Who wants to be a millionaire? |
June, 2001 |
Rather, who does not want to be a millionaire. No, this is not a sequel to the US soap opera, "Who wants to be a millionaire". We are talking about the real world. It's a case of Money.. Money.. and Money. The only thing that everybody would love to have in excess is Money. Everybody loves to make it rich. However, only a few know how to get there and even among these few, the bitter truth is that, only a small number finally make it. So how does one become rich ? History has it that, more than making money the ability to manage and multiply money has been the key to success. So How does one manage his or her money? Intelligent investments has always been, is and will always be the only panacea. However, there are various avenues for making investments. Fixed deposits, Bonds, Shares are some of them. Among these, Investment in shares of companies is the quickest way to make it rich. Did I hear somebody say "it's risky"? But then making money has always had a strong correlation with risk. Higher returns over shorter periods of time means a little bit more risk. However it's worth taking. So how does one go about investing in stocks?
There are two ways of making money in this market. One - by investing money and looking for returns in the future, the other being that you make money without putting in any money or in other words through day trading.
When you make an investment, looking for returns in the future, you should ensure the following. Firstly, determine the time frame within which you require a return. Identify the stocks which are attractive in terms of valuations. For this, you need to understand the dynamics in the sector to which the company belongs. Research the sector and the companies in the sector. You may also look at the past performance of the stock as the past is fairly indicative of the future. Once you have identified stocks which have growth prospects get down to investing. The game does not end here. You should regularly track the company and the stocks you have invested in. There may be times when the stock may show a downward trend. Don't panic. Remember your goal and your investment horizon. Again another smart way of investing would be to invest over a period of time rather than investing in one go. This would ensure the averaging of your cost in investments.one more factor which can ensure good returns while minimizing risk would be to create a portfolio of stocks. As the adage goes " don't put all the eggs in one basket". Invest in stocks across the sectors. This will reap benefits in the long run. However remember paper profits are of no use. So book profits as and when you get your required returns.
Now let us come to the second mode of investing i.e making money without putting in any money. As you know, you are generally required to settle your accounts i.e pay for stocks or take delivery of the shares purchased only on the last day of the settlement period. The settlement period is now a week. So if you buy a share and sell it within the same week, you would not be required to pay for the shares you purchased. However the profit or loss from the transaction would be all your. Sounds interesting, doesn't it? But this, like any other activity, has aflip side to it. Trading is risky business and you would require to understand the pulse of the market to make money. So understand the intricacies in the market.This would require some ground work on your part. Firstly, see the trend of the market. Technical analysis is one tool which gives an indication as to how the markets would move.Technical analysis would also give you indications as to which stocks look attractive from the short term perspective. Also track the news and rumours doing the rounds. These give indications as to the possible movement in the stocks. Remember, look at the stocks which are the movers and shakers of the market as these are the stocks which show marked movements in the short run. Identify the play in the stock and determine the possible uptrend in the stock. Remember that you can never buy at the low and get out at the high. So make the investment near the low that you expect the stock to touch and book profits when the price is near the high that you expect. Never be over avaricious and wait for a little bit more play as you never know when the price may witness a downward trend.
Finally, remember one thing. Stock investing is not a part time activity. As a famous quote says "Stock investing is not gambling, It’s not a game as well, it’s serious business and it’s worth doing", you have to give it your full attention. However if you are not able to spend time then you could also approach professionals in the field. Today there are many research houses which provide the required inputs and also manage your money for you. But the final decision lies with you, after all its your money and you, the best judge. So, invest intelligently by following the rules of investing and you are sure to become a millionaire!
Sai Adwaith
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