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 40: Basic Stock Market Concept
1. How do Beginners
Research a Company before Investing?
Follow this simple 5-step checklist:
Check 5-year profit growth
(should be steady and increasing year on year).
Look at debt levels
(debt-to-equity ratio below 1 is safe).
Read management discussion in
annual reports.
Compare P/E ratio with industry
average.
See if competitors are doing
better / worse. Look at economic moats.
2. What are the
Best Investment Time Horizons for Beginners?
Minimum timeframes based on goals:
Emergency fund: Keep liquid (savings account).
Short-term (1-3 years): Debt funds/FDs.
Medium-term (3-5 years): Balanced funds.
Long-term (5+ years): Equity stocks/funds.
Remember: Stocks need at least 4 to 5 years to ride out market
cycles.
3. Should Beginners
Invest in ESG (Ethical) Stocks?
In SG investing one has to consider environmental/social factors. It has
both pros and cons. For beginners these are as follows:
Pros:
- Growing global trend.
- Often well-managed companies.
- Lower risk of scandals.
Cons:
- Limited options in India.
- Sometimes higher valuations.
Start with 10-20% allocation to ESG funds if interested or situation
permits.
4. How do Beginners
handle Stock Market News?
Follow the 3D approach. Here 3D stands for Determine, Discount, and
Decide:
𝗗𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲 If news affects
your stocks' fundamentals.
𝗗𝗶𝘀𝗰𝗼𝘂𝗻𝘁 Hype and
sensational headlines.
𝗗𝗲𝗰𝗶𝗱𝗲 Only after
checking facts.
𝗚𝗼𝗼𝗱 𝗿𝘂𝗹𝗲: Never make same-day decisions based
on news.
5. What are the
Warning Signs of a bad Stock?
Red flags beginners should avoid:
Frequent auditor
resignations.
Promoters pledging shares.
Declining profit margins.
High employee turnover.
Too many "one-time"
expenses.
Complex company structures.
6. How much Cash
should Beginners keep Aside?
Try to maintain:
6 months living expenses as
emergency fund.
10-20% of portfolio in cash for
market dips.
Extra savings for opportunities
(like IPOs).
Never invest all your cash in one sector Or one segment. Remember,
markets can fall when you need money.
7. Should Beginners
Reinvest Dividends?
Dividend reinvestment works well when:
You don't need the income.
The company is growing consistently.
You're in early wealth-building stage.
You can use DRIPs (Dividend Reinvestment Plans) if available.
8. What are the
most Common Beginner Misconceptions?
There are some common myths in the market which are potentially
categorised as the beginner misconceptions. Try to avoid the following myths:
Lower-priced stocks are cheaper.
Past winners will keep winning.
You need lots of money to start.
Stock markets are like gambling.
You must track markets daily.
9. When should
Beginners Rebalance their Portfolio?
Beginners should rebalance their portfolio when:
Your allocation drifts 10% from target (e.g., 70% equity becomes 80%).
Annually on a set date.
After major life changes (marriage, job loss).
When goals change.
Sell winners and buy laggards to maintain balance
10. What is
Compound Interest and why is it Important for Beginners to Understand?
Compound interest means earning returns on both your original investment
and the accumulated returns. For example:
You invest ₹10,000 that grows 10%
in Year 1 = ₹11,000
In Year 2, you earn 10% on
₹11,000 = ₹12,100
In Year 3, 10% on ₹12,100 =
₹13,310
Key points for beginners:
Start early - even small amounts grow significantly over decades.
Reinvest dividends/returns to maximize compounding.
Be patient - the biggest growth happens in later years.
A ₹10,000 investment at 12% becomes ₹1.66 lakh in 25 years without
adding more money.
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.
