Common Mistakes That a Retail Investor Makes

1. Trying to time the market.

Trying to catch the top & bottom

Some think they can buy at the bottom and sell at top. It's very difficult.

2. It will rise again

After buying a stock they justify themselves by saying that its a good company and that they will come back.

3. Can't go more lower than this - Trying to catch the falling knife

It sure can. Again you are trying to time the market.

4. It won't go above than that

It sure can. Again you are trying to time the market.

5. Averaging 

Buying same stock again to average when they should actually exit.

6. Following the market gurus

Listening the news and then just investing on the basis of that. It works sometimes but there are many factors that affects the market. So, we can't really follow that.

I made some mistakes by listening to them and not using a stop loss.

7. Thinking on becoming a millionaire by Penny stocks

The small penny stocks can be easily controlled. So, be cautious and use stop loss.
Read http://bleedingmarkets.blogspot.in/2016/02/the-monkey-story-on-how-stock-markets.html

So, How can a retail investor trade and invest if there are so many problems?

There are 2 approaches.
1.Fundamental - In which you read the balance sheet, read quarterly results and all that sorts of thing.
2. Technical - On the basis of charts, following trends.

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The Monkey Story on How the Stock Markets Work

If you’ve been wondering how the stock markets work, here is a popular story of buying and selling monkeys that draws an analogy on the stock market. Though this is just a fable, it is not very far from reality when it comes to the style of functioning of today’s markets:

Once a man appeared in a village and announced that he wanted to monkeys for $10 each. The villagers, realizing that there was no dearth of monkeys in the nearby forest, went out and started catching them. The man bought thousands of monkeys at $10. As supply started to fall down, the villagers stopped catching more monkeys.

 Now the man further announced that he would now buy monkeys at $20 each. This renewed the efforts of the villagers and they started catching monkeys again. As the supply diminished even further, people once again stopped catching monkeys and started going back to their farms.

The man further increased the rate to $25. Soon the supply of monkeys became so little that it was quite an effort to even get a glimpse of a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50. However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant said to the villagers: “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50.”

The villagers squeezed up with all their savings and bought all the monkeys. But they never ever saw the man or his assistant again in the village; only monkeys everywhere!

Welcome to the Stock Market!

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Some questions asked by beginners before investing

Where can I invest?

If you are beginner you can invest in Mutual Funds to name a few HDFC top 200, ICICI prudential equity focussed. These are professional who will invest your money into markets. You can find them about from moneycontrol.com

You can also invest by yourself. In beginning you should do paper trading rather than investing actual money.

What is paper trading ?

You trade with virtual money but with real stream data.
you can use  http://moneybhai.moneycontrol.com/ . On that you will get some intial money and then start trading.

A basic principle - Don't put all your eggs in one basket.
You should not put your all money in one stock, I would recommend around 10 stocks. Diversification is important.

In which stocks should I invest?

It depends on your risk profile.

With small cap stocks, the movement is fast. So high risk high reward.
With mid cap stocks, the risk and reward is medium and accordingly with high cap.



But, be wary when investing in small cap stocks as they are sometimes manipulated and operator controlled. You can trade in these small cap stocks which are listed in cnx as they are more reliable. Here is the link http://www.nseindia.com/content/indices/ind_cnxsmallcap.csv

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Starting with indian markets

Some basic info

What is a equity/stock?
A company can be divided into units called stocks/equites. So, when buy equity you actually own some part of the company.

Companies can be divided into three major categories
High Cap or Blue chip - Having large market capatilization i.e. big companies
Mid Cap  - Mid size companies.
Small Cap - Small size companies.

What is market capatilization ?
Market capatilization is no of shares * value of a share.

I have seen people saying "value of a share is large for big companies". But, that's not true. It actually depends on the no of shares too.

How do I invest into market or buy shares?
You need to open a trading account which allows you to buy and sell shares and a DEMAT account in which you can hold your shares. Demat acct is like a bank account, like bank holds money, demat holds shares.

Where can I open a DEMAT account?
There are many banks offering demat account services but they charge very high. I would advise you to join zerodha.com. They charge low and offer good services and you are free to search on your own.

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