regularly match your records with broker statements. As your portfolio grows, consider consulting a tax professional to optimize your filings.

 

3. How do Beginners Handle Market Crashes?

 

Market crashes are normal and actually benefit long-term investors. 

When prices fall: 

1) Don't panic sell - quality stocks usually recover 

2) Review your portfolio - are the companies still fundamentally strong? 

3) If you have spare cash, consider buying more shares at lower prices (called "averaging down") 

4) Stick to your original investment plan 

5) Remember that time in the market beats timing the market. Crashes separate emotional investors from disciplined ones. Historically, every major crash has been followed by recovery and new highs. Use crashes as learning opportunities - analyze why certain stocks fell more than others. Maintain diversification so no single crash destroys your portfolio. If you can't stomach 20-30% drops, reduce stock allocation. The key is having a plan before crashes happen, not making emotional decisions during them.

 

4. What Percentage of saving should Beginners Invest?

 

A common beginner guideline is the "100 minus age" rule: invest (100 - your age) % in stocks. So at 30 years old, invest 70% in stocks and keep 30% in safer options like FDs or debt funds. But adjust this based on your risk tolerance and financial goals. Always keep 3-6 months' expenses as emergency cash before investing. Never invest money needed for near-term goals (within 3 years). Start with 10-20% of your monthly savings, increasing gradually as you learn. During market peaks, consider keeping some cash aside for buying opportunities during dips. The exact percentage matters less than maintaining discipline - regular investing regardless of market conditions. As you gain experience, you can fine-tune allocations between stocks, bonds, gold etc. based on your evolving goals and risk appetite.

 

5. How can Beginners Avoid Stock market Scams?

 

Be extremely wary of: 

1) "Guaranteed return" schemes - all investments carry risk 

2) Unsolicited stock tips via call/SMS 

3) Pressure to invest quickly 

4) Complex products you don't understand 

5) Penny stocks with sudden price spikes. 

 

Always verify company fundamentals

Yourself before investing. Check if brokers are SEBI-registered. Avoid "multibagger" promises - real wealth builds gradually. Be skeptical of celebrity endorsements or "insider information" offers. Research company backgrounds - many scams use names similar to legitimate firms. Never share trading passwords or OTP. 

 

 Remember that if something sounds too good to be true, it definitely is. Stick to mainstream investments until you gain experience to evaluate riskier opportunities properly.

 

6. Should Beginners Try Trading or Stick to Investing?

 

Beginners should absolutely stick to long-term investing rather than trading. Trading (day trading, swing trading) requires constant market monitoring, quick decision-making and emotional control that most beginners lack. Over 90% of day traders lose money. Investing means buying quality companies and holding for years, benefiting from business growth and compounding. Trading incurs more fees, taxes (short-term gains taxed higher), and stress. The few who succeed at trading treat it like a full-time job with years of practice. As a beginner, focus on learning fundamental analysis for investing. If interested in trading later, start with paper trading (virtual money) for 6+ months before using real capital. Remember that even professional fund managers rarely beat the market long-term - why would a beginner think they can out-trade the pros?

 

7. Should Beginners Invest in IPOs?

 

IPOs seem exciting but are risky for beginners. Companies often overhype their IPO while hiding weaknesses. Prices may drop after listing when the hype fades. Check if the company has consistent profits (not just revenue growth), reasonable valuation (compare P/E with industry), and trustworthy promoters. Avoid IPOs with excessive media buzz or those from unknown companies promising revolutionary ideas. Wait for 3-6 months post-listing to see real market performance. Established companies' IPOs are safer than new start-ups. Allocate only a small portion (10-15%) of your portfolio to IPOs initially.

 

8. Should I use Technical Analysis as a Beginner?

 

It's a subjective matter whether you should start with technical analysis or fundamental analysis. Start reading some books on technical analysis and fundamental analysis. Try to learn key terms used in the stock market, then try as per your choice. You may avoid technical analysis initially, because it's complex and often misleading for beginners. Focus first on fundamental analysis (company financials, industry position). Technical analysis requires understanding charts, indicators, and patterns which takes years to master. Many technical traders lose money by misreading signals or overtrading. If interested, learn basic support/resistance levels and moving averages first. Never rely solely on charts without checking fundamentals. Long-term investors don't need technical analysis - it's mainly for short-term traders. Paper trade technical strategies for 6+ months before using real money. Remember, even experts fail at market timing.

 

9. What should Beginners look for in a Company?

 

Check if the company makes consistent profits, has manageable debt, and good growth potential. Look at how long they've been in business and who runs the company. Avoid businesses you don't understand or that seem too complicated. Check quarterly and yearly results time to time, management's skills, business structures. 

 

10. How many Stocks should a Beginner Own?

 

Aim for 10-15 different stocks across various industries. This spreads your risk - if one company does poorly, others may do well. Don't put all your money in just 1-2 stocks, no matter how good they seem. A well-diversified portfolio can bring good results, if you select stocks or different asset classes perfectly.

If you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same

Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.